OVERNIGHT REPURCHASE AGREEMENT FACILITY

This document is intended primarily for Exchange Settlement (ES) account holders that might be required to use the RBA's overnight repurchase agreement facility. It outlines key issues such as who may use the facility, the types of securities in which the RBA will deal and the trade process itself.

Eligibility

Access to the facility is available to all ES account holders, unless precluded by special terms and conditions relating to an individual institution's ES account.

Transaction Type

Subject to agreement by the RBA, eligible ES account holders access liquidity through the facility either by extending the unwind date of an outstanding intra-day repurchase agreement to the next business day or by entering into a new overnight repurchase agreement.

Any such transactions are governed by the terms of The Bond Market Association/International Securities Market Association (TBMA/ISMA) Global Master Repurchase Agreement as amended by the terms set out in the RITS Regulations.

Hours of Access

Eligible ES account holders may request to undertake an overnight repurchase agreement after 16:30 (Australian Eastern Standard Time and Australian Eastern Daylight-saving Time). Banks that are evening-agreed would not normally request an overnight repurchase agreement until after 18:00 during Australian Eastern Standard Time and 20:00 during Australian Eastern Daylight-saving Time.

Repo Rate

The RBA provides overnight liquidity through the facility at an interest rate (repo rate) that is fixed at 25 basis points over the current target for the cash rate.

Eligible Securities and Instruments

Under this facility, eligible ES account holders may sell to the RBA, under repurchase agreement, any debt security that is eligible for the RBA’s open market operations. A list of eligible securities and details of the criteria for eligibility can be found on the Eligible Securities page on this website

Initial Margin

The RBA requires an initial margin on all repurchase agreements. The initial margin will vary with the type of securities given as collateral:

• For ‘General Collateral’ (i.e. securities issued or guaranteed by the Commonwealth Government, issued by State and Territory central borrowing authorities, certain supra-national organisations, foreign governments and agencies) as well as bills and Certfiicates of deposit (CDs) issued domestically by an authorised deposit-taking institution (ADI) with an ES account at the RBA, the margin is 2 per cent.
• For other short-term debt securities (CP and ABCP) as well as long-term asset-backed securities (e.g. CMBS, RMBS), the margin is 10 per cent.
• For other long-term securities, the margin varies with the maturity and credit rating as follows:
  

  ---

  Margins by Time to Maturity and Credit Rating
  Percentage of market value of security

  ---

  Time to Maturity	0-1 years	1-5 years	5-10 years	> 10 years
  AAA-Aa3	2.0	4.0	6.0	8.0
  A1-A3	2.0	5.0	7.0	9.0

  
  Where ratings are split, the lowest rating will apply in determining the margin. Note that for securities rated below AAA, only securities issued by ADIs will be eligible.
  
• For eligible AAA-rated residential mortgage-backed securities (RMBS), which have been accepted from a related party, the 10 per cent margin is applied to ‘Valued Assets’ underlying a security. Valued Assets comprise:
  • Prime domestic full-doc residential mortgages insurable by an acceptable mortgage insurer, and
  • similarly qualified low-doc residential mortgages but only up to a maximum equivalent to 10 per cent of the value of all assets underlying a security.

  Mortgages in the pool underlying a RMBS that do not meet the requirements for Valued Assets will be fully discounted by the RBA. For example, assume that Valued Assets underlying a $100 RMBS amount to $95. In this case, the RBA will provide $86.36 ($95 divided by 1.1) for the $100 of RMBS.

• For eligible P-1-rated asset-backed commercial paper (ABCP) which have been accepted from a related party, the 10 per cent margin is applied to ‘Valued Assets’ underlying a security. Valued Assets comprise:
  • Prime domestic full-doc residential mortgages (including in securitised form) insurable by an acceptable mortgage insurer, and
  • similarly qualified low-doc residential mortgages (including in securitised form) but only up to a maximum equivalent to 10 per cent of the value of all assets underlying a security.

  Mortgages in the pool underlying an ABCP that do not meet the requirements for Valued Assets will be fully discounted by the RBA. For example, assume that Valued Assets underlying a $100 ABCP amount to $85. In this case, the RBA will provide $77.27 ($85 divided by 1.1) for the $100 of ABCP.

Issuers of eligible RMBS and ABCP must provide the RBA with information on the composition of the collateral pool underlying each security or program, respectively, so that the RBA can apply the correct margin to the security. This information should be reported by emailing a completed Mortgage Collateral Pool Reporting form to eligible_securities@rba.gov.au.

Transaction Fees

Extending the term of an outstanding intra-day repurchase agreement overnight does not involve any additional transaction fees. However, the standard transaction fees apply:

• Austraclear charges a fee of $3.00 plus GST per leg per line of stock for repurchase agreements using RBA Repo (see below).
• Austraclear charges a fee of $11.00 plus GST per leg per line of stock for repurchase agreements using securities lodged in the DSS Module (see below).
• ES account holders taking out an intra-day repurchase agreement in DSS stock are also required to reimburse the RBA for its Austraclear fees (also $11.00 per leg per line of stock plus GST). Reimbursement to the RBA will be effected through the unwind consideration (see below).
• As with all movements across ES accounts, the standard RTGS fee of $0.88 will also apply to the settlement of each leg and will be charged in the normal way.
  

Trade Procedures

The following outlines the procedures to follow when using the facility. The procedures vary depending on the way in which the intra-day repurchase agreement was entered into the Austraclear System (which is a function of the type of securities involved in the repurchase agreement).

Intra-day Repurchase agreement using RBA Repo

If the outstanding intra-day repurchase agreement has been taken out using the unilateral repurchase agreement functionality in the Austraclear System (RBA Repo), steps involved in accessing the Overnight Repurchase agreement Facility are as follows:

• Contact the Domestic Markets Desk to request an extension of the date of the second leg to the next business day.
• There is no need to adjust trade details. The system will automatically recalculate the unwind consideration to include the repurchase agreement rate of 25 basis points over the target cash rate.

Intra-day Repurchase agreement not using RBA Repo

If the outstanding intra-day repurchase agreement has been taken out using the outright trade functionality, steps involved in accessing the Overnight Repurchase agreement Facility are as follows:

• Contact the Domestic Markets Desk to request an extension of the date of the second leg to the next business day.
• Agree new second leg details that will incorporate the repurchase agreement rate of 25 basis points over the target cash rate.

For example, assume that on 17 July 2003, ABC Bank calls the RBA and contracts an intra-day repurchase agreement using a NSW Treasury Corporation promissory note (PN) with a face value of $100,000,000. The maturity date of the PN is 18 October 2003 (93 days from trade date), and it is agreed that the market yield is 4.98 per cent.

The first leg proceeds will be calculated as follows:

First Leg Consideration	=
	=	$96,810,805.91

In the normal course, the unwind consideration will be calculated as follows:

However, if ABC bank is unable to unwind the transaction that day and the RBA agrees to extend the unwind date to the next business day, the unwind consideration will be calculated as follows:

Any queries on this matter should be directed to the RBA's Domestic Markets Desk on +61 2 9551 8321.