RBA TERM DEPOSITS

The Bank offers short-term deposits to market participants via a tender process. Specific details of the facility are set out below.

Description of Facility

The deposits will be held on the Reserve Bank’s balance sheet. Auctions will held periodically, as required for liquidity management purposes.

The interest rate payable on these deposits will be set as a margin (which may be negative) to the Reserve Bank’s target for the cash rate. The margin applicable to each deposit will be determined in a tender undertaken by the Reserve Bank. Successful bids will be paid a rate of interest equal to the weighted average cash rate target over the term of the deposit plus the margin of that bid.

Interest will be payable at maturity. Proceeds owing at maturity will be calculated as per the following formula:

where:

Eligible Counterparties

Any institution holding an Exchange Settlement Account (ESA) or any authorised deposit-taking institution (ADI) that is a member of RITS is eligible to bid at the tenders. Counterparties will be bound by the RITS Regulations and Conditions of Operation.

Announcement of Tender

The Reserve Bank will announce a tender for term deposits at 4.00 pm on the day before the tender. This will be done via electronic news services (Reuters – RBA35; Bloomberg – RBA15). The announcement will indicate:

• the maturity date;
• the maximum amount available;
• the settlement date; and
• the time window for submitting approaches.

Approaches

Market participants are invited to approach the Bank during a 30 minute window (between 11.30 am and 12.00 pm) on the day of the tender to submit a bid. Approaches must be made to the Domestic Markets Desk by telephone (on +61 2 9551 8321 or direct line). All calls are recorded. Participants intending to bid must pre-register with the Bank by close of business on the day prior to the first auction at which they bid. Once pre-registered, participants may bid at any auction – there is no requirement to pre-register more than once. To pre-register, market participants must complete the Bidder Pre-Registration Form.

Offers cannot be submitted, changed or withdrawn once the deadline for submissions has passed.

All bids should be in multiples of $1 million with the minimum bid size being $20 million. Other than the size of the tender, there is no limit on the size of individual approaches, nor on the number of approaches that a participant can make. The maximum aggregate value of bids from a single counterparty is the tender amount.

Bids should be expressed as a margin to the cash rate target (in whole basis points), which can be negative or positive (for example a successful bid of -5 in relation to a weighted average cash rate target of 7.00 per cent implies that the bidder will receive an interest rate of 6.95 per cent on the deposit).

Allocation

Acceptance of bids will be made in ascending order of margin bid – that is, from the lowest margin bid (the most negative) to the highest margin.

At the highest successful margin bid, the Bank may scale back the amount accepted to ensure that the maximum aggregate value of deposits sought is not exceeded. Where there is more than one successful bid at this margin, the allocation of bids will be proportional to the amounts bid at that margin.

Approaches that are partially filled will be rounded up to the nearest million, subject to the minimum requirement of $20 million.

The Bank retains discretion not to fill a tender.

Notification

The Reserve Bank will notify all participants by phone of the success or otherwise of their approach. This will be done as soon as possible after the cut-off time for approaches typically within 15 minutes.

Results will be published on electronic news services (Reuters – RBA35; Bloomberg – RBA15) shortly after the operation. These will include the highest and lowest margin accepted as well as the weighted average margin.

Settlement

Term deposits are to be settled on a T+1 basis. Settlement should occur via a RITS cash transfer or other means agreed with the RBA, and must be completed by the close of the RITS Daily Settlement Session (typically 4.30 pm).

Depositors will be issued by e-mail with a record of the deposit following lodgement. This will usually be done by 9.30 pm on the day of lodgement.

On the day of maturity, the proceeds (including any interest owing) will be settled in the counterparty’s ESA or the ESA of their nominee. Payments to depositors that have an ESA will normally be made by RITS cash transfer during the RITS Morning Settlement Session (7.30 – 8.45 am). Holders that require maturity proceeds to be paid to a nominee’s ESA will receive these funds during the Daily Settlement Session by RITS cash transfer or other means agreed with the RBA.

Breaking a Term Deposit

It is not expected that breaking deposits will be a regular occurrence. However, funds placed in term deposits may be called at any time during the RITS Morning Settlement Session or the RITS Daily Settlement Session for same-day value. This can be done by contacting the Domestic Markets Desk (on +61 2 9551 8321 or direct line). For deposits to be called for settlement during the RITS Morning Settlement Session (ESA holders only), the Domestic Markets Desk must be notified by 8.15 am. For other called deposits, same-day value will be provided as early as practicable during the Daily Settlement Session. Breaking of term deposits after the close of the Daily Settlement Session will be at the discretion of the Bank.

A term deposit need not be called in full, but a minimum call amount of $20 million applies. Where the residual following a call will be less than $20 million, the entire deposit must be called.

A term deposit may be partially called only once. Any subsequent calls on the remaining deposit must be for the full amount. A called term deposit may not be re-lodged for the remaining maturity – that is, the term deposit facility is not available as an intraday lending facility.

The proceeds paid on the called portion of a term deposit will be adjusted in accordance with the following formula:

where:

Where a deposit is partially called, the remaining principal accrues interest from its original lodgement date according to the normal formula applying to term deposits.