ELIGIBLE SECURITIES

Outright Transactions

The Reserve Bank of Australia (RBA) will enter into outright transactions in the following securities at its daily open market operations.

Commonwealth Government Securities

• Treasury Notes
• Treasury Bonds with remaining maturities of less than 18 months
• Treasury Indexed Bonds with remaining maturities of less than 18 months

Securities issued by State Government and Territory Central Borrowing Authorities (Semi-governments)

• Semi-government Promissory Notes
• Semi-government Bonds with remaining maturities of less than 18 months
• Semi-government Indexed Bonds with remaining maturities of less than 18 months

RBA Media Release No. 2004-03, 4 March 2004

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Repurchase Agreements

The RBA will enter into repurchase agreements (repos) in its daily open market operations. It also operates an intra-day and overnight repurchase agreement facility.

At present, the RBA accepts four broad classes of securities under repo. These are: Government and Quasi-Government securities (also referred to here as General Collateral), securities issued by certain authorised deposit-taking institutions (ADIs), certain residential mortgage-backed securities (RMBS), and certain asset-backed commercial paper (ABCP). Detail on the securities within each class and the conditions under which they are accepted by the RBA are set out below.

General Collateral

This class comprises three types of securities.

1. Commonwealth Government Securities
   
   Specifically:
   • Treasury Notes
   • Treasury Bonds
   • Treasury Indexed Bonds
2. Securities issued by State Government and Territory Central Borrowing Authorities
   
   Specifically:
   • Semi-government Promissory Notes
   • Semi-government Bonds
   • Semi-government Indexed Bonds
   • A$ offshore issues lodged in the Austraclear System as Euro-entitlements
     
     RBA Media Release No. 2001-12, 7 June 2001
3. A$ Domestic Issues by Supranationals, Foreign Governments and Agencies

   Certain A$ domestic-issued securities of foreign sovereigns and their agencies, and supranational institutions will be accepted by the RBA where the securities meet certain criteria. These securities will be eligible where:

   • The security is AAA-rated, is denominated in Australian dollars and is lodged and active in Austraclear.
   • All securities must be settled in the Austraclear System.
   • The issuer is AAA-rated and, where applicable, the government agency has an explicit government guarantee or something deemed by the RBA to be equivalent support.

   Both the security and issuer must be rated AAA by all major credit rating agencies that rate it, and, in any event, by at least two major credit rating agencies.

   Structured securities, including floating rate bonds and notes, will not be accepted.

   List of eligible supranational, foreign government and agency securities - XLS 21K
   
   Requests can be made to add a security to the list. See Applying for Eligible Security Status for details.

   Securities that are currently listed as eligible will lose their eligibility status if they fail to meet the RBA requirements in the future. In these circumstances, counterparties with outstanding repurchase agreements with the RBA will be required to substitute eligible stock as replacement for those securities that have lost their eligibility status. The Domestic Markets Desk will contact those counterparties affected by a change in security eligibility and arrange for substitution.

   For additional details refer to the following media releases on the RBA website:

   RBA Media Release No. 2004-03, 4 March 2004

   RBA Media Release No. 2001-13, 19 June 2001

   RBA Media Release No. 2001-12, 7 June 2001

ADI-Issued Securities

This class comprises two general types of securities:

1. Bills and Certificates of Deposit
   
   The RBA accepts bank accepted bills of exchange and negotiable certificates of deposit (CDs) issued domestically by any authorised deposit-taking institution which holds an Exchange Settlement (ES) account at the RBA, where the remaining term to maturity of these securities is no more than 12 months. All securities must be lodged in the Austraclear System and all transactions must be settled in the Austraclear System. Institutions participating in the RBA's open market operations may not present securities issued by itself or a related entity.
   
   List of institutions whose bills and CDs are currently eligible - XLS 23K
   
   

   For additional details refer to the following media release on the RBA website:
   
   RBA Media Release No. 2004-03, 4 March 2004

2. ADI-Issued Debt Securities
   
   The RBA will accept under repo certain other Australian-dollar denominated debt securities issued domestically by an authorised deposit-taking institution which holds an ES account at the RBA. The following conditions apply:
   
   • The issuer is rated A3 or higher by all major credit rating agencies that rate it and, in any event, by at least two such agencies.
   • The securities are not subordinated.
   • The securities are not structured. The RBA will not accept securities with special features, such as indexed-linked securities, embedded derivatives and variable rate interest margins. The RBA will accept floating rate notes.
   • All securities must be lodged and must settle in the Austraclear System. The RBA will not accept securities that trade as Euro-entitlements.
   • Institutions participating in the RBA's open market operations may not present securities issued by itself or a related entity.

   List of currently eligible ADI-issued debt securities - XLS 30K

   The RBA will not accept a security under repo unless it is on the list of eligible ADI-Issued debt securities. Requests can be made to add a security to the list. See Applying for Eligible Security Status for details.

   For additional details refer to the following media release on the RBA website:

   RBA Media Release No. 2007-14, 6 September 2007

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Residential Mortgage-Backed Securities (RMBS)

The RBA will accept under repo any A$ domestic-issued residential mortgage-backed securities (RMBS) with a public rating of AAA or equivalent from one of the major credit ratings agencies. The RMBS must be tradeable in the secondary market, must make regular coupon payments, and must be based on a true sale of mortgages into a bankruptcy remote Special Purpose Vehicle (SPV). All securities must be lodged in the Austraclear System and all transactions must be settled in the Austraclear System. Private placement RMBS are eligible so long as they meet all criteria. Note, however, that the RBA will provide cash value only for “Valued Assets” underlying these securities. Valued Assets comprise:

• Prime domestic full-doc residential mortgages insurable by an acceptable mortgage insurer; and
• similarly qualified low-doc residential mortgages up to a maximum equivalent to 10 per cent of the value of all underlying assets.

For example, in a $100 RMBS, comprising $85 of eligible full-doc mortgages and $15 of eligible low-doc mortgages, the Valued Assets would be $95 ($85 in full-doc mortgages plus $10 of the low-doc mortgages).

Mortgages in the pool underlying a RMBS that do not meet the requirements for Valued Assets will be fully discounted by the RBA.

A margin will be applied to the Valued Assets underlying the security. See details of the margin arrangements.

Where the RBA cannot identify a timely market price for RMBS, the security will be valued at 90 per cent of par value until a market price can be identified from a recognised and independent source.

List of currently eligible RMBS - XLS 26K

The RBA will not accept a security under repo unless it is on the list of eligible RMBS. All conditions must be met before a security can be added to the list of eligible RMBS. Requests can be made to add a security to the list. See Applying for Eligible Security Status for details.

The RBA must be provided, on an ongoing basis, with details on the composition of the eligible mortgages underlying the security:

• the share of prime domestic full-doc residential mortgages;
• the share of prime domestic low-doc residential mortgages; and
• a list of mortgage insurers represented in the pool and the share of mortgages that each covers.

These details must be provided before the RMBS can be deemed eligible, and updated ahead of coupon payment dates or if there is a material change in circumstances. This information should be provided in the Mortgage Collateral Pool Reporting form (XLS 28K), which must be e-mailed to eligible_securities@rba.gov.au in a timely manner. This information must be able to be verified from a public source.

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Asset-Backed Commercial Paper (ABCP)

The RBA will accept under repo any A$ domestic-issued asset backed commercial paper rated P-1 or equivalent by one of the major credit ratings agencies. Note, however, that the RBA will provide cash value only for “Valued Assets” underlying an ABCP. Valued Assets comprise:

• Prime domestic full-doc residential mortgages insurable by an acceptable mortgage insurer (including in securitised form); and
• similarly qualified low-doc residential mortgages (including in securitised form) up to a maximum equivalent to 10 per cent of the value of all underlying assets.

For example, in a $100 ABCP, comprising $75 of eligible full-doc mortgages, $15 of eligible low-doc mortgages, and $10 of other assets, the Valued Assets would be $85 ($75 in full-doc mortgages plus $10 of the low-doc mortgages).

Mortgages and other assets in the pool underlying an ABCP that do not meet the requirements for Valued Assets will be fully discounted by the RBA.

A margin will be applied to the Valued Assets underlying the security. See details of the margin arrangements.

Where the RBA cannot identify a timely market price for ABCP, the security will be valued at bank bill swap rate (BBSW) plus 100 basis points until a market price can be identified from a recognised and independent source.

List of currently eligible ABCP - XLS 20K

The RBA will not accept a security under repo unless it is on the list of eligible ABCP. Requests can be made to add a security to the list. See Applying for Eligible Security Status for details.

The RBA must be provided, on an ongoing basis, with details on the composition of the eligible mortgages underlying the security – including the share of prime domestic full-doc and low-doc residential mortgages insurable by an acceptable mortgage insurer – so the appropriate margin can be applied to the security. This information should be provided in the Mortgage Collateral Pool Reporting form (XLS 28K), which must be e-mailed to eligible_securities@rba.gov.au in a timely manner.

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Applying for Eligible Security Status

Applications to add a security to one of the lists of eligible securities must be made using the Application Form for Eligible Securities.

All of the required fields must be filled in and supporting documentation must be supplied, where indicated. It is up to the applicant to show that the security meets the RBA requirements.

In the case of ABCP, it is sufficient for the applicant to show that the program, rather than individual securities, meets the RBA requirements.

The completed Application Form and supporting material should be e-mailed to eligible_securities@rba.gov.au.

Margins

Details on margins are outlined in The Reserve Bank of Australia's Open Market Operations.

Other Conditions

The following broad conditions apply to collateral accepted in repurchase agreements with the RBA.

• The RBA accepts ADI securities under repo only from third parties. In the normal course of events, institutions selling securities under repurchase agreements with the RBA may not present ADI securities issued by themselves or related entities.
• In order to provide ADIs with greater flexibility to manage their liquidity in the present market conditions, the Reserve Bank will accept RMBS and ABCP of a related party as collateral.
• The RBA will accept substitutions of securities between asset classes, with the exception of General Collateral. For example, it will accept an eligible certificate of deposit as substitution for another eligible certificate of deposit, eligible ADI security, eligible ABCP or RMBS. For General Collateral, the RBA will accept a CGS, semi, or other quasi-government maturity as a replacement for any specific ADI, RMBS or ABCP repo. However, General Collateral can only be used to replace securities from the General Collateral class.
• Where the substitution includes a change in the asset class of collateral, the margin applying to that collateral will be adjusted accordingly.
• The RBA has discretion to change eligibility criteria and conditions for various asset classes at any time.