ABOUT RITS

RITS is Australia’s high-value payments system across which settlement of interbank payment obligations occurs on a real-time gross settlement (RTGS) basis. Some netted payment obligations are also settled in RITS as part of a batch. Payments are entered into RITS directly, or delivered via the external feeder systems; SWIFT and Austraclear. These include payments that settle through CLS, a global initiative designed to reduce foreign exchange settlement risk. RITS also provides for the settlement of low-value transactions on a net deferred basis in the 9am Batch.

RITS is the means by which Exchange Settlement Accounts (ESAs) are accessed. Membership of RITS is compulsory for all Australian-licensed banks, for participants in the RBA’s domestic market operations, and for Batch Administrators. RITS facilitates banks’ credit and liquidity management by providing tools with which they can exercise control over the settlement of payments. RITS has queuing and gridlock-avoidance mechanisms that minimise the extent of system liquidity required to settle payments.

Between August 1991 and February 2002, RITS provided securities settlement facilities for transactions in Commonwealth Government Securities (CGS). These services are now provided by the Austraclear System.

Real-Time Gross Settlement (RTGS)

In RTGS, the settlement of transactions takes place irrevocably, in real-time, out of credit funds in banks' ESAs.  RTGS was introduced in Australia on 22 June 1998 to reduce the settlement risk associated with deferred high-value interbank payments, and to improve the overall efficiency of Australia's financial system. RTGS payments statistics are published by the RBA.

Exchange Settlement Accounts (ESAs)

Final settlement of payment system obligations occurs across banks’ ESAs held at the RBA. ESAs must be maintained in credit at all times, and the RBA pays interest (equivalent to the cash rate target less 0.25 per cent) on overnight balances kept in these accounts. ESAs, which are accessed via RITS, are mandatory for all Australian-licensed banks. However, eligible banks may apply to the RBA and the Australian Prudential Regulation Authority (APRA) to use an agent rather than settle across their own ESA (refer to the Media Release on the Management of Exchange Settlement Accounts). An information paper on operational and legal arrangements (PDF 110K) is provided for the benefit of existing and prospective banks that are eligible for, and wish to avail themselves of, an agency arrangement for RTGS payments.

Liquidity Management

RITS facilitates liquidity management for banks by enabling them to exercise control over the settlement of payments. Banks may control the priority for settlement given to payments and manage access to liquidity by setting a sub-limit on their ESAs to quarantine funds for priority payments. Payments may be managed via RITS or via the RITS Automated Information Facility (AIF), which automates credit and liquidity messaging instructions between RITS and banks' internal payments systems via the SWIFT network.

System Liquidity

Banks must have sufficient funds in their ESAs to ensure that their own payments and those of their customers are able to proceed throughout the day.

There are two main sources of liquidity: overnight ESA balances; and intra-day reciprocal purchase agreements (repos) with the RBA, called RBA Repos. Banks can obtain ESA funds intra-day by selling eligible securities, held in Austraclear, to the RBA under an intra-day RBA Repo. There is no interest cost for this facility.

In addition, RITS has been designed to use available liquidity efficiently through the use of a centralised ‘System Queue’ and an ‘Auto-offset’ facility.

System Queue

RITS uses a centralised queue design where transactions are tested for settlement as they are received to ensure the paying Member has sufficient funds in its ESA to cover the payment. Transactions which pass all tests are settled, while those that are unable to be settled at that time remain on the queue. The queue proceeds to test the next transaction on the queue for settlement in a ‘next down looping’ process. The ‘settle or leave’ process allows transactions to be settled in any order and provides for very efficient use of liquidity.

Auto-offset facility

Redistribution of liquidity is also facilitated by a gridlock-preventing feature known as ‘Auto-offset’. When a payment from a Member has been unsettled on the queue for one minute or more, RITS automatically searches the System Queue for offsetting payments from the receiving Member. If these offsetting payments can be settled simultaneously, leaving both parties in credit, RITS will do so automatically (the gross amounts of all payments are posted to the relevant ESAs at the same time).

Continuous Linked Settlement (CLS)

CLS is a global initiative designed to reduce foreign exchange settlement risk. The process is facilitated by a simultaneous entry of the bought and sold currencies of each transaction across the books of CLS Bank International (CLS Bank). CLS Bank connects to each of the national RTGS systems and holds a central bank account for each participating currency. Each of these RTGS systems operates simultaneously during a ‘pay‑in period’ each settlement day. CLS members with short positions in a currency make payments via the RTGS system in that country to CLS Bank during this period. CLS Bank uses these funds to settle transactions on a payment-versus-payment basis across its books and pays out the proceeds to members with long positions in each currency. CLS commenced operations in September 2002.

The operational arrangements for CLS in RITS are described in CLS: RITS Session Times and Operational Arrangements (PDF 153K).

External Feeder Systems to RITS

Austraclear and the SWIFT Payment Delivery System (PDS) have been admitted as feeder systems to RITS for settlement of interbank obligations arising in those systems. Transactions from these external feeder systems are settled on a real-time gross basis.

Austraclear System

The Austraclear System is an electronic depository and settlement system for Commonwealth Government Securities (since February 2002), semi-government and private-sector debt securities. After the Austraclear System has matched a transaction (and securities are available if the transaction involves securities), an interbank settlement request is sent to RITS for settlement testing. Once the payment is settled across ESAs, RITS notifies the Austraclear System, which then settles the transaction in that system. The Austraclear System is operated by Austraclear Limited, a wholly owned subsidiary of ASX Limited. The Austraclear System has over 500 financial market participants as members.

SWIFT Payment Delivery System

The Australian Payments Clearing Association (APCA) manages the SWIFT PDS, which is a closed user group of banks exchanging payments via RITS using the SWIFT FIN‑Copy service. In value terms, SWIFT payments are predominantly related to the Australian dollar leg of foreign exchange settlements and for interbank customer payments.

Batch Settlement

A batch is a group of interbank obligations that have been multilaterally netted external to RITS and may be submitted in any eligible RITS session. Batches (with the exception of the 9am Batch for deferred low-value clearings) are submitted for settlement using the batch feeder facility. An approved Batch Administrator sends batches to the RITS System Queue, which tests all payments in each batch for simultaneous settlement. More information is available in the Information Paper on Enhanced Batch Processing (PDF 354K) and Batch Administrator Eligibility Criteria (PDF 40K).

9am Batch

Interbank obligations arising from cheques, credit and debit cards, and bulk electronic payments are settled in the 9am Batch on the business day following exchange. The RBA acts as the National Collator of these low-value clearings.

CHESS Batch

The Batch Administrator, ASX Settlement and Transfer Corporation Pty Limited (ASTC), manages and submits to RITS a batch of multilaterally netted interbank obligations arising from equity transactions.

Electronic Conveyancing Batch

The Batch Administrator, Austraclear Limited, manages and submits multilaterally netted interbank obligations arising from property transactions processed through the Electronic Conveyancing System.