Media Release Domestic Market Dealing Arrangements

Over the past decade, the Reserve Bank has gradually widened the range of securities which it is prepared to accept under repurchase agreements, to take account of the changing structure of financial markets. The current list of securities acceptable for repurchase agreements includes Commonwealth Government securities, securities issued by State and Territory borrowing authorities, securities issued by certain supra-national and foreign government agencies and bills and CDs issued by some Australian banks.

As a continuation of this trend, and after reviewing the range of international practice by other central banks, the Reserve Bank has decided to further widen the range of securities eligible for its repo operations. The new arrangements will be implemented in two stages.

From Monday, 17 September, the list of eligible securities for repos will be expanded to include:

• bills and certificates of deposit issued domestically by any authorised deposit-taking institution (ADI) which holds an Exchange Settlement (ES) Account at the Reserve Bank. The remaining term to maturity of these securities, as at present, must be no more than 12 months; and
• Australian dollar bonds issued by an ADI which holds an ES Account and is rated A3 or above by all major credit ratings agencies that rate it, and in any event, by at least two such agencies. Subordinated and structured securities will be excluded.

From Monday, 8 October, the list of eligible securities will be further expanded to include:

• Australian dollar residential mortgage-backed securities (RMBS) backed by prime, domestic, full-doc residential mortgages and rated AAA or equivalent; and
• Australian dollar asset-backed commercial paper (ABCP) backed by prime, domestic, full-doc residential mortgages (either directly or in securitised form) and rated P-1 or equivalent.

Between now and Monday, 8 October, the Reserve Bank will consult with market participants about the operational aspects of these latter two forms of security. Further details will be made available on the Bank's website closer to 8 October.

The Reserve Bank will continue to deal only in securities lodged in Austraclear. As at present, a repo counterparty will not be able to offer securities issued, or supported, by itself or a related party.

Approaches for repos in the various forms of securities will be considered separately. Market participants will therefore need to indicate, when they approach the Reserve Bank, the type of securities they propose to offer under the repo. As is current practice, the Reserve Bank will retain discretion on the classes of securities that it will accept for open market operations each day. However, all classes of securities will be acceptable on an intra-day or overnight basis.

The margin on each repo transaction will vary with the type of security:

• For securities issued by the Commonwealth Government, State and Territory central borrowing authorities, supra-national organisations, foreign government agencies and bills and CDs, the margin will be 2 per cent (as is currently the case).
• For Australian dollar bonds issued by an ADI holding an ES Account and rated A3 or above, the margin will vary with the maturity and credit rating as follows:

  Margins for Bank Bonds 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

• For RMBS and ABCP, the margin will be 10 per cent.