Substitutions
While under no obligation to enter into such exchanges, the Reserve Bank endeavours to meet requests from counterparties to return to them securities that the Bank holds under an existing repurchase agreement against the receipt of replacement securities.
Cut off time for notification of a substitution is 3.00 pm on the day that the substitution is to take place. However, the Bank may consider requests after this time in extreme circumstances and at its discretion.
The counterparty should contact the Domestic Markets Desk (+61 2 9551 8321) with both details of the securities that it wishes to call back together with details of securities that it will offer as replacement. The Bank will price the replacement securities and confirm the cash values of the trades. The cash value required for the replacement securities will be equal to, or closely approximate, the starting consideration plus accrued interest (to the date of the substitution) on the original securities. Replacement securities must be eligible securities. The trades must be completed by the end of the Austraclear Day Settlement Session.
To protect system liquidity levels, the Bank will ensure that the cash values of the trades are as similar as possible. The Bank will not return any securities until such time as replacement securities have been received in full.
The Bank 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. The Bank will accept a CGS, semi, or other quasi-government maturity as a replacement on any private security 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.
