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RESERVE BANK OF AUSTRALIA

Eligible Securities

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Outright Transactions

Securities with remaining maturities of less than 18 months issued by the Commonwealth Government and by State and Territory central borrowing authorities (semi-governments).

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Repurchase Agreements

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

RBA Sell Repos

When the RBA sells securities under repurchase agreement, the securities are sourced from the RBA’s portfolio of government bonds, including semi-government securities. Counterparties to these transactions will generally receive several different issues trading as general collateral in the repurchase agreement market. The RBA endeavours, where possible, to provide all successful counterparties with the same securities on a pro-rata basis.

RBA Buy Repos

When the RBA buys securities under repurchase agreement it does so in two broad classes of securities: General Collateral and Private Securities.

Summary of Minimum Ratings on Eligible Securities for Buy Repos
  Minimum Rating(a)
(a) S&P rating, or equivalent from another major rating agency.
(b) Minimum rating requirement waived for securities issued and/or guaranteed by the New Zealand government.
(c) Includes covered bonds issued by ADIs.
General Collateral
Commonwealth Government Securities n/a
Semi-government Securities n/a
Securities Issued by Supranationals and Foreign Governments(b) A–1 or AAA
Securities with an Australian Government Guarantee n/a
Securities with a Foreign Sovereign Government Guarantee(b) A–1 or AAA
Private Securities
ADI-issued securities(c)
- with residual maturity of 1 year or less Any public rating
- with residual maturity greater than 1 year BBB+
Asset-backed Securities
- Standard A–1 or AAA
- Other A–1 or AAA
Other A–1 or AAA

All securities used as collateral must meet the following criteria:

  • The security is denominated in Australian dollars and is lodged and active in Austraclear. The RBA will not accept securities that trade as Euro-entitlements.
  • All securities must be settled in the Austraclear System.
  • Excepting certain credit-enhanced securities such as covered bonds, the minimum credit rating assigned to a security or its issuer by any of the major rating agencies will be used to assess the eligibility of the security and the applicable margin. That is, where ratings are split across agencies, the lowest available security or issuer rating will apply. In the case of covered bonds, only the minimum security rating will be considered, provided a sufficient number of such ratings are available (see below).
  • For ADI-issued securities with a residual maturity longer than one year, at least two major credit rating agencies must rate the security or the issuer. For covered bonds issued by ADIs, where two or more security ratings are available, only the ratings on the security will be considered. If two security ratings are not available for ADI-issued covered bonds, the minimum issuer rating will also be considered.
  • The RBA will not accept highly structured securities.
  • Securities presented to the RBA under repurchase agreement must not enter the ‘closed period to maturity’, during the term of the repurchase agreement.
  • Institutions may not present securities issued by themselves or related entities. For the purpose of asset backed securities, a related party is deemed to be an institution that has a significant relationship to the credit quality of the security and so may include (but is not restricted to) the loan originator, swap counterparties and liquidity providers. An exception applies in extraordinary circumstances when the RBA may accept related party asset-backed securities.

The RBA will not accept a security under repo unless it is on the list of eligible securities. 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.

Where the Bank cannot identify a timely market price for long-term securities, general collateral will be valued using a yield which is 50 basis points above an equivalent maturity swap rate referenced to 3-month BBSW, while private securities, such as self-securitised RMBS, will be valued at a price equal to 90 per cent of par, prior to the application of margins.

The RBA will accept substitutions of securities, however, only General Collateral can be used to replace securities from the General Collateral class.

The RBA has discretion to change eligibility criteria and conditions for various asset classes at any time.

Additional notes for specific collateral:

General Collateral

Securities with an Australian Government Guarantee

The security must have an explicit guarantee (or something deemed by the RBA to be equivalent support) from the Australian Government. Both short-term securities (such as bills and CDs) and long-term securities are eligible.

Securities with a Foreign Sovereign Government Guarantee

The security must have an explicit guarantee (or something deemed by the RBA to be equivalent support) from a foreign sovereign government. Both short-term securities (such as bills and CDs) and long-term securities are eligible.

Private Securities

ADI-issued Securities

Includes both senior unsubordinated debt securities issued by ADIs as well as certain credit-enhanced securities such as covered bonds. ADI-issued securities guaranteed by sovereign governments may be accepted as General Collateral.

For ADI-issued securities with a residual maturity of less than 12 months, a public credit rating is required. For ADI-issued securities with a residual maturity greater than 12 months, a minimum credit rating of BBB+ is required.

Asset-backed Securities

Includes, but is not restricted to, asset-backed commercial paper (ABCP), residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS) and securities backed by auto loans/leases and/or credit card receivables. The RBA will not accept collateralised debt obligations (CDOs) backed by other asset-backed securities. The securities must be tradeable in the secondary market and must be based on a true sale of assets into a bankruptcy remote Special Purpose Vehicle (SPV). Private placement securities are eligible so long as they meet all criteria. Securities with a residual maturity greater than 12 months must make regular coupon payments.

The RBA must be provided, on an ongoing basis, with details on the composition of the assets underlying the security, including the share of prime domestic full-doc and 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 security 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, 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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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.

For short-term debt securities, 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.

At least one working day should be allowed for applications to be assessed.

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In extraordinary circumstances, the Reserve Bank will accept asset-backed securities under repurchase agreement with a related party (including ‘self-securitisations’). 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). The usual margin applies.

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