The Reserve Bank Information and Transfer System (RITS) is Australia's high-value payments system, which is used by banks and other approved institutions to settle their payment obligations on a real-time gross settlement (RTGS) basis. Final and irrevocable settlement is achieved by the simultaneous crediting and debiting of Exchange Settlement Accounts (ESAs) held at the Reserve Bank of Australia. 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. Some netted payment obligations are also settled in RITS as part of a batch.
Payments processed through low-value clearing systems for cheques, direct entry and retail card transactions are settled in RITS on a net deferred basis in a multilaterally netted settlement at around 9am each day (the 9am Batch). These obligations are sent to RITS via the Low Value Settlement Service (LVSS), which enables clearing system participants to send bilateral file settlement instructions directly to RITS at around the same time as file-based clearing activity takes place between institutions. While settlement remains at 9am for the time being, in future, and following consultation with the industry, RITS will support settlement as clearing files are exchanged. The LVSS uses some of the infrastructure developed for the Low Value Clearing Service, established in June 2010, which provides network connectivity between SWIFT and the Community of Interest Network (‘COIN’), administered by the Australian Payments Clearing Association, to facilitate the transfer of files related to payments clearing.
RITS is the means by which ESAs are accessed. Membership of RITS is compulsory for all ESA holders, which mainly comprise Australian-licensed banks. Membership is also required for participation in the Reserve Bank's domestic market operations, and for Batch Administrators approved to submit batches of payments to RITS for settlement. 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.
- Real-time Gross Settlement (RTGS)
- Exchange Settlement Accounts (ESAs)
- Liquidity Management
- System Liquidity
- Continuous Linked Settlement (CLS)
- External Feeder Systems to RITS
- Batch Settlement
Real-time Gross Settlement (RTGS)
In RTGS, the settlement of transactions takes place irrevocably, in real time, out of credit funds in 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 Reserve Bank.
Exchange Settlement Accounts (ESAs)
Final settlement of payment system obligations (in Australian dollars) occurs across ESAs held at the Reserve Bank. ESAs, which are accessed via RITS, must be maintained in credit at all times, and the Reserve Bank pays interest (equivalent to the cash rate target less 0.25 per cent) on overnight balances kept in these accounts. ESAs are mandatory for all Australian-licensed banks and for other ADIs with RTGS transactions that are 0.25 per cent or more of the total value of RTGS transactions; and for any licensed central counterparty (CCP) that the Reserve Bank deems to be systemically important. Other ADIs and CCPs, and licensed security settlement facilities, may also be eligible to apply for an ESA. Further information on ESA eligibility, management and use of an ESA (including where an ESA holder makes its RTGS transactions through an agent rather than directly across its own ESA) and the application process is provided in the Bank's Exchange Settlement Account Policy. An information paper on operational and legal arrangements 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
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.
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 Reserve Bank, called RBA Repos. Banks can obtain ESA funds intra-day by selling eligible securities, held in Austraclear, to the Reserve Bank 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’, an ‘Auto-offset’ facility and a ‘Targeted Bilateral Offset’ facility.
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 that pass all tests are settled, while those 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.
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).
Targeted Bilateral Offset facility
This functionality allows two RITS Members to select transactions for offset against each other, thus assisting in client credit management at the same time as enhancing the efficient use of system liquidity.
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.
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.
The Austraclear System is an electronic depository and settlement system for Commonwealth Government Securities (since February 2002; RITS had provided depository and settlement services for CGS from August 1991), 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
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.
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 and Batch Administrator Eligibility Criteria.
The Batch Administrator, ASX Settlement Pty Limited, manages and submits to RITS a batch of multilaterally netted interbank obligations arising from equity transactions.
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. These obligations are input into RITS by participants via the Low Value Settlement Service.