The Reserve Bank Information and Transfer System (RITS) is Australia's high-value settlement 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. Transactions are entered into RITS directly, or delivered via external feeder systems including SWIFT and Austraclear. These include payments that settle through CLS, a multi-currency settlement system designed to reduce foreign exchange settlement risk.
RITS also includes the Fast Settlement Service (FSS), which settles transactions submitted via the New Payments Platform (NPP) feeder system on an RTGS basis. The FSS has been designed to quickly settle individual transactions, including payments made by consumers and businesses, 24 hours per day and 7 days a week.
Some settlement obligations are settled in RITS periodically on a multilaterally netted basis. This includes obligations arising from payments exchanged through low-value clearing systems for cheques, direct entry and retail card transactions. Obligations arising from direct entry payments are settled on a same-day basis, while cheque and retail card obligations are settled on a deferred basis the following day around 9.00 am. These obligations are sent to RITS via the Low Value Settlement Service (LVSS), which enables clearing system participants to send their settlement instructions directly to RITS at the same time as clearing activity takes place between institutions. Other transactions, including equity and property settlements and some retail card obligations, are multilaterally netted outside of RITS by batch administrators and submitted for settlement through the RITS batch facility.
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 to RITS for settlement. RITS facilitates ESA holders' credit and liquidity management by providing tools to control the settlement of high-value payments. RITS has queuing and gridlock-avoidance mechanisms that minimise the extent of system liquidity required to settle high-value payments. The FSS does not include liquidity management features in order to increase the speed of payment processing.
RITS is owned and operated by the Reserve Bank. It falls under the governance structure of the Reserve Bank Board and is subject to its general oversight, decision-making and audit processes. The legal framework of RITS is contractual, based on the RITS Regulations and associated RITS Membership Agreements.
The Reserve Bank's objective in developing and operating RITS as an RTGS system is to provide the infrastructure through which settlement obligations arising from the exchange of high-value payments and debt securities settlements can be extinguished in a safe and efficient manner. This ensures that there is no build-up of settlement obligations associated with high-value transactions which in turn promotes the stability of Australia's financial system. Reflecting the critical importance of RITS to the Australian financial system, the Reserve Bank aims to operate RITS at an extremely high standard of availability and resilience, and to ensure that its settlement services continue to evolve to meet the changing needs of the payments system.
Real-time Gross Settlement (RTGS)
In RTGS, the settlement of transactions takes place 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. RITS is an approved RTGS system under the Payment Systems and Netting Act 1998 and RTGS transactions settled through RITS are final and irrevocable.
Exchange Settlement Accounts (ESAs)
Final settlement of interbank obligations arising from payments clearing activities (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 ESA interest on overnight balances kept in these accounts. ESAs are mandatory for all Authorised Deposit-taking Institutions (ADIs) with RTGS transactions that are 0.25 per cent or more of the total value of wholesale RITS RTGS transactions (i.e. Austraclear and SWIFT PDS transactions and RITS Cash Transfers); and for any licensed central counterparty (CCP) that the Reserve Bank deems to be systemically important. Other payment system participants, ADIs, 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 and the application process is provided in the Reserve Bank's Exchange Settlement Account Policy. An information paper is available for ADIs that are eligible to settle their RTGS transactions through an agent, which describes the option to maintain an ESA (including the operational and legal arrangements).
ESA Monitoring and Liquidity Management
RITS facilitates liquidity management for ESA holders by enabling them to exercise control over the settlement of payments. The funds of ESA holders that participate in the FSS may be allocated to be available either for the testing and settlement of FSS transactions or for all other transactions. An automated mechanism, controlled by settings set by the ESA holder, is used to efficiently maintain the desired levels of liquidity for each settlement process.
ESA holders may control the priority for settlement given to wholesale RTGS and LVSS payments using status settings and manage access to liquidity by setting a sub-limit on their ESA funds allocated for the settlement of these transactions to set aside a tranche of funds for priority payments. Payments may be managed via RITS or via the RITS Automated Information Facility (AIF), which provides for the automation of credit and liquidity management messaging instructions between RITS and ESA holders' internal payments systems via the SWIFT network. For example, an ESA holder may use the AIF to maintain a ‘mirror’ of its high-value settlements in its internal systems, or to automate allocation of credit to its sponsored clients in the Austraclear System. The AIF utilises a SWIFT closed user group managed by the Reserve Bank. The automated commands and enquiries available using the AIF are a subset of those available in RITS.
ESA holders must have sufficient funds in their ESA 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 borrowing funds from the Reserve Bank under its Standing Facilities. Under the Standing Facilities, ESA holders obtain ESA funds by selling eligible securities, held in Austraclear, to the Reserve Bank under reciprocal purchase agreements.
Transactions entered via the NPP feeder system are settled by the FSS, which prioritises maximising the speed of settlement and so does not have liquidity management features. All other transactions are settled by a centralised ‘System Queue’ that has been designed to use available liquidity efficiently. It has a number of liquidity-saving features, including 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 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 bilateral 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 bilateral offset against each other, thus assisting in client credit management at the same time as enhancing the efficient use of system liquidity.
Entering Transactions into RITS
RITS Cash Transfers
Cash Transfers are used to make cash payments, including settlement of interbank overnight cash market transactions and obligations arising from agency arrangements for the low-value clearing systems. Cash Transfers may also be used in contingency situations to make payments if one or more of the feeder systems are unavailable.
External Feeder Systems to RITS
Austraclear, the SWIFT Payment Delivery System (PDS), the CHESS-RTGS System and the NPP 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 Australian Government Securities (since February 2002; RITS had provided depository and settlement services for AGS from August 1991), semi-government and private-sector debt securities. After the Austraclear System has matched entries by counterparties to a transaction, on the settlement date after securities and cash checks and holds (where relevant) have been performed, 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 completes settlement of the transaction in that system. The Austraclear System is operated by Austraclear Limited, a wholly owned subsidiary of ASX Limited.
SWIFT Payment Delivery System (PDS)
Australian Payments Network (AusPayNet, formerly known as the Australian Payments Clearing Association, APCA) manages the SWIFT PDS, which is a closed user group of ESA holders exchanging payments using the SWIFT FIN Copy service in Y mode with settlement occurring in RITS as an integral part of the payment messaging process. In value terms, SWIFT payments are predominantly related to the Australian dollar leg of foreign exchange settlements and interbank customer payments. Allowable SWIFT payment message types in the closed user group are MT103 and MT202.
CHESS-RTGS Feeder System
The Clearing House Electronic Subregister System (CHESS), which settles equity transactions undertaken on the ASX, allows CHESS participants to settle equity transactions on the ASX on a real-time basis. To date this feeder system has not yet been used.
NPP Australia Limited manages the NPP, which allows consumers and businesses to make fast payments on a 24/7 basis. Once a payment is cleared between financial institutions across the NPP infrastructure, a settlement request is sent to the FSS. The FSS tests that the paying ESA holder has sufficient funds and either settles the payment if funds are available or otherwise rejects the payment. The FSS then sends a notification to the financial institutions to inform whether the payment has been settled successfully or has failed to settle.
A Member may appoint an agent to act on its behalf with respect to settlement instructions sent to the FSS via the NPP.
A batch is a group of interbank obligations that have been multilaterally netted external to RITS and submitted to RITS for settlement across ESAs 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 Papers on Enhanced Batch Processing in RITS and Eligibility Criteria for the Batch Administrator.
The batch administrator, ASX Settlement Pty Limited, manages and submits to RITS a batch of multilaterally netted interbank obligations arising from equity transactions. A single batch is submitted each business day.
Property Settlement Batch
The batch administrator, Property Exchange Australia Limited (PEXA Ltd), manages and submits to RITS batches of multilaterally netted interbank obligations arising from property transactions. Many such batches may be submitted to RITS in a given day. Funds are initially reserved in the ESAs of paying participants in the batch while title changes are lodged with the relevant land titles office. After acceptance of the title lodgement, PEXA Ltd will request settlement of the batch.
The batch administrator, Mastercard International, manages and submits to RITS a batch of multilaterally netted interbank obligations arising from Australian Mastercard transactions. Mastercard submits one batch per business day.
The batch administrator, eftpos Payments Australia Limited (ePAL), manages and submits to RITS a batch of multilaterally netted interbank obligations arising from eftpos scheme transactions. Under normal operations, ePAL submits one batch per RITS business day for settlement in the Morning Settlement Session. ATM transactions processed by ePAL are currently not included in the eftpos Batch and are settled under the existing LVSS arrangements.
Low Value Settlement Service (LVSS)
Settlement instructions for interbank obligations arising from clearings for cheque, direct entry and retail card payments (other than Mastercard and eftpos scheme transactions) are sent to RITS via the LVSS. Most direct entry obligations settle on a same-day basis in five multilaterally netted settlements during the course of each RITS business day. Some other direct entry obligations settle in RITS during the Morning Settlement Session. Other obligations arising from low-value clearing settle in a multilateral net settlement at around 9.00 am on the following business day.
The LVSS uses some of the infrastructure developed for the Low Value Clearing Service (LVCS), established in June 2010, which provides network connectivity between SWIFT and the Community of Interest Network (COIN), administered by AusPayNet, to facilitate the exchange (or clearing) of cheque and direct entry payment files between payment system participants.
A Member may appoint an agent to act on its behalf with respect to files transferred using the LVCS and settlement instructions sent to RITS via the LVSS.
Continuous Linked Settlement (CLS)
CLS is a global initiative designed to reduce foreign exchange (FX) settlement risk. The process is facilitated by a simultaneous settlement of the bought and sold currencies of each FX 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 ‘funding and settlement 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.