2014 Assessment of the Reserve Bank Information and Transfer System Appendix A: Background Information

RITS is Australia's RTGS system. It is operated by the Bank and settles transactions across ESAs held at the Bank. In RTGS systems, individual payments are processed and settled continuously and irrevocably in real time. RTGS was introduced in Australia in June 1998 to eliminate the settlement risk associated with deferred net settlement of high-value interbank payments and to promote the overall efficiency of Australia's wholesale payments system. This background section presents an overview of the operational arrangements and key design features of RITS. Material changes to RITS since the 2013 Assessment are discussed in Section 3.

A.1 Governance and Oversight

RITS is owned and operated by the Bank. Since it is not operated as a separate legal entity, the management and operation of RITS fall under the governance structure of the Bank, and are therefore subject to its normal oversight, decision-making and audit processes. The Bank articulates its specific objectives in relation to its operation of RITS on its website.[32] These are consistent with the high-level objectives of the Bank, which emphasise the stability of the broader financial system and the welfare of the Australian people. The Bank accordingly aims to provide infrastructure through which settlement obligations arising from the exchange of high-value payments and debt securities settlements can be completed in a safe and efficient manner.

The governance structure as it applies to RITS is shown in Figure A.1, below. In accordance with the Reserve Bank Act 1959, the Governor is responsible for the management of the Bank, and is therefore ultimately responsible for the operation of RITS. The Governor is assisted and supported in this responsibility by the Executive Committee, which is composed of the Bank's most senior executives. Day-to-day operations, liaison with participants, and the ongoing development of RITS are delegated to the Bank's Payments Settlements Department.

RITS is also subject to oversight by the Bank's Payments Policy Department, within the policy framework for which the Payments System Board has ultimate responsibility.[33] In 2014 the Executive Committee established an internal FMI Oversight Committee to govern day-to-day oversight activities within this framework. The Committee is chaired by the Assistant Governor (Financial System) and includes a further five senior members of Bank staff with relevant experience.

A.2 Systems Linked to RITS

Payment instructions can be submitted to RITS directly (these payments are known as RITS cash transfers), or through a number of linked systems. The table below provides an overview of each of these linked systems. Other FMIs with ESAs (i.e. CLS, the ASX CCPs and LCH.C Ltd) can use these linked systems to submit obligations arising from the system they operate for settlement in RITS.

A.3 Design Features

RITS is designed to enhance efficiency in the use of liquidity within the system. It incorporates a central queue and a ‘next-down looping’ algorithm that continuously retests unsettled payments in order of submission (Figure A.2). If the transaction being tested for settlement cannot be settled individually, the auto-offset algorithm searches for up to 10 offsetting transactions (based on the order of submission) between a pair of participants and attempts to settle these simultaneously.[34] Participants can also nominate specific offsetting payments to be settled simultaneously to assist in managing client credit constraints; this functionality is known as ‘targeted bilateral offset’.

RITS participants have access to a range of information to enable them to manage their liquidity risk effectively. These tools provide participants with real-time information to manage their liquidity efficiently. In particular, RITS participants have access to information on their current ESA balances, settled payments and receipts, queued inward and outward transactions, the value of first- and second-leg intraday repos, and their projected end-of-day ESA balances.

RITS also has features that allow participants to efficiently manage and conserve liquidity. As discussed in Section 3.2.3, from November 2014, upon receipt of a reservation request from PEXA, RITS reserves sufficient funds to cover participants' net obligations for a given property transaction prior to the settlement of the cash leg (which occurs after advice from PEXA that the relevant land titles office has confirmed to PEXA that the title transfer documents have been lodged).

More generally, participants can use ‘sub-limits’, which they can change at any time during the settlement day, to reserve liquidity for priority payments (Figure A.3). There are three payment statuses available to participants, which determine how individual transactions draw on liquidity:

  • Payments with a deferred status are not tested for settlement until their status is amended.
  • Active payment instructions are settled as long as the paying institution has sufficient funds in their ESA above the sum of the participant's specified sub-limit and any property settlement reservations.
  • Priority payments are tested against the ESA balance less any property settlement reservations.

This functionality can be accessed through either the RITS User Interface or via SWIFT messages. Participants can choose to set the payment status of each payment individually, or they can choose to automatically set the status of all payments below a certain specified threshold value to priority in order to minimise the number of payments on the queue.[35]

A.4 ESA Policy

Policy on ESA eligibility is set by the Bank's Payments Policy Department, under the governance of the Payments System Board, and is available on the Bank's website.[36] The policy has been designed to be fair and open and promote competition in the provision of payment services by allowing access to all providers of third-party payment services, irrespective of their institutional status. ADIs are eligible by default, because these institutions are assumed to provide third-party payment services as part of their business. Similarly, Australian-licensed CCPs and securities settlement facilities (SSFs) with payment arrangements that require Australian dollar settlement are also eligible to hold an ESA.[37]

The ESA policy sets a number of risk-based participation requirements, including around operational capacity and access to liquidity, which are designed to reduce the likelihood that an individual participant experiences an operational or financial shock that disrupts the system more broadly. The application of participation requirements aims to be proportional to a prospective participant's expected payments business in RITS. To reduce the operational burden on smaller RITS participants, any ESA holder (other than a systemically important CCP) with aggregate outgoing RTGS transactions of less than 0.25 per cent of the total value of RTGS transactions, may use an agent to settle its RITS transactions, rather than settling directly across its own ESA.

The Bank's ESA policy limits the scope for material risks to arise from tiered participation arrangements. Since only ADIs individually accounting for less than 0.25 per cent of the total value of RTGS transactions may settle through an agent, no individual indirect participant would be expected to pose material risk to either its agent or the system more broadly. Further, to reduce dependence on its agent, a bank that participates indirectly is required to maintain an ESA for contingency purposes. To ensure that RITS has sufficient information about indirect participation, ESA holders that participate indirectly are required to report the value and volume of their outgoing RTGS payments to the Bank on a quarterly basis. This information is in part used to monitor compliance with the 0.25 per cent threshold.

A.5 Operating Hours

Standard settlement hours in RITS, as established by the RITS Conditions of Operation, are 7.30 am to 10.00 pm. These hours have been extended to facilitate same-day settlement of DE payments submitted to RITS after the close of the interbank cash market.[38] Prior to November 2013, RITS closed at 6.30 pm Australian Eastern Standard Time and 8.30 pm during Australian Eastern Daylight Time (the first Sunday in October to the first Sunday in April); these remain the times when settlement of SWIFT and Austraclear transactions ceases.

Prior to 9.15 am, settlement is limited to RITS cash transfers, interbank Austraclear transactions, the deferred net obligations settled in the 9.00 am batch process (during the ‘9.00 am processing session’) (Figure A.4), and, prior to the 9.00 am batch process, settlement of obligations for the Mastercard batch and DE government clearings. Other payment instructions can be submitted to RITS during this time, but they are not tested for settlement until the ‘day session’ commences.

There are also restrictions on the types of payments that can settle in the evening settlement session. Only evening agreed settlement participants, as defined in the RITS Regulations, can participate fully in the evening settlement session from 5.15 pm onwards.[39] Consequently, to allow the settlement of remaining queued transactions at the end of the day session, there is a 45 minute settlement close session. At the end of the ‘settlement close session’, any remaining queued payments involving non-evening agreed participants are removed from the queue.


Available at <https://www.rba.gov.au/payments-and-infrastructure/rits/>. [32]

Payments Policy Department and Payments Settlements Department are separate departments in the Bank's organisational structure, with separate reporting lines up to and including the level of Assistant Governor. [33]

Payments are only tested for ‘auto-offset’ if they have been on the queue for at least one minute. [34]

This functionality can also be used to set the status of all payments above a threshold value to priority. [35]

The Exchange Settlement Account Policy is available at <https://www.rba.gov.au/payments-and-infrastructure/esa/>. [36]

Under the Bank's Financial Stability Standards for Central Counterparties a CCP that the Bank determines to be systemically important in Australia and has Australian dollar obligations is required to settle its Australian dollar obligations across its own ESA or that of a related body corporate acceptable to the Bank. [37]

The Australian Eastern Standard Time, the 7.15 pm and 9.15 pm DE settlements occur after the close of the interbank cash market. However, during Australian Eastern Daylight Time, Austraclear and SWIFT transactions are settled until 8.30 pm, so only the last DE settlement occurs outside normal banking hours. [38]

RITS participants do not have to be evening agreed if they only participate in DE and property settlements after 5.15 pm. [39]