RBA Market Advice – Updates to the Technical Notes for Domestic Market Operations
Several amendments have been made to the Technical Notes for Domestic Market Operations. The main changes are outlined below.
Credit rating requirements for eligible securities
Effective tomorrow, the RBA will use the average of the available credit ratings (rounding down when the average is midway between two ratings) to determine whether securities qualify as eligible collateral in the Bank’s domestic operations and for assigning margins. Securities on review for possible downgrade will be treated as though they have been downgraded by one notch. Previously, the lowest available rating was used and no action was taken when a security was put on review for possible downgrade.
Separately, where any tranche in an asset-backed security (ABS) deal issued after 1 April 2019 is rated by more than one of the recognised credit rating agencies, only tranches rated by each of those same agencies will be considered for repo eligibility and the Reserve Bank will take the average. For example, where the senior tranche in a deal is rated AAA by S&P and Fitch, the mezzanine tranche will also need to be rated AAA by both S&P and Fitch to be considered for repo eligibility.
Changes to margin maintenance arrangements
Effective tomorrow, any change to the RBA’s margin ratios will be applied to outstanding repos on the following business day. Previously, the margin ratios in force at the initiation of a repo transaction remained in force until the repo’s maturity date.
Securitisation System submissions and repo eligibility
For eligibility applications submitted from tomorrow onwards, a valid submission to the RBA’s Securitisation System will be required before the RBA will commence the eligibility assessment process. Previously, the RBA only required the deal to be registered in the system before commencing the assessment.
For more details, please see Eligible Securities, Margin Ratios and Margin Maintenance and Substitutions on Repurchase Agreements.
For further information please contact the Eligible Securities Team.