11 August 2008
CHANGES TO SECURITIES LENDING FACILITY
The Australian Office of Financial Management (AOFM) provides a securities lending facility to facilitate the efficient operation of the Treasury Bond market. The Reserve Bank of Australia (RBA) operates the facility on behalf of the AOFM.
With effect from 12 August 2008, the range of collateral accepted in connection with the lending of Treasury Bonds through the facility will be widened, and intraday borrowing of Treasury Bonds will be permitted.
To date, acceptable collateral has been limited to Commonwealth Government Securities (CGS). This has constrained access to the facility when CGS has been in short supply.
The range of acceptable collateral will be widened to include all securities accepted by the RBA as general collateral in relation to repurchase agreements with the RBA. These securities include:
- CGS (that is, Treasury Bonds, Treasury Indexed Bonds and Treasury Notes);
- securities issued by State Government and Territory central borrowing authorities; and
- certain Australian dollar denominated securities of foreign sovereigns and their agencies, and supranational institutions.
Further details concerning eligible securities accepted as general collateral are contained on the RBA website.
Intraday securities lending
To date, securities lending transactions via the facility have been open term transactions (a minimum of one day and automatically rolled each business day until terminated). The facility will be extended to permit the borrowing of Treasury Bonds on an intraday basis.
Settlement processing of financial transactions involving Treasury Bonds can in some situations be made significantly smoother for market participants if Treasury Bonds can be borrowed intraday.
In the case of intraday transactions, the second leg of each repurchase agreement and reverse repurchase agreement is transacted to be settled on the same day as the first leg. If the second leg of an intraday securities lending transaction is not completed by the end of the RITS Daily Settlement Session the transaction will become an open term securities lending transaction.
Intraday securities loans must be unwound in full; they cannot be partially unwound.
Interest will not be payable in respect of intraday term securities lending transactions, but a counterparty borrowing Treasury Bonds on an intraday basis will be subject to charges applied by the RBA to reflect fees levied by Austraclear on the RBA in relation to the transaction.
The AOFM securities lending facility allows financial market participants to borrow particular Treasury Bonds when they are not readily available from other sources in the market. This helps bond market intermediaries to trade and make two-way prices for all Treasury Bonds.
On 20 May 2008 the Treasurer announced a range of measures, including widening the range of collateral accepted in connection with operation of the AOFM securities lending facility, as part of the Government’s commitment to the effective operation of Australia’s financial markets. Details of the announcement are contained in the Treasurer’s Media Release No.58 of 2008.
Legislative changes to allow acceptance of a wider range of collateral were introduced in the Commonwealth Securities and Investment Legislation Amendment Act 2008.
The introduction of intraday securities lending follows consultations between the AOFM and financial market participants.
Further details concerning operation of the securities lending facility are contained on the AOFM website.