Open Market Operations

The Reserve Bank conducts various types of open market transactions, with the terms of each subject to prevailing market conditions. These operations are normally distinguished from the Reserve Bank's liquidity facilities.

1 Regular Open Market Liquidity Operations

Open market liquidity operations are usually conducted once a week on Wednesdays (or the next good business day) at 9.20 am (AEST/AEDT). The Reserve Bank may, if required and at its absolute discretion, announce additional operations on other business days and additional afternoon or evening rounds of operations. The following outlines the key elements and timing of these operations.

1.1 Announcement of Open Market Liquidity Operations

1.1.1 Morning Round

The Reserve Bank usually announces its intentions for its open market liquidity operations on Wednesdays, and on other business days if required, at 9.20 am. This information is published on the Reserve Bank's pages on the market data services (Reuters – RBA31; Bloomberg – RBAO08). The release notes:

• Total ES Balances: the previous business day's aggregate end-of-day Exchange Settlement (ES) balances.
• Surplus ES Balances: the previous business day's aggregate end-of-day ES balances, adjusted for: ESA holders' net direct entry (DE) and net New Payments Platform (NPP) receipts initiated between 16.45 AEST/AEDT and midnight on the previous business day; and ESA holders' applicable minimum ES balance requirement as at the close of the previous day. For each ESA holder, the applicable minimum ES balance requirement is the greater of their minimum ES balance requirement for after-hours payments, and the principal amount outstanding of any repurchase agreements contracted at the rate on surplus ES balances under the Reserve Bank's standing facilities (‘SF Repos’).
• Reserve Bank Proposing: refers to the operation the Reserve Bank is proposing to conduct; for example, whether the Reserve Bank is looking to buy securities under reverse repo and outright (add to the supply of ES balances), sell securities under repo (withdraw ES balances) or is not proposing to deal at all. Settlement of any transactions is for same-day value.
• Preferred Term(s): the preferred maturities and minimum bid rates or minimum bid spreads of any repurchase agreements (repos) the Reserve Bank may undertake. On most occasions, the Reserve Bank nominates terms no longer than 28 days, although longer terms may be offered if and when warranted by market conditions.
• Approach deadline: the deadline for RITS members to contact the Reserve Bank with any proposed transactions (usually 9.35 am (AEST/AEDT)).

1.1.2 Afternoon Rounds

On any business day, the Reserve Bank may announce an afternoon round of open market liquidity operations for same-day value at 5.10 pm (AEST/AEDT), which may be in addition to a morning round. If such an announcement is made, it will be published on the Reserve Bank's pages on the market data services (Reuters – RBA35; Bloomberg – RBAO08).

Very occasionally, the Reserve Bank might announce further rounds of open market liquidity operations later in the evening. This information would be published on the Reserve Bank's pages on the market data services (Reuters – RBA35; Bloomberg – RBAO08), and the further round would be conducted prior to the close of the SWIFT End Session.

1.2 Eligible Counterparties

Unless otherwise advised, all RITS members deemed eligible to participate in the Reserve Bank's domestic market operations may participate in the morning round of the Reserve Bank's open market liquidity operations (see Eligible Counterparties). As later rounds are conducted after the close of the Daily Settlement session within RITS (normally, 4.30 pm (AEST/AEDT)), participation is restricted to those eligible counterparties that are banks, regardless of whether they are evening or non-evening agreed within RITS.

1.3 Contacting the Reserve Bank

Approaches by eligible counterparties must be made by email to the Reserve Bank's Domestic Markets Desk between the announcement of open market liquidity operations and the deadline set for those operations. (See Market Operations Templates for formats counterparties must use when submitting approaches). The Reserve Bank will reply by email to acknowledge each approach. Any counterparty that does not receive a reply email within 5 minutes of sending an approach should telephone the Domestic Markets Desk to confirm their approach verbally.

An approach submitted to the Reserve Bank may not be modified or withdrawn after the nominated deadline. It may be modified or withdrawn prior to this time.

1.4 Structure of Approaches for Outright Transactions in Near-to-maturity Government Securities

See Eligible Securities (Section 4) for the criteria establishing which securities the Reserve Bank is willing to purchase on an outright basis in its domestic market operations. Unless otherwise advised, for the purposes of its open market liquidity operations, the Reserve Bank will only consider purchasing eligible securities on an outright basis in its morning round of operations and where the security has a term to maturity less than 18 months. These purchases can assist in management of near term liquidity flows. The Reserve Bank may act to reduce or offset the large volume of funds that are paid on the maturity date out of the Australian Government's account at the Reserve Bank into Exchange Settlement Accounts (for the credit of the security holder). Ahead of a large Australian Government Securities (AGS) maturity, the Reserve Bank may therefore seek to purchase AGS or securities issued by the state and territory central borrowing authorities (semis) that mature on the relevant maturity date.

The minimum size of outright bids is $10 million. Offers for securities should be expressed as a yield to maturity and stated to four decimal places (quarter basis point only). Offers will be assessed against the Yieldbroker official mid-market yield and may be assessed against approaches to sell securities under repo.

Note that for these purposes the Reserve Bank will also consider purchases of securities of a maturity less than 18 months outside of open market liquidity operations, though approaches through open market liquidity operations are preferred. See Section 2: Bilateral Purchases below.

1.5 Structure of Approaches for Repurchase Agreements

Approaches should be made on a cash value basis; that is, with reference to the aggregate purchase prices of the securities to be sold under repo. Note that when purchasing or selling securities under repo, the Reserve Bank will adjust the market value of the securities by a margin ratio in order to obtain the purchase price: see Margin Ratios. The minimum size for repo approaches is $20 million, with approaches to be made in increments of $1 million. Smaller amounts will be considered at the Reserve Bank's discretion.

To hasten any subsequent settlement participants bidding to sell securities under repurchase agreement are asked to provide details of those specific securities at the time of the approach.

There is no limit on the size or number of approaches that each participant can make. A participant making multiple approaches can set an aggregate limit.

Approaches for repurchase agreements should be quoted on an actual/365 day basis, using a simple interest calculation, payable at maturity. Quotes should be expressed to two decimal places.

When making approaches for repurchase agreements, the desired term in days must also be specified. Participants may nominate terms other than the Reserve Bank's preferred terms and may nominate a range of terms.

Unless otherwise advised by the Reserve Bank, participants offering to buy securities under reverse repurchase agreement should do so on the assumption that the securities provided by the Reserve Bank will be deliverable as ‘General Collateral – Tier 1’ as defined in AFMA's market conventions.

1.6 Allocation

Subject to the Reserve Bank's discretion, allocations are made on the basis of the value of approaches relative to prevailing market rates.

At the Reserve Bank's discretion, approaches may be partially filled. In the normal course, a minimum allocation of $20 million will apply, with allocations made in increments of $1 million.

1.7 Notification

The Reserve Bank electronically notifies each eligible counterparty via Bloomberg and/or Reuters, if such counterparties have access to either or both of these services, of the outcome of their participation in each round of the Reserve Bank's open market liquidity operations. Where counterparties do not have access to such services, or have elected not to use such services, the Reserve Bank notifies both successful and unsuccessful participants by email or telephone.

Counterparties that wish to receive electronic notifications should contact the Reserve Bank as follows:

• by telephone to Market Operations +61 2 9551 8321, or
• by email to dealingroom@rba.gov.au

The Reserve Bank endeavours to provide notification by 10.15 am (AEST/AEDT) for its morning round operations and within five minutes of the deadline set for any later operations, but does not guarantee to do so.

A summary of each round of the Reserve Bank's open market liquidity operations is published over the Reserve Bank's pages on the market data services shortly after participants have been notified regarding their approaches (Morning round: Reuters – RBA32–RBA34, Bloomberg – RBAO08; Afternoon and evening rounds: Reuters – RBA36, Bloomberg – RBAO08). These include the value, weighted average and cut-off rates of repurchase agreements dealt, by term, as well as the details of any outright transactions and same-day value foreign exchange swaps. Subsequently, the same information is published in Statistical Table A3 on the Reserve Bank's website. No information regarding the identities of the Reserve Bank's counterparties is made public. The Reserve Bank reserves the right to republish the summary of each dealing round on the market data services and on the Reserve Bank's website.

1.8 Legal Disclaimer

The Reserve Bank electronically notifies each eligible counterparty, via Bloomberg and/or Reuters (if they have access to either or both of those services), of the outcome of their participation in each round of the Reserve Bank's open market liquidity operations.

Subject to the paragraphs below, the electronic notification constitutes the entry by the Reserve Bank and the eligible counterparty into one or more of the following transactions (as applicable):

1. a repurchase transaction (a ‘repo’);
2. a transaction for the outright sale of a security or other financial instrument (an ‘outright transaction’); or
3. a term deposit,

on the terms specified in the electronic notification and (to the extent applicable) on the master terms and conditions for that transaction which are contained in the RITS Regulations.

Following their receipt of an electronic notification in respect of the entry into a repo, an eligible counterparty must contact the Reserve Bank to confirm the details of the securities or financial instruments (the ‘Purchased Securities’) which will be the subject of the repo and the haircut that will be applied to those Purchased Securities.

Following their receipt of an electronic notification (and following, in the case of a repo, the call described immediately above), the eligible counterparty must:

1. in the case of a repo, enter the relevant details of the repo (including the details of the Purchased Securities) into the Approved Securities Settlement System (currently Austraclear) in accordance with the requirements set out in the RITS Regulations. The matching of the eligible counterparty's entries with the Reserve Bank's entries within Austraclear constitutes the ‘Confirmation’ of the repo. For the avoidance of doubt, the electronic notification does not constitute the ‘Confirmation’ of the repo;
2. in the case of an outright transaction, enter the relevant details of the outright transaction into Austraclear; and
3. in the case of a term deposit, enter into RITS a RITS cash transfer to the Reserve Bank for the principal amount of the term deposit in accordance with the requirements set out in the RITS Regulations.

If an eligible counterparty considers that the electronic notification from the Reserve Bank contains an error, the eligible counterparty must promptly notify the Reserve Bank of the purported error by contacting the Reserve Bank as follows:

• by telephone to Market Operations +61 2 9551 8321, or
• by email to dealingroom@rba.gov.au

If the Reserve Bank becomes aware that there was an error in an electronic notification, the Reserve Bank may alter the terms of a transaction in whatever manner is necessary to correct the error and the Reserve Bank will promptly notify the eligible counterparty of any such alteration.

Each electronic notification is confidential and is only intended for the eligible counterparty specified in the electronic notification. Certain staff at Bloomberg and/or Reuters (as applicable) may also have access to the contents of an electronic notification for the purposes of technical support. If you receive an electronic notification and you are not the intended recipient, you must notify the Reserve Bank immediately by contacting the Reserve Bank by telephone or by email as specified above. You must also delete the notification and any copies of it from your system and you must not copy or disclose its contents to any person (including any other person within your institution).

1.9 Settlement Procedures

Securities transactions entered into as part of the Reserve Bank's morning round of open market liquidity operations (including margin maintenance and substitutions on repurchase agreements) should be settled prior to the close of the RITS Daily Settlement Session (4.30 pm AEST/AEDT) on their value date. (See details of RITS Settlement Sessions.)

For repurchase agreements contracted in the Reserve Bank's open market liquidity operations, the Reserve Bank seeks reimbursement of the settlement fees it incurs from using Austraclear's repurchase agreements functionality. Specifically, the Reserve Bank recovers from its counterpart:

• settlement fees of any first and second leg securities transactions;
• coupon transfers; and
• renegotiation fees related to the substitution of securities.

The billing cycle is quarterly in arrears. The payment due date for each quarter is on the 21^st day after the end of each quarter. (If the due date is on a weekend or public holiday, payment is due the next business day.) The Reserve Bank sends invoices to relevant counterparties by email. For any quarter, the Reserve Bank does not seek reimbursement where the counterparty invoice would have been less than $600. Invoice amounts of less than $600 do not accrue to the following period.

Counterparties are able to pay by the following methods: Electronic Funds Transfer (EFT), SWIFT payment and Austraclear cash transfer. Detail of payment instructions are included on invoices.

2 Bilateral Purchases of Near-to-maturity Government Securities for Liquidity Management

As discussed in Section 1.4, the Reserve Bank will consider purchasing eligible securities on an outright basis where the security has a term to maturity less than 18 months. These purchases can assist in management of near term liquidity flows.

The preferred approach is for these offers to be submitted as part of regular open market liquidity operations (see Section 1.4). Interested parties can also approach the Reserve Bank's Domestic Markets Desk at any time with their offers, volume and rate. Offers will be assessed against the Yieldbroker official mid-market yield.

Outright transactions in AGS and semis conducted in open market operations, bilaterally or on Yieldbroker DEBTS must be settled within the Austraclear system. Security movements must be on a delivery-versus-payment basis. All such settlements should occur in the Austraclear Sub Participant Account of the eligible counterparty that has entered into the transaction with the Reserve Bank. The Reserve Bank may at its discretion allow counterparties to instruct for settlement in the Austraclear Sub Participant account of their designated agent; the Reserve Bank does not expect eligible counterparties to make frequent use of such settlement arrangements.

Eligible counterparties may approach the Reserve Bank's Domestic Markets Desk to enquire about borrowing specific AGS or semis under a repurchase agreement. The Reserve Bank will lend such AGS and semis from its outright portfolio and will negotiate such repos at its discretion.

3 Outright Purchases of Long-dated Government Securities

In its long-dated outright transactions, the Reserve Bank purchases government securities with terms to maturity generally greater than 18 months.

Prior to March 2020, the Reserve Bank typically undertook these transactions on a quarterly basis to replenish the holdings of securities used for liquidity management purposes.

Following a series of decisions taken by the Reserve Bank Board since March 2020, the Reserve Bank for a time purchased government securities for monetary policy purposes. Australian Government Securities (AGS) were purchased to support a target for the yield on an Australian Government bond further out the yield curve than the cash rate – the yield target was discontinued on 2 November 2021. The Bank has also purchased AGS and semi-government securities (semis) as part of a bond purchase program to lower longer-term yields and, if required, to address market dislocations. On 1 February 2022 it was announced that purchases under the bond purchase program would cease after 10 February 2022.

For more details see Government Bond Purchases.

4 Securities Lending and Switch Transactions

To aid market functioning, the Reserve Bank stands ready to lend securities that it owns against cash or eligible collateral on a reverse enquiry basis for a maximum term of one week. The RBA currently sells collateral at the ES rate less 0.20% and buys collateral (if lending is done against securities) at the ES rate. Pricing is entirely at the discretion of the Reserve Bank and is subject to change. See also the market data services (Reuters – RBA37, RBA38, RBA39 and RBA40; Bloomberg – RBAO6 and RBAO9) and Statistical Table A3.2.

The Reserve Bank also operates a Securities Lending Facility on behalf of the Australian Office of Financial Management (AOFM). Under this facility the Reserve Bank stands ready to lend securities against cash or eligible collateral on a reverse enquiry basis for an open term. The RBA currently sells collateral on behalf of the AOFM at the ES rate less 0.25% and buys collateral on behalf of the AOFM (if lending is done against securities) at the ES rate, subject to change.

Intraday securities lending is available from both the Reserve Bank and AOFM against eligible collateral only. There is no interest charge, but counterparties are required to reimburse the trade settlement fees to the Reserve Bank or AOFM.

The minimum Face Value parcel that a counterparty can borrow in all the above instances is $5 million.

Requests to access Securities Lending from either the Reserve Bank or AOFM on any of these terms should be directed to the Reserve Bank’s Domestic Markets Desk. For RITS Members who operate an ES account any request should be received by the Reserve Bank by 5.45 pm AEST/7.45 pm AEDT on the day they wish to take delivery of securities. For RITS members who do not operate an ES account, that request should be received by the Reserve Bank by 3.45 pm on the day they wish to take delivery of securities. Approaches after these respective times will be dealt with on a ‘best endeavours’ basis.

RITS members that do not operate an ES account are generally unable to settle transactions after the close of the RITS Daily Settlement Session (4.30 pm AEST/AEDT). Should a counterparty become aware that it may not be able to unwind the intraday securities lending, it should immediately contact the Reserve Bank’s Domestic Markets Desk. Where an intraday securities lending is not fully unwound, it is extended with terms as specified above. See AFMA’s Reciprocal Purchase Agreement Conventions for Settlement Failures for partially unwound intraday securities lending.

The Reserve Bank will also consider proposals to sell government bonds that it owns outright against an offsetting (duration-neutral) purchase of government bonds, although accepting such a proposal will be entirely at the discretion of the Reserve Bank, and the Reserve Bank will typically charge a spread relative to mid market rates. The Reserve Bank publishes details of its outright holdings of government bonds in Statistical Table A3.1 and a summary of duration-neutral transactions in Statistical Table A3.2.

Securities Lending requests should be submitted using the Stock lending template

5 Test Repurchase Agreements

Eligible counterparties may approach the Reserve Bank to undertake test repos outside of open market operations. These test repos are entered into at the discretion of the Reserve Bank and are:

• for small amounts (generally no more than $1 million)
• against eligible securities (at the Reserve Bank's sole discretion, these securities may include securities which the Reserve Bank considers to be materially related to the counterparty)
• for an overnight term
• contracted at the cut-off rate of the Reserve Bank's most recent regular open market liquidity operation.