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 (OMO) 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 OMOs.

In the normal course of business, floating rate repurchase transactions (repos) are used for OMO, although the Reserve Bank retains the capability and discretion to conduct OMO using fixed rate repos.

The following outlines the key elements and timing of these operations.

1.1 Announcement of Open Market Liquidity Operations

1.1.1 Regular Operations

The Reserve Bank conducts its regular OMO on Wednesdays at 9.20 am (or the next good business day). 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 information on minimum ES balance requirements, see Interest on Exchange Settlement Balances.
• Reserve Bank Proposing: refers to the operation the Reserve Bank is proposing to conduct; for OMO, the operation is the Reserve Bank buying securities under reverse repo. Settlement of all transactions is for same-day value.
• Dealing Term(s): the maturities, the hurdle rate for each maturity and whether fixed or floating rate repos will be dealt. Typically, the Reserve Bank nominates terms of 7 and 28 days, although longer terms may be offered if and when warranted by market conditions. OMO will generally be conducted using floating rate repos, but the Reserve Bank retains the capability and discretion to conduct OMO using fixed rate repos. This may include offering to transact in both fixed rate and floating rate repos as part of the same round of OMO dealing. For terms where floating rate repos will be dealt, the hurdle rate will be expressed as a spread to the cash rate target. For fixed rate repos, the hurdle rate will be published as a simple pricing rate determined by the Reserve Bank.
• 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 Additional Operations

In exceptional circumstances, the Reserve Bank may announce additional OMOs. This information would be published on the Reserve Bank’s pages on the market data services (Reuters – RBA35; Bloomberg – RBAO08).

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 Reserve Bank’s OMO (see Eligible Counterparties). In the event an additional OMO is conducted after the close of the Daily Settlement Session within RITS (normally, 4.30 pm (AEST/AEDT)), participation would be restricted to those eligible counterparties that settle payments across their own ES account, regardless of whether they are evening agreed within RITS or not.

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 OMO and the approach deadline set for the operation. 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 approach deadline. Approaches may be modified or withdrawn prior to the approach deadline.

1.4 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 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 repo are asked to provide details of those specific securities at the time of the approach or, alternatively, their decision to use the triparty collateral management service (ASXCOL+) provided by ASX Collateral Management Services Pty Ltd.

The Reserve Bank will only permit ASXCOL+ to be used to collateralise floating rate OMO repos if the OMO counterparty has agreed to permit the Reserve Bank to unilaterally update the nominal pricing rate applicable to exposures in ASXCOL+. An OMO counterparty can provide its agreement through its relevant Collateral Giver Appendix A to its Collateral Management Services Agreement with ASX Collateral Management Services Pty Ltd for transactions with the Reserve Bank. When the Reserve Bank uses the right to unilaterally update the nominal pricing rate applicable to exposures in ASXCOL+, it will be to ensure that the nominal pricing rate for a floating rate OMO repo (as entered into ASXCOL+) is adjusted, when required, to correctly reflect any change to the underlying reference rate used to calculate the nominal pricing rate for the repo (e.g. any increase or decrease to the Reserve Bank’s cash rate target).

There is no limit on the size or number of approaches that each participant can make.

Floating rate repo bids should be expressed as a spread to the cash rate target, with the spread rounded to a full basis point. Approaches for fixed rate repos should be quoted on an actual/365 day basis, using a simple pricing rate calculation, payable at maturity. Quotes for fixed rate repos should be expressed to two decimal places.

When making approaches for repos, the desired term in days must also be specified, and correspond with the published OMO dealing terms (see Regular Operations).

1.4.1 Calculating the repurchase price for OMO repos

A price differential (i.e. an amount akin to interest) will accrue daily on floating rate repos from (and including) the purchase date for the floating rate repo to (but excluding) the repurchase date for the floating rate repo. It will be calculated daily on an actual/365 basis. The pricing rate each day will be equal to the cash rate target that is effective on that day, plus any agreed fixed spread. The aggregate price differential will be rounded to the nearest cent and will be added to the original purchase price for the floating rate repo in order to determine the repurchase price that will be payable on the maturity date of the repo. To illustrate, an example is provided below.

The price differential for fixed rate repos will be calculated on an actual/365 basis, being rounded to the nearest cent on maturity.

1.5 Allocation

Subject to the Reserve Bank’s discretion, approaches will be allocated in full.

1.6 Notification

The Reserve Bank electronically notifies each eligible counterparty via Bloomberg and/or Reuters of the outcome of their participation in the Reserve Bank’s OMO. The Reserve Bank strongly encourages counterparties with access to either or both of these services to receive electronic notification of their results. 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 Monetary Policy Implementation +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 regular operations, but does not guarantee to do so.

A summary of the Reserve Bank’s OMO is published on the Reserve Bank’s pages on the market data services shortly after participants have been notified regarding their approaches (Regular OMO: Reuters – RBA32–RBA34, Bloomberg – RBAO08; Additional OMO: Reuters – RBA36, Bloomberg – RBAO08). These include the value, weighted average and cut-off rates (for fixed rate repos) or weighted average and cut-off spreads to the cash rate target (for floating rate repos), summarised by term. Subsequently, the same information is published in Statistical Table A3 on the Reserve Bank’s website. No information regarding the specific terms of the Reserve Bank’s OMO transactions with individual counterparties is made public, except as permitted by the RITS Regulations. The Reserve Bank reserves the right to republish the summary of each OMO on the market data services and on the Reserve Bank’s website.

1.7 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 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 a repurchase transaction (a ‘repo’) 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.

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 or, alternatively, their decision to use the triparty collateral management service (ASXCOL+) provided by ASX Collateral Management Services Pty Ltd. Eligible counterparties should provide the details to the Domestic Markets Desk either;

1. at the time of submitting an OMO approach (consistent with section 1.4, see Structure of Approaches for Repurchase Agreements); or
2. following the Reserve Bank’s notification with the outcome of the approach.

In the case of floating rate repos, the Bank will email a written confirmation of the repo which will specify the transaction details for the repo – including the reference rate (the cash rate target) and agreed spread that will be used to calculate the pricing rate each day – to the eligible counterparty. A written confirmation will not be provided for fixed rate repos; confirmation will continue to be via the matching of settlement instructions in Austraclear (see below and RITS Regulations).

The eligible counterparty must enter the relevant details of an agreed 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 (see box for a floating rate repo example). As above, for a fixed rate repo, 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, via Bloomberg and/or Reuters, does not constitute the ‘Confirmation’ of the repo.

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 Monetary Policy Implementation +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).

1.8 Settlement Procedures

Securities transactions entered into as part of the Reserve Bank’s regular OMO (including margin maintenance and substitutions on repos) 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 all OMO repos, the Reserve Bank no longer uses the auto-unwind facility in Austraclear. Instead, the Reserve Bank will submit unwind instructions in Austraclear on the maturity date of OMO repos (or on the settlement date for any substitutions). In the case of maturing floating rate repos, the repurchase price will reflect the sum of the original purchase price and the total accrued price differential as determined according to the realised cash rate target (and the agreed spread) during the term of the repo.

For repos contracted in the Reserve Bank’s OMO, the Reserve Bank seeks reimbursement of the settlement fees it incurs from using Austraclear’s repo functionality. Specifically, the Reserve Bank recovers from its counterparties:

1. settlement fees of any first and second leg securities transactions;
2. coupon transfers; and
3. 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 Outright Purchases of Near-to-maturity Government Securities

At present, the Reserve Bank does not purchase short-dated government bonds (those with terms to maturity less than 18 months) for monetary policy implementation.

However, the Reserve Bank retains the capability and discretion to resume purchasing short-dated government bonds to implement monetary policy, in addition to regular OMO. Such outright purchases could be used to limit the extent of the Reserve Bank’s footprint in any one market and aid in the management of operational risks.

For further information, see The RBA’s monetary policy implementation system – some important updates.

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 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. Under this facility, the Reserve Bank currently sells securities under repo at a pricing rate equal to the interest rate paid on Exchange Settlement balances (the ‘ES rate’) less 0.20% and, if lending is done against collateral securities, buys securities under repo at a pricing rate equal to 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. In this facility, the Reserve Bank currently sells securities under repo at a pricing rate equal to the ES rate less 0.25% and, if lending is done against securities, buys securities under repo at a pricing rate equal to the ES rate. Pricing is entirely at the discretion of the Reserve Bank and is subject to change.

Intraday securities lending is available from either facility against eligible collateral only. There is no price differential that accrues under an intraday securities lending transaction, but counterparties are required to reimburse the trade settlement fees to the Reserve Bank.

The minimum Face Value parcel that a counterparty can borrow from all securities lending facilities is $5 million.

Requests to access securities lending from either facility 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 business 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 business day they wish to take delivery of securities. Approaches after these respective times will be dealt with on a ‘best endeavours’ basis.

Securities lending requests should be submitted using the Stock lending template.

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 an intraday securities lending transaction on its repurchase date, it should immediately contact the Reserve Bank’s Domestic Markets Desk. Where an intraday securities lending transaction is not fully unwound on its purchase / repurchase date, the term of the intraday securities lending transaction may (at the discretion of the Reserve Bank) be extended in accordance with the applicable terms specified in the RITS Regulations. See AFMA’s Reciprocal Purchase Agreement Conventions for Settlement Failures in relation to partially unwound intraday securities lending transactions.

The Reserve Bank will also consider proposals to sell semi government bonds that it owns outright against an offsetting (duration-neutral) outright purchase of semi 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.

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 – such as self-securitisations)
• for an overnight term
• contracted at the cut-off rate of the Reserve Bank’s most recent regular OMO.