RDP 2021-01: The Role of Collateral in Borrowing Appendix A: Interbank Market Infrastructure

In Australia the repo and unsecured interbank markets are over-the-counter and settled bilaterally. Counterparties negotiate loans directly with each other, and settle them by transferring cash and securities to each others' accounts in the Australian payments and settlements infrastructure. In the unsecured market, lending takes place via payments between banks' Exchange Settlement Accounts (ESAs) held in RITS, which is the RBA's interbank high-value payments settlement system. All banks licensed to operate in Australia must have an ESA. During 2008 there were around 50 banks with RITS ESAs, comprising Australian banks and subsidiaries and/or branches of foreign banks.

While an unsecured loan takes place through a series of cash payments in RITS, a repo loan resembles a series of securities transactions. In Australia these transactions are mostly settled through Austraclear, Australia's settlement system and central securities depository for debt securities (a subsidiary of the publicly listed company ASX). Austraclear has capability to feed payments instructions into RITS, which permits account holders to instruct Austraclear to simultaneously transfer, in opposite directions, debt securities across Austraclear accounts and cash across RITS accounts. The international regulatory term for this simultaneous transfer – a key protection against settlement risk – is delivery-versus-payment (DvP) settlement. In September 2008, there were roughly 360 active Austraclear accounts belonging to around 180 separate entities. Entities that hold an Austraclear account but not an ESA execute DvP securities settlements by having another bank with an ESA transfer cash through RITS on their behalf.