Securities Lending Facility

Please note: Eligible parties are now able to post cash as collateral when accessing the AOFM's securities lending facility.

Eligible parties are able to borrow Treasury Bonds and Treasury Indexed Bonds through a securities lending facility provided by the Australian Office of Financial Management (AOFM). The Reserve Bank of Australia (RBA) operates the facility on behalf of the AOFM.

The lending facility allows bond market participants to borrow Treasury Bonds and Treasury Indexed Bonds when they are not readily available from other sources in the market.

Treasury Bonds and Treasury Indexed Bonds may be borrowed open term (a minimum of one day and automatically rolled each business day until terminated) or intraday.

The facility is intended to enhance the efficiency of the Treasury Bond and Treasury Indexed Bond markets.

The capacity of intermediaries to make two-way prices, particularly for bonds that become 'tight' in the repurchase market, is increased if Treasury Bonds and Treasury Indexed Bonds can be borrowed when required on an open term basis.
Settlement processing of financial transactions involving Treasury Bonds and Treasury Indexed Bonds can in some situations be made significantly smoother for market participants if such bonds can be borrowed intraday.

The facility operates through repurchase agreements between the RBA and bond market participants. A repurchase agreement (commonly referred to as a repo) involves a holder of debt securities (for example, Treasury Bonds) selling them for cash, and simultaneously agreeing to repurchase them at a fixed price on a fixed date in the future.

Securities lending facilities similar to this facility are operated by the State Government borrowing authorities and many overseas sovereign borrowers.

The following is more detailed information concerning the facility:

Securities Available to be Borrowed

The AOFM manages a stock of Treasury Bonds and Treasury Indexed Bonds created and issued under the Commonwealth Inscribed Stock Act 1911 for the purpose of securities lending by the Treasurer. Any Treasury Bond or Treasury Indexed Bond line currently on public issue is available for borrowing via the facility unless otherwise stated on RBA40 (Refinitiv) or RBAO9 (Bloomberg).

The total face value amount of bonds available for borrowing via the facility at any one time is limited to $5 billion.

While every reasonable attempt will be made to meet all requests to borrow bonds through the facility, there is no commitment to fulfil all requests.

Collateral

Counterparties borrowing bonds through the facility must provide collateral in the form of cash or acceptable securities.

Securities accepted as collateral are government-related, Australian-dollar denominated securities accepted by the RBA as general collateral in relation to repurchase agreements with the RBA. These securities include:

Australian Government Securities (that is, Treasury Bonds, Treasury Indexed Bonds and Treasury Notes);
securities issued by Australian State and Territory central borrowing authorities;
certain securities of foreign sovereigns and their agencies, as well as supranational institutions;
securities with an Australian Government Guarantee; and
certain securities with a foreign sovereign government guarantee.

Further details concerning eligible securities are contained on the RBA website.

Counterparties can request to substitute one or more lines of collateral securities for others over the term of an open term securities lending transaction.

Role of Reserve of Bank of Australia (RBA)

The RBA operates the facility on behalf of the AOFM. The RBA contracts as principal, vis-a-vis a counterparty, in securities lending transactions undertaken through the facility.

Requests to access the facility should be directed to the RBA's Domestic Markets Desk at dealingroom@rba.gov.au or on +61 2 9551 8321. Market participants wishing to access the facility should notify the RBA 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 Exchange Settlement (ES) account, access should be notified 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.

Eligible Counterparties

Any member of the Reserve Bank Information and Transfer System (RITS) eligible to participate in the Reserve Bank’s domestic market operations is able to access the securities lending facility.

Transaction Type

Where collateral is in the form of acceptable securities, each securities lending transaction will be completed using a cash matched repurchase agreement and reverse repurchase agreement. The RBA will pay cash to the counterparty to purchase the collateral securities under a reverse repurchase agreement, and the loaned bonds will be sold to the counterparty, in exchange for cash, under a repurchase agreement.

Where collateral is in the form of cash, each securities lending transaction will be completed using a repurchase agreement.

Counterparties should note that by entering a repurchase agreement with the RBA into the Austraclear System, the counterparty is agreeing to be bound by the terms of SIFMA/ICMA Global Master Repurchase Agreement, as amended and supplemented by the RBA in Annex A of the RITS Regulations and the RBA website.

Settlement Period and Term

The first leg of each repurchase agreement and (where relevant) reverse repurchase agreement are for same-day settlement on any day which is not a public holiday in Sydney.

In the case of intraday securities lending transactions, the second leg of each repurchase agreement and (where relevant) 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 SWIFT End Session, the transaction becomes an open term securities lending transaction. For RITS members who do not operate an ES account, the second leg of an intraday securities lending transaction must be completed by the end of the RITS Daily Settlement Session, otherwise the transaction becomes an open term securities lending transaction.

An open term securities lending transaction is automatically rolled on the same terms at 11:00am (AEST/AEDT) each business day unless either the RBA or the counterparty advise otherwise prior to this time. A counterparty or the RBA may still request that an open repurchase agreement be terminated after this time. The RBA will treat these counterparty requests on a “best endeavours” basis. The maturity date can be the same day the advice is received.

Intraday securities loans must be unwound in full; they cannot be partially unwound.

Initial Margin

A margin ratio is applied to the collateral held by the RBA. This is done in accordance with the rules applying to reciprocal purchase transactions in the RITS Regulations and the RBA website.

Margin Calls

Margin calls are conducted in accordance with the rules applying to reciprocal purchase agreements as set out in the RITS Regulations and the RBA website.

In the normal course, margin payments made by either the RBA, or the counterparty, will be met by a free of cash transfer of the required collateral securities in Austraclear. The use of cash will not be permitted for meeting margin calls.

Interest Rates

Interest is payable only in respect of open term securities lending transactions.

The interest rate payable by a counterparty on cash lent by the RBA under a reverse repurchase agreement against the collateral securities will be the rate on Exchange Settlement balances.
The interest rate payable to a counterparty on cash borrowed by the RBA under a repurchase agreement against the Treasury Bonds or Treasury Indexed Bonds will be 25 basis points below the rate on Exchange Settlement balances.

In the case of an intraday securities lending transaction, the counterparty will be subject to charges applied by the RBA to reflect fees levied by Austraclear on the RBA in relation to the transaction.

Reporting

Details regarding bonds on loan to counterparties at the end of each day are updated each business day on the RBA's electronic news service pages (Bloomberg – RBAO6 and RBAO9 and Refinitiv – RBA37, RBA39 and RBA40).

Historical data on bonds lent on an open term basis via the facility can be found in the Transactional Data section of our Data Hub. This data set is updated on or before the fifth business day of each month.