Cash Rate Procedures Manual

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Purpose of this Document

This Cash Rate Procedures Manual is intended primarily for the Reserve Bank of Australia (RBA), in its capacity as Administrator of the Cash Rate.

However, certain sections of the Cash Rate Procedures Manual are relevant to participants in the Cash Market. Some sections of the Cash Rate Procedures Manual provide Cash Market Participants with instructions on how to properly identify their Cash Market Transactions (Section 4. Data Sufficiency). There is also clear guidance on which transactions should not be identified as Cash Market Transactions (Section 5. Input Selection). To avoid errors, Cash Market Participants are expected to comply with these instructions.

The Cash Rate is a significant financial benchmark in Australia. However, the RBA is not required to hold a benchmark administrator's licence.

The Cash Rate Procedures Manual describes the design of the Cash Rate benchmark and it sets out the procedures that apply to the RBA for collecting and monitoring transaction data, how these data are used to calculate the Cash Rate, and the processes for publishing the Cash Rate, including where Cash Market Transactions may be insufficient.

The Cash Rate Procedures Manual also provides information on the RBA's internal governance of the Cash Rate benchmark, the management of conflicts of interest, procedures for reporting errors and the handling of complaints and whistle-blowing.

Introduction

The RBA is the Administrator of the Australian financial benchmark known as the interbank overnight cash rate (Cash Rate).

The Cash Rate is the RBA's operational target for the implementation of monetary policy.

The Cash Rate is calculated by the Cash Rate Administrator as the weighted average interest rate on overnight unsecured loans settled as Cash Transfers in the Reserve Bank Information and Transfer System (RITS) between ADIs in the Australian dollar Cash Market.

The Cash Rate is a significant financial benchmark in the Australian financial markets. It is used as the reference rate for Australian dollar Overnight Indexed Swaps (OIS) and the ASX 30 Day Interbank Cash Rate Futures. The Cash Rate is also known by the acronym AONIA in financial markets.

The Cash Rate has been declared by the Australian Securities and Investments Commission (ASIC) to be a significant financial benchmark for the purposes of Part 7.5B (Regulation of Financial Benchmarks) of the Corporations Act 2001 (Cth) (the Act).

However, due to the limited application of Part 7.5B of the Act to the Crown (see section 5A(4) of the Act), the RBA is not required to hold a benchmark administrator's licence.

Consequently, the ASIC Financial Benchmark (Administration) Rules 2018 (the Rules) do not apply in respect of contributors to the Cash Rate, or to the RBA as the Cash Rate Administrator (see Rule 1.1.4 of the Rules).

The RBA acts to promote a reliable and trusted Cash Rate. To do this, the RBA complies with the procedures set out in this Cash Rate Procedures Manual.

To assist the RBA in its role as Cash Rate Administrator, Cash Market Participants are expected to comply with the guidance set out in the following sections of this Cash Rate Procedures Manual;

Use of the Cash Rate and Cash Rate Materials is governed by the Cash Rate terms and conditions, available on the RBA website.

The RBA also publishes a Cash Rate Total Return Index (TRI), which members of the public can use as a benchmark with a (near) risk-free rate of return. The TRI measures the performance of an investment earning the Cash Rate, where interest is reinvested.

This Cash Rate Procedures Manual sets out:

  • The RBA's internal governance arrangements for administration of the Cash Rate and the TRI
  • Conflicts of interest procedures
  • The calculation methodology employed to compute the Cash Rate and the TRI
  • The standards applicable to the data inputs and the data methodology
  • The use of Expert Judgment
  • Cut-off times for publication of the Cash Rate and the TRI
  • Error handling procedures
  • Resources and business continuity arrangements for administering the Cash Rate
  • The process in the event of material changes in methodology
  • Complaints handling and whistle-blowing processes

The RBA owns and operates RITS, Australia's high-value payments system.

RITS is used by ADIs and other approved institutions to access their Exchange Settlement Accounts (ESAs) and to settle their payment obligations on a real-time gross settlement basis.

Glossary of Terms

To the extent of any inconsistency, the definition of a term in this Glossary will prevail over the definition of a term as set out in the remainder of this Cash Rate Procedures Manual.

Authorised Deposit-taking Institution (ADI) – a body corporate authorised under section 9 of the Banking Act (1959) to carry on banking business in Australia.

Business Day – a day upon which the Cash Market is open; this is a weekday on which banks generally are open for business in Sydney or Melbourne (this aligns with the definition of Settlement Day in the RITS Regulations).

Cash Market – for the purposes of the determination of the Cash Rate, the market for borrowing and lending Australian Dollar ESA balances between Cash Market Participants on an unsecured basis, for same day settlement of the initial advance and a term of overnight.

Cash Market Participant – an ADI that settles any Cash Market Transactions across its own ESA and which is required by the Cash Rate Administrator to identify all relevant trading activity in RITS. ADIs that hold ESAs are identified on a list published on the RBA website, which is updated from time to time (ESA Holders (ADIs) in the RITS Membership List). This list includes a number of ADIs that may appoint a settlement agent for the management of their ESA (identified by an asterisk) and as such do not conduct Cash Market Transactions. Where such institutions decide to transact in the Cash Market, their transactions must be appropriately identified in RITS as specified in this Cash Rate Procedures Manual (see Section 4. Data Sufficiency and Section 5. Input Selection).

Cash Market Transaction – or Transaction Data – a transaction in the Cash Market with a term of overnight between one ADI (as an unsecured provider of credit) and another ADI (as an unsecured receiver of credit) settled via a RITS Cash Transfer.

Cash Rate – the volume-weighted average overnight interest rate on a per annum basis on unsecured borrowing and lending transactions between Cash Market Participants settled within RITS. The Cash Rate is rounded to two decimal places and published on market data services (Reuters RBA30 and Bloomberg RBAO7) and on the RBA website (see RBA - Statistics - Cash Rate).

Cash Rate Administrator – the RBA is the Cash Rate Administrator. Within the RBA, staff in the MPID business unit are tasked with the specific role and responsibilities of Cash Rate Administrator as set out in this Cash Rate Procedures Manual in respect of the calculation, error handling procedures and publication of the Cash Rate and the TRI.

Cash Rate Materials – as defined in the Copyright and Disclaimer Notice.

Cash Rate Oversight Committee – the Committee established by the RBA to oversee the administration of the Cash Rate by the Domestic Markets Department of the RBA (see the Annex for Terms of Reference).

Cash Rate System – the RBA internal system used by the Cash Rate Administrator to collect, control and monitor the Transaction Data and use this data to calculate and publish the Cash Rate and TRI.

Cash Rate Target – in respect of any day, the RBA's target for the Cash Rate for that day, as determined by the RBA Board in pursuit of its statutory objectives and as published by the RBA on its website (see RBA - Statistics - Cash Rate) and on market data services (Reuters RBA30 and Bloomberg RBAO7).

Cash Rate Total Return Index or TRI – an index calculated and published by the Cash Rate Administrator which measures the performance of an investment earning the Cash Rate. The formula, interest payment, rounding and base period conventions as well as the publication details are set out in Section 18. Cash Rate Total Return Index – Calculation and Publication

Counterparty-specific Transaction Data or Transaction Data – in respect of a Cash Market Participant, data in respect of an individual Cash Market Transaction between the Cash Market Participant and another Cash Market Participant. The details required to be identified in RITS in respect of each individual Cash Market Transaction are set out in Section 4. Data Sufficiency.

Evening Agreed ADI – has the meaning given in the RITS Regulations. It is an ESA holder that is eligible to settle Eligible Evening Transactions (as defined in the RITS Regulations) in the evening settlement session of the RITS settlement day.

Exchange Settlement Account or ESA – has the meaning given in the RITS Regulations. It is a deposit account provided by the RBA to approved financial institutions or other approved payments providers, used for final settlement in RITS of Australian dollar obligations between ESA holders. For further details see ESA.

Expert Judgement – Determinations made by the Cash Rate Administrator where the Transaction Data may not meet the requirements set out in Section 4. Data Sufficiency, Section 5. Input Selection and Section 6. Hierarchy of the Data Inputs. The criteria governing the use of Expert Judgement are set out in Section 7. Use of Expert Judgement.

Manager – the employee within the MPID section of the RBA's Domestic Markets Department who has escalation, validation and approval responsibilities in the Use of Expert Judgement (see Section 7. Use of Expert Judgement) and for publication of the Cash Rate (see Section 9. Publication).

Monetary Policy Implementation – Dealing (MPID) – the business unit within the RBA's Domestic Markets Department tasked with implementing the responsibilities of the RBA as Cash Rate Administrator

Publication Date – the date on which the Cash Rate is published by the Cash Rate Administrator. The Publication Date for the Cash Rate will always be the Business Day which immediately follows the Report Date and is the date on which the Cash Market Transactions which underpin the Cash Rate mature. The Cash Rate may, under limited circumstances, be republished on the Publication Date (see Section 10. Procedures for Errors).

Publication Time – the time at which the Cash Rate is published by the Cash Rate Administrator on the Publication Date, which will be prior to 9.20am Australian Eastern Standard Time (AEST)/ Australian Eastern Daylight-saving Time (AEDT) unless the Publication Time is deferred under the limited circumstances provided for in Section 9. Publication.

Report Date – the date on which the Cash Market Transactions which underpin the Cash Rate were agreed and settled.

RITS – the Reserve Bank Information and Transfer System.

RITS Cash Transfer – a cash payment in RITS used to settle interbank transactions. Both parties to a Cash Transfer enter their details, which must match for the transaction to settle.

RITS Regulations – the Regulations promulgated by the RBA governing participation in RITS.

1. Governance

The administration of the Cash Rate and TRI is the responsibility of the Domestic Markets Department (DM) of the RBA.

The administration functions include:

  • Collection and analysis of the source Transaction Data within RITS
  • Calculation and publication of the aggregated Transaction Data
  • Communication with Cash Market Participants regarding any discrepancies
  • Applying, where required, the use of Expert Judgement
  • Implementing error handling procedures
  • Periodically reviewing the data methodology and data inputs

The business unit within DM that administers the Cash Rate and TRI is Monetary Policy Implementation – Dealing (MPID).

Other than being responsible for administering the Cash Rate and TRI, MPID is responsible for managing the activities related to the RBA's operational framework for implementing monetary policy.

These activities include conducting market operations (via reciprocal purchase transactions (repos) and reverse repos, and purchases and sales of eligible securities) to ensure that the Cash Rate is consistent with the Cash Rate Target determined by the RBA Board (see Domestic Market Operations).

MPID staff occupy positions designated as sensitive within the RBA. This means that they are required to take leave for a minimum of ten consecutive business days within any 15-month period. While taking this leave, they cannot receive or provide any instructions or enter any transactions into the RBA's systems regarding the duties of their position.

The responsibilities of MPID staff as Cash Rate Administrator are set out in their position descriptions and individual dealing authorities.

The RBA provides staff training, information technology and financial resources to ensure that it can reliably produce the Cash Rate and TRI. Details of these resources are set out in Section 12. Resources for Administering the Cash Rate.

The procedures followed by the Cash Rate Administrator in the event of an internal system outage, or absence of, or insufficient data inputs are set out in Section 6. Hierarchy of the Data Inputs, Section 7. Use of Expert Judgement, and Section 10. Procedures for Errors.

The RBA has established a Committee to oversee the administration of the Cash Rate by DM (the Cash Rate Oversight Committee).

The Cash Rate Oversight Committee reports to the RBA's Risk Management Committee and is chaired by the Head of Risk and Compliance of the RBA. Its composition includes senior RBA Personnel from areas of the RBA other than DM.

The Cash Rate Oversight Committee acts to promote the delivery of a reliable and effective Cash Rate and may examine any aspect of the Cash Rate Procedures Manual for this purpose. The Cash Rate Oversight Committee is responsible for handling and investigating any complaints and whistle-blower reports.

The Cash Rate Oversight Committee's Terms of Reference are in the Annex.

2. Conflicts of Interest

To protect the integrity and independence of the Cash Rate, the RBA implements policies to avoid conflicts of interest.

RBA staff and other relevant individuals must behave according to Code of Conduct for Reserve Bank Staff (RBA Code of Conduct), which explicitly requires them to recognise and manage any conflicts between their personal interests and their duties to the RBA.

The RBA Code of Conduct also restricts the ability of RBA staff to transact in certain financial instruments. Of most relevance for the Cash Rate, RBA staff and other individuals subject to the RBA Code of Conduct (and any entity controlled by them) may not:

  • Enter into, arrange, buy, sell or otherwise deal in interest rate derivatives; or
  • Engage or be involved in active trading in any financial instrument.

Under the Public Governance, Performance and Accountability Act 2013 (Cth) (PGPA Act), RBA staff are required to disclose any ‘material personal interest’ that relates to the affairs of the RBA.

In addition, all MPID staff are required by the RBA to lodge specific disclosures in relation to their personal interests in financial instruments.

3. Benchmark Design

The Cash Rate is the Cash Rate Administrator's measure of the volume weighted average interest rate at which ESA balances held at the RBA by ADIs are lent between ADIs on an unsecured basis and for an overnight term.

The venue for trading such balances is the Cash Market.

The procedure for calculating the Cash Rate is based on Transaction Data extracted from RITS. The Cash Rate Administrator collects data on all RITS Cash Transfers for each Business Day that the Cash Market is open.

To enable the Cash Rate Administrator to identify in scope Cash Market Transactions, Cash Market Participants are required to identify any such Cash Market Transactions in RITS as specified in this Cash Rate Procedures Manual (see Section 3. Benchmark Design and Section 4. Data Sufficiency) and in the AFMA Cash Conventions.

These Transaction Data are used by the Cash Rate Administrator to calculate the Cash Rate.

Cash Market Participants are as defined in the Glossary of Terms.

Any Cash Market Participant which settles any Cash Market Transactions across its own ESA is required to identify all relevant trading activity in RITS in the manner specified in Section 4. Data Sufficiency

ADIs that do not settle any Cash Market Transactions across their own ESA are not in scope of the Cash Rate.

ADIs that appoint a settlement agent for all transactions across ESAs are not in scope of the Cash Rate.

ADIs that hold ESAs are identified on a list published on the RBA website, which is updated from time to time (see ESA Holders (ADIs) in the RITS Membership List).

4. Data Sufficiency

The Cash Rate is calculated as an average of the interest rates on all individual Cash Market Transactions weighted by the principal amount transacted (see Section 5. Input Selection).

Cash Market Participants are required to identify all their activity in the Cash Market in RITS on each Business Day that the Cash Market is open.

Since RITS remains open until 10.00pm AEST/AEDT (close of the Evening Settlement Session), whereas the Cash Market closes as per the AFMA Cash Conventions at 6.30pm/8.30pm AEST/AEDT, ADIs that settle any Cash Market Transactions between the close of the Cash Market and 10.00pm must appropriately identify these transactions in RITS.

Identification of transactions in RITS is required from all in scope Cash Market Participants regardless of the frequency of their Cash Market Transactions.

For the first leg of each individual Cash Market Transaction on the Report Date, both Cash Market Participants must enter the following details in the relevant fields of the RITS Cash Transfer Entry Screen (detailed instructions on entering Cash Transfers are available in the RITS Cash Transfer User Guide):

RITS Cash Transfer Entry Fields Input Details
Side The direction of the transaction (borrowing/lending Australian dollars; receiver/payer)
Other Member The Counterparty ADI
Deal Date This must be equal to the Report Date
Settlement Date This must be equal to the Deal Date and must be the Report Date
Interest Rate To be entered on a per annum basis (to four decimal places)
Amount Principal Amount
Trade Type The code IBOC1 must be selected

All fields above are matching fields, meaning the details entered by both parties must match before the transaction can proceed to final settlement.

As a general rule, the Cash Rate Administrator does not alter, delete or otherwise modify the details identifying a Cash Market Transaction in any way (see Section 7. Use of Expert Judgement).

All bilaterally identified Cash Market Transactions (i.e. where both parties have selected the IBOC1 code in the ‘Trade Type’ field of the RITS Cash Transfer) are automatically included in the calculation of the Cash Rate for the Report Date.

The Cash Rate Administrator may contact Cash Market Participants regarding RITS Cash Transfers where neither side has identified the transaction as a Cash Market Transaction if it has reason to believe that the transaction was in scope of the Cash Rate.

The Cash Rate Administrator may also contact Cash Market Participants regarding RITS Cash Transfers where both sides have identified the transaction as a Cash Market Transaction if it has reason to believe that the transaction was not in scope of the Cash Rate.

To allow the Cash Rate Administrator to verify that transactions identified as Cash Market Transactions reverse on the next Business Day following the Report Date, Cash Market Participants must enter the following details in the RITS Cash Transfer Entry Screen for the second legs (i.e. when the original principal and interest are returned by the borrower to the lender) of Cash Market Transactions:

RITS Cash Transfer Entry Fields Input Details
Side The direction of the transaction (borrowing/lending Australian dollars; receiver/payer)
Other Member The Counterparty ADI
Deal Date This should be equal to the Report Date
Settlement Date This must be the next business day following the Report Date
Interest Rate To be entered on a per annum basis and must equal the interest rate entered on the first leg of the transaction (to four decimal places)
Amount Principal Amount
Trade Type The code IBOC2 must be selected

When approached by the Cash Rate Administrator to resolve any matters related to Cash Market activity, Cash Market Participants are required to promptly respond.

In its communications with a Cash Market Participant, the Cash Rate Administrator will have regard to, and may communicate, the Transaction Data which has been identified to the Cash Rate Administrator by other Cash Market Participant(s) as transactions where the Cash Market Participant is a counterparty.

5. Input Selection

The Cash Rate Administrator collects individual Cash Market Transaction details from RITS on the Report Date.

Details of the specific Transaction Data collected from RITS can be found in Section 4. Data Sufficiency.

For the avoidance of doubt, and without limitation, the following types of transactions are not counted as Cash Market Transactions:

  • Transactions between ADIs conducted outside of RITS
  • Transactions with ADIs that use a settlement agent for all transactions across ESAs
  • Transactions between ESA holders that are ‘related bodies corporate’ (as defined in the Corporations Act 2001 (Cth)). For example, transactions between two subsidiaries of an entity or between an Australian branch of an entity and its subsidiary
  • Transactions in which the commitment to lend (or accept) funds was made in advance of the Report Date or included a commitment to lend (or accept) further funds on future days; and
  • Transactions in which the terms of the interbank loan were negotiated as part of a broader agreement that included other obligations between the two parties.

6. Cash Rate Determination

When sufficient data are available, the Cash Rate is calculated from Cash Market Transactions settled in RITS. For the Cash Rate to be determined entirely from Cash Market Transactions, the following criteria must all be satisfied on each date the cash rate is determined:

Cash Rate Criteria
1. The Cash Market Transactions have been collected by the Cash Rate Administrator from settled RITS Cash Transfers which have been appropriately identified by Cash Market Participants as specified in this Cash Rate Procedures Manual; and
2. The total value of Cash Market Transactions on that date is over $500 million; and
3. The number of Cash Market Transactions on that date is at least 3; and
4. The number of different Cash Market Participants who are counterparties to the Cash Market Transactions is at least 4 on that date

These thresholds are subject to review, including in response to market developments.

If there are insufficient Cash Market Transactions – i.e. at least one of the cash rate criteria above is not satisfied – the published Cash Rate on the Publication Date will be the last Cash Rate published, or the new Cash Rate Target should one be announced by the RBA Board, or another rate that reflects the interest rate relevant to unsecured overnight funds for Cash Market Participants as determined by the Cash Rate Administrator, in its Expert Judgement and based on market conditions. Further detail on the circumstances in which the Cash Rate Administrator would use Expert Judgement is in Section 7. Use of Expert Judgement.

The identification by Cash Market Participants of all in-scope transactions in RITS Cash Transfers (using the code IBOC1 for first legs and IBOC2 for second legs of such transactions in the ‘Trade Type’ field), and the requirement for the details entered by both parties to match before transactions can settle provide the Cash Rate Administrator with a strong control over the quality and consistency of the underlying data.

In the instance where both parties have identified a transaction using an incorrect code, the Cash Rate Administrator should be promptly notified to resolve the discrepancy. Where both parties have agreed that the transaction was a Cash Rate Transaction, the Cash Rate Administrator will change the status of the omitted transaction to IBOC1 and include it in the Cash Rate calculation. Instances where parties have omitted the code IBOC1 will not be reported as Errors in the Error Report (see Section 10. Procedures for Errors).

Where any instances of discrepancies described above cannot be resolved before the Cash Rate Administrator is required to publish the Cash Rate for the Report Date (i.e. prior to 9.20am on the Publication Date), the Cash Rate Administrator will determine whether the reported Cash Market Transactions that are subject to the discrepancy are unreliable inputs into the Cash Rate calculation and whether they should be removed from the inputs into the Cash Rate calculation.

If the Cash Rate Administrator has reason to believe that any reported Cash Market Transactions do not fall in scope of the data inputs (for example, if the transactions are for a term greater than one Business Day) such transactions may, at the discretion of the Cash Rate Administrator, be removed from the calculation of the Cash Rate.

A decision to remove Cash Market Transactions from the calculation of the Cash Rate must be approved by a Manager (or more senior Personnel) in MPID.

Public information on the number of transactions that have been removed from the calculation of the Cash Rate by the Cash Rate Administrator will be reported on a quarterly basis in the Error Report (see Section 10. Procedures for Errors).

The identity of the Cash Market Participants that were unable to resolve any such inconsistencies will not be published in the Error Report.

7. Expert Judgement

In the event that the Cash Rate Administrator, in its Expert Judgement, determines the Transaction Data on a Report Date to be insufficiently robust, the Reserve Bank will use Expert Judgement to determine the cash rate. For example, this may occur where, in its discretion, the Cash Rate Administrator determines that ADIs are not sufficiently complying with the transaction input requirements as specified in this Cash Rate Procedures Manual, or where the RBA's systems are unavailable to perform the Cash Rate calculation.

Expert Judgement will be used where:

Expert Judgement Triggers
1. The RBA's internal systems for calculating the Cash Rate are unavailable; or
2. The Cash Rate Administrator determines, in its discretion, that ADIs are not sufficiently complying with the transaction input requirements as specified in this Cash Rate Procedures Manual; or
3. The criteria for determining the Cash Rate from market data are not met, that is, there are insufficient Cash Market Transactions.

In all such instances, the Manager in MPID (or more senior personnel) will escalate the decision to use Expert Judgement to either the Deputy Head of DM or the Head of DM. Instances where the use of Expert Judgment has been applied will be clearly communicated (see Section 11. Transparency of Benchmark Determinations).

There are three ways in which the Reserve Bank may use Expert Judgement:

Expert Judgement
A. The Reserve Bank may determine the cash rate to be the last cash rate published; or
B. The cash rate target, should a new target be announced by the Reserve Bank Board; or
C. A rate that is judged to better reflect the interest rate relevant to unsecured overnight funds for cash market participants, based on Expert Judgement and market conditions.

When Expert Judgement is used, the published Cash Rate will be the last Cash Rate published except where the Cash Rate Administrator deems this would be inappropriate. In this instance, the Cash Rate will be either the new Cash Rate Target should one be announced by the RBA Board, or another rate that is judged to better reflect the interest rate on unsecured overnight funds for Cash Market Participants. The Administrator may consider a number of factors when determining an appropriate rate including, but not limited to, transactions that have occurred over recent days.

In all cases, the use of Expert Judgement will be flagged by the inclusion of the text ‘Cash Rate determined by reference to fall back procedures – Insufficient Data (or) Technical Problem’ on the Reserve Bank's Reuters and Bloomberg cash rate announcement pages. The use of Expert Judgement, including the type of Expert Judgement used – that is, fall back options A, B or C above – will be recorded in the Notes to Statistical Table F1.

8. Data Collection

The Cash Rate Administrator collects from RITS details of all Cash Transfers settled on the Report Date. The RITS Cash Transfer data are then filtered for transactions where the IBOC1 identifier has been selected in the ‘Trade Type’ field.

Transactions between Cash Market Participants where both parties have selected the code IBOC1 in the ‘Trade Type’ field are automatically designated Cash Market Transactions, however the Cash Rate Administrator may use Expert Judgement and remove such bilaterally identified trades from the calculation of the relevant day's Cash Rate (for example, when the term of a transaction is greater than one Business Day).

The Cash Rate Administrator may also designate a RITS Cash Transfer where neither side has selected the IBOC1 code in the ‘Trade Type’ field as a Cash Market Transaction, if communication with the relevant Cash Market Participant(s), has revealed that the transaction was in fact a Cash Market Transaction.

The Cash Rate Administrator may remove a RITS Cash Transfer where both sides have selected the IBOC1 code in the ‘Trade Type’ field from an in scope Cash Market Transaction, if communication with the relevant Cash Market Participant(s), has revealed that the transaction was in fact not a Cash Market Transaction.

All such communication would be initiated if the Cash Rate Administrator had reason to believe that the transactions either conformed or not to in-scope Cash Market Transactions. All such communication will be on a recorded telephone line.

Once the Cash Rate Administrator is satisfied that all Cash Market activity for the Report Date has concluded, and that all relevant transactions have been designated as Cash Market Transactions, the Cash Rate Administrator will finalise the Transaction Data and calculate the Cash Rate. Only the Manager in MPID (or more senior personnel) is permitted to finalise data.

Since Cash Market Transactions can settle until the close of the Evening Settlement Session in RITS (normally 10.00pm AEST/AEDT), the Cash Market Administrator will in the normal course of operations only finalise the Transaction Data on the Business Day immediately following the Report Date, i.e. the Publication Date.

In order to allow timely publication of the Cash Rate (i.e. prior to 9.20am AEST/AEDT on the Publication Date), Cash Market Participants must ensure that they are readily contactable on the morning of the Publication Date, and must promptly respond to any enquiries by the Cash Rate Administrator related to their Cash Market activity on the Report Date.

The Cash Rate Administrator may, under some limited circumstances determined on a case-by-case basis, defer the publication of the Cash Rate (see Section 9. Publication).

Once the Transaction Data for a given Report Date have been finalised, the Cash Rate Administrator will monitor RITS Cash Transfers that settle on the following Business Day to confirm the unwind of transactions identified as Cash Market Transactions. For all such Cash Market Transactions, the Cash Rate Administrator will calculate a predicted unwind amount and search for matching RITS Cash Transfers on the following Business Day. Where a matching RITS Cash Transfer is found, the Cash Market Administrator will check that:

  • the parties to the transaction match the first leg of the Cash Market Transaction, in reverse order (that is, the receiver in the first leg is the payer in the second leg and vice versa);
  • the Interest Rate is equal to the Interest Rate agreed to in the first leg; and
  • both Cash Market Participants have selected the code IBOC2 in the ‘Trade Type’ field of the RITS Cash Transfer.

Transactions where all of the above conditions are met are deemed to have successfully unwound and are thus confirmed to have been true Cash Market Transactions. The Cash Rate Administrator will follow up any discrepancies with the relevant Cash Market Participant(s), and where such communication reveals that a trade was erroneously identified on the Report Date as a Cash Market Transaction, the trade will be treated as per the Cash Rate Administrator's procedures for errors (see Section 10. Procedures for Error).

All RITS Cash Transfer data are stored securely. Only authorised users have access to the Transaction Data.

The RBA may (without limitation) disclose Cash Market Transactions, or relevant correspondence and documents, to a financial sector supervisory agency, provided that the RBA is satisfied that the disclosure of the Cash Market Transactions, or the production of any relevant documentation, will assist the agency to perform its functions or exercise its powers, and provided the agency has requested the information in writing; see section 79A(4) of the Reserve Bank Act 1959 (Cth), and clause 31.1(c) of the RITS Regulations.

In certain circumstances, the RBA may also (without limitation) refer to a relevant financial sector supervisory agency any concerns it has in relation to market integrity or a Cash Market Participant's conduct within the Cash Market.

Transactions designated as Cash Market Transactions and therefore included in the calculation of the Cash Rate are retained permanently by the Cash Rate Administrator as national archives.

RITS Cash Transfers that are not Cash Market Transactions are automatically deleted after seven months. A log of key changes to Transaction Data will also be maintained.

The Cash Rate Administrator will permanently maintain records of instances where Expert Judgment was used, namely when a particular sample of Transaction Data was determined to be insufficiently robust and required escalation to the Deputy Head of DM or the Head of DM (see Section 7. Use of Expert Judgment).

Records relating to complaints and whistle-blower reports received by the RBA (see Section 17. Complaints and Whistle-blowing) will also be retained as national archives.

9. Publication

The Cash Rate calculated from the RITS Cash Transfer data is published to market data services including:

  • Reuters RBA30; and
  • Bloomberg RBAO7.

The Cash Rate is rounded to two decimal places.

The Cash Rate is published on the Business Day following the Report Date (the Publication Date).

Publication occurs prior to 9.20am AEST/AEDT on the Publication Date.

A Manager (or more senior personnel) in MPID validates and approves the publication of the Cash Rate.

Under limited circumstances determined on a case-by-case basis, the Cash Rate Administrator may in its discretion defer the Publication Time of the Cash Rate on the Publication Date. This may, for example, be due to a technical problem or because more time is required to resolve a material inconsistency within the Transaction Data.

In any case, a decision to postpone the Publication Time of the Cash Rate will only be taken if the Cash Rate Administrator is of the opinion that such a postponement is necessary to preserve the quality of the Cash Rate benchmark.

The Cash Rate Administrator may also, under limited circumstances, republish the Cash Rate on the Publication Date. For details, see Section 10. Procedures for Errors.

The history of the Cash Rate data series is published on the RBA's website in:

No Cash Rate will be published by the Cash Rate Administrator for those days on which the Cash Market is closed.

The Cash Rate Administrator only publishes aggregated Cash Market Transaction data as set out in Section 11. Transparency of Benchmark Determinations.

All Transaction Data used by the Cash Rate Administrator are kept strictly confidential, except in the following events;

  • Where disclosure of the Transaction Data to a financial supervisory agency is provided under the powers of that agency as set out in Section 8. Data Collection.
  • Where inconsistent or erroneous Transaction Data is identified and the Cash Rate Administrator considers it is necessary or desirable to provide the data to the Cash Market Participant(s) that is/are party to the transaction so as to address or resolve the inconsistency or any other material issue with the data.

10. Procedures for Errors

Cash Market Participants should inform the Cash Rate Administrator promptly if they become aware that they have incorrectly identified or failed to identify Cash Market Transactions in RITS.

Such reports should be made by telephone to MPID staff:

+61 2 9551 8321

Where such reports of errors in identifying Cash Market Transactions are made to the Cash Rate Administrator after 04.00pm AEST/AEDT on the Publication Date of the Cash Rate, the Cash Rate Administrator will not revise the published Cash Rate and TRI.

The Cash Rate Administrator will nevertheless request that the Cash Market Participant(s) provide details of the reason(s) for such error(s).

Where the Cash Rate Administrator identifies after 04.00pm AEST/AEDT on the Publication Date of the Cash Rate that it is responsible for an error in the calculated Cash Rate, the same principle will apply and the Cash Rate Administrator will not revise the published Cash Rate and TRI or the ancillary Transaction Data used as calculation inputs.

The Cash Rate Administrator will thoroughly investigate the source(s) of any such error(s) it has made and take corrective steps to maintain confidence in the calculation methodology/process.

Where the Cash Rate Administrator becomes aware of an error in the identification of Cash Market Transactions by Cash Market Participant(s) or its own calculation processes on the Publication Date of the Cash Rate, the Cash Rate Administrator may republish the Cash Rate and TRI up until 04.00pm AEST/AEDT on the Publication Date.

In such circumstances, the Cash Rate Administrator will add the term ‘Republication’ to the dedicated pages on the respective market data services (including Reuters RBA30 and Bloomberg RBAO7).

Information on the incidence of errors, intraday republications and Transactions being removed from the Cash Rate calculation by the Cash Rate Administrator will be reported on a quarterly basis by the Cash Rate Administrator via an Error Report published on the RBA website.

The Error Report will include:

  • The number of errors reported over the quarter and the Report Date(s) of such errors
  • Whether such errors led to an intraday republication of the Cash Rate
  • Whether the error was made by a Cash Market Participant or the Cash Rate Administrator
  • The absolute change in the published Cash Rate (expressed in basis points), but not the direction of change
  • The number of Transactions removed from the calculation of the Cash Rate by the Cash Rate Administrator

The identity of the Cash Market Participant(s) that reported the error(s) will not be published.

The Cash Rate Oversight Committee will review Error Reports on a quarterly basis.

11. Transparency of Benchmark Determinations

In order to provide transparency over the broad features of the Cash Market Transactions used to determine the Cash Rate, the Cash Rate Administrator publishes:

  • The number of Cash Market Transactions
  • The highest and lowest interest rates reported for Cash Market Transactions
  • The aggregate volume of Cash Market Transactions

This data is published on the RBA website on a daily basis, usually by 9.20am AEST/AEDT on the Publication Date, in Statistical Table F1, and on a monthly basis in Statistical Table F1.1.

Instances where the Cash Rate has been determined by reference to the last Cash Rate published, or the new Cash Rate Target should one be announced by the RBA Board, or another rate that is judged to better reflect the interest rate relevant to unsecured overnight funds for Cash Market Participants as determined by the Cash Rate Administrator, in its Expert Judgement and based on market conditions – for example, due to insufficient Transaction Data as set out in Section 6. Hierarchy of the Data Inputs or a technical problem – are identified on the market data services (including Reuters RBA30 and Bloomberg RBAO7) by addition of the following text:

Cash Rate determined by reference to fall back procedures – Insufficient Data (or) Technical Problem

Such instances are also recorded in the Expert Judgement tab in Statistical Table F1 on the RBA website. On days where Expert Judgement has been applied because one or both of the thresholds for number of Cash Market Transactions and number of Cash Market Participants have not been satisfied (see Section 6. Hierarchy of the Data Inputs), the following fields will not be published: Highest Interbank Overnight Cash rate, Lowest Interbank Overnight Cash Rate, and Number of Cash Market Transactions.

12. Resources for Administering the Cash Rate

MPID is the business unit within the RBA that is tasked with administration of the Cash Rate and TRI. In order to perform this task, MPID staff receive appropriate training so as to acquire the necessary knowledge of the following:

  • The Cash Rate System developed by the RBA for collecting, controlling and monitoring the Transaction Data and for calculating and publishing the Cash Rate and TRI
  • Collection and analysis of the source Transaction Data within RITS
  • Communication with Cash Market Participants regarding any discrepancies that are relevant to their Cash Market Transactions
  • Internal reporting and escalation procedures
  • Implementing error handling and reporting procedures
  • Calculation and Publication of the Cash Rate and TRI
  • The Cash Market
  • Participants in the Cash Market and relevant contacts within Cash Market Participants
  • This Cash Rate Procedures Manual
  • The AFMA Cash Conventions as published and reviewed from time-to-time by the Australian Financial Markets Association (AFMA)

MPID staff are made aware of their responsibilities under the Cash Rate Procedures Manual by reading and approving their dealing authorities. No access to the Cash Rate System is provided to MPID staff until the dealing authority has been read and approved by MPID staff, and signed electronically by the Head of DM Department.

Each MPID staff member reads the Cash Rate Procedures Manual prior to using the Cash Rate System. Duties discussed between MPID staff and their supervisors include the tasks and processes required for administration of the Cash Rate in accordance with the procedures set out in the Cash Rate Procedures Manual.

The senior manager MPID is responsible for ensuring that MPID staff possess the adequate skills and business knowledge to administer the Cash Rate. The senior manager MPID must respond to any concerns raised by MPID staff by providing specific guidance and detailed explanation on the Cash Rate Administrator's responsibilities and required skills.

The allocation of financial resources to MPID to reliably produce the Cash Rate and TRI is supported by the RBA's budgeting and accounting processes, which allow the RBA to monitor, manage and control its operating expenses.

MPID has adequate information, communications and technological resources to ensure that the Cash Rate can be calculated and published in a reliable and timely manner. This includes the Cash Rate System, telephony and electronic communication systems. These systems are highly supported by dedicated staff within the RBA's Financial Markets Group Business Support Services.

13. Business Continuity Arrangements for the Cash Rate

Under the RBA's Business Continuity Management Policy, the RBA will ensure that its critical business functions can be maintained or restored in a timely way in the event of disruption. The most critical of these functions include those which relate to interbank settlements, banking operations and financial markets operations.

Under this Business Continuity Management Policy, each business function within the RBA is responsible for ensuring that their processes, related procedures and systems are ready for both business continuity testing and in the event of disruption.

MPID is the business function within the RBA that implements the stance of monetary policy, and is tasked with being the Cash Rate Administrator. These responsibilities mean that MPID is considered to be a critical business unit within the RBA.

MO's activities in relation to managing domestic liquidity and publishing data are assigned a criticality rating of ‘Very High’, meaning that MPID systems and services receive sufficient technical support to ensure rapid resumption of business continuity in the event of a disruption.

The RBA's Financial Markets Group maintains a documented Business Continuity Plan (Plan) which meets the objectives of the RBA's Business Continuity Management Policy and is readily accessible by MPID staff in the event of a disruption.

The Plan documents the procedures and resources required to manage an initial business disruption and recover critical business operations. The Plan outlines:

  • Roles, responsibilities and authorities to act in relation to the Plan
  • Communication arrangements with DM staff, other departments and external stakeholders
  • Recovery levels and time targets for each critical business operation as agreed with key stakeholders
  • Recovery strategies for each critical business operation
  • Infrastructure and resources required to implement the Plan; and
  • Employee awareness and training

To ensure continuity of its business operations, and specifically timely calculation and publication of the Cash Rate, the Plan includes redundancy and failover of critical systems and staff relocation to a Business Recovery Site. These arrangements are regularly tested, at least every quarter.

14. Periodic Review

The Cash Rate Oversight Committee meets quarterly and reviews conditions in the Cash Market to determine whether any structural or other significant changes affecting the smooth functioning of the Cash Market may require changes to the design of the Cash Rate benchmark.

Such reviews have particular regard to whether trading activity and liquidity conditions in the Cash Market (e.g. number of participants, volume of transactions, and volatility in interest rates) have changed in such a way that might make the Cash Market an unviable basis for calculating the Cash Rate.

In the case where the Cash Rate Oversight Committee instructs the Cash Rate Administrator to establish and implement changes to the benchmark design, the Cash Rate Administrator will publish a summary of any material revisions and intended implementation dates, and also publish the rationale for any such revisions.

The Cash Rate Administrator will also review on an ongoing basis whether any changes are required to in-scope Cash Market Participants. Such reviews will take into account new entrants in the Cash Market, as well as departures.

15. Material Changes to Methodology

The Cash Rate Administrator will notify via the RBA website any material changes to the benchmark design for the Cash Rate or TRI.

16. Transition

To prepare for contingencies, it is good practice for Benchmark Administrators to have policies and procedures addressing possible cessation of a benchmark due to changes in market structure, product definition or any other development that makes the benchmark no longer representative.

Though currently considered unlikely, under certain circumstances the Cash Rate Oversight Committee and Cash Rate Administrator may consider Benchmark Cessation of the Cash Rate.

To inform this decision, procedures around Periodic Review will be followed to determine whether any structural or other significant changes affecting the smooth functioning of the Cash Market have occurred. If, during Periodic Review, it is determined that: the Cash Market is no longer a viable basis for calculating the Cash Rate; the Benchmark Methodology cannot be adequately changed to capture the economic concept that the Cash Rate seeks to measure; and no alternative markets and/or reference rates exist that are suitable replacements, then Cessation would be considered.

Any decision around Cessation would be evaluated by the Cash Rate Administrator and endorsed by the Cash Rate Oversight Committee, who would approve a plan for Cessation which would include where feasible: a timeline, a public consultation, and steps taken to mitigate the impact. The Cash Rate Administrator would also consider convening a committee of external stakeholders to consult on the transition.

17. Complaints and Whistle-blowing

Internal complaints

If staff have a concern about matters relating to the Cash Rate – including to the benchmark determination process described in this Cash Rate Procedures Manual – they are encouraged to raise it at an early stage, as the earlier concerns are raised the better. Staff can discuss these concerns with their supervisor, Senior Manager or Head of Department. Staff can also use a number of alternative channels including:

Issue

Alternative Channel

Fraud or Unethical Behaviour

Head of Risk & Compliance, Assistant Governor (Financial System), Deputy Governor, Governor

Conduct

Head of Human Resources, Head of Employee Relations (HR), HR Business partner

Staff are also able to report concerns through a specialist, independent provider, KPMG Australia. The service is known as ‘FairCall’ and any concerns raised via this service are reported directly to the Deputy Governor. Staff may report to the service without disclosing their details. The FairCall numbers are:

Australia:

1800 077 109 (toll free)

UK, USA, China:

+61 2 9335 8785

Concerns about fraud and unethical behaviour can also be reported anonymously to the Head of Risk and Compliance Department, the Assistant Governor (Financial System), the Deputy Governor or the Governor, or through disclose@rba.gov.au. Staff are advised to do this by sending an email from an address that does not identify them, or by sending a typed note which does not identify them.

All current and former staff of the Bank and individuals who are, or were, a contracted service provider to the Bank may have general civil, criminal and administrative immunity if they make a genuine disclosure in accordance with the Public Interest Disclosure Act 2013 (Cth) (the PID Act). In order to be covered by the protections of the PID Act, individuals must report their concern to their supervisor or one of the following individuals (each an ‘Authorised Officer’):

  • Head of Risk and Compliance
  • Assistant Governor (Financial System);
  • Deputy Governor; or
  • Governor.

This can be done in person, by telephone or in writing, including by emailing an Authorised Officer directly or sending an email to disclose@rba.gov.au. Individuals can remain anonymous if they wish. Managers and supervisors who receive a disclosure must refer the matter immediately to an Authorised Officer.

External Enquiries and/or Complaints

The RBA's Media and Communications Office remains the central point of contact for enquiries about the RBAs' activities and general matters relating to its policies, including the Cash Rate procedures. The Office can be contacted at rbainfo@rba.gov.au.

The RBA's integrity reporting service, called FairCall, can be contacted by phoning either 1800 077 109. The service has been established for the reporting of suspected illegal or unethical behaviour involving the RBA or its employees. This may include procurement-related corruption and fraud or other types of criminal and unethical behaviour.

All integrity matters will be promptly reported to the Deputy Governor and will be handled with confidentiality and sensitivity. The service is provided by KPMG Australia and it provides the option of anonymity to callers. If callers choose to provide their personal information to KPMG Australia, then KPMG's Privacy Statement will apply.

As noted above, former RBA staff members and individuals who are, or were, contracted service providers can make a public interest disclosure under the PID Act. Other persons working in, or with a relevant connection to, the Commonwealth public sector can also make public interest disclosures. See the RBA's Public Interest Disclosure page for information about making a disclosure under the PID Act.

18. Cash Rate Total Return Index – Calculation and Publication

18.1 Calculation Method

The Cash Rate Total Return Index (TRI) measures the performance of an investment earning the Cash Rate, where interest is reinvested:

T R I t = T R I t - d × ( 1 + C a s h   R a t e t - d × d 3 6 5 × 1 0 0 )

TRI = Cash Rate Total Return Index

t = a Business Day (a day that the Cash Market is open)

d = the number of days since the previous Business Day

The formula indicates that interest earnings are only paid and reinvested on Business Days. On non-Business Days, interest accrues at the Cash Rate of the preceding Business Day, but is not paid and reinvested until the next Business Day.

From 20 December 2021 the TRI for a particular Business Day will be calculated using: the value of the TRI for the previous Business Day rounded to 6 decimal places; and the Cash Rate for the previous Business Day as published on the market data services Reuters RBA30 and Bloomberg RBAO7. Prior to 20 December 2021 the TRI for a particular Business Day will be calculated using: the value of the TRI for the previous Business Day rounded to floating point accuracy; and the Cash Rate for the previous Business Day as published on the market data services Reuters RBA30 and Bloomberg RBAO7.

The base period for the TRI is 4 January 2011 = 100.

18.2 Publication

The TRI is published to market data services (i.e. the same services as those used for the Cash Rate) including:

  • Reuters RBA30; and
  • Bloomberg RBAO7.

Unlike the Cash Rate, which is the rate applicable on the Report Date (the Business Day preceding the Publication Date), the published TRI is the applicable index for the Publication Date.

The TRI is published to six decimal places.

Publication occurs prior to 9.20am AEST/AEDT on the Publication Date.

A Manager (or more senior personnel) in MPID validates and approves the publication of the TRI.

Where the Cash Rate Administrator republishes the Cash Rate on the Publication Date, acting under Section 10. Procedures for Errors, the TRI will also be republished.

The data series of the TRI from 4 January 2011 = 100 is available on the RBA's website in Statistical Table F1 usually by 9.20am AEST/AEDT on the Publication Date.

No TRI will be published by the Cash Rate Administrator for those days on which the Cash Market is closed.

Annex: Cash Rate Oversight Committee Terms of Reference

Committee Objectives

  • The Committee should act to promote the delivery by Domestic Markets Department (DM) of a reliable and effective Cash Rate that complies with the IOSCO Principles for Financial Benchmarks and relevant provisions of the ASIC Financial Benchmark Administration Rules
  • The Committee should act to protect the reputation of the Cash Rate and may examine any aspect of the Cash Rate Procedures Manual for this purpose

Membership

  • Head of Risk and Compliance – Chair
  • Assistant Governor (Financial Markets)
  • Deputy Head of Payments Settlements
  • Deputy Head of Payments Policy
  • Other senior members of the RBA with relevant financial markets/regulatory experience (e.g. Senior Legal Counsel), selected by the Chair

Committee Governance

  • The Chair will call meetings of the Committee as required (generally every three months)
  • The role of Deputy Chair is selected by the Chair from the other members
  • At least half of the members must be present to constitute a quorum, including one of the Chair or Deputy Chair
  • A Committee member may appoint an alternate, subject to the Chair's approval
  • Each member of the Committee should declare any Conflicts of Interest to the Chair
  • Committee minutes will remain confidential
  • DM will provide the Secretariat (i.e. take minutes, compile agenda, coordinate briefing materials)
  • The Committee will report to the Risk Management Committee annually

Committee Activities and Responsibilities

  • The Committee will review the effectiveness of the Cash Rate and the related control framework on an ongoing basis
  • The Committee will ensure that the Cash Rate Procedures Manual remains transparent to users and that the following information is publicly disclosed:
    • Definition and methodology of the Cash Rate
    • Transition processes of the Cash Rate
    • Complaints Procedures
  • The Committee will log, review and investigate all complaints and whistle-blower reports relating to the Cash Rate (disputes or queries about published Cash Rate data which are not formal complaints will be handled according to the Procedures for Errors contained in the Cash Rate Procedures Manual)
  • The Committee will determine the frequency of assessments of the RBA's compliance with the IOSCO Principles for Financial Benchmarks
  • The Committee will review and endorse the results of audits of the Cash Rate Procedures Manual (conducted by Audit Department)
  • The Committee will monitor international trends in financial benchmarks and regulatory developments of relevance to the Cash Rate. Furthermore, the Committee may consider any matters it considers relevant to the maintenance of a high quality and effective Cash Rate – this may include making recommendations to DM about the Cash Rate Procedures Manual or future development of the Cash Rate.