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PAYMENTS SYSTEM
RBA Payments Operations
The Reserve Bank of Australia (RBA) operates the Reserve Bank Information
and Transfer System (RITS) through which interbank settlement of payment
obligations occurs. RITS is also the depository and settlement system for
Commonwealth Government Securities. In addition, the RBA performs the function
of Collator of low-value clearing obligations, which are settled on a net
deferred basis in RITS each day in the 9am Batch.
RITS
The Reserve Bank Information and Transfer System (RITS) lies at the heart
of the Australian payments clearing and settlement system. It is Australia's
Real-Time Gross Settlement (RTGS) system, and also operates as an electronic
depository and settlement system for Commonwealth Government Securities
(CGS). RITS also provides for the settlement of other interbank obligations
(ie low-value transactions and those arising from Australian equity transactions
in CHESS), on a net, deferred basis.
Membership and legal structure
Membership of RITS is available upon application to the RBA. Membership
is mandatory for all Australian-licensed banks and other holders of Exchange
Settlement accounts (ES accounts). Membership is also voluntary but commercially
necessary for significant holders of, and dealers in, CGS.
The RITS Regulations and Conditions of Operation (the Regulations)
and associated agreements provide the legal structure for RITS. The Regulations
set out the rules for the operation of RITS and the rights and obligations
of members, the member's bank and the RBA. Standard agreements are executed
between the member, the member's bank and the RBA to bind each party to
the Regulations.
Exchange Settlement accounts
Final settlement of payments system obligations occurs through transactions
on accounts at the RBA. These accounts are called Exchange Settlement accounts
(ES accounts). ES accounts must be maintained in credit at all times, and
the RBA pays interest on overnight balances in these accounts. Banks access
their ES accounts through RITS.
Commonwealth Government
Securities
RITS provides facilities for the full range of transactions in CGS to members,
including settlement of trades and reciprocal purchase agreements, trade
splitting, tender bidding, mortgaging and payment of maturity and interest
proceeds.
RITS is designed for the transfer and settlement of transactions in
securities, not for trading. Transactions in securities are arranged outside
the System (e.g. by telephone). RITS matches trades which are entered into
it by both the buyer and seller.
Real-Time Gross Settlement
RTGS was introduced in Australia on 22 June 1998. In RTGS, processing and
settlement of transactions takes place continuously and irrevocably in
real-time out of credit funds in banks' ES accounts. RTGS was instituted
mainly to eliminate the settlement risk associated with domestic interbank
high-value payments and to promote the overall efficiency of Australia's
financial system.
Over 90 per cent of interbank payments, by value, are settled on an
RTGS basis. RTGS payments statistics are published by the Reserve Bank.
Liquidity management
RITS provides banks with full management control of their own and their
customers' payments through RITS, from the time of sending a payment message
through to its settlement across banks' ES accounts.
Banks may control the priority for settlement given to payments entered
by the bank or entered by its member customers. Banks are also able to
manage their account balances and those of their member customers through
the use of account limits, or via the Automated Information Facility (AIF),
which utilises the banks' internal payments systems and messages carried
by the SWIFT FIN network.
System liquidity
Liquidity is a key consideration in an RTGS system, where banks must have
sufficient funds in their Exchange Settlement account to ensure that their
own payments and those of their customers are able to proceed throughout
the day.
There are two main sources of Exchange Settlement liquidity; overnight
ES account balances and intraday reciprocal purchase agreements with the
RBA, termed RBA Repos. Banks can obtain Exchange Settlement funds intraday
by selling CGS or eligible securities in Austraclear to the RBA under an
intraday RBA Repo. There is no interest cost for this facility.
In addition, RITS has been designed to minimise the need for liquidity.
Firstly, all transactions which involve the transfer of ES funds between
members' banks, and all feeder system transactions, are recorded on the
System Queue. Transactions are tested for settlement in the order in which
they are recorded on the System Queue. Transactions which pass all tests
are settled, while those that are unable to be settled at that time remain
on the System Queue for retesting later. The Queue proceeds to the next
transaction in a "next down looping" process which is designed for the
most efficient use of liquidity.
Secondly, should an interbank payment have been queued unsettled for
five minutes or more, RITS will automatically search the System Queue for
offsetting payments from the receiving bank. If these payments can be offset
and settled simultaneously, RITS will do so automatically (the gross amounts
of all payments are posted to the relevant Exchange Settlement accounts
at the same time).
Structure of RITS, feeder systems, and batches
Austraclear, CHESS-RTGS and the SWIFT Payment Delivery System (PDS) have
been admitted as feeder systems to RITS for settlement of interbank obligations
arising in those systems. In addition to these feeder systems, two multilateral
batches are conducted in RITS daily, one for low-value clearing and one
for the Australian Stock Exchange's (ASX's) Clearing House Electronic Subregister
System (CHESS), the settlement system for Australian equities.
Austraclear feeder system
Austraclear is an electronic depository and settlement system for Australian
debt securities other than CGS. An interbank settlement request is sent
to RITS for settlement once Austraclear has matched a transaction. Once
the payment has been settled across ES accounts, RITS notifies Austraclear,
which then settles the transaction at the client level.
CHESS-RTGS feeder system
RITS provides an optional, real-time, gross settlement facility for payment
obligations created in CHESS. An interbank settlement request is sent to
RITS via the SWIFT FIN service once a CHESS transaction is selected for
RTGS settlement. Upon settlement, RITS notifies CHESS, which then settles
the transaction at the CHESS participant level. Payment obligations for
non-RTGS transactions are settled in the CHESS batch.
SWIFT PDS feeder system
SWIFT PDS payments are payments containing customer details exchanged between
members of the Australian Payments Clearing Association's (APCA) High Value
Clearing System. They are predominantly related to the Australian dollar
leg of foreign exchange settlements and for interbank customer payments.
9am Batch
Interbank obligations arising from cheques, credit and debit cards, and
bulk electronic payments are settled on a multilaterally netted basis at
around 9.00 am on the business day following exchange.
CHESS batch
In addition to CHESS-RTGS, RITS provides a net settlement facility for
payment obligations created in CHESS. Banks approved by the ASX settle
net payment obligations accumulated by their customers in CHESS with a
central party (the CHESS Bank) in RITS around noon each day in one netted,
multilateral batch. Interbank payments arising from CHESS are irrevocable
once they are settled.
Prospective developments: CLS
Continuous Linked Settlement (CLS) is a global initiative to reduce foreign
exchange settlement risk. The CLS process will be facilitated by CLS Bank
International (CLS Bank), which will connect to the national RTGS systems
and hold a central bank account for each participating currency. Each of
these RTGS systems will operate simultaneously during a "pay-in period"
each settlement day. CLS members with short positions in a currency will
make payments via the RTGS system in that country to CLS Bank during this
period. CLS Bank will use these funds to settle transactions on a payment
versus payment basis across its books and pay out the proceeds to members
with long positions in each currency. CLS is expected to commence live
operations in 2001.
National Collator
The RBA operates the function of collator of low-value clearing stream
obligations on behalf of the Australian Payments Clearing Association.
There are three such clearing streams: cheque (obligations are provided
separately for each State), bulk electronic (direct entry payments) and
consumer electronic (ATMs and EFTPOS).
Each bank that participates in a low-value clearing stream sends an
Exchange Summary fax containing its obligations against each other bank
to the National Collator for each clearing stream following the end of
the banking day. A single net obligation across all clearing streams (either
a debit or a credit) is calculated for each bank from these figures. These
net obligations are entered into RITS for settlement as the 9am Batch on
the business day following exchange.