Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2008
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
COMMONWEALTH SECURITIES AND INVESTMENT LEGISLATION
AMENDMENT BILL 2008
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Treasurer, the Hon Wayne Swan MP)
Table of contents
Glossary .................................................................................................. 1
General outline and financial impact ....................................................... 3
Chapter 1 Authority to borrow money ............................................ 5
Chapter 2 Powers to invest public money ................................... 11
Chapter 3 Powers to enter into securities lending
arrangements.............................................................. 17
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
AOFM Australian Office of Financial
Management
CIS Act Commonwealth Inscribed Stock
Act 1911
CGS Commonwealth Government
Securities
FMA Act Financial Management and
Accountability Act 1997
LS Act Loans Securities Act 1919
RBA Reserve Bank of Australia
The Bill The Commonwealth Securities and
Investment Legislation Amendment
Bill 2008
Treasury Bonds Fixed coupon Treasury Bonds
1
General outline and financial impact
Outline
The Commonwealth Securities and Investment Legislation Amendment
Bill 2008 (the Bill) amends the:
· Commonwealth Inscribed Stock Act 1911 (CIS Act) to
provide authority for the Treasurer to borrow money on
behalf of the Commonwealth by issuing stock denominated
in Australian currency, subject to the total face value of the
relevant stock on issue not exceeding $75 billion. As the
total face value of the relevant stock on issue is currently
approximately $50 billion this has the effect of providing the
Treasurer with the authority to borrow an additional
$25 billion. The CIS Act is also amended to provide for the
creation of stock and securities for facilitating securities
lending arrangements.
· Financial Management and Accountability Act 1997 (FMA
Act) to broaden the Treasurer's investment powers by
removing the restriction of being only able to invest for the
purpose of `managing the public debt of the Commonwealth'
and extending the range of authorised investments in relation
to which the Treasurer may invest public monies.
· Loans Securities Act 1919 (LS Act) to give a new authority
for the Treasurer to enter into securities lending arrangements
involving Commonwealth Government Securities and allow
a wider range of collateral to be accepted in connection with
such securities lending arrangements.
Date of effect: These amendments commence on the day after Royal
Assent. But there are particular application provisions in the Bill.
Proposal announced: These measures were announced in the Treasurer's
Press Release No. 58 of 20 May 2008.
Financial impact: These measures will result in revenues and
expenditures that are expected to be largely offsetting. Additional public
debt interest expenses as a result of the issue of additional Commonwealth
Government Securities (CGS) will be offset by additional interest receipts
from the investment of the proceeds of the additional CGS issuance. The
3
size of the net revenue effect will largely depend on the amount of
additional CGS issuance and the net interest margin at which the proceeds
of the additional CGS issuance can be invested relative to the interest cost
of the CGS issuance.
The changes to securities lending arrangements will make the securities
lending facility operated by the AOFM more accessible to financial
market participants. As a fee is charged for use of the facility more use of
the facility would generate additional fee income for the Commonwealth.
The amount of fee income generated by securities lending is expected to
remain relatively small (less than $1 million).
Compliance cost impact: Nil. There are no compliance imposts on
business flowing from these measures.
Summary of regulation impact statement
Regulation impact on business
Impact: Nil. The measures relate only to the Government's own
borrowing and investment activities. No regulations are imposed on
business.
4 Chapter 1
Authority to borrow money
Outline of chapter
.1 The Bill amends the CIS Act to provide a new standing borrowing
authority to the Treasurer. This amendment has the effect of allowing the
Treasurer to borrow money on behalf of the Commonwealth, by issuing
CGS denominated in Australian currency.
.2 The Bill also amends the CIS Act to limit the specified CGS on issue
to a total face value amount not exceeding $75 billion.
Context of amendments
.3 These amendments relate to the Government's announcement to
increase the volume of CGS on issue (specifically Treasury Bonds) as part
of its commitment to the effective operation of Australia's financial
markets.
.4 Treasury Bonds play an important role in the operation of the
Australian financial system. In conjunction with the Treasury Bond
futures market they are used in the pricing and hedging of a wide range of
financial instruments and in the management of interest rate risks by
financial market participants.
.5 Following consultations with financial market participants about the
adequacy of the volume of Treasury Bonds on issue (currently around
$50 billion in face value terms) the Government has concluded that an
increase in Treasury Bond issuance is necessary if the Treasury Bond
market is to continue to operate in an effective manner.
Summary of new law
.6 Section 37 of the FMA Act requires that all borrowing by the
Commonwealth be authorised by an Act (the sanction is that unauthorised
borrowings are of `no effect'.) Currently, the only borrowing authority
provided to the Treasurer is that provided under the Loan (Temporary
5
Revenue Deficits) Act 1953 and the Loans Redemption and Conversion
Act 1921.
.7 The authority provided under sections 4 and 5 of the Loan
(Temporary Revenue Deficits) Act 1953 permits the Treasurer to borrow
money to meet temporary deficits in the Consolidated Revenue Fund. The
Act requires the money borrowed to be repaid in the financial year in
which it was borrowed. This borrowing authority is therefore available
only to cover temporary short-term borrowing needs.
.8 The authority provided under sections 4 and 6 of the Loans
Redemption and Conversion Act 1921 permits the Treasurer to borrow
money for the purpose of paying off, repurchasing or redeeming a loan.
This borrowing authority is therefore available to finance maturing loans
or the early repayment of outstanding loans. This borrowing authority
cannot be used to increase the total volume of debt on issue.
.9 To permit an increase in the total volume of debt on issue (except for
a temporary increase to fund short-term borrowing needs) it is necessary
to provide a new borrowing authority to the Treasurer.
.10 The amendment will provide a new standing borrowing authority to
the Treasurer. The new authority will permit the Treasurer to borrow
money by the issue of CGS, subject to the total face value amount of CGS
on issue at any time (after allowing for certain specified exclusions), not
exceeding $75 billion. This will allow an increase, over the current level,
in the face value amount of Treasury Bonds on issue by around
$25 billion.
Comparison of key features of new law and current law
New law Current law
A new standing borrowing authority No authority for the Treasurer to
which would permit the Treasurer to borrow money in a manner that
borrow money by the issue of CGS increases the total amount of
denominated in Australian currency, outstanding debt issued by the
subject to a limit of $75 billion on the Treasurer, except for short-term
total face value amount of CGS on borrowing needs.
issue. This would permit an increase
of around $25 billion in the face value
amount of CGS on issue.
Detailed explanation of new law
Commonwealth Inscribed Stock Act 1911
Before section 4
.1 The Bill amends the CIS Act to provide a new standing borrowing
authority to the Treasurer.
.2 The new authority to borrow can only be exercised by the Treasurer
borrowing money by the issue of stock denominated in Australian
currency. The Treasurer would be able to issue any type of debt security
denominated in Australian currency. Issuance is expected to be limited to
Treasury Bonds. [Schedule 1, item 1, subsection 3A(1) of the Commonwealth
Inscribed Stock Act 1911]
.3 The new authority to borrow does not preclude the exercise of any
other power of the Treasurer to borrow money or issue stock and
securities on behalf of the Commonwealth. This includes the powers to
borrow money in the Loan (Temporary Revenue Deficits) Act 1953 and
the Loans Redemption and Conversion Act 1921. [Schedule 1, item 1,
subsection 3A(2) of the Commonwealth Inscribed Stock Act 1911]
Paragraph 4(2)(a)
.4 Prior to their issue or sale, stock or securities are created by the
Governor-General. Such stock or securities cannot be issued or sold for
the purpose of borrowing money unless there is an appropriate authority
to borrow or it is provided for under the Financial Agreement between the
Commonwealth and the States. This amendment ensures that the new
authority to borrow provided by the Bill would permit the issue or sale of
such stock or securities. [Schedule 1, item 3, paragraph 4(2)(a) of the
Commonwealth Inscribed Stock Act 1911]
After section 4
.5 The Bill introduces a limit of $75 billion on the total face value of
CGS on issue at any time that has been issued by the Treasurer under the
CIS Act and the LS Act. This limit cannot be increased beyond
$75 billion without making further amendments to the CIS Act, which
would be subject to Parliamentary scrutiny. [Schedule 1, item 4, subsection 5(1)
of the Commonwealth Inscribed Stock Act 1911]
7
.6 In working out the total face value of CGS to which the cap applies
some CGS are excluded. These exclusions are as follows:
2 CGS issued under the Loan (Temporary Revenue Deficits)
Act 1953 is excluded because it is issued only for short
periods for borrowing which must be repaid by the end of the
financial year in which it is made. The Treasurer needs to
have the capacity to undertake temporary short-term
borrowing without the borrowing being restricted by the
operation of this cap.
3 CGS held for the purpose of securities lending or loaned
under securities lending arrangements, under the new
section 5BA of the LS Act, is excluded. If subject to the cap,
securities lending could be severely limited if the amount of
CGS on issue were close to the cap. CGS loaned under
securities lending arrangements is subject to a separate limit
of $5 billion.
4 CGS held as an investment under subsection 39(2) of the
FMA Act is excluded. This CGS is excluded because any
loans associated with the securities have been repaid.
5 All stock and securities already on issue, with the exception
of fixed coupon Treasury Bonds, are excluded as these
securities are not relevant to the Government's support of the
financial markets. Any new issuance of other securities
would be covered by the cap.
[Schedule 1, item 4, subsection 5(2) of the Commonwealth Inscribed Stock Act 1911]
.1 The value of a Treasury Indexed Bond at maturity is adjusted to
reflect changes in the Consumer Price Index. Should there be any new
issuance of Treasury Indexed Bonds, the value of a Treasury Indexed
Bond for the purpose of calculating the total face value amount of
securities on issue subject to the cap, is taken to be its face value at the
time it is issued rather than the value adjusted for changes in the
Consumer Price Index. [Schedule 1, item 4, paragraph 5(3)(a) of the
Commonwealth Inscribed Stock Act 1911]
.2 Securities lending transactions involve arrangements that involve the
sale and repurchase of the same security. The new paragraph 5(3)(b) of
the CIS Act clarifies that the loan of stock or a security is taken to include
an arrangement under which it is sold and repurchased. [Schedule 1, item 4,
paragraph 5(3)(b) of the Commonwealth Inscribed Stock Act 1911]
After section 51J
.3 The Treasurer may delegate the new authority to borrow in the Bill to
senior officials in the Department of the Treasury and Reserve Bank of
Australia (RBA). The Australian Office of Financial Management
(AOFM), which is part of the Department of the Treasury, is the agency
responsible for government debt management and undertakes this activity
under delegations from the Treasurer. Business continuity arrangements
currently exist for the RBA to undertake debt management activities on
behalf of the AOFM in the event there is any disruption to the AOFM's
capacity to act in this area. Borrowing powers to officials in the RBA is
provided for this purpose. [Schedule 1, item 5, subsection 51JA(1) of the
Commonwealth Inscribed Stock Act 1911]
.4 While the Bill introduces a limit of $75 billion on the total face value
of the specified CGS on issue, the Government does not currently intend
to increase issuance to this level. The Treasurer will be required to give
directions on the total amount of CGS that may be on issue within the
$75 billion limit. [Schedule 1, item 5, subsection 51JA(2) of the Commonwealth
Inscribed Stock Act 1911]
.5 Officials to whom the Treasurer has delegated the new authority to
borrow in the Bill must comply with any directions given by the Treasurer
in relation to that authority to borrow. [Schedule 1, item 5, subsection 51JA(3) of
the Commonwealth Inscribed Stock Act 1911]
.6 Any directions issued by the Treasurer in relation to the authority to
borrow in this Bill must, within 15 sitting days, be tabled in each House of
Parliament for the information of parliamentarians. [Schedule 1, item 5,
subsection 51JA(4) of the Commonwealth Inscribed Stock Act 1911]
Application and transitional provisions
.7 Commencement is the day after the Act receives the Royal Assent.
.8 The amendments made by items 1 and 5 of Schedule 1, apply to
money borrowed on or after commencement.
.9 The amendments made by item 3 of Schedule 1, apply to stock and
securities issued on or after commencement.
.10 The amendments made by item 4 of Schedule 1, apply on or after the
commencement of that item, regardless of whether the stock and securities
were issued before, on or after commencement.
.11 There are no transitional provisions.
9
Consequential amendments
.12 There are no other consequential amendments.
6 Chapter 2
Powers to invest public money
Outline of chapter
.1 The Bill amends the FMA Act to broaden the Treasurer's investment
powers by removing the restriction of being only able to invest for the
purpose of `managing the public debt of the Commonwealth' and
extending the range of authorised investments in relation to which the
Treasurer may invest public monies.
Context of amendments
.2 These amendments relate to the Government's announcement that the
proceeds from the planned increased issuance of CGS will be managed by
the AOFM in conjunction with its present cash management activities.
The AOFM has experience and expertise in managing the Government's
short-term financial assets. This includes managing the Commonwealth's
cash balances and management of Communications Fund monies in the
short-term money market.
.3 At present the AOFM invests surplus Commonwealth cash in term
deposits with the RBA. The Bill will enable the AOFM, on behalf of the
Treasurer, to invest in a broader range of financial assets than at present.
This will enable the AOFM to improve the returns of Commonwealth
assets while also better managing cost and risks.
Summary of new law
.4 Subsection 39(2) of the FMA Act permits the Treasurer to invest
public money in a range of authorised investments for the purpose of
`managing the public debt of the Commonwealth'. The range of
authorised investments is detailed in subsection 39(10) of the FMA Act.
The range of authorised investments currently includes securities issued or
guaranteed by the Commonwealth or an Australian State or Territory, a
deposit with a bank and debt instruments issued or guaranteed by the
government of a foreign country or an international financial institution
whose members consist of foreign countries (for example, the World
Bank, Asian Development Bank).
11
.5 The Bill broadens the Treasurer's investment powers by removing the
restriction that investment is to be for the purpose of `managing the public
debt of the Commonwealth', allowing the Treasurer to invest public
money for any purpose. This aligns the Treasurer's investment powers
with those of the Finance Minister in subsection 39(1) of the FMA Act.
.6 The Bill also broadens the range of authorised investments to permit
the Treasurer to invest in debt instruments denominated in Australian
currency with an investment grade credit rating.
.7 The Bill provides for the delegation to Treasury officers of the
Treasurer's investment powers. It also provides that the Treasurer may
give directions on the classes of authorised investment in which
investments may be made and on matters of risk and return. This will
allow the Treasurer to set limits and provide guidance on exercise of the
investment powers by delegated officials. There must be at least one
direction in force at any time while a delegation is in force.
.8 The Bill provides that the Treasurer must not give a direction that
would require a delegate to invest in financial assets to assist a particular
entity or business. The provisions will ensure that investment decisions
are based on appropriate investment criteria.
Powers to invest public money
Comparison of key features of new law and current law
New law Current law
Treasurer may invest public For the purpose of `managing the public
money on behalf of the debt of the Commonwealth' the
Commonwealth in a range of Treasurer may invest public money on
authorised investments. behalf of the Commonwealth in a range
Debt instruments denominated in of authorised investments.
Australian currency with an The Treasurer may delegate the
investment grade credit rating are investment powers. A delegate must
added to the list of authorised comply with any directions of the
investments. Treasurer.
The Treasurer must give a
direction as to which authorised
investments delegates may invest
in and/or guidance as to matters of
risk and return.
The Treasurer must not give a
direction to invest to assist a
particular entity or business.
Detailed explanation of new law
Financial Management and Accountability Act 1997
Section 5
.1 The term Department of the Treasury is defined to specify that it
refers to the Department administered by the Treasurer, and includes
persons who are allocated to the Department for the purposes of the FMA
Act, or any part of the Department that is a prescribed agency. The
AOFM is a prescribed agency within the Department of the Treasury.
[Schedule 1, item 6, Section 5 of the Financial Management and Accountability
Act 1997]
Subsection 39(2)
.2 Currently, the Treasurer may only invest public money for the
purpose of `managing the public debt of the Commonwealth'. The Bill
broadens the Treasurer's investment powers to permit the Treasurer to
invest public money for any purpose. [Schedule 1, item 7, subsection 39(2) of
the Financial Management and Accountability Act 1997]
.3 This aligns the Treasurer's investment powers with those of the
Finance Minister in subsection 39(1) of the FMA Act. The Finance
13
Minister's powers are delegated to a wide range of Departments and
agencies for various investment purposes, whereas the Treasurer may
delegate only to the Department of the Treasury.
Subsection 39(10) (subparagraph (b)(iv) of the definition of authorised
investment)
.4 The Bill adds debt instruments denominated in Australian currency
with an investment credit rating to the investments in which the Treasurer
is authorised to invest public monies. [Schedule 1, item 8, subparagraphs
39(10)(b)(ivb) of the Financial Management and Accountability Act 1997]
.5 `Investment grade credit rating' is a well recognised term in the
finance industry which refers to securities with a credit rating from an
internationally recognised rating agency which indicates that, in the
agency's assessment there is a high likelihood of the investor being repaid
the money invested. Rating agencies each have their own scales
indicating ratings. The following table indicates the scales of several
major agencies which refer to investment grade credit ratings:
Ratings Agency Short-term investments Long-term investments
Fitch Ratings At least F3 or equivalent At least BBB- or equivalent
Moody's Investor At least P3 or equivalent At least Baa3 or equivalent
Service
Standard and Poor's At least A3 or equivalent At least BBB- or equivalent
.1 The Bill also amends the existing subparagraph 39(10)(b)(iv) of the
FMA Act to provide that the debt instruments specified in that
subparagraph as an authorised investment must have an investment grade
credit rating. [Schedule 1, item 8, subparagraphs 39(10)(b)(iv) and 39(10)(b)(ivb) of
the Financial Management and Accountability Act 1997]
Section 62A
.2 Currently, under section 62A of the FMA Act the Treasurer may
delegate his powers or functions under the Act (which are limited to his
investment powers in subsection 39(2)) to any official. In exercising such
powers or functions under a delegation, the official must comply with any
directions of the Treasurer. There is no restriction on the Treasurer's
power to give directions. The Bill repeals the current section 62A of the
Powers to invest public money
FMA Act and replaces it with a new section 62A. [Schedule 1, item 9,
Section 62A of the Financial Management and Accountability Act 1997]
.3 In the new section 62A the Treasurer may delegate his investment
powers to senior officials in the Department of the Treasury (see 2.9
above for the definition of the Department of the Treasury). This
provision will allow the continuation of existing arrangements under
which the AOFM, which is part of the Department of the Treasury,
undertakes the investment activities under delegation from the Treasurer.
[Schedule 1, item 9, subsection 62A(1) of the Financial Management and Accountability
Act 1997]
.4 The Bill provides for the Treasurer to give directions on the classes of
investments in which delegates may invest and on matters of risk and
return in relation to the investment activity. [Schedule 1, item 9, subsections
62A(2) of the Financial Management and Accountability Act 1997]
.5 Currently, there is no restriction on the Treasurer's capacity to direct
delegates in connection with the exercise of his investment powers. The
Bill provides that the Treasurer must not direct delegates to allocate
financial assets to favour a particular company or business. This is to
ensure that investment decisions are based on appropriate investment
criteria. [Schedule 1, item 9, subsection 62A(3) of the Financial Management and
Accountability Act 1997]
.6 Officials to whom the Treasurer has delegated his investment powers
must comply with any directions by the Treasurer in relation to his powers
to invest. There must be at least one direction in force at any time while a
delegation is in force. [Schedule 1, item 9, subsections 62A(4) and 62A(5) of the
Financial Management and Accountability Act 1997]
.7 Any directions issued by the Treasurer in relation to his investment
powers must be tabled in each House of Parliament, no later than 15
sitting days of that House after it is given. [Schedule 1, item 9, subsection
62A(6) of the Financial Management and Accountability Act 1997]
.8 A reference to an authorised investment in this section has the same
meaning as in subsection 39(10) of the FMA. [Schedule 1, item 9, subsection
62A(7) of the Financial Management and Accountability Act 1997]
Application and transitional provisions
.9 Commencement is the day after the Act receives the Royal Assent.
.10 The amendments apply in relation to public money invested on or
after commencement.
15
.11 There are no transitional provisions.
Consequential amendments
.12 There are no other consequential amendments.
2 Chapter 3
Powers to enter into securities lending
arrangements
Outline of chapter
.1 The Bill amends the LS Act to provide new legislative authority for
the Treasurer to enter into securities lending arrangements, and specifies
the collateral that may be accepted in connection with such securities
lending arrangements.
.2 The Bill also amends the CIS Act to provide for the creation of stock
and securities for the purpose of lending under securities lending
arrangements.
Context of amendments
.3 These amendments relate to the Government's announcement that
changes will be made to the securities lending facility operated by the
AOFM to permit the acceptance of a wider range of collateral in
connection with use of the facility. These changes follow consultations
with financial market participants and are expected to enhance the
liquidity, efficiency and robustness of the Treasury Bond market.
.4 Since 2004, the AOFM has operated a securities lending facility on
behalf of the Treasurer which allows financial market participants to
borrow Treasury Bonds for short periods when they are not readily
available from other sources. Collateral needs to be provided by market
participants to access the facility, and a fee is charged by the AOFM for
use of the facility. The facility is designed to enhance the liquidity and
efficiency of the Treasury Bond market by improving the capacity of bond
market intermediaries to make two-way prices. Currently, only CGS is
accepted as collateral. This has constrained access to the facility when
such securities have been in short supply.
.5 Currently, securities lending arrangements are undertaken using the
investment powers of the Treasurer in section 39 of the FMA Act. These
powers permit securities to be sold and repurchased, as occurs in
securities lending transactions. Securities lending transactions undertaken
17
via the facility operated by the AOFM involve a repurchase agreement
and reverse repurchase agreement.
.6 To protect the Commonwealth's financial position, the market value
of the collateral securities taken from the counterparty is greater than the
market value of the Treasury Bonds lent. At present, collateral in the
form of other CGS must have a market value of at least 102 percent of the
market value of the Treasury Bonds lent. The AOFM also has the right to
seek additional collateral securities if there is a decline in the market value
of the collateral.
Summary of new law
.7 The Bill provides authority for the Treasurer to enter into securities
lending arrangements for lending CGS, limits the volume of such lending
that may be undertaken and provides for the collection of collateral,
delegations and directions in relation to it.
.8 Currently, only CGS is accepted as collateral in relation to the
securities lending arrangements entered into by the AOFM using the
Treasurer's investment powers. The Bill specifies the collateral that can
be accepted utilising the new powers to enter in securities lending
arrangements. The range of acceptable collateral includes the same assets
that the RBA currently accepts as collateral in its domestic open market
operations.
.9 The Bill sets a cap on the maximum total amount of CGS that can be
lent under the new securities lending arrangements at a face value amount
totalling $5 billion.
Powers to invest public money
Comparison of key features of new law and current law
New law Current law
Explicit legislative powers under the Securities lending arrangements
LS Act for the Treasurer to enter into undertaken on behalf of the Treasurer
securities lending arrangements use the Treasurer's powers to invest
involving the lending of CGS. public money under the FMA Act.
Specific classes of collateral able to be
accepted in connection with securities
lending arrangements undertaken by
the Treasurer under the LS Act.
Caps the maximum amount of CGS
that can be lent.
Detailed explanation of new law
Commonwealth Inscribed Stock Act 1911
At the end of subsection 4(1)
.1 The Bill amends the CIS Act to provide for the creation of stock and
securities for the purpose of lending under securities lending
arrangements. [Schedule 1, item 2, subsection 4(1) of the Commonwealth Inscribed
Stock Act 1911]
Loans Securities Act 1919
After section 5B
.2 The new subsection 5BA(1) of the LS Act will give the Treasurer
power to enter into securities lending arrangements by lending CGS
denominated in Australian currency. [Schedule 1, item 10, subsection 5BA(1) of
the Loan Securities Act 1919]
.3 The securities used by the existing securities lending arrangements are
limited by the CGS held as an investment under subsection 39(2) of the
FMA. The volume of this stock is currently a little over $5 billion. This
determines the volume of lending that can be undertaken at any time. The
Bill provides for a cap of $5 billion on the total face value amount of CGS
that can be lent under the new securities lending arrangements. This cap
is provided because any securities lent through the securities lending
facility will not count towards the proposed $75 billion limit on the total
19
face value of CGS on issue under the amended CIS Act. [Schedule 1, item
10, subsection 5BA(2) of the Loan Securities Act 1919]
.4 The new subsection 5BA(3) of the LS Act details the collateral that
can be accepted under the securities lending arrangements. It includes
assets that the RBA accepts as collateral in its domestic open market
operations, but is somewhat broader. This is to provide flexibility, and
reduce the need to amend the legislation in future if the RBA alters the
assets it accepts as collateral. [Schedule 1, item 10, subsection 5BA(3) of the Loan
Securities Act 1919]
.5 To protect the Commonwealth's financial position, it will be
legislatively required that sufficient collateral be received, but in practice
the collateral would always exceed the market value of the securities lent.
This is consistent with existing securities lending arrangements.
[Schedule 1, item 10, subsection 5BA(4) of the Loan Securities Act 1919]
.6 The Bill specifies that lending stock or a security is taken to include
an arrangement under which it is sold and repurchased. This is consistent
with the description of a repurchase agreement which is an element of a
securities lending transaction. [Schedule 1, item 10, subsection 5BA(5) of the
Loan Securities Act 1919]
.7 The new power to enter into securities lending arrangements has no
effect on existing powers to make investments under section 39 of the
FMA Act. [Schedule 1, item 10, subsection 5BA(7) of the Loan Securities Act 1919]
After section 5D
.8 The Treasurer may delegate the new power to enter into securities
lending arrangements to senior officials in the Department of the Treasury
and staff members of the RBA. The AOFM (which is part of the
Department of the Treasury) is the agency which operates the securities
lending facility on behalf of the Treasurer. The RBA acts as the AOFM's
agent in certain operations of the facility and would perform the AOFM's
securities lending functions in the event that there was any disruption to
the AOFM's capacity to perform those functions. [Schedule 1, item 11,
subsection 5E(1) of the Loan Securities Act 1919]
.9 The Treasurer must issue a direction as to which kinds of collateral
may be accepted in relation to securities lending arrangements. This
direction is expected to exclude assets not accepted by the RBA. [Schedule
1, item 11, subsection 5E(2) of the Loan Securities Act 1919]
.10 Officials to whom the Treasurer has delegated his or her powers to
enter into securities lending arrangements must comply with any
directions given by the Treasurer relation to these powers. [Schedule 1,
item 11, subsection 5E(3) of the Loan Securities Act 1919]
Powers to invest public money
.11 Directions issued by the Treasurer in relation to his or her power to
enter into securities lending arrangements must be tabled in each House of
Parliament. [Schedule 1, item 11, subsection 5E(4) of the Loan Securities Act 1919]
Application and transitional provisions
.12 Commencement is the day after the Act receives the Royal Assent.
.13 The amendment made by item 2 of Schedule 1, applies to stock and
securities issued on or after commencement.
.14 The amendments made by items 10 and 11 of Schedule 11, apply to
securities lending arrangements entered into on or after commencement.
.15 There are no transitional provisions.
Consequential amendments
.16 There are other no consequential amendments.
21
23
Index
Schedule 1:
Bill reference Paragraph
number
Item 1, subsection 3A(1) of the Commonwealth Inscribed 1.12
Stock Act 1911
Item 1, subsection 3A(2) of the Commonwealth Inscribed 1.13
Stock Act 1911
Item 2, subsection 4(1) of the Commonwealth Inscribed Stock 3.10
Act 1911
Item 3, paragraph 4(2)(a) of the Commonwealth Inscribed 1.14
Stock Act 1911
Item 4, subsection 5(2) of the Commonwealth Inscribed Stock 1.16
Act 1911
Item 4, paragraph 5(3)(a) of the Commonwealth Inscribed 1.17
Stock Act 1911
Item 4, paragraph 5(3)(b) of the Commonwealth Inscribed 1.18
Stock Act 1911
Item 4, subsection 5(1) of the Commonwealth Inscribed Stock 1.15
Act 1911
Item 5, subsection 51JA(2) of the Commonwealth Inscribed 1.20
Stock Act 1911
Item 5, subsection 51JA(3) of the Commonwealth Inscribed 1.21
Stock Act 1911
Item 5, subsection 51JA(4) of the Commonwealth Inscribed 1.22
Stock Act 1911
Item 5, subsection 51JA(1) of the Commonwealth Inscribed 1.19
Stock Act 1911
Item 6, Section 5 of the Financial Management and 2.9
Accountability Act 1997
Item 7, subsection 39(2) of the Financial Management and 2.10
Accountability Act 1997
Item 8, subparagraphs 39(10)(b)(iv) and 39(10)(b)(ivb) of the 2.14
Financial Management and Accountability Act 1997
Item 8, subparagraphs 39(10)(b)(ivb) of the Financial 2.12
Management and Accountability Act 1997
25
Item 9, subsection 62A(1) of the Financial Management and 2.16
Accountability Act 1997
Item 9, subsections 62A(2) of the Financial Management and 2.17
Accountability Act 1997
Item 9, subsection 62A(3) of the Financial Management and 2.18
Accountability Act 1997
Item 9, subsections 62A(4) and 62A(5) of the Financial 2.19
Management and Accountability Act 1997
Item 9, subsection 62A(6) of the Financial Management and 2.20
Accountability Act 1997
Item 9, subsection 62A(7) of the Financial Management and 2.21
Accountability Act 1997
Item 9, Section 62A of the Financial Management and 2.15
Accountability Act 1997
Item 10, subsection 5BA(1) of the Loan Securities Act 1919 3.11
Item 10, subsection 5BA(2) of the Loan Securities Act 1919 3.12
Item 10, subsection 5BA(3) of the Loan Securities Act 1919 3.13
Item 10, subsection 5BA(4) of the Loan Securities Act 1919 3.14
Item 10, subsection 5BA(5) of the Loan Securities Act 1919 3.15
Item 10, subsection 5BA(7) of the Loan Securities Act 1919 3.16
Item 11, subsection 5E(1) of the Loan Securities Act 1919 3.17
Item 11, subsection 5E(2) of the Loan Securities Act 1919 3.18
Item 11, subsection 5E(3) of the Loan Securities Act 1919 3.19
Item 11, subsection 5E(4) of the Loan Securities Act 1919 3.20
Index]
[Search]
[Download]
[Bill]
[Help]