Federal Register of Legislation - Australian Government

Primary content

Directions/Other as made
This Direction provides instructions to delegated officials on the use of Treasurer's power regarding debt issuance, investment and securities lending.
Administered by: Treasury
Exempt from sunsetting by the Legislation (Exemptions and Other Matters) Regulation 2015 s11 item 03
Registered 18 Sep 2008
Tabling HistoryDate
Tabled HR25-Sep-2008
Tabled Senate25-Sep-2008

DIRECTIONS RELATING TO COMMONWEALTH BORROWING, SECURITIES LENDING AND THE INVESTMENT OF PUBLIC MONEY 2008

 

I, WAYNE MAXWELL SWAN, Treasurer of the Commonwealth, give these Directions under section 51JA of the Commonwealth Inscribed Stock Act 1911 (‘the CIS Act’), section 5E of the Loans Securities Act 1919 (’the LS Act’) and section 62A of the Financial Management and Accountability Act 1997 (‘the FMA Act’).

 

Objectives of these Directions

 

These Directions are to provide guidance to persons to whom I have delegated powers and functions, or whom I have authorised to exercise powers, to undertake borrowing, investment and securities lending on behalf of the Commonwealth; and to specify limits that apply to these activities.  Delegates are required to comply with these Directions.

 

Commonwealth borrowing

 

The Commonwealth borrows for policy purposes and to meet budgetary needs.  Borrowing for budget funding is no longer needed due to fiscal surpluses.  These surpluses are expected to continue in the future.  However, the Government issues Treasury Bonds in order to maintain an active Treasury Bond market and to support the market in Treasury Bond futures contracts.  These markets play an important role in the operation of the Australian financial system, as they are used in the pricing and hedging of a wide range of financial instruments and in the management of interest rate risks by market participants.  They thereby contribute to a lower cost of capital in Australia and to the diversity and resilience of the financial system.

 

Pursuant to subsection 51JA(2) of the CIS Act I direct that the maximum total face value of stock and securities that may be on issue is $55 billion.

 

Pursuant to paragraph 51JA(3)(b) of the CIS Act I direct that:

 

(1)                      any action taken in the exercise of the power to borrow under subsection 3A(1) of the CIS Act must be consistent with the objective of supporting the efficient operation of the Treasury Bond and Treasury Bond futures markets;

(2)                      delegates exercising the power to borrow under subsection 3A(1) of the CIS Act must comply with any instructions relating to administrative arrangements, procedures, limits, controls or other matters of detail related to Commonwealth borrowings and the issuance of debt within the framework established by these Directions, where those instructions are given in writing by the Secretary to the Treasury or by the Chief Executive Officer of the AOFM.;

(3)                      where an action in exercise of the power to borrow under subsection 3A(1) of the CIS Act is taken by a delegate who is an official of the Reserve Bank of Australia, the action must be taken in accordance with the Business Continuity Plan of the Australian Office of Financial Management.

Securities lending

 

The Commonwealth undertakes securities lending of Treasury Bonds to facilitate the efficient operation of the Treasury Bond market.  This allows financial market participants to borrow Treasury Bonds for short periods when they are not readily available from other

sources.  It thereby helps bond market intermediaries to trade and to make two-way prices.  Collateral is required.

 

Pursuant to subsection 5E(2) of the LS Act, I direct that the collateral to be received for securities lending arrangements must be of the following kinds:

 

(a)               cash; or

(b)               an asset referred to in subsection 5BA(3) of the LS Act that is also of a kind that is accepted as collateral by the Reserve Bank of Australia in its open market operations.

Pursuant to paragraph 5E(3)(b) of the LS Act, I direct that delegates exercising powers relating to securities lending must comply with any instructions relating to administrative arrangements, procedures, limits, controls or other matters of detail related to securities lending within the framework established by these Directions, where those instructions are given in writing by the Secretary to the Treasury or by the Chief Executive Officer of the AOFM.  To avoid doubt, limits may include restrictions on the assets acceptable as collateral within the kinds of assets specified in these Directions.

 

Investment of public money

 

These Directions relate to investments made using the Treasurer’s investment powers under subsection 39(2) of the Financial Management and Accountability Act 1997.  They cover:

 

               short term investment of funds surplus to immediate financing needs used in managing the daily balances in the Official Public Account; and

 

               investment of the proceeds made available through the issue of additional fixed coupon Treasury Bonds to maintain an active Treasury Bond market and to support the market in Treasury Bond futures contracts.  Additional issuance is that beyond the bond issuance program announced in the 2008-09 Budget papers (“additional issuance”). 

 

In managing the daily balances in the Official Public Account, priority is to be given to ensuring that the Government is able to meet its financial obligations as and when they fall due through prudent management of the volume and tenor of investments.  Subject to these cash management requirements, the return on investments is expected to be enhanced beyond that available on Reserve Bank term deposits through investments in short term instruments with low credit risk.

 

Investment of the proceeds of additional fixed coupon Treasury Bond issuance are to be made with the objective of offsetting the debt servicing cost and interest rate risk of the additional issuance.  To this end, these investments should aim to provide returns that are commensurate with the debt servicing costs of the additional issuance while adopting a prudent approach to credit and interest rate risks.

 

Pursuant to subsection 62A(2) of the FMA Act, I direct that delegates may invest public money in only the following classes of authorised investments:

          (a)     securities of the Commonwealth or of a State or Territory;

          (b)     securities guaranteed by the Commonwealth, a State or a Territory;

          (c)     a deposit with the Reserve Bank of Australia;

          (d)     bank accepted bills of exchange and negotiable certificates of deposit, rated at least A1 or equivalent by one of the major credit rating agencies, issued in Australian currency by any authorised deposit-taking institution which holds an Exchange Settlement account at the Reserve Bank of Australia, where the remaining term to maturity of these securities is no more than 12 months;

          (e)     commercial paper issued in Australian currency, rated A1+ or equivalent by one of the major credit rating agencies, where the remaining term to maturity is no more than 12 months;

          (f)      debt instruments, rated AAA or equivalent by one of the major credit rating agencies, issued or guaranteed by the government of a foreign country in Australian currency; or

          (g)     debt instruments, rated AAA or equivalent by one of the major credit rating agencies, issued by financial institutions or supranationals in Australian currency.

 

In the event that an investment made in accordance with these directions ceases to meet the specified credit rating requirements, they may continue to be held to maturity or until they can be sold at an acceptable price.

 

Pursuant to paragraph 62A(5)(b) of the FMA Act, I direct that delegates exercising powers to invest public money must comply with any instructions relating to administrative arrangements, procedures, limits, controls or other matters of detail related to investment within the framework established by these Directions, where those instructions are given in writing by the Secretary to the Treasury or by the Chief Executive Officer of the AOFM.  To avoid doubt, limits may include restrictions on the assets acceptable as investments within the classes of assets specified in these Directions.

 

 

 

 

Dated this                      13th day of July 2008

 

 

WAYNE MAXWELL SWAN
Treasurer of the Commonwealth of
Australia