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An extraordinary time

We are living in an extraordinary time. Many of us will look back on this period and reflect on the things done and the role we played. 

ASX would like to acknowledge all our customers and thank you for your responsiveness, liquidity provision and commitment during this challenging period.  Together we have delivered reliable and resilient services without interruption.  While ASX operates at the heart of Australia’s financial markets we do so with the vital support of our participants.

As the operator of critically important infrastructure, ASX has facilitated price discovery and the exchange and clearing of risk.  The COVID-19 pandemic resulted in significant volatility in global interest rate markets, but the ASX Bond Futures markets continued to operate effectively and at the tightest spreads.  New records were set in March 2020, with ASX 24 derivatives trades up 84%; futures intraday margins up 130%; and cleared futures trades up 143%.  The BBSW benchmark was bolstered by an increase in Prime Bank NCD trading, which delivered one of the most liquid markets of the crisis to date.  During this period, the BBSW benchmark remained robust, underpinned by an average of $2 billion in transaction volume per day.  ASX Collateral facilitated flows generated by the substantial increase in RBA Open Market Operations (OMO), delivering a new record balance of $37.5 billion, up 30% on the previous high.

This unprecedented activity was managed, for the most part, under full activation of ASX’s business continuity plan (BCP), with 95% of our staff working from home.  We know that many of our participants and customers are operating under their BCPs too.  The extraordinary performance to deliver a collaborative approach over the last several weeks, despite the social distance, is a credit to the whole industry. 

We thank you all.

Strong volumes continue for interest rate derivatives: OTC and Futures

ASX saw strong OTC activity in the first quarter, clearing A$3,876bn for Q1 2020, up 30% on pcp. ASX OTC Clearing’s notional outstanding increased in March 2020 to A$6,673, up 33% on pcp. Strong volumes resulted from the global impact and uncertainty created by COVID-19. This in turn prompted an out of cycle RBA decision on 19 March to deliver a significant package of changes to support the Australian economy:

  • Overnight cash rate reduction to 25bps.
  • Target yield on 3 year government bonds of around 25bps, achieved through purchases of government bonds in the secondary market. This purchase activity is being conducted via daily market auctions.
  • Term funding facility for banks, providing 3 year term funding at 25bps, with the first tender conducted on 1st April.
  • ESA accounts at the Reserve Bank will pay 10bps, instead of the usual zero.

This announcement relieved some of the fixed income and funding market uncertainties and resulted in substantially lower OIS volumes traded across the second half of March.

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A$3.9 trillion

Total notional cleared Q1 2020

↑ 30%

total notional value cleared Q1 2020 vs Q1 2019
 

A$1.3 trillion

Total notional cleared Mar 20

↑ 24%

in total notional cleared Mar 20 vs Mar 19
 

A$6,673 billion

Cleared notional outstanding

↑ 33%

total cleared notional outstanding Mar 20 vs Mar 19

Rates futures volumes for the month of March reached 20.25 million contracts, up 4.6% on pcp (where March 2019 was also a very strong month for Rates futures). The increase was primarily driven by strong volumes in the 30 Day Cash Rate Futures and 10 Year Bond Futures, up 35% and 21% vs pcp respectively.

March 2020 was a record month for the 10 year Bond Futures contract with 1.89 million contracts in the roll and an overall record volume of 8.2 million contracts for the month.  EFP activity also increased in March with 3 year Bond Futures EFP volume of 1.56m vs 882k monthly average and 10 year Bond Futures EFP of 708k vs 377k monthly average.

View charts

ASX 24 Bond Futures roll tick change - delay to implementation date

On Monday 27 April 2020, ASX released market notice 0375.20.04 advising the implementation of reduced tick increments for the 3 and 10 Year Bond Futures outright futures and calendar spread market during the week of the roll is being delayed until the September 2020 roll subject to regulatory clearance.

The COVID-19 pandemic has generated a period of substantial market uncertainty, resulting in heightened volatility and reduced liquidity; and most customers are now working under BCP arrangements. ASX believes that it is prudent to delay this change to futures market structure, allowing our customers extended time for implementation.

Read more

Bank Bill Futures transition to cash settlement

Implementation of cash settlement for the September 2020 contract and all subsequent expiries

On Monday 20 April 2020, ASX published the cash settlement Operating Rules and Procedures in preparation for the transition to cash settlement at expiry

Key features of the cash settled 90 Day Bank Bill Futures contract are:

  • Cash settled using 3 month BBSW as the settlement rate published at 10.28am on the Last Trading Day.  The expiry settlement price shall be calculated as 100 minus the 3 month BBSW rate.  The BBSW rate will be rounded to 3 decimal places to the nearest 0.001%, 0.0005% rounded up.
  • The cash settlement price shall be published at 10.30am on the Last Trading Day (second Thursday of the expiry month).
  • The Last Trading Day is the second Thursday following the first Friday of the expiry month.
  • The contract expiry time will be 7.00am / 7.30am AEST / AEDT on the business day prior to the settlement day.
  • The settlement day is defined as the Friday following the second Thursday of the expiry month.

The June 2020 contract will be the last contract month that can be taken to delivery at expiry.

For further information, including a diagram of the expiry timetable and exchange fee changes please refer to ASX market notices 0277.20.04 and 0347.20.04.

Benchmarks

Prime Bank Market Making obligations were temporarily widened from the 16 March as a result of market volatility and remote working arrangements. Those temporary Prime Bank Market Making arrangements have now reverted to the normal requirements as specified in the Prime Bank Conventions (contained in the BBSW Conventions and Methodology, Appendix D).

BBSW volume insights are available on the ASX website (BBSW volume report), updated 24 hours in arrears.

  • QTD 85% traded inside the rate set window and 3 VWAP tenors formed per day.
  • Average daily eligible volume $1.9bn.

ASX Collateral Tri-party - record balance and transaction volume

In March 2020, ASX Collateral reached a new record high balance of $37.5bn, up 30% on the previous record in September 2019.

  • 42% of RBA OMO settled via ASX Collateral Tri-party over prior 3 months, with a record high of 48%.
  • 40% increase in number of lines lodged as collateral to new high as participants utilise the scalability and automation benefits of tri-party to manage funding and collateral in these challenging times.

Collateral segmentation is changing with increased percentage of structured, corporate and supras lodged as collateral offsetting lower Australian government bond collateral, possibly due to RBA outright purchase of bonds and more active management of cheapest to deliver collateral.

See charts for further information on balances and collateral segmentation

Find out more on ASX Collateral

Delayed phase-in of Initial Margin requirements for Non-Centrally Cleared Derivatives

APRA confirms a 12 month deferral of the next two phase-in periods for initial margin requirements for non-centrally cleared derivatives as set out in CPS226.

Read announcement

This is consistent with the joint decision by the Basel Committee on Banking Supervision and the International Organisation of Securities Commissions.

Read press release

This delay provides entities covered by the next two phase-in periods with additional time to put in place appropriate end-to-end capabilities, including access to central clearing of OTC derivatives and new collateral management capabilities where appropriate.

Market Repo

On Friday 17 April 2020, ASX published market notice 0338.20.04 advising all Austraclear participants that the ‘no action’ relief for use of the Market Repo module to settle repo transactions has been extended to November 2021 (from November 2020).

This was based on feedback from market participants with respect to the time required to make the changes to support the use of Market Repo for settlement and the need for Austraclear to complete aspects of its own readiness.

Enhanced market repo functionality is planned to be released in the November 2020 Austraclear Service Release (SR10) and Austraclear participants can utilise the enhanced market repo module in advance of the key date of 22 November 2021. 

View market notice

Australian Repo Market

The Australian repo market experienced unprecedented moves due to RBA’s policies in response to the Covid-19 crisis.

The RBA has injected over A$100bn of liquidity since 13 March 2020 via a range of measures including:

  • A$49bn increase in OMO repo balances, with a balance high of $95.6bn on 26 March and increased terms of 1,3 & 6 months.
  • RBA outright bond purchases of A$46bn ($37.5bn Australian government / $8.5bn semis) to target ongoing 3 year yield of 0.25%.
  • Term Funding Facility, $3bn out of A$90bn lent for 3 years at 0.25% to support bank lending to business, via repo including taking of self-securitised RMBS as collateral.
  • 0.25% out of cycle rate cut on 19 March 2020 bringing target rate to 0.25% although overnight cash rate has fallen to 0.15%.
  • RBA to pay 0.10% on ESA balances instead of 0% (previously paid at 0.25% below target cash rate).   
  • ESA balances spiked to $89bn indicating large surplus liquidity held by banks given usual average balance is in $2-$3bn.
  • Repos rates have fallen sharply in response to the RBA’s moves and the large liquidity surplus.
  • RBA repo rates have fallen from approximately 0.80% pre Covid-19 to around 0.18%.
  • This still remains above 1 month BBSW levels, which have traded down to 0.10% – 0.12% in line with ESA balance returns and interbank repo levels.

See charts for further information on repo, BBSW and OIS rates and spreads.

*Source: RBA, Bloomberg

View charts for more information

Austraclear

In line with increased market activity, a new all-time high for security face value turnover in Austraclear was set in March 2020, up 34% on the previous turnover record in May 2019.

  • Fixed Income Securities (FIS) turnover was 32% higher.
  • Discount Short term Securities (DSS) turnover was 56% higher.
  • Average daily settled value for first quarter 2020 was up 35% on prior corresponding period.
  • 15 of the top 20 daily all-time settlement values in Austraclear were during March 2020.