Objectives of the ASF guidance
The objectives of the ASF guidance are:
To meet the requirements of the Reserve Bank of Australia’s (RBA) updated repo eligibility criteria for robust and objective fallback provisions in ABS securities documentation after 1 December 2022 [RBA Media Release 2021-20]
To support common and sound practice when using financial benchmarks (i.e. BBSW and AONIA) in new public securitisation transactions
To compliment practices within the derivatives market as reflected in ISDA contracts
To support consistency with practices in the broader Australian floating rate note (FRN) market
To provide some flexibility for future market developments with respect to benchmarks rates
To align to practices that have been established in international securitisation markets
Repo eligibility criteria for ABS issued before 1 December 2022 are unchanged. All self-securitisations, regardless of the date of issue, must include robust fallback provisions. The RBA will engage directly with self-securitisation issuers and give at least 12 months' notice before enforcing this requirement.
Purpose of the ASF guidance
ASF fallbacks for BBSW-linked securitisation issuance
The purpose of the ASF guidance on fallbacks for BBSW-linked securitisation issuance is:
To enable Australia to continue as a multi benchmark rate market (unlike some offshore markets)
To increase contract robustness of securitisations by including standardised fallback provisions to apply in the case where BBSW or a relevant tenor of BBSW (such as 1-month BBSW) is discontinued, and
- To provide an option for fallback language that is intended to satisfy the proposed RBA updated repo eligibility requirements
- To provide for the possibility that robustness of the BBSW benchmark (currently robust) could change in the future
ASF conventions for AONIA linked securitisation issuance
AONIA is the risk-free rate in Australia and is suitable for use in securitisation. The purpose of the ASF conventions for AONIA-linked securitisation issuance is:
- To encourage market participants to adopt a robust and standardised approach when using AONIA, and
- To align to developments in international securitisation markets particularly the UK market
ASF fallback provisions
The ASF fallback provisions contain two key conditions – Conditions 2 and 3.
Condition 2 provides a fallback waterfall in the event there is a temporary disruption in the publication of the BBSW benchmark rate and Condition 3 in the event there is a permanent discontinuation of the BBSW benchmark.
In simple terms, if there were to be a permanent discontinuation of the BBSW benchmark, in response to a trigger event, the fallback is to AONIA to which a defined spread adjustment is applied. In the remote possibility that AONIA were also to cease, the fallback is to the RBA Recommended Rate to which a spread adjustment can be applied. The RBA Recommended Rate would be the rate recommended by the RBA as an alternative to AONIA in the circumstances at the time. At the base of the waterfall, there is accommodation for a Final Fallback Rate to be determined by a calculation agent.
The RBA has been consulted in the course of drafting the ASF fallback provisions.
If you have any questions regarding this ASF market guideline, please contact Chris Dalton
or Robert Gallimore