ASX Clear Clearing Participants are reminded that ASX Clear interest haircuts will revert to 45bps on 1 October 2020, following the removal of the temporary waiver. Further detail and the original notice can be accessed via notice 0228.20.03.
The temporary waiver had the effect of flooring rates paid on cash balances at zero, and was introduced to ensure Participant systems are capable of passing through negative rates. At the time, the actual Overnight Cash Rate (OCR) and the RBA Target cash rate were both at 25bps, and the adjustment consisted of a waiver of 20bps to ASX Clear interest haircuts to achieve a zero floor (as per the original market notice). Since then, the OCR has diverged from the RBA’s Target cash rate and has been a variable rate. Therefore, ASX Clear has continued to adjust the size of the waiver in order to maintain a zero rate applied to ETO cash balances.
From 1 October 2020, interest haircuts will revert to 45bps and the rate paid on cash balances will return to being the net of the ASX Treasury Earnings Rate and the interest haircut. The ASX Treasury Earnings Rate is the lesser of the actual RBA Overnight Cash Rate (OCR) or a rate calculated with reference to actual portfolio earnings and is the base rate applied to cash used to cover Margin, Additional Initial Margin, Mandatory Buffers and excess cash.
In the current rate environment, and with the removal of the waiver, the application of the 45bps haircut will result in a negative rate. For example, assuming the ASX Treasury Earnings rate is consistent with the OCR at 13bps, applying a 45bps haircut will result in a rate of -32bps applied to cash balances.
Both the ASX Treasury Earnings Rate and the rate applied to cash balances (net of interest haircuts) are published daily to Participants.
Participants and vendors should ensure that systems are capable of handling the current interest rate environment and confirm system readiness prior to the go-live date.
Gregory Pill – Head of Equity Derivative Products