Directions Relating to Commonwealth Borrowing, Securities Lending and the Investment of Public Money 2008

Overview

The Directions relating to Commonwealth borrowing, securities lending and the investment of public money 2008 were enacted under the authority of the Commonwealth Inscribed Stock Act 1911, the Loans Securities Act 1919 and the Financial Management and Accountability Act 1997. This legislation was introduced to provide a structured framework for the efficient operation of Australia's financial markets, addressing the need for clear guidelines on borrowing, securities lending and the investment of public funds. The Treasurer, under sections 51JA of the CIS Act, 5E of the LS Act and 62A of the FMA Act, issued these Directions to delegate specific powers to officials of the Australian Office of Financial Management (AOFM) and the Reserve Bank of Australia (RBA). The primary policy objectives outlined in the Directions are to maintain an active Treasury Bond market, support Treasury Bond futures contracts, facilitate efficient securities lending and prudently manage investments to ensure the government can meet its financial obligations. These Directions, which commenced on 13 July 2008, ensure that officials comply with the Treasurer's instructions, thereby maintaining the integrity and efficiency of Australia's financial markets.

Scope and Application

The Commonwealth Inscribed Stock Act 1911, Loans Securities Act 1919 and the Financial Management and Accountability Act 1997 Directions relating to Commonwealth borrowing, securities lending and the investment of public money 2008, signed by the Treasurer on 13 July 2008, provide guidance to officials of the Australian Office of Financial Management (AOFM) and the Reserve Bank of Australia (RBA) who have been delegated powers to undertake borrowing, securities lending, and investment of public money. These Directions, which are not disallowable, are intended to ensure the efficient operation of Australia's financial markets. They impose policy objectives and operational guidelines on these officials, including maintaining an active Treasury Bond market and supporting the market in Treasury Bond futures contracts, facilitating the efficient operation of the Treasury Bond market through securities lending, and managing the government's day-to-day cash balance and investing proceeds of additional Treasury Bond issuance in a manner that balances returns with prudent management of credit and interest rate risks. The Directions also specify the maximum stock of Treasury Bonds on issue and the types of assets eligible as collateral in securities lending transactions. This legislation applies to officials of the AOFM and RBA exercising powers under the Treasurer's delegations and is subject to instructions from the Secretary to the Treasury and/or the Chief Executive Officer of the AOFM.

Key Provisions

The Commonwealth Inscribed Stock Act 1911, Loans Securities Act 1919 and the Financial Management and Accountability Act 1997 Directions relating to Commonwealth borrowing, securities lending and the investment of public money 2008 (F2008L03184) provide guidance to specific officials within the Australian Office of Financial Management (AOFM) and the Reserve Bank of Australia (RBA) who have been delegated powers by the Treasurer. These officials include those tasked with borrowing, securities lending, and investing public money. These Directions were signed by the Treasurer on 13 July 2008 and came into effect on the same day, as they were issued under section 51JA of the CIS Act, section 5E of the LS Act, and section 62A of the FMA Act. The Directions are not disallowable, meaning they cannot be annulled by either house of the Parliament. The Directions outline the responsibilities and limitations of the officials exercising their powers. They must adhere to the instructions provided by the Secretary to the Treasury and/or the Chief Executive Officer (CEO) of the AOFM, allowing for appropriate controls to be implemented within the established framework. The borrowing policy objective outlined in the Directions is to maintain an active Treasury Bond market and to support the market in Treasury Bond futures contracts. The maximum stock of Treasury Bonds on issue at any time is limited to a face value of $55 billion, and borrowing by officials of the RBA under the Treasurer’s delegations must comply with the AOFM's Business Continuity plan. The Directions also set the policy objective for securities lending activities as facilitating the efficient operation of the Treasury Bond market, with eligible collateral including cash and/or financial assets specified in subsection 5BA(3) of the LS Act that is also accepted as collateral by the RBA in its open market operations. For the investment of public money, the Directions aim to manage the Government’s day-to-day cash balance by ensuring the Government can meet its financial obligations when they fall due, investing in short-term instruments with low credit risk. The proceeds of additional Treasury Bond issuance should aim to provide returns commensurate with the debt service costs of the additional issuance, while adopting a prudent approach to credit and interest rate risks. Officials who fail to comply with the Directions may face legal consequences. The maximum penalties for breaches of the Directions are not explicitly stated in the text, but penalties for non-compliance with the CIS Act, LS Act, and FMA Act may apply. These could include fines or imprisonment, depending on the severity of the breach. Additionally, the Directions may also have civil or criminal consequences for non-compliance, such as legal action taken against the officials or their employing entities.