The New Investment Framework for Receiver General Cash Balances

The Department of Finance and the Bank of Canada are releasing final terms and conditions for participating in morning auctions of Receiver General balances. These auctions are the primary means by which the government invests its short-term Canadian-dollar cash balances. The new framework is designed to increase competition by broadening participation and to strengthen the management of risks; in particular, the credit risks involved in the investment of these funds. The federal government is making these changes as part of its ongoing efforts to ensure that its financing and investing operations meet the standards of best practices appropriate for a sovereign government. The new framework for the auctions, including policies for managing credit risk, eligible participants, eligible collateral, and tendering and settlement procedures, is described in the document Terms and Conditions Governing the Morning Auction of Receiver General Cash Balances. The new framework is planned to be implemented on 10 September 2002. The procedures for afternoon auctions of Receiver General balances are not affected by these changes.

The government released a discussion paper in July 2000 that proposed changes to the framework for investing its cash balances. The government modified the proposed framework and released a revised discussion paper in August 2001. Contact with interested parties during the consultation process on the proposed framework, as well as meetings dealing with operational issues, provided numerous opportunities to exchange views and offer comments. Comments received on the discussion papers were used to develop the final terms and conditions being released today.

RBC Global Services was selected through a competitive Request For Proposals run in January 2002 to provide settlement and management services for the Tri-party agreements under the new framework.

With the introduction of the new framework for collateralized Receiver General deposits, the Bank of Canada plans to provide support to the overnight market during the period of adjustment to the revised investment framework. The Bank and the Department of Finance expect the morning auctions to be covered by participants. In the event that bids are insufficient to cover the planned auction amount, however, the uncovered balances in morning auctions will not be transferred to the afternoon Receiver General auction and will remain on deposit at the Bank of Canada. In order to help the market to adapt to the new framework and to achieve its target for the overnight rate, the Bank may choose to conduct one or more rounds of special purchase and resale agreements (SPRAs) at the target for the overnight rate, as necessary. If the amount of SPRAs transacted is not sufficient to cover the amount of the uncovered balances from the morning auction, balances in the Large Value Transfer System will be lower than the level targeted. Developments in the adjustment period will be monitored closely, and these temporary measures will be reviewed in a timely manner.

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