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Legislative Assembly for the ACT: 1999 Week 3 Hansard (25 March) . . Page.. 933 ..

The CFU does not actively pursue arbitrage transactions for financial gain. On all occasions the CFU is approached by investors seeking ACT Commercial Paper (because of its high rating). This 'approach' by investors is made through the ACT's Commercial Paper dealer panel. An organisation of the dealer panel will enquire as to whether the CFU wishes to issue commercial paper at a rate and for a specific maturity and then provide the CFU with an investment opportunity (commercial paper, bank bills etc within the ACT's credit exposure limits) at a higher interest rate than the borrowing for the same term and for the same amount as the borrowing. The offer is first examined to ensure that it is consistent with CFU's established policy in respect of credit limits, maturity and net margin. Following this process the deal is to be approved by the Director, Economic Management Branch before being accepted.

c) The CP Program is an essential element of the ACT's financial management operations. It is a very inexpensive program to maintain and provides the ACT with access to funding at very competitive rates in a very expeditious timeframe. The total costs associated with the CP Program (including fixed costs which must be met whether it is used or not) totalled $13,000 in 1997-98. There are no 'program' related costs to the investment transaction component of arbitrage. The salary and overhead costs of the Treasury Dealer will be required irrespective of whether arbitrage trading was undertaken or not. It is estimated that the incremental cost of arbitrage trading in respect of theTreasury Dealer is $2,000 per year.

d) The returns on the program claimed in The Canberra Times are the gross difference between the interest cost of borrowing and the interest revenue of lending.

e) Refer to 2c above.

f) Refer to 2b above.

g) The CFU has well defined investment credit limits, issuance limits and delegation controls to ensure that there adequate controls and safeguards for all borrowings and investments.

Legal Authority

The legal authority to undertake investments and borrowings on behalf of the Australian Capital Territory is provided in the ACT Financial Management Act 1996 in Sections 38 and 40. The Treasurer has delegated her powers to officers within the Chief Minister's Department to undertake these transactions.

Investment Credit Limits

The CFU has well defined exposure limits including monetary limits and rating limits (minimum A2 Standard & Poor's) within which all investments, including arbitrage related are restricted.

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