BoG starts online REPOS trading by Oct. 1
Adnan Adams Mohammed
Effective October 1, 2020, REPOS trading will
be electronically transacted using a framework provided by the Global Master
Re-purchase Agreement (GMRA) a globally recognized legal document
The much expected advancement will allow REPOS
trading to be executed in real time. This follows the launch of the Guidelines
for Re-purchase Agreements in Ghana, which is in line with Section 134 (5) of
the Bank and Specialised Deposit Taking Institutions Act (Act 930), the Bank of
Ghana indicated in a statement issued, last week.
All participating banks have been directed to
execute a GMRA with each other by September 15, 2020. This will take place
prior to the October 1, 2020, scheduled commencement of live trading scheduled.
Repos are effective tools for effective monetary policy transmission and serve
as a channel through which the central bank can act more swiftly as a lender of
last resort during periods of market stress. Currently, repos and reverse repos
in the domestic financial markets are already serving as effective instruments
for the conduct of monetary policy through open market operations by the
central bank and as sources of short-term liquidity for market participants.
“Repo counterparties may use the appropriate systems
to facilitate their conduct of GMRA – based Repos. The buyer of a Repo Security
shall mark-to-market using Bloomberg as a pricing source. Where Bloomberg does
not price a Repo Security, the buyer and seller shall agree a price for this
purpose,” the Bank said.
According to the Central Securities Depository
(CSD), as at end May 2020, a total of GHC51.63 billion in repo transactions had
been settled. Transactions between commercial banks amounted to GHC56.550
billion, whereas the transactions between BoG as well as SNNIT with commercial
banks amounted to GHC725 million and GHC11.349 billion.
Real time trading in repos between banks will
significantly improve the capacity of a bank facing short term liquidity
challenges to ride through them without any inconveniences for its customers,
as such a bank would simply issue repos for cash to other banks over a short,
agreed tenor.
In the anticipation of the loss of value of
the collateral security that may be experienced if it is liquidated following
an event of default by a counterparty, the buyer shall apply an extra margin at
the initiation of the Repo transaction which would serve as compensation.
In July, 2020, the central bank also announced
that GMRA-based repos qualify as eligible financial contracts to which netting
arrangements as stated under Section 134 of the Bank and Specialised Deposit
Taking Institutions Act (Act 930) can be applied.
According to section 134 (4), “net termination
value” means the net amount obtained after setting off the mutual obligations
between the parties to an eligible financial contract in accordance with the
provisions of that contract.
GMRA-based guidelines contain a key feature which allows the transfer of title
of collateral securities from the seller to the buyer. The title transfer under
GMRA reduces credit and liquidity risk, as it allows the buyer to make use of
the collateral during the tenor of the transaction, but return the same or
equivalent securities to the seller at maturity.
Some market analysts have indicated that
ultimately, these dealings should boost secondary market trading and price
discovery of bonds and offer a cheaper source of short-term funding at
increased volumes. Repo transactions between banks fit in well with their
agreed strategy of supporting each other with liquidity whenever the need
arises so as to prevent the need for the BoG to intervene with regulatory
actions that sometimes affect the entire industry in a systemic manner. Such
transactions thus serve as a fixed tenor alternative to interbank lending which
is usually done on the basis of call – which means placements by a bank can be
called in any time the lending bank wishes, the timing of which may be
inconvenient for the bank receiving the placement – and thus is more convenient
for the borrowing bank than interbank lending on call.
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