central bank of seychelles operational guidelines for policy tools: open market operations...

Central Bank of Seychelles

Operational Guidelines for Policy Tools:

Open Market Operations

November 2018

Central Bank of Seychelles Open Market Operations

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I. Introduction

Open Market Operations (OMOs) operates through an auction mechanism. It is used by the Central

Bank of Seychelles (thereafter referred to as the Bank) to influence the level of liquidity in the banking

system and send signals about the monetary policy stance.

These operations are conducted through the use of several instruments, which are listed in the

Monetary Policy Framework1 (MPF) document. Currently, the Bank is making use of only two of these

instruments, namely the:

a. Deposit Auction Arrangement (DAA); and the

b. Credit Auction Arrangement (CAA).

The Bank reserves the rights to amend any of the provisions in the document on the basis of its

monetary policy stance and/or to reflect market conditions with the Other Depository Corporations

(ODCs) being notified of any change in advance.

These guidelines supersedes and replaces all previous guidelines on OMOs published by the Bank.

II. Terms of the Open Market Operations

a. Eligibility

ODCs who are eligible to participate in the Bank’s OMOs are as defined under the

MPF.

b. Type of operations conducted

The type of operations includes Standard Operations (SO) and fine tuning / Non-

Standard Operations (NSO).

i. Standard Operations (SOs) are conducted only in the morning on Mondays,

Wednesdays and Fridays.

ii. Fine tuning / Non – Standard Operations (NSOs) are conducted in the

afternoon of SO days only, subject to a shortfall not received in the SO.

1 The Monetary Policy Framework (MPF) document is available on the CBS website at www.cbs.sc.

http://www.cbs.sc/


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iii. In the event of a public holiday on an SO day, an operation shall be conducted

on the following business day.

iv. The conduct of NSOs on a day when there is no SO shall only be in exceptional

circumstances, as deemed necessary by the Bank.

c. Maturities

i. Maturities for the OMOs shall range between two (2) to three hundred and

sixty-five (365) days.

ii. The maturities will be specified under the specific guidelines for each

instrument.

iii. The Bank may close or suspend any existing maturity and /or offer other

maturity terms.

d. Limit

i. No limit is set on the aggregate amount an ODC can bid for in the OMOs.

ii. The ODCs should ensure that the aggregate volume of tender will not result in

non-compliance with the Bank’s set regulations.

iii. The Bank may, in certain circumstances, set limits on the amounts an ODC can

bid for. This will be specified in the auction announcement.

e. Collateral Requirements

i. For the liquidity providing operations, ODCs are required to back up their bids

with sufficient and eligible collaterals.

ii. Eligible assets that qualify as collaterals for any operation are listed in the

relevant section in the MPF. The Bank may at its own discretion accept

collaterals other than those listed therein.

iii. The value of the collateral will be determined as per the respective guidelines

on Values of Collaterals and Applicable Haircuts.

f. Auction Windows2

i. The auction window is set at specific times of the day by the Bank and this will

be communicated to the ODC’s.

2 The time period within which the ODC’s are to forward their bids in order to participate in the auction.


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ii. The Bank may - after informing the ODC’s at least twenty-four (24) hours

before hand - change the time and/or duration of the auction windows.

iii. The ODC’s will be notified accordingly should the Bank decide to open any

additional window on a temporary basis.

iv. The Bank reserves the right to cancel or postpone an auction at any time

without prior notification.

g. Auction Format

i. The auction format shall be as per the table below:

a. Fixed Priced Auction: An auction at which the interest is set by the

Bank and participants bid for only the amount they wish to obtain at

that rate.

b. Uniform Price Auction: An auction at which the overall quantity is set

by the Bank and the participants bid on the price. Successful bids are

allotted at one rate3 determined from the auction.

c. Multiple Price Auction: An auction at which the overall quantity is set

by the Bank and participants bid on the price. Successful bids are

allotted at individual submitted tender price.

ii. The Bank will mainly conduct operations using a multiple price auction format.

However, should the need arise, other formats will be considered.

III. Bidding procedures in Open Market Operations

a. Auction Announcement

i. An auction announcement will be sent before the opening of the auction

window.

ii. When the operation is not an SO, the ODCs will be notified through an email

on the intention to intervene before the announcement is sent.

iii. Should the Bank decide on an operations calendar for conducting its SO, this

will be communicated to the ODCs prior to implementation.

b. Submission of bids

3 The marginal rate


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i. Following the announcement, the ODCs must submit their bids as prescribed

by the respective guidelines and/or the announcement within the allotted

timeframe and through the specified means.

ii. The number of bids per instrument and/or per maturity shall be consistent

with the relevant guidelines and the announcement.

iii. All bids submitted shall be final and irrevocable representing firm

commitments of the ODCs.

iv. Incomplete bids may be discarded.

v. All bids shall remain confidential.

vi. For any amendment made to the bidding form and/or process, the Bank shall

notify the ODCs in writing one (1) week prior to the new one taking effect.

IV. Allotment of bids and the Dissemination of Auction Results to the ODC’s

a. The Allotment of Valid Bids

i. Only bids submitted within the established time window and meeting the

requirements shall be considered in the allocation process.

ii. The Bank has the right to accept or reject part, all or any of the bids received

and is not required to provide any reason for doing so.

b. Notification and Dissemination of Auction Results

i. ODCs will be notified of the auction results within thirty (30) minutes of the

closing of the auction window.

ii. Auctions results shall be final and irrevocable.

iii. The overall outcome of the auction will be posted on the Bank’s website.

V. Settlement and Repayment

i. When applicable, the pledge/transfer/receipt of the necessary collateral shall

be undertaken on the same day of the auction, before the end of working

hours.

ii. The return of the collateral or removal of the pledge shall be executed

immediately after the transfer of funds has been executed, on the maturity /

termination date.


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VI. Default on payment

In the case of insufficient funds for settlement in the reversal transaction, the Bank will not

remove the pledge on the ODC’s collateral and will proceed to acquire the collateral.

VII. Penalties

In the case of late payments, the Bank will impose a penalty as defined under the respective

section in the MPF.

VIII. Other Terms and Conditions

a. General Terms

i. The OMOs shall be conducted at the discretion of the Bank and not from the

demand of the eligible ODCs.

ii. The conduct of OMOs, not stipulated otherwise, shall be in accordance with

the respective guidelines of the relevant instrument.

b. Other Provisions

i. The Bank is not responsible for, amongst other things, technical or any other

failures that prevent ODCs from receiving an announcement, participating in

an auction, making any communication with respect to a bid or receiving

auction outcome results, except for its own technical failures.

ii. The Bank is not responsible for any delays, errors or omissions, including any

errors in determining the auction results, except for its own delays and/or

errors or omissions.

iii. The Bank reserves the right to amend any of the above provisions to meet the

overall objective of its monetary policy stance.


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PROCEDURAL INSTRUCTIONS FOR DEPOSIT AUCTION ARRANGEMENT (DAA)


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I. Introduction

As part of its initial steps towards the Monetary Policy Reforms, the Bank introduced the Deposit

Auction Arrangement (DAA) in September 2008, a short term liquidity management instrument.

This instrument serves as a convenient means for commercial banks to invest their excess liquidity

with the Bank and earn a return on idle funds. Currently, the DAA is the main monetary policy

instrument being used to absorb excess liquidity levels within the banking system.

II. Terms of the Auction

a. Schedule

i. The DAA will generally be conducted once a week, or otherwise more

frequently whenever deemed necessary by the Bank.

ii. An announcement will be sent prior to each auction.

b. Maturity

i. Maturities on the DAA are as per the below:

a. SOs are conducted of seven (7) days maturity only.

b. The Bank may also offer longer term maturities as part of the SO as and

when deemed necessary by the Bank.

c. NSOs shall be conducted in maturities from two (2) days to six (6) days,

and thereafter in multiples of seven (7) days up three hundred and sixty-

four (364) days.

ii. The Bank may offer other maturity terms.

c. Interest Determination

i. The interest rate4 is determined through the auction process, consistent with

the auction format.

ii. The Bank may decide to fix the interest rates on any or all of the offered

maturities.

d. Limit

i. No limit is set on the aggregate amount an ODC can bid for in the instrument.

4 Rates will be quoted as interest per annum.


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ii. The total amount bid should not exceed that offered.

III. Procedures for participating in the DAA


i. The Bank will issue an announcement, via the web portal or via email5 if the

web portal is not functioning, prior to the opening of the auction window. This

will specify the terms and conditions of the auction and will contain the

following;

a. A reference number of the auction, for example DAA20170509,

b. Date of the auction, for example May 9, 2017,

c. Auction format: for example Uniform Rate or Variable Rate

d. Maturity period(s) (days): for example seven (7) days

e. Auction window start time: for example 11:00 AM

f. Auction window closing time: for example 11:30 AM

ii. Depending on the auction format, the following information may also be

included;

a. An auction amount irrespective of maturity terms, for example

SR100,000,000.00

b. The offered interest rate(s) by maturity when it is a fixed price tender,

for example 4.00% on 7 days, 4.25% on 28 days

b. Bidding

i. ODCs will be provided with a soft copy of the DAA Bid Table on the web portal,

which must be completed for submission via the same portal. The table will

require the following information;

a. Bid Amount

b. Bid Rate when applicable (expressed as an annual percentage rate to

two decimal points)

ii. In the event that the web portal is not functioning, bids may be submitted via

email ([email protected]), facsimile (+248 4224502) or hand delivered. This will

require two authorised signatories and official stamp details.

iii. For submission of bids via email, only requests with the ODC’s email extensions

5 In the event of emails not functioning, alternate means of disseminating the auction announcement will be issued.

mailto:[email protected]


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will be accepted and furthermore, requests must be confirmed via telephone.

c. Auction Outcome Notification

i. ODCs will be sent a notification of approved and rejected bids via the web

portal or other means in exceptional circumstances, stating the amount

approved as well as the rate.

ii. The Bank will publish the weighted average DAA rate for the auctioned

maturity period(s) on CBS website on the auction date.

iii. In the event of a uniform / single rate auction, this rate will instead be

published.

iv. In the case where the DAA rates are fixed, the nominal value of total bids

received/accepted per maturity will be published.

d. Settlement

i. Following the notification, the ODC’s demand deposit account held at the Bank

will be debited by the amount as awarded in the auction and its respective DAA

account will be credited accordingly at most an hour after notification.

ii. Each ODC should ensure that it has sufficient funds in its demand deposit

account for the transfer.

e. Maturity and Remuneration

i. Upon maturity, the ODC will have its DAA account debited with the principal

amount and demand deposit account at the Bank credited with the principal

amount plus interest as stated in the notification.

ii. In the event that the repayment date is a non-business day6, the transfer will

occur on the following business day at no additional interest to the

participants.

IV. Exceptional Buy-Back Option

In exceptional cases, the Bank will buy back the instrument with no penalty being charged.

6 Public Holidays and weekends


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PROCEDURAL INSTRUCTIONS FOR CREDIT AUCTION ARRANGEMENT (CAA)


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I. Introduction

The Credit Auction Arrangement (CAA), contrary to the DAA, is a tool used for injecting liquidity in the

system when the need arises, by auctioning funds for a predetermined period to ODCs against eligible

collaterals. It was introduced on October 1, 2009 and the use of it is initiated by the Bank and not the

ODCs.

II. Terms of the Auction

a. Schedule

i. There is no specific schedule for the use of the CAA.

ii. The ODCs will be informed of the intention to conduct the CAA through an

email.

b. Maturity

i. SOs shall be conducted of seven (7) days maturity.

ii. The Bank may also offer one (1) month and two (2) months CAA as part of the

SO as and when deemed necessary by the Bank.

iii. NSOs shall be conducted in maturities from two (2) days to six (6) days, and

thereafter in multiples of 7 days up to three hundred and sixty-four days

(364) days.

iv. Subject to approval of the MPTC, other maturity terms may be offered.

c. Interest Determination

i. The interest rate7 is determined through the auction process, consistent with

the auction format.

ii. The Bank may decide to fix the interest rate on any or on all offered maturities.

d. Limit

No limit is set on the aggregate amount an ODC can bid for in the instrument, assuming that the

condition set under the following section (e) is met.

e. Collateral Requirements

Advances awarded under this arrangement must be backed with sufficient and eligible collateral(s).

7 Rates will be quoted as interest per annum.


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III. Procedures for participating in the CAA


i. The announcement will be issued, via the web portal or via email if the web

portal is not functioning, at least 15 minutes prior to the opening of the

auction window. This will specify the terms and conditions of the auction and

will contain the following;

a. A reference number of the Auction, for example CAA20170509,

b. Date of the Auction, for example May 9, 2017,

c. Auction Format, for example Uniform rate or Variable rate

d. Maturity period (days): for example seven (7) days

e. Auction Window Start Time: for example 09:00 AM

f. Auction Window Closing Time: for example 10:00 AM

ii. Depending on the auction format, the following information may also be

included;

a. An auction amount irrespective of maturity terms, for example

R100,000,000.00

b. Auction amount for specific maturity terms(s) may eb specified as and

when deemed necessary

c. The offered interest rate(s) by maturity should it be decided to have

a fixed price tender, for example 5.50% on 7 days

d. Minimum bid rate

iii. In addition, when deemed necessary the following will also be included in the

announcement.

a. Minimum Bid Amount: for example R50,000,000.00

b. Maximum Bid Amount: for example R30,000,000.00

b. Bidding

i. ODCs will be provided with a soft copy of the CAA Bid table on the web portal,

which must be completed for submission via the web portal. The table will

require the following information:

a. Bid Amount

b. Bid Rate when applicable (expressed as an annual percentage rate to

two decimal places)


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ii. In the event that the web portal is not functioning, bids may be submitted via

email ([email protected]), facsimile (+248 4224502) or hand delivered. Bids sent via

facsimile or hand delivered will require two authorised signatories and official

stamp details.

iii. For submission via email, only requests with the ODC’s official email extensions

will be accepted and furthermore, requests must be confirmed via telephone.

c. Auction Outcome Notification

i. ODCs will be sent a notification of approved and rejected bids via the web portal

or other means in exceptional circumstances, stating the amount approved as

well as the rate.

ii. ODCs are expected to comply with the collateral requirements8 to reach

settlement.

iii. The Weighted Average CAA Rate for the auctioned maturity period(s) will be

published on the Bank’s website on the auction date.

iv. In the event of a uniform/single rate auction, this rate will instead be published.

v. In the case where CAA rates are fixed, the nominal value of total bids

received/accepted per maturity will be published.

d. Settlement

i. Following the notification, the accounts of the ODC will be credited upon

completion of the verification of the collateral. Settlement of transactions will

not be effected prior to receipt of all required information.

ii. In the event that the value of the submitted collateral does not match or is less

than the awarded credit, the ODC will be notified.

iii. If an ODC is unable to transfer sufficient amount of collaterals to settle the

amount of liquidity it has been allotted in a tender operation, a penalty as per

the MPF may be imposed on the ODC.

e. Repayment

i. Upon maturity, the ODC will have its demand deposit accounts debited with the

principal and interest of the credit arrangement, as stated in the notification for

approved bids and the pledge on the submitted collateral be removed.

ii. Interest payment will be calculated on a per annum basis for the number of

days’ credit was awarded.

8 Reference is made to section on Collateral Requirements set out under 6.0 above.

mailto:[email protected]


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iii. No ODC will be allowed to prepay an advance awarded in an auction prior to

the maturity date unless the Bank approved exceptional circumstances.

iv. In the event that the repayment date is on a non-business day9, the transfer will

occur on the following business day at no additional charge to the ODC.

9 Public Holidays and weekends

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