Regulatory Alerts2008-09-09
Banking Circular No 6 of 2008 - Introduction of the Interbank (“Horizontal”) Master Repurchase Agreement (MRA)
▅a; The Central Bank of Kenya (CBK) is introducing an additional Master Repurchase Agreement (MRA) for commercial banks to govern repurchases between banks ("Horizontal" Repo). This aims at strengthening inter-bank liquidity management and implementing the "Vertical" Reprogram. The program was developed after consultation with a Committee comprised of CBK officials and Treasurers Forum members from approximately ten commercial banks. ##### Key Issues: i) The program adopts the Global Master Repurchase Agreement (GMRA) model, customized to suit domestic market conditions. ii) CBK circulates the proposed MRA along with related documents to enable proper understanding of the program by bank officers and associated persons. iii) Following the Internal Loans Act amendment in October 2007, which explicitly recognizes dematerialization and secondary trading of government securities, the process of gazettement is currently ongoing. iv) The Bank seeks Capital Markets Authority (CMA) approval for Horizontal Repo transactions involving Treasury Bonds to be processed under the MRA without going through the securities exchange. v) Some provisions in the GMRA have been amended to align with existing infrastructure and market practices, and only Government securities are used as collateral. vi) Banks participating in the program must execute and exchange MRAs among themselves and notify CBK of their counterparties. Only authorized banks that have executed and exchanged the MRA will be allowed to participate in Horizontal Repo transactions. ##### Introduction Date: CBK plans to launch the Horizontal Repo transaction platform on Friday, September 12, 2008."