Regulation on the Procedure for Conducting Outright (Rediscount) Operations by the National Bank of the Kyrgyz Republic for the Purchase of Securities on the Secondary Market

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Creation date: 2023-07-19

APPROVED by the Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic No. 10\14 dated March 28, 2013

Regulation on the procedure for conducting by the National Bank of the Kyrgyz Republic operations for the purchase of securities of the Kyrgyz Republic on the secondary market on outright terms (rediscount operation)

(As amended by Resolutions of the Board of Directors of the National Bank of the Kyrgyz Republic dated April 26, 2017 No. 17/3; August 30, 2017 No. 2017-P-09/39-7-(DCP); October 25, 2017 No. 2017-P-09/45-9-(NPA); December 14, 2022 No. 2022-P-09/78-14-(NPA))

1. General Provisions

This Regulation on the procedure for conducting operations for the purchase of securities of the Kyrgyz Republic (hereinafter - Regulation) defines the procedure for conducting by the National Bank of the Kyrgyz Republic (hereinafter - National Bank) operations for the purchase of securities on the secondary market from commercial banks of the Kyrgyz Republic (hereinafter - Participant) on outright terms (hereinafter - rediscount operation) through the National Bank's automated trading system (hereinafter - ATS).

(As amended by Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic dated October 25, 2017 No. 2017-P-09/45-9-(NPA))

The National Bank conducts rediscount operations in accordance with the Constitutional Law of the Kyrgyz Republic "On the National Bank of the Kyrgyz Republic".

(As amended by Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic dated December 14, 2022 No. 2022-P-09/78-14-(NPA))

The conditions and rules established by the Regulation on the Operation of the Automated Trading System of the National Bank of the Kyrgyz Republic (hereinafter - Regulation on ATS Operation) apply to this Regulation.

The rediscount operation is conducted for the purpose of providing liquidity to the banking system in national currency. The rediscount operation is conducted by decision of the Monetary and Credit Policy Committee of the National Bank (hereinafter - MCP Committee).

Participants in rediscount operations are commercial banks meeting the requirements of item 11 of this Regulation. By decision of the Board of Directors of the National Bank, other participants in the republic's financial market may be admitted to the rediscount operation.

The relationship between the Participant and the National Bank regarding the rediscount operation is governed by this Regulation and the corresponding bilateral Agreement on the procedure for conducting operations for the purchase of securities on the secondary market from commercial banks of the Kyrgyz Republic on outright (rediscount) terms between the National Bank and the Participant, according to Appendix 1 to this Regulation (hereinafter - Agreement).

(As amended by Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic dated October 25, 2017 No. 2017-P-09/45-9-(NPA))

2. Definitions and Terms

For the purposes of this Regulation, in addition to those specified below, definitions and terms established in the Regulation on ATS Operation apply:

Date of conducting a rediscount operation – the day announced by the National Bank in the parameters of the rediscount operation, on which the rediscount operation is concluded.

Date of execution of a rediscount operation – the day announced by the National Bank in the parameters of the rediscount operation, on which the actual purchase/sale of securities occurs, through the corresponding debit/credit of funds and transfer of ownership rights to the securities.

(As amended by Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic dated October 25, 2017 No. 2017-P-09/45-9-(NPA))

Rediscount operation – an operation for the purchase by the National Bank of securities on the secondary market from Participants, with prices and terms to maturity established by the National Bank for the acquired securities.

(As amended by Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic dated October 25, 2017 No. 2017-P-09/45-9-(NPA))

3. General Conditions for Conducting Rediscount Operations

Relationships between Participants regarding rediscount operations for the depository accounting of securities are governed by the corresponding bilateral contract.

(As amended by Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic dated October 25, 2017 No. 2017-P-09/45-9-(NPA))

To gain access to the rediscount operation, a Participant must submit a letter of intent for access to the National Bank, and must not be in processes and/or procedures provided by the Law of the Kyrgyz Republic "On Banks and Banking Activity" (Temporary Administration, bank liquidation) and must have:

(As amended by Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic dated December 14, 2022 No. 2022-P-09/78-14-(NPA))

§ a license from the National Bank for the right to conduct banking operations in national and/or foreign currency, with no restrictions on issuing, purchasing, selling, servicing securities, as well as depository services;

(As amended by Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic dated August 30, 2017 No. 2017-P-09/39-7-(DCP))

§ a correspondent account in national currency at the National Bank;

§ a "depo" (securities) account at the Depository;

§ an Agreement concluded with the National Bank.
By a separate decision of the Board of Directors of the National Bank, Participants undergoing processes and/or procedures provided by the Law "On Banks and Banking Activity" may also be admitted to the rediscount operation.

(As amended by Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic dated December 14, 2022 No. 2022-P-09/78-14-(NPA))

The basis for participation in the rediscount operation is the presence of a signed Agreement and an application for concluding a rediscount operation, properly formatted and submitted via the ATS.

The MCP Committee of the National Bank determines the following conditions:

• type of security;

(As amended by Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic dated October 25, 2017 No. 2017-P-09/45-9-(NPA))

• total amount of funds for the rediscount operation;

• term to maturity of the security.

(As amended by Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic dated October 25, 2017 No. 2017-P-09/45-9-(NPA))

The conditions for conducting the rediscount operation specified in item 13 of this Regulation are announced by the National Bank through ATS and by posting an informational message on the National Bank's website.

Results of the rediscount operation are available in the ATS, and also announced by the National Bank by posting statistical information on its website.

The application must meet the conditions of the rediscount operation announced by the National Bank.

A Participant may modify or withdraw an application within the time interval between the start and end of application acceptance in the ATS.

The National Bank ensures confidentiality of information specified in the application.

Credit and debit of funds are carried out by the ATS through correspondent accounts in national currency of Participants and the corresponding account of the National Bank.

Transfer of securities via "depo" accounts of Participants and the National Bank is carried out by the ATS.

(As amended by Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic dated October 25, 2017 No. 2017-P-09/45-9-(NPA))

The ATS performs settlements for rediscount operations based on delivery versus payment (DVP).

The procedure for conducting the rediscount operation is established in accordance with the Regulation on ATS Operation.

The settlement procedure for the rediscount operation is established in accordance with this Regulation and the Regulation on ATS Operation.

4. Procedure for Conducting Rediscount Operations

The volume of the application submitted by a Participant must not exceed the volume announced by the National Bank for the rediscount operation.

Satisfaction of Participants' applications is carried out starting from the first submitted application and continues until the full exhaustion of the volume announced by the National Bank for the rediscount operation.

A Participant may receive information on the status of a rediscount transaction in real time at its workplace in the ATS.

5. Rights, Obligations and Liability of Participants

The rights and obligations of the Participant and the National Bank are determined in accordance with this Regulation and the Regulation on ATS Operation.

A Participant must comply with the conditions for conducting the rediscount operation set forth in this Regulation and may not refuse to fulfill its obligations under the rediscount operation.

Non-fulfillment by a Participant of its obligations under the rediscount operation is the absence of a sufficient amount of corresponding securities in the Participant's "depo" account to fulfill obligations under the concluded rediscount operation.

(As amended by Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic dated October 25, 2017 No. 2017-P-09/45-9-(NPA))

Non-fulfillment by the National Bank of its obligations under the rediscount operation is the absence of a sufficient amount of funds in national currency in the National Bank's account to fulfill obligations under the rediscount operation.

In case of a Participant's non-fulfillment of its obligations during the implementation of the rediscount operation, the structural division of the National Bank responsible for conducting settlements for the rediscount operation will unilaterally (without recourse) debit from the Participant's correspondent account at the National Bank a one-time penalty amounting to 0.5% of the value of the concluded transaction with the Participant under the rediscount operation. The rediscount operation is considered terminated.

In case of inability to fully debit the one-time penalty in national currency, the structural division responsible for settlements will debit the penalty amount as funds are credited to the Participant's correspondent account at the National Bank.

In case of non-fulfillment by the National Bank of its obligations, the National Bank pays the Participant a one-time penalty amounting to 0.5% of the value of the concluded transaction under the rediscount operation, credited to the Participant's correspondent account at the National Bank.

6. Final Provisions

The procedure for conducting rediscount operations by the National Bank is governed by this Regulation, the Agreement according to Appendix 1 to this Regulation, and the Regulation on ATS Operation.

Amendments and additions to this Regulation may be made by the National Bank for the purpose of improving the process of conducting rediscount operations.

Appendix 1
to the Regulation on the procedure for conducting by the National Bank of the Kyrgyz Republic operations for the purchase of securities of the Kyrgyz Republic on the secondary market on outright terms (rediscount operation) No. 10\14 dated March 28, 2013

(As amended by Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic dated October 25, 2017 No. 2017-P-09/45-9-(NPA))

Standard Format Agreement between the National Bank and a commercial bank (name of commercial bank) on the procedure for conducting operations for the purchase of securities on the secondary market from commercial banks of the Kyrgyz Republic on outright (rediscount) terms

(As amended by Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic dated October 25, 2017 No. 2017-P-09/45-9-(NPA))

Bishkek No. _______________ dated "___" ______________ 20 year.

The National Bank of the Kyrgyz Republic, hereinafter referred to as "National Bank", represented by ________________________________________, acting on the basis of ________________________________________, on one part, and ____________________ ______________________________, hereinafter referred to as "Participant", represented by ___________________________, acting on the basis of ___________________________ on the other part, together hereinafter referred to as "Parties", based on the Regulation on the Operation of the Automated Trading System of the National Bank of the Kyrgyz Republic (Resolution No. dated "" 2013) (hereinafter - ATS) and the Regulation on the procedure for conducting operations for the purchase of securities on the secondary market on outright (rediscount) terms (Resolution No. dated "" _______ 2013) (hereinafter - Regulation), have concluded this Agreement on the procedure for conducting rediscount operations with securities (hereinafter - Agreement) as follows:

(As amended by Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic dated October 25, 2017 No. 2017-P-09/45-9-(NPA))

1. Subject of the Agreement

1.1.
The subject of this Agreement is to define the conditions and procedure for regulating legal relations arising during the conduct of rediscount operations with securities of the Kyrgyz Republic between the National Bank and the Participant.

(As amended by Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic dated October 25, 2017 No. 2017-P-09/45-9-(NPA))

1.2.
Definitions and terms used in this Agreement are analogous to those defined in the Regulation.

1.3.
Settlements for rediscount operations are carried out through the Participant's correspondent and depository accounts at the National Bank and other corresponding accounts of the National Bank.

2. General Conditions for Conducting Rediscount Operations

2.1.
To conduct a rediscount operation, the Participant must meet the conditions specified in item 11 of the Regulation on the date of conducting the rediscount operation.

2.2.
Conditions for conducting the rediscount operation specified in item 13 of the Regulation are determined by the MCP Committee of the National Bank and announced in the ATS and by posting an informational message on the National Bank's website.

2.3.
Results of the conducted rediscount operation are announced by the National Bank in the ATS and by posting statistical information on its website.

2.4.
The basis for participation in the rediscount operation is the presence of a signed Agreement and an application, properly formatted and submitted via the ATS within the time for accepting applications for the rediscount operation announced by the National Bank.

2.5.
The application must meet the conditions of the rediscount operation announced by the National Bank.

2.6.
A Participant may modify or withdraw an application within the time interval between the start and end of application acceptance in the ATS.

2.7.
The National Bank ensures confidentiality of information specified in the application.

2.8.
The ATS performs settlements for the rediscount operation based on delivery versus payment (DVP).

2.9.
Credit and debit of funds through corresponding accounts of Participants and the National Bank are carried out by the ATS through correspondent accounts in national currency.

2.10.
Transfer of securities via "depo" accounts of Participants and the National Bank is carried out by the ATS.

(As amended by Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic dated October 25, 2017 No. 2017-P-09/45-9-(NPA))

2.11.
In cases where the execution date of a rediscount operation is announced as a non-working day in the Kyrgyz Republic, the execution of the rediscount operation is carried out on the next working day.

3. Rights and Obligations of Parties

3.1.
The Parties have the right to conduct a rediscount operation strictly in accordance with the Regulation and this Agreement.

3.2.
The Parties agree to the conditions for conducting the rediscount operation set forth in the Regulation and this Agreement, and recognize their obligations to each other.

3.3.
The Parties undertake to comply with the conditions for conducting the rediscount operation established by the Regulation and this Agreement, and not to refuse fulfillment of obligations under the concluded rediscount operation.

3.4.
The Participant undertakes:

3.4.1.
To comply with this Agreement and timely carry out all necessary actions for submitting the Application.

3.4.2.
On the execution date of a rediscount operation, to have a sufficient amount in its "depo" account of securities corresponding to the parameters announced by the National Bank.

(As amended by Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic dated October 25, 2017 No. 2017-P-09/45-9-(NPA))

3.5.
The Participant grants the structural division of the National Bank responsible for conducting settlements for the rediscount operation:

3.5.1.
In case of absence in the Participant's "depo" account of corresponding securities in sufficient quantity for executing a rediscount operation, to unilaterally (without recourse) debit from the Participant's correspondent account at the National Bank a one-time penalty amounting to 0.5% of the value of the concluded transaction under the rediscount operation.

(As amended by Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic dated October 25, 2017 No. 2017-P-09/45-9-(NPA))

3.5.2.
In case of inability to debit the one-time penalty in national currency from the Participant's correspondent account at the National Bank, to carry out debiting of the penalty amount as funds are credited to the Participant's correspondent account at the National Bank.

3.6.
The National Bank undertakes:

3.6.1.
To comply with this Agreement and timely carry out all necessary actions for processing the Application submitted via the ATS by the Participant.

3.6.2.
In case of non-fulfillment of obligations, to pay the Participant a one-time penalty amounting to 0.5% of the value of the concluded transaction under the rediscount operation.

3.7.
Debit and/or credit of penalties are carried out through the ATS.

4. Liability of Parties

4.1.
The Parties bear full responsibility for their obligations under the rediscount operation in accordance with this Agreement and the Regulation.

4.2.
In case of non-fulfillment of their obligations under the rediscount operation, one Party pays the other Party a one-time penalty amounting to 0.5% of the value of the concluded transaction under the rediscount operation.

4.3.
Participants grant the ATS the right to carry out:
§ transfer of securities from the Participant's "depo" account to the National Bank's "depo" account;

(As amended by Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic dated October 25, 2017 No. 2017-P-09/45-9-(NPA))

§ transfer of funds in national currency from the National Bank's account to the Participant's correspondent account at the National Bank.

4.4.
The National Bank bears no responsibility for damages caused to the Participant due to the Participant's violation of this Agreement and the Regulation.

4.5.
The National Bank and the Participant bear full responsibility for the correctness, timeliness, and confidentiality of actions performed by their responsible persons and employees related to conducting the rediscount operation, in accordance with this Agreement and the Regulation.

4.6.
The National Bank has the right to suspend/cancel a rediscount operation in case of technical failure in the ATS. If the technical failure is short-term, the National Bank has the right to change the time frames for conducting the rediscount operation.

5. Force Majeure

5.1.
The Parties are released from responsibility for full or partial non-fulfillment of obligations under this Agreement if such non-fulfillment is a result of force majeure: natural and technological disasters, natural calamities, military conflicts, strikes, normative legal acts adopted by legislative and executive authorities, and other circumstances that directly caused the impossibility of fulfilling obligations under this Agreement. Release from responsibility arises if the aforementioned events are extraordinary, unforeseen, and unavoidable, occurred after the conclusion of this Agreement, and do not depend on the will of the Parties.

5.2.
Upon the occurrence of force majeure circumstances, the Parties must notify each other in writing within two working days. The notification must contain data on the nature of the circumstances, as well as, if possible, an assessment of their impact on fulfilling obligations under this Agreement and the term for fulfillment.

5.3.
In case of force majeure circumstances, the term for fulfilling obligations by the Parties under this Agreement is extended proportionally to the time during which such circumstances and their consequences persist.

5.4.
If force majeure circumstances and their consequences continue for more than seven calendar days or will persist beyond this term, the Parties shall, in the shortest possible time, conduct negotiations to identify alternative methods of fulfilling this Agreement acceptable to both Parties and reach a corresponding agreement.

5.5.
The occurrence of force majeure circumstances does not release the Parties from obligations under concluded rediscount operations and those in effect at the time of these circumstances.

5.6.
Force majeure circumstances do not include, in particular, violation of obligations by the Participant's counterparties, or absence of necessary funds with the Participant.

5.7.
Failure to notify, or untimely notification of force majeure circumstances results in the loss of the right to rely on such circumstances.

6. Dispute Resolution

6.1.
Disputes between the Parties arising during the execution of this Agreement shall be resolved through negotiations between the Parties to develop a mutually acceptable solution.

6.2.
In case of inability to reach agreement through negotiations, disputes between the Parties shall be resolved in accordance with the legislation of the Kyrgyz Republic.

7. Other Conditions

7.1.
This Agreement may be amended and/or supplemented by mutual consent of the Parties.

7.2.
All amendments and additions to this Agreement are valid if executed in written form and signed by both Parties.

7.3.
In case of reorganization of the Parties, all rights and obligations under this Agreement pass to the successors of the Parties.

7.4.
This Agreement is executed in 2 (two) original copies in Russian and in 2 (two) copies in Kyrgyz, with two copies for each of the Parties, having equal legal force. Two copies of this Agreement are stored at the National Bank, and two others are transferred to the Participant.

8. Term of Validity and Procedure for Termination of Agreement

8.1.
This Agreement enters into force from the moment it is signed by both Parties. The conditions of this Agreement apply only to rediscount operations concluded from the moment this Agreement enters into force.

8.2.
All rediscount operations concluded with the National Bank before this Agreement enters into force are completed under conditions in effect at the time of their conclusion.

8.3.
This Agreement is valid for one calendar year and is considered extended for each subsequent calendar year if neither Party has declared in writing its intention to terminate it within 7 (seven) calendar days prior to the expiration of this Agreement.

8.4.
The Parties have the right to unilaterally terminate this Agreement with prior notification to the other Party no later than 7 (seven) calendar days in advance.

8.5.
The National Bank has the right to unilaterally terminate this Agreement without prior notification to the Participant in cases:
§ violation by the Participant of the conditions of this Agreement and/or Regulation;

§ introduction regarding the Participant of processes and/or procedures provided by the Law "On Banks and Banking Activity"; appointment of a Temporary Administration in the bank appointed by the National Bank;

(As amended by Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic dated December 14, 2022 No. 2022-P-09/78-14-(NPA))

§ revocation of the Participant's bank license for conducting banking operations in national and/or foreign currency;

(As amended by Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic dated August 30, 2017 No. 2017-P-09/39-7-(DCP))

§ recognition by the court of the Participant