Operating Instructions No. 01 of 2022: Intra-Day Liquidity Facility Against Scripless Government Securities

# ශ්‍රී ලංකා වෙළෙන් විශ්වාසය දිගුත්තෙක් පුරුප්පු වාර්තාවෙන්
## CENTRAL BANK OF SRI LANKA

### අඩුවෙන් සිත්වා මැතිවැඩි අඩුවෙන් සිත්වා
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### අඩුවෙන් සිත්වා මැතිවැඩි අඩුවෙන් සිත්වා
### අඩුවෙන් සිත්වා මැතිවැඩි අඩුවෙන් සිත්වා

### Domestic Operations
### Department

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## Operating Instructions No. 01 of 2022

### 02 February 2022

### To: All Dealer Direct Participants

### Operating Instructions pertaining to the provision of the Intra-Day Liquidity Facility (ILF) Against Scripless Government Securities on LankaSettle System

You are hereby informed that the Domestic Operations Department Circular No. 35/01/005/0006/36 issued with effect from 12 April 2018 on the above is revoked and reissued with amendments to the ‘participants’ who are eligible to use ILF provided by the Central Bank of Sri Lanka.

Accordingly, Operating Instructions No. 01 of 2022 shall come into effect from 02 February 2022 and all Dealer Direct Participants are required to comply with the same.

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**Dr. P K G Harischandra**  
Director/ Domestic Operations

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**7 විට අඩුවෙන්, 2 විට අඩුවෙන්**  
**ස්ථාන 30, ජානාධිපති මාවතා,**  
**තැ.පැ. 590, කොළඹ 01, ශ්‍රී ලංකාව**  
**+94 112 477036**  
**+94 112 346287**  
**ddod@cbsl.lk**  
**www.cbsl.gov.lk**

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## Operating Instructions No. 01 of 2022

### Domestic Operations Department

### 01 February 2022

### To: All Dealer Direct Participants

### Operating Instructions pertaining to the provision of the Intra-Day Liquidity Facility (ILF) Against Scripless Government Securities on LankaSettle System

These Operating instructions (OI) shall come into effect on 02 February 2022 and may be amended or varied by the Central Bank of Sri Lanka (CBSL) from time to time with reasonable notice to the Dealer Direct Participants (DDPs). OI pertaining to the provision of the ILF by the CBSL against eligible collateral are outlined below.

As provided for in the LankaSettle System Rules, the CBSL may, at its discretion, provide funds under the Intra-day Liquidity Facility (ILF) to DDPs of the LankaSettle System with a view to facilitating the smooth operation of the Real Time Gross Settlement (RTGS) System.

1. Ordinarily, all DDPs on LankaSettle, other than Designated Non-Dealer Bidders, are eligible for using the ILF. For the purposes of these OI;

   i. LankaSettle System Rules (hereinafter referred to as the System Rules) are the rules issued by the CBSL for the operations of the LankaSettle System in terms of the Monetary Law Act, which may be amended from time to time.

   ii. DDPs are the participants as defined under the general provisions of the System Rules. In order to become eligible for using the ILF, DDP shall sign an ILF Agreement in a prescribed form with the CBSL as required in rule 7.1 of volume 2 of the System Rules; and

   iii. Eligible securities shall have the same meaning as defined in section 7.2 of volume 2 of the System Rules.

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2. No encumbered security or a security owned by a third party shall be used by a DDP as collateral to avail the ILF. In the event a DDP was found to have used such security, the payments applicable to such use as specified in section 11.3 of volume 3 of the System Rules will be imposed.

3. Funds under the ILF are provided free of interest upon the DDP transferring eligible securities to the CBSL in accordance with these OI on the condition that the said securities shall be repurchased by the DDP by repaying the outstanding amount obtained under the ILF on or before the time specified for repayment of such amount in the daily operating schedule in the System Rules.

4. Substitution of securities provided as collateral for the ILF shall not be permitted.

### Procedure to drawdown funds under the ILF

5. The CBSL will provide funds under the ILF only to the extent of the value of the Eligible Securities available in the ILF account of the DDP at a given time. The value of Eligible Securities, calculated based on the Official Prices determined by the CBSL for such purpose, will be credited to each DDP’s Settlement Account in the RTGS.

6. Eligible Securities available in the ILF account of the DDP at the end of the previous business day will be automatically transferred to the CBSL’s ILF account at the time of opening of the System for business.

7. DDPs may carry out multiple ILF drawdowns and repayments at their discretion within a business day, as and when an Intra-day liquidity requirement arises, by initiating a request through the System. DDP, who wishes to obtain funds under the ILF, shall reposition a sufficient quantity of Eligible Securities in its ILF account in the LankaSecure in order to avail the ILF.

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### Official Prices of Securities

8. The Official Prices of Eligible Securities shall be determined by the CBSL on a daily basis, based on the latest available current market prices and market developments. A haircut is applied in arriving at the Official Prices, depending on the type of the security and tenor. Such Official Prices are recorded in the LankaSecure System and in the Online Electronic Bidding System (OEBs) used for Open Market Operations (OMO).

### Settlement of funds obtained under the ILF at the end of the business day

9. DDPs may return the funds borrowed under the ILF fully or partially and regain whole or part of the securities used as collateral before the time specified for repayment of funds borrowed under the ILF in the daily operating schedule issued in terms of the System Rules.

10. All outstanding ILF balances should be settled by the DDPs before the close of business as specified in the daily operating schedule, issued in terms of the System Rules. For this purpose, DDPs must ensure that sufficient funds are available in their Settlement Accounts in the RTGS at the time of reversal of ILF balances to enable the CBSL to recover any outstanding ILF balances.

11. The process of recovery of outstanding ILF balances is initiated through the system at the time specified for the same in the daily operating schedule issued in terms of the System Rules. A settlement request will be submitted to RTGS on Delivery vs Payment (DVP) terms, which will transfer securities from the CBSL’s ILF Account to the ILF Account of the DDP, subject to availability of funds in the respective RTGS account. The reversal of ILF balances will be done at the original price and the original transaction value.

### Default of funds borrowed under the ILF

12. If a DDP fails, for any reason whatsoever, to settle in full to the CBSL, the amount outstanding under the ILF at the time specified in clause 10 above, the DDP shall be deemed to be in default for the full sum so outstanding and shall become liable to pay default interest as set out in clause 16 below. Such default interest shall be debited to the DDPs Settlement account with the CBSL on the next business day.

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13. Where a DDP is deemed to be in default as set out above, such DDP should repay in full, the amount in default and the default interest before the close of business on the next business day.

14. The system will revalue the securities in the custody of the CBSL and generate the reversal payment amount on the next business day based on the official prices relevant for the next business day. If the revalued amount is higher than the total amount of default and default interest, the CBSL will repay the excess amount to the credit of the DDP’s settlement account in the RTGS. If the revalued amount is lower than the total amount of default and the default interest, the CBSL will charge the difference by debiting the DDP’s settlement account in the RTGS.

15. The DDP should ensure the availability of sufficient funds in its Settlement Account in the RTGS for the repayment of the revalued amount in default and the default interest on or before the close of business on the next business day. In the event the DDP fails to settle the amount set out above before the end of business on the next business day, the CBSL shall retain the securities against which such funds were provided and deal with them as the CBSL deems fit.

16. On the first occasion of default of ILF, a DDP shall be charged default interest at a rate of 5 per cent per month or part thereof. On each succeeding occasion of default during a calendar year, such default interest rate shall be increased by 100 basis points, provided that where such default occurs more than once within a 30 day period from the preceding default, the CBSL shall have the right to retain the securities against which ILF was granted and to deal with them as the CBSL deems fit, in addition to the right to charge default interest as stipulated in this clause. In the event of repeated default, the CBSL may withdraw the availability of the ILF to the DDP for a period of time determined by the CBSL.

17. Notwithstanding the other provisions of the ILF agreement or Operating Instructions and notwithstanding the fact that default has not occurred more than once within the preceding 30-day period, the CBSL may, at its sole discretion, taking into consideration the

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circumstances of a default, decide to retain the securities, and to deal with them as the CBSL deems fit.

18. As set out in clause 2 above, if a DDP is found to have used third party securities for availing of ILF, such DDP will be considered to have violated both the System Rules and these OI. Following payments specified in the said rules shall be imposed for such violations.

### Table 1: Payments for violation of rules relating to the ILF

| Amount borrowed against third party securities (Rs. million) | Rates charged per day (%) |
|-------------------------------------------------------------|---------------------------|
| Up to 1,000                                               | 2.0                       |
| Above 1,000                                               | 2.5                       |

19. Notwithstanding the other provisions of these OI, the CBSL may at its sole discretion, taking into consideration the circumstances of a default or use of third-party securities, withdraw the availability of the ILF to a DDP permanently or for a period of time determined by the CBSL.

20. Operating Instructions issued in terms of circular captioned ‘Operating Instructions on provision of Intra-Day Liquidity Facility (ILF) Against Scripless Government Securities on LankaSettle’ bearing no. 35/01/005/0006/36, dated 12 April 2018, are hereby rescinded.

21. In the event of any discrepancy between these operating instructions and the ILF agreement, the ILF agreement prevails.

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**Dr. P K G Harischandra**  
Director/Domestic Operations