BCEAO Instruction No. 004-12-2019 on Monetary Policy Intervention Procedures

INSTRUCTION NO. 004-12-2019 ON THE PROCEDURES FOR INTERVENTION OF THE CENTRAL BANK OF WEST AFRICAN STATES WITHIN THE FRAMEWORK OF MONETARY POLICY CONDUCT

The Governor of the Central Bank of West African States (BCEAO), Having regard to the Treaty of the West African Monetary Union, abbreviated UMOA, dated January 20, 2007, particularly Article 34; Having regard to the Statutes of the Central Bank of West African States, abbreviated BCEAO, annexed to the Treaty of the West African Monetary Union, dated January 20, 2007, particularly Article 62; Having regard to the Uniform Act on banking regulation, particularly Article 56; Having regard to Regulation No. 07/2013/CM/UEMOA of June 28, 2013 on repurchase operations in the UEMOA; Having regard to Decision No. 397/12/2010 of December 6, 2010 establishing the rules, instruments and procedures for implementing the monetary and credit policy of the BCEAO, amended and supplemented by Decision No. 24/2013/CPM/BCEAO of December 9, 2013 and Decision No. 02/03/2018/CPM/BCEAO of March 7, 2018, particularly Article 1; Having regard to Decision No. CM/UMOA/10/06/2013 of June 28, 2013 adopting the draft Uniform Act on the legal interest rate; Having regard to Decision No. 357-11-2016 of November 15, 2016 establishing the revised UEMOA Banking Accounting Plan; Having regard to Instruction No. 03-05-2017 on the declaration of periodic statements by UEMOA credit institutions, dated May 5, 2017; Having regard to the Participation Agreement for the UMOA Automated Securities and Liquidity Management System, abbreviated SAGETIL-UMOA;

Avenue Abdoulaye FADIGA, BP 3108 - Dakar - Sénégal Tel. (221) 33 839 05 00 | Fax. (221) 33 823 93 35 courrier.bceao@bceao.int - www.bceao.int

HEREBY DECIDES:

TITLE I: GENERAL PROVISIONS Article 1: Object This Instruction specifies the procedures for BCEAO intervention within the framework of monetary policy conduct.

Article 2: Intervention Procedures BCEAO interventions are carried out through open market tenders, interbank market transactions, and refinancing at the marginal lending window, the intra-day advance window, and the special refinancing window.

TITLE II: OPEN MARKET OPERATION TENDERS Article 3: Tender Notices BCEAO announces the organization of each tender via a tender notice disseminated to participants through any rapid communication channel, no later than three hours before the submission deadline. The tender notice includes the operation's characteristics, namely:

• the reference number of the tender;
• the nature of the tender: liquidity injection or withdrawal;
• the type of tender: fixed or variable rate;
• the maximum amount put up for tender, where applicable;
• the minimum submission interest rate for liquidity injections;
• the maximum submission interest rate for liquidity withdrawals;
• the maximum submission amount per participant, where applicable;
• the value date of the tender;
• the duration of the operation;
• the maturity date;
• the deadline for submission. The tender notice may also include one or more attachments providing information deemed useful to participants.

Article 4: Submissions Bids are submitted by participants via the dedicated platform or any other method specified by the Central Bank. Submissions are made under the conditions set out in the tender notice. The submission amount covers an integer number of millions of CFA francs. It may be split into several bids with different interest rates expressed to four decimal places, each covering an integer number of millions of CFA francs. For liquidity injection operations, bids at rates below the minimum submission rate are rejected. For liquidity withdrawal operations, bids above the maximum rate are rejected. In fixed-rate tenders, participants indicate only the amount of their bid. Eligible participants with a settlement agent or an account opened in the books of the issuing institution transmit their submissions to BCEAO within the same time limits and conditions. Submissions to BCEAO tenders on the money market are firm and irrevocable.

Article 5: Bills and Securities Taken in Repo Bidders for liquidity injection operations indicate the amount and nature of assets deposited as collateral, via the dedicated platform or any other method specified by the Central Bank. The request of borrowers on the money market, at the submission date, may not exceed 90% of the residual value of eligible securities or bills held with the Central Bank or an authorized depository. These instruments must be available on the tender's value date. Participants establish a pool of securities dedicated to operations with BCEAO in the dedicated application and authorize the Central Bank to take them in repo, where applicable, for a value covering the amount of the advance granted. Securities deposited as collateral must be exclusively owned by the bidder or participant. Securities belonging to clients may only be used with the owner's authorization, formalized by an agreement. During the repo period, interest received on securities taken in repo is fully credited to the transferor.

Article 6: Bid Evaluation Submissions from participants of all UMOA member states are centralized at the dedicated application or according to any other method specified by the Central Bank and evaluated on the day of submission or no later than the close of auctions. In variable-rate tenders, submissions are retained starting with those offering the highest interest rate for liquidity injections and the lowest interest rate for liquidity withdrawals. The interest rate of the last retained bid is the marginal rate, corresponding to the minimum retained rate for liquidity injections and the maximum retained rate for liquidity withdrawals. A Weighted Average Rate (TMP) of retained submissions is determined for each tender. It is calculated as follows: TMP = (1/n) Σ Ti * Xi where:

• Ti = interest rate of retained bid i;
• Xi = amount of retained bid i;
• n = number of retained bids. In fixed-rate tenders, when the total submissions are less than the maximum amount put up for tender, all requests are fulfilled. Otherwise, allocation is made pro rata to the maximum amount put up for tender and each participant's total submissions.

Article 7: Communication of Results The results of periodic tenders are communicated to participants no later than twenty-four hours after the submission deadline. The individual result of each participant is made available on the dedicated platform. For spot tenders, results are communicated no later than twelve hours after the submission time. The aggregate results for all UMOA member states, the marginal rate and the weighted average rate of the tender, recorded in a summary table, as well as any other information deemed necessary by the Central Bank, are communicated to participants. The summary table of tender results and a press release are published. Participants' accounts are debited/credited on the value date indicated in the tender notice.

Article 8: Interest Calculation Interest is calculated pro rata for the number of days between the value date and the effective settlement date of the tender. Each retained bid is serviced at the rate actually proposed by the participant, in accordance with the variable-rate tender technique or, where applicable, the pre-announced fixed rate. Interest is charged, unless otherwise deducted in advance, on the first working day following the maturity date, by debiting the ordinary or settlement account of advance beneficiaries in the case of liquidity injections, or by crediting the ordinary or settlement account of resource providers in the case of liquidity withdrawals. Interest is calculated based on the "exact number of days / 360" convention. The amount of calculated interest is made available for each participant via the dedicated platform.

Article 9: Payment Default Any participant lacking sufficient collateral or adequate provision to cover the settlement of their retained bids on the settlement date, or to repay advances at maturity, is suspended from all BCEAO windows until their situation is regularized and for at least one session. A penalty calculated based on the duration of the default and the BCEAO's prevailing marginal lending rate, increased by five percentage points, is also imposed on the concerned institution. In case of recidivism within twelve months, they are suspended for at least two sessions after regularization. The Central Bank may publish an announcement to participants indicating, for a given tender, payment incidents and sanctions imposed on their authors.

Article 10: Monthly Average Rate of the Money Market No later than the first working day following the end of the month, the Central Bank calculates and communicates to credit institutions the Monthly Average Rate (TMM) of the money market. It equals the weighted average by duration of the marginal rates of weekly tenders during the month. Its calculation formula is as follows: TMM = (1/n) Σ Ti * ni where:

• Ti = marginal rate of weekly liquidity injection operations in force during period i of the month;
• k = number of marginal rate changes during the month;
• n = actual number of days in the concerned month;
• ni = corresponding duration of Ti.

Article 11: Semi-Annual Average Rate of the Money Market No later than the first working day following the end of the semester, the Central Bank calculates and communicates to credit institutions the Semi-Annual Average Rate (TMS) of the money market. Its calculation formula is as follows: TMS = (1/n) Σ Ti * ni where:

• Ti = marginal rate of weekly liquidity injection operations in force during period i of the semester;
• k = number of marginal rate changes during the semester;
• n = actual number of days in the concerned semester;
• ni = corresponding duration of Ti.

TITLE III: INTERBANK MARKET TRANSACTIONS Article 12: Reporting of Interbank Operations to the Central Bank Credit institutions participating in the interbank market must report to BCEAO, via the fastest channels, each day by 16:30 UTC (deadline), using the form whose model is attached to Annex 1.1 of this Instruction, the details of operations they have carried out on said market during the day or according to any other frequency specified by the Central Bank. BCEAO may also collect from Principal Market Operators, where applicable, via the fastest channels, the amounts of forward liquidity offers and requests likely to be presented on the interbank market during the day. BCEAO calculates and periodically publishes indicative reference interest rates resulting from transactions carried out in the main compartments of the interbank market across UEMOA: one day, one week, one month, three months, six months, nine months and twelve months. A statement of interbank operations by country is also established on a weekly or other periodicity specified by BCEAO basis.

Article 13: Pledge of Securities with the Central Bank Interbank market participants may pledge their securities deposited at the Central Bank or for which it acts as depository, to serve as collateral for interbank loans. To establish the pledge, the pledgor communicates to the concerned Main Agency of the National Directorate of BCEAO a pledge declaration form according to the model in Annex 1.2 of this Instruction, duly completed and signed. This form indicates inter alia the identity of the pledgor and pledge beneficiary, references to the concerned securities, and the guaranteed obligation. The pledgor receives a copy of the "pledge declaration" and a "certificate of pledge establishment". This certificate, issued by BCEAO, is also transmitted to the pledge beneficiary. During the pledge period, the pledgor cannot carry out any operation on pledged securities that could change their ownership or restrict attached property rights. Accrued interest on the concerned securities is credited to the pledgor's ordinary or settlement account in BCEAO books. In case of amortization of pledged securities, the pledgor must replace them before maturity with other securities of the same nature and value. In this case, repayment of matured securities is credited to the pledgor's ordinary or settlement account at BCEAO. Otherwise, repaid amounts are paid into a non-interest-bearing blocked account opened in the pledgor's name in BCEAO books until pledge settlement. Pledge settlement occurs either upon production to BCEAO of a release certificate issued by the beneficiary creditor using the form in Annex 1.3, or by court decision. It restores the holder's full property rights over the concerned securities.

Article 14: Repo Operations on Securities Held by the Central Bank as Depository Interbank market participants may repo bills and securities deposited at the Central Bank to serve as collateral for interbank loans. During the repo period, accrued interest on the concerned securities is credited to the transferor's ordinary or settlement account opened in BCEAO books. In case of amortization of securities put in repo, the transferor must replace them before maturity with other securities of the same nature and nominal value. In this case, repayment of matured securities is credited to the transferor's ordinary or settlement account at BCEAO. Otherwise, the aforementioned payment terminates the repo operation.

TITLE IV: MARGINAL LENDING WINDOW, INTRA-DAY ADVANCE WINDOW AND SPECIAL REFINANCING WINDOW Article 15: Marginal Lending Window Taking bills or credit securities in repo at the marginal lending window is carried out through BCEAO's dedicated platform or any other method specified by the issuing institution. Dematerialized securities admitted to the marginal lending window must be held for the Central Bank, in its books or with an authorized depository. Other admitted values are delivered, endorsed in blank, to the Central Bank which verifies their physical existence. No reference mentioning their passage through the Central Bank must appear on the values. Repurchase of values occurs within a maximum period of seven days. It may be initiated by the counterparty transferor at any time, twenty-four hours after their repo by BCEAO. In case of amortization of a security taken in repo by BCEAO, the repo is settled up to the repaid amount. Any payment incident at the marginal lending window is sanctioned by a penalty calculated based on BCEAO's prevailing marginal lending rate, increased by five percentage points. The concerned institution is additionally suspended from all BCEAO windows until regularization and for at least seven days. In case of recidivism within twelve months, they are suspended for at least fourteen days after regularization.

Article 16: Legal Interest Rate No later than the first working day of the year, the Central Bank calculates and communicates to the Ministry responsible for Finance the rate representative of the legal interest rate, determined in accordance with prevailing UEMOA provisions. The Legal Interest Rate (TIL) for a given year equals the weighted average by duration of the marginal lending window rates of the previous year. Its calculation formula is as follows: TIL = (1/n) Σ Ti * ni where:

• Ti = Marginal lending window rate for period i of the year;
• k = number of marginal interest rate changes during the year;
• n = actual number of days in the year;
• ni = corresponding duration of Ti.

Article 17: Intra-day Advance Window Intra-day advances are collateralized loans provided to participants in the UEMOA Automated Transfer and Settlement System (STAR-UEMOA), repayable on the same day, to enable them to meet a temporary cash flow need during the trading day. The intra-day advance window operates exclusively on working days, based on the STAR-UEMOA calendar. Advances must be settled no later than end of day. They do not accrue interest. However, in case of non-settlement, the intra-day advance is subject to a penalty calculated based on BCEAO's prevailing marginal lending rate, increased by five percentage points.

Article 18: Special Refinancing Window Taking bills or credit securities in repo at the special refinancing window is carried out through BCEAO's dedicated platform or any other method specified by the issuing institution. Dematerialized securities admitted to the special refinancing window must be held for the Central Bank, in its books or with an authorized depository. Other admitted values are delivered, endorsed in blank, to the Central Bank which verifies their physical existence. No reference mentioning their passage through the Central Bank must appear on the values. Advances at the special refinancing window are exclusively backed by public or private securities with a residual duration between five and twenty years maximum. In case of amortization of securities taken in repo, the participant must replace them before maturity with other securities of the same nature and value. In this case, repayment of matured securities is credited to the participant's settlement account at BCEAO. Otherwise, repaid amounts are paid into a non-interest-bearing blocked account in BCEAO books, and beyond the minimum duration of ninety days, advances are settled up to the repaid amount. Repurchase of values occurs within a minimum period of ninety days and maximum of three hundred sixty days. In case of early settlement at the special refinancing window before ninety days, interest is calculated over a minimum duration of sixty days. Any payment incident at the special refinancing window is sanctioned by a penalty calculated based on BCEAO's prevailing marginal lending rate, increased by five percentage points. The concerned institution is additionally suspended from all BCEAO windows until regularization and for at least seven days. In case of recidivism within twelve months, they are suspended for at least fourteen days after regularization. Interest on advances at the special refinancing window is post-computed. In case of modification of the marginal lending window rate during the repo period, interest is calculated based on an Average Rate (Tm) obtained as follows: Tm = (1/n) Σ Ti * ni where:

• Ti = marginal lending window rate in force during period i of the total repo duration;
• k = number of marginal lending window rate modifications during the repo period;
• n = total duration of the repo in days;
• ni = corresponding duration of Ti in days.

TITLE V: CALCULATION OF THE MAXIMUM FINANCING QUOTA Article 19: Maximum Financing Quota Banking assets of credit institutions and other beneficiaries of Central Bank advances, serving as reference for calculating the maximum financing quota fixed at 35% by Article 52 of Decision No. 397/12/2010 of the Monetary Policy Committee establishing rules, instruments and procedures for implementing monetary and credit policy of the Central Bank, amended by Decision No. 24/2013/CPM/BCEAO and Decision No. 02/07/03/2018/CPM/BCEAO, include:

• advances to financial institutions, international or foreign financial institutions and Decentralized Financial Systems (SFD);
• claims on clients;
• other banking assets, notably trading securities, investment and portfolio management securities, as well as investment securities. The maximum financing quota calculation form is attached in Annex 2 of this Instruction. This form must reflect all subsequent modifications resulting from Monetary Policy Committee Decisions. The maximum financing quota calculation form is completed based on the periodic statements required of credit institutions.

TITLE VI: FINAL PROVISIONS Article 20: Entry into Force This Instruction, including its annexes which form an integral part thereof, repeals and replaces all prior provisions dealing with the same subject matter, in particular Instruction No. 001-02-2014 of February 14, 2014 on the procedures for intervention of the Central Bank of West African States within the framework of monetary policy. It enters into force as from the date of its signature and is published.