Regulation (NAP) - Central Bank Deposit Certificates (CDBC)

Central Bank of S. T. P. N A P (PERMANENT APPLICATION REGULATION) CODE: EA03 | PROPOSER(S): PPMC | ISSUE DATE: 19/12/2006 ENTRY INTO FORCE: 14/12/2006 | DOC NO: 21/2006

Subject: Central Bank Deposit Certificates (CDBC) Considering that the issuance of Deposit Certificates by the Monetary Authority constitutes an effective instrument for the Central Bank to exercise its liquidity regulation function in the economy; Considering that the Monetary Authority must create and enforce all current, modern, and necessary economic and financial instruments to achieve its objectives; Taking into account the development of the money market in São Tomé and Príncipe, carrying out the operation via auction is the most appropriate option; Considering the need for a reference interest rate, which allows for better definition of commercial banks' interest rate policy; Taking into account the provisions of Articles 41(b), (e) and (f) and 42(a) of the Organic Law of the Central Bank of São Tomé and Príncipe, the Central Bank of São Tomé and Príncipe (BCSTP) determines:

Article 1. General Provisions

1. Central Bank Deposit Certificates (CDBC) are instruments for regulating money market liquidity, issued at their nominal value and directly subscribed by financial institutions.
2. CDBC are represented in book form and materialized exclusively by their registration in accounts opened at the BCSTP, in the names of their respective holders.
3. CDBC are tradable only with the BCSTP, and subsequently, upon the implementation of the Securities Registration and Settlement System (RELIT), they will also be negotiable among institutions and with the general public.
4. RELIT will be a system for registering, settling, and custodizing securities and deposit certificates, maintained and administered by the BCSTP, and will be subject to its own regulation.

Article 2. Characteristics of CDBC

1. CDBC may only be issued in Dobras.
2. CDBC may be issued with a term of up to 360 days.
3. The nominal issuance value of each CDBC is 100,000,000.00 Dobras.
4. Issuance and financial settlement will occur on the next business day following the auction, at the nominal value of the CDBC.
5. Interest payment occurs on the maturity date, with the interest amount for each CDBC corresponding to the difference between the redemption value and the nominal issuance value.
6. The CDBC redemption value will be calculated according to the following formula: VR = VN x (1 + t x n/36000), where: VR = Redemption Value on the maturity date, truncated to two decimal places; VN = Nominal Value of the CDBC on the issuance date; t = Annual interest rate expressed as a percentage, with two decimal places; n = Term in calendar days between the issuance date and the maturity date, exclusive.

Article 3. Auction Modalities

1. The CDBC auction modalities are as follows: a) Multiple rate, whereby issuance is made at the interest rate offered by each accepted individual bid; b) Fixed rate, whereby proposed amounts are all fulfilled at the rate announced by the BCSTP.

Article 4. Announcement

1. The BCSTP will publish an Information Circular for the placement of CDBC, containing the following elements: a) The auction number; b) The dates of the auction, settlement, and maturity; c) The term of the operation; d) The amount to be auctioned and/or interest rate; e) The minimum quantity of each bid; f) The auction modality.
2. The BCSTP publishes the announcement at least two business days in advance, via an Information Circular sent to participating banks and published on the BCSTP website – www.bcstp.st.

Article 5. Submission of Bids

1. Bids must be submitted in a sealed envelope containing: a) The bid, according to the attached model, duly signed by authorized participants, with the following data: i) Bank name; ii) Auction number; iii) Quantity of CDBC to be purchased; iv) Bid interest rate on an annual basis, expressed as a percentage with two decimal places; v) Issuance date; vi) Authorization for automatic and irrevocable debit of the participant's account at the Central Bank, in Dobras. This note must also include authorization for debit in case of the application of the fine referred to in Article 9.
2. Participating banks may submit one bid for each CDBC issuance by auction.
3. In all cases, bids may only be accepted if submitted at the Central Bank counter by 9:00 a.m. on the day the auction takes place.

Article 6. Opening, Selection, and Allocation of Bids

1. Bids are formally opened at 10:00 a.m. on the auction day. Participant attendance is optional.
2. The absence of one or more data indicated in Article 5(1) determines the immediate exclusion of the bid.
3. In operations conducted under a multiple-rate auction, the amount to be placed is announced, and received bids are fulfilled according to the following procedure. a) Selection of bids. b) Ordering of bids in ascending order based on the interest rate of each. c) If the sum of all bids is less than the amount to be auctioned, all bids are allocated, leaving a remainder unplaced. d) If the sum of all bids exceeds the amount to be auctioned, allocation will occur in two phases: i) All bids ordered in ascending order based on interest rate, which do not exceed the amount to be auctioned or until reaching the considered limit interest rate for operations, are fulfilled; ii) If the amount proposed at the last accepted interest rate exceeds the remainder after placement at lower rates, this remainder will be allocated proportionally to the amounts proposed at that interest rate.
4. The BCSTP reserves the right to reject submitted bids, in whole or in part.

Article 7. Publication of Placement Results

1. The BCSTP publishes, no later than 12:00 p.m. on the auction day, the placement results, preparing an auction minutes/report.
2. The BCSTP will transmit to each purchasing institution the nominal value corresponding to the CDBC allocated to them, the total amount of demand and placement, as well as the weighted average interest rate of placement.

Article 8. Settlement Procedures

1. After satisfying bids, according to the procedure established in Article 6, the BCSTP proceeds, on the settlement day, to debit the accounts of participants whose bids were selected.
2. Simultaneously, the BCSTP opens an account in its accounting records, with the nominal amount of CDBC acquired by each participant. The records are individually processed for each participating bank.
3. On the maturity date of each CDBC, the BCSTP proceeds to credit the accounts of their respective holders with their nominal value, plus corresponding interest. If the maturity date coincides with a Saturday, Sunday, or holiday, the account is credited on the next business day.

Article 9. Sanctions

1. If a commercial bank, whose bid was allocated, does not have sufficient funds in its deposit accounts at the BCSTP to fully satisfy its bid, said allocation is cancelled, and the commercial bank must pay a fine equivalent to 2% of the nominal amount of the bid.
2. In case of a second infraction, committed within a period of six (6) months from the first infraction, the fine will be double the nominal amount of the bid.
3. If a third infraction occurs within six (6) months, counted from the first infraction, the fine will be triple the nominal amount of the bid, and the infracting commercial bank may not participate in new auctions for a period of six (6) months, counted from the date of the last infraction.
4. The amounts of fines applied, as stipulated in the preceding points, are automatically debited from the deposit account of the infracting commercial bank at the BCSTP.

Article 10. Revocation

1. NAP No. 08/04 is revoked.

Article 11. Entry into Force

1. This NAP will enter into force as of December 19, 2006.

ANNEX PURCHASE BID FOR CENTRAL BANK DEPOSIT CERTIFICATES (CDBC) PROPOSING BANK: __________________________________________________________________ SUBMITS TO THE CENTRAL BANK OF SÃO TOMÉ AND PRÍNCIPE THE FOLLOWING PURCHASE BID FOR CENTRAL BANK DEPOSIT CERTIFICATES (CDBC), REFERENCING AUCTION NO. ____ OF //__. TO BE ISSUED ON ____ OF ______________ OF . QUANTITY | RATE (%) WE IRREVOCABLY AUTHORIZE THE DEBIT OF OUR ACCOUNT AT THE CENTRAL BANK, ON THE AUCTION SETTLEMENT DATE, FOR THE NOMINAL VALUE OF THE ACCEPTED BID (YES) WE IRREVOCABLY AUTHORIZE THE DEBIT OF OUR ACCOUNT AT THE CENTRAL BANK IN CASE OF IMPOSITION OF SANCTIONS STIPULATED IN ARTICLE 9 OF NAP NO. //____ (YES) ____________________, ________ OF _______________________________OF _________ AUTHORIZED SIGNATURES OF THE PROPOSING BANK:

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