Regulatory Alerts2009-03-24
Banking Circular No 3 of 2009 - Interbank (“Horizontal”) Master Repurchase Agreement (MRA)
The Central Bank of Kenya (CBK) reintroduced the Horizontal Master Repurchase Agreement (Horizontal Repo) program in 2009, which it had previously rolled down in 2008. The purpose of this facility was to enhance market liquidity and promote financial system development by allowing banks to exchange securities on a real-time basis through Delivery versus Payment (DvP). Banks were urged to promptly implement all operational procedures and guidelines related to the program as its timely implementation would support CBK's effectiveness in conducting monetary policy.
BANK!
KUUYA KENYA CENTRAL BANK OF KENYA 23RDMARCH2009 Haile Selassie Avenue P. O. Box 60000 - 00200 Nairobi, Kenya Telephone: 2860000, Fax: 340192 BANKINGCIRCULARNO.3 of 2009 TO:CHIEFEXECUTIVESOFCOMMERCIALBANKS INTERBANK("Horizontal"MASTERREPURCHASEAGREEMENT(MRA' As you are aware, the Interbank Master RepurchaseAgreement("HorizontalRepo")program was rolled down by the Central Bankof Kenya(CBK)vide BankingCircularNo.6 of 2008.
The facilitywhich became effectivefrom September 12, 2008, required banks to sign and exchangeMaster RepurchaseAgreements(MRAs)on a bilateralbasisand notifyCBKvide the prescribedletterto participate in the HorizontalRepo.
Horizontal Repos were introduced as part OJthe CBK's overall objective of deepening the capital and money markets and enhancing the" intermediation process in the market. This facility offers real time Delivery versus Payment (DvP) for the transactions and is supposed to help banks manage their liquidity and therefore greatly assist in CBK's effectiveness in its conduct of Monetary Policy. Its introduction followed the clamor by the market for this facility following the skewed liquidity distribution occasioned by the Safaricom IPO.
In introducing the facility, the CBKconstituted an internalste~ring committeethat worked "closelywith other stakeholders namelythe KBA,ACIand CMAamong others, and came up with operational guidelines,system specifications,legal/regulatory frameworkand a code of conduct to guide participants. Additionally,CBKdevelopedan electronic transaction system for the Repoprogram whichwassubjectedto thorough testing by all banks and desiredresults fromthe testing exercisewereobtained. The purpose of this circularisto request banksto take advantage of this program,whichwas designed in direct response to requests from the banking community. Continued delay in implementingthe Horizontal Repo hampers CBK'seffectivenessin its conduct of Monetary Policy. Banks are therefore requested to immediatelyimplementall operational procedures and guidelinesrelevantto the operationalizationofthe HorizontalRepoprogram. TheCentral Bank of Kenyawill closely monitorthe responseto this Circular,with a view to introducing other administrative measures to support the implementationof the Horizontal Repo and support the objectives of the program, which is to enhance'"marketliquidityand promote developmentofthe financialsystem. " " -- ~t9.o ~ -- -- _on --- --I .
DIRECTOR. MONETARYOPERATIONSSDEBTMANAGEMENT