Notice No. 11/GBM/2017 of May 31 - Regulation on the Issuance and Trading of Treasury Bills

Banco de Moçambique Governador

NOTICE NO. 11/GBM/2017 Maputo, May 31, 2017

SUBJECT: Regulation on the Issuance and Trading of Treasury Bills

The current stage of development of the Mozambican financial system and the Interbank Money Market requires broadening the investor base, aiming to dynamize the public securities market.

Therefore, the Bank of Mozambique, exercising the powers conferred by paragraph 2 of Article 8 of Decree No. 22/2004 of July 7 – Legal Regime of Treasury Bills, and by Article 21 of Law No. 1/92 of January 3 – Organic Law of the Bank, determines:

1. The Regulation on the Issuance and Trading of Treasury Bills, attached hereto, is hereby approved and forms an integral part of this Notice.

2. This Notice enters into force on the date of its publication and revokes Notice No. 08/GBM/2013 of September 18.

Any doubts arising from the interpretation and application of this Notice shall be submitted to the Markets and Reserves Management Department of the Bank of Mozambique.

(Signature) Rogério Lucas Zandamela Governor

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Banco de Moçambique Governador

REGULATION ON THE ISSUANCE AND TRADING OF TREASURY BILLS

CHAPTER I GENERAL PROVISIONS

Article 1 Definition

Treasury Bills, hereinafter abbreviated as BT, are book-entry securities representing short-term loans of the Republic of Mozambique, denominated in the national currency, the Metical.

Article 2 Characteristics

1. The minimum nominal value of each BT is one thousand meticais.

2. BTs are dematerialized titles, redeemable within a period not exceeding 1 year.

3. The issuance of BTs is paid below par, by the amount corresponding to the difference between the nominal value and the interest amount corresponding to each subscription.

CHAPTER II PRIMARY MARKET

Article 3 Access Conditions

The following institutions have access to the primary BT market:

a) Monetary institutions participating in the clearing house;

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Banco de Moçambique Governador

b) Brokerage financial companies, brokerage companies, pension fund management companies, investment fund management companies, and insurance companies;

c) Other financial institutions previously authorized by the Bank of Mozambique.

Article 4 Market Sessions

1. BTs are placed in auction format in two market sessions, designated for the purposes of this Notice as Type A sessions and Type B sessions.

2. Access to Type A sessions is granted to the following institutions:

a) Monetary institutions participating in the clearing house; and

b) Other monetary institutions previously authorized by the Bank of Mozambique.

3. Access to Type B sessions is granted to the following institutions:

a) Brokerage financial companies;

b) Brokerage companies;

c) Pension fund management companies;

d) Investment fund management companies;

e) Insurance companies; and

f) Other financial institutions previously authorized by the Bank of Mozambique.

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Banco de Moçambique Governador

Article 5 Announcement of Placement Procedures

1. BT placement procedures, including placement and issuance dates, type of amount (fixed or indicative), interest rate, and term, are announced electronically, notably via a software application, the Bank of Mozambique website, and email, as well as by fax, public newspapers, or other communication means deemed appropriate by the Bank of Mozambique, adhering to the specifics indicated in the following paragraphs.

2. Placement in Type A sessions follows these procedures:

a) The placement date may coincide with the operation's settlement date or precede it by one or more business days;

b) Placement sessions are announced through the Market Operations System (SOM), approved by Notice No. 05/GBM/13 of September 18, with a notice of one or more business days, mentioning the placement, proposal submission, and fund collection dates, as well as the conditions of the BTs to be placed.

3. Placement in Type B sessions follows these procedures:

a) The placement date will precede, by one or more business days, the date of fund collection by the issuing entity;

b) Placement sessions are announced via the Bank of Mozambique website, email, fax, public newspapers, or other communication means deemed appropriate by the Bank of Mozambique, with at least two business days' advance notice, mentioning the placement, proposal submission, and settlement dates, as well as the conditions of the BTs to be placed.

4. BT placement in the primary market is always conducted initially in Type A sessions.

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Banco de Moçambique Governador

5. BT placement in Type B sessions occurs in the period following Type A session placement, and the amount depends on the system's liquidity conditions.

Article 6 Subscription of Purchase Proposals

1. BT placement is based on purchase proposals issued or subscribed by institutions with access to the primary market.

2. BT purchase proposals must be transmitted by participating institutions to the Bank of Mozambique, Markets and Reserves Management Department, on the date and time previously announced, according to the specifics in the following paragraphs.

3. In Type A sessions:

a) Transmission of BT purchase proposals must be carried out according to the terms established in paragraph 1 of Article 7 of the SOM Regulation;

b) For each type of BT, up to 3 purchase proposals may be submitted per institution, indicating the rate, expressed in percentage points and rounded to the hundredth of a percentage point, and the desired amount, provided that the sum of proposals does not exceed the amount of each issuance;

c) The amount to be subscribed is expressed in multiples of one million meticais, with no proposal being less than five million meticais.

4. In Type B sessions:

a) Submission of BT purchase proposals is carried out through a dedicated software portal within the Meticalnet platform or, alternatively, via sealed and signed envelopes, indicating the issuance to which they refer;

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Banco de Moçambique Governador

b) For each type of BT, up to 3 purchase proposals may be submitted per institution, indicating the desired amount, provided that the sum of proposals does not exceed the amount of each issuance;

c) The proposed amounts, as referred to in the previous point, will be subject to a fixed or variable rate, using as reference the terms of the closing of the last BT auction in Type A sessions;

d) The amount of BT to be subscribed will be expressed in multiples of one million meticais, which is the minimum accepted amount.

Article 7 Discount and Transaction Value

BTs are placed at a discount, and the transaction value is determined according to the terms of the Annex to this Regulation.

Article 8 Proposal Selection Criteria

1. BT placement in Type A and B auctions may be conducted based on an interest rate auction or at a pre-fixed interest rate.

2. In the case of BT placement via interest rate auction, demand is satisfied according to the following rules:

a) Proposals with interest rates higher than the maximum rate the issuing entity is willing to pay are eliminated;

b) The remaining proposals are satisfied starting with those offering the lowest interest rates and continuing until the placement amount is reached;

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c) If there are purchase proposals at the same desired interest rate, equal to or lower than the maximum rate referred to in paragraph a) of this article, which, combined with already satisfied lower-rate proposals, imply excess demand relative to supply, the distribution of available BTs among subscribers at the said rate is made proportionally, based on the proposed amounts.

3. In the case of BT placement at a pre-fixed interest rate, demand is satisfied according to the submitted proposals, without prejudice to making a proportional distribution of available BTs among subscribers if these proposals imply excess demand relative to supply.

Article 9 Communication of Elements Regarding Acquired Securities

1. The Bank of Mozambique transmits to each acquiring entity, electronically or via another communication means to be indicated, the nominal value and the net amount after discount, pertaining to the BTs allocated to them, as well as the weighted average placement rate and the total placed amount.

2. On the issuance date, the Bank of Mozambique transmits, electronically or via another communication means it deems appropriate, confirmations of the effective purchase of the BTs.

3. For Type A sessions, on the date referred to in the preceding paragraph, the net amount of the BTs is debited from the demand deposit accounts of the acquiring institutions, opened in their name at the Bank of Mozambique, considering, for all legal purposes, that the submission of the acquisition proposal constitutes tacit consent to this transaction.

4. For Type B sessions, two days after the issuance date, the net amount of the BTs is credited to an account domiciled at the Bank of Mozambique in exchange for payments made via checks, bank transfer, or other payment means indicated by the Bank of Mozambique.

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Banco de Moçambique Governador

Article 10 Reimbursement

1. BTs placed in the primary market enjoy a guarantee of full reimbursement at nominal value on their maturity date.

2. Reimbursement to institutions and entities that have acquired BTs in the primary market is carried out by the Bank of Mozambique.

3. For the reimbursement referred to in the preceding paragraph, the Bank of Mozambique bears the capital and interest related to the use of the securities for monetary policy purposes, and the State bears the capital and interest for the portion used to finance its Treasury deficit.

4. The reimbursed amounts are credited, upon notice, to the demand deposit accounts of the institutions holding the BTs, on the respective maturity dates.

CHAPTER III SECONDARY MARKET

Article 11 Transactions Between Institutions and with the Bank of Mozambique

1. Institutions with access to the primary BT market may conduct temporary or definitive purchase and sale operations of BTs among themselves or with the Bank of Mozambique, adhering to the provisions of Notice No. 07/GBM/2015 of December 31.

2. Institutions with access to Type A sessions may sell BTs, temporarily or definitively, to institutions with access to Type B sessions.

3. Institutions with access to Type B sessions may sell BTs among themselves or to institutions with access to Type A sessions, temporarily or definitively.

4. Operations conducted under this article must be communicated to the Bank of Mozambique, according to the terms established in paragraph 1 of Article 7 of the SOM Regulation.

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Banco de Moçambique Governador

5. Based on the communications referred to in the preceding paragraph, the Bank of Mozambique updates the title accounts, canceling previous ownership records in the name of the transferring entities.

Article 12 Transactions with the Public

1. BTs acquired by institutions with access to Type A and B sessions of the primary market may be sold to the public, temporarily or definitively, upon opening title accounts in the name of their clients.

2. For the purposes of this Notice, transactions with the public are those not conducted exclusively between entities with access to the primary market.

3. Institutions that have sold BTs shall reimburse them on the maturity date or on any date possibly established in the repurchase agreement.

4. Operations conducted under this article must be communicated to the Bank of Mozambique on the day the transaction is carried out, according to the terms established in paragraph 1 of Article 7 of the SOM Regulation.

5. Based on the communications referred to in the preceding paragraph, the Bank of Mozambique updates the title accounts, canceling previous ownership records in the name of the transferring entities.

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Banco de Moçambique

ANNEX

FORMULA TO BE APPLIED IN THE CALCULATION OF THE TRANSACTION VALUE OF TREASURY BILLS IN THE PRIMARY MARKET

$$VT = \frac{VN \times 36500}{36500 + t \times n}$$

in which:

VT = amount to be debited to acquiring institutions;

VN = nominal value;

t = interest rate of the operation on an annual basis, expressed in percentage points and rounded to the hundredth;

n = term of the operation in days.