Regulatory Alerts2012-04-01 | FMD/DIR/GEN/CIR/03/005Guideliness for the Conduct of Repurchase Transactions under CBN Standing Facilities
The Central Bank of Nigeria (CBN) has established a facility through which it can provide liquidity support to eligible financial institutions by purchasing their eligible securities under repo transactions. Repo transactions are short-term borrowing and lending transactions where the borrower agrees to repurchase the securities at a specified future date and time at an agreed price. The following key terms apply: 1. Securities that can be used as collateral include FGN Treasury Bills, Federal Government of Nigeria (FGN) Bonds, Sukuk, and AMCON bonds. 2. The repo transactions will be on an overnight basis or up to 30 days at the CBN's discretion. 3. The Pricing Rate for repo transactions involving FGN securities is the Monetary Policy Rate plus a spread of two percentage points. For other eligible securities, the Pricing Rate is the Monetary Policy Rate plus five percentage points. 4. The Purchase Price for overnight repo transactions will be set at 99.5% of the par value of the securities. For transactions with maturities greater than one day but less than or equal to seven days, it will be set at a discounted price based on an interest rate curve derived from FGN Treasury Bills. 5. Counterparties are required to maintain a Margin Ratio of not less than 102% between the market value of the Purchased Securities and the aggregate of all Repurchase Prices. The CBN may request that a counterparty make a Margin Transfer if this ratio falls below 102%. 6. If a counterparty fails to repay the Repurchase Price on the due date, it will be deemed to have entered into a new overnight repo at an interest rate of the Standing Lending Facility plus five percentage points. 7. The CBN will not allow substitution of securities under these facilities and does not permit Margin Transfers from counterparties. It also does not accept FGN bonds with less than five years to maturity as collateral. 8. Repo transactions involving coupon payments extend over the Income Payment Date, with the buyer crediting the seller with any income received on that date.