Regulation on the Procedure for Foreign Currency Swap Operations Conducted by the National Bank of the Kyrgyz Republic

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Date of creation: 2023-07-19

APPROVED by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated March 28, 2013 No. 10\13

REGULATION "On the Procedure for Conducting Foreign Currency Swap Operations by the National Bank of the Kyrgyz Republic"

(In the edition of Resolutions of the Board of the National Bank of the Kyrgyz Republic dated April 26, 2017 No. 17/3, August 30, 2017 No. 2017-P-09/39-7-(DCP), January 31, 2018 No. 2018-P-09/4-5-(NPA), December 14, 2022 No. 2022-P-09/78-14-(NPA))

1. General Provisions

1. This Regulation on the procedure for conducting foreign currency swap operations (hereinafter - the Regulation) defines the procedure for conducting foreign currency swap operations by the National Bank of the Kyrgyz Republic (hereinafter - the National Bank) with commercial banks of the Kyrgyz Republic (hereinafter - Participant) through the automated trading system of the National Bank (hereinafter - ATS).

2. The National Bank conducts foreign currency swap operations in accordance with the Constitutional Law of the Kyrgyz Republic "On the National Bank of the Kyrgyz Republic".

(In the edition of Resolution No. 2022-P-09/78-14-(NPA) dated December 14, 2022)

3. The conditions and rules established by the Regulation on the operation of the automated trading system of the National Bank of the Kyrgyz Republic (hereinafter - Regulation on ATS) apply to this Regulation.

4. The National Bank conducts the following types of foreign currency swap operations:

• direct;
• reverse.

5. The National Bank conducts foreign currency swap operations by decision of the Monetary and Credit Policy Committee of the National Bank (hereinafter - MCPC) on an auction and non-auction basis.

(In the edition of Resolution No. 2018-P-09/4-5-(NPA) dated January 31, 2018)

6. Foreign currency swap operations are conducted to ensure liquidity in the banking system in national currency (direct swap) or to withdraw excess liquidity from the banking system (reverse swap).

7. Participants in foreign currency swap operations are commercial banks meeting the requirements of paragraph 16 of this Regulation.

8. The relationship between the Participant and the National Bank regarding foreign currency swap operations is governed by this Regulation and the corresponding bilateral Agreement on the procedure for conducting foreign currency swap operations between the National Bank and the Participant, according to Appendix 1 to this Regulation (hereinafter - Agreement).

2. Definitions and Terms

For the purposes of this Regulation, in addition to those specified below, definitions and terms established in the Regulation on ATS apply:

9. Foreign currency swap operation - an operation for exchanging foreign currency into an equivalent amount in national currency with the obligation of reverse exchange of principal amounts and accrued interest through a pre-agreed term.

10. Swap currency - foreign currency acting as the asset in a foreign currency swap operation.

11. Date of conducting foreign currency swap operations - the day announced by the National Bank in the parameters of the foreign currency swap operation, on which applications are received and processed, as well as results are announced.

12. Date of execution of foreign currency swap operations - the day announced by the National Bank in the parameters, on which funds are credited (received) to the corresponding accounts of Participants and the National Bank in accordance with the terms.

13. Date of completion of foreign currency swap operations - the day announced by the National Bank in the parameters, on which the sum of funds and accrued interest are credited to the corresponding accounts.

14. Reverse swap - an operation where the National Bank sells foreign currency to a Participant in exchange for national currency with the obligation of reverse exchange.

15. Direct swap - an operation where the National Bank purchases foreign currency from a Participant in exchange for national currency with the obligation of reverse exchange.

3. General Conditions for Conducting Foreign Currency Swap Operations

16. To gain access to a foreign currency swap operation, the Participant must send a letter of intent to the National Bank and meet the following requirements:

• hold a license from the National Bank for conducting banking operations in national and/or foreign currency and have authorization to conduct derivative financial instrument operations (derivatives);
• (paragraph lost force according to Resolution No. 2017-P-09/39-7 dated August 30, 2017)
• hold a correspondent account in national currency at the National Bank;
• hold a correspondent account in foreign currency;
• have an executed Agreement with the National Bank;
• not be in processes and/or procedures stipulated by the Law "On Banks and Banking Activity" (temporary administration, liquidation). By separate decision of the Board, participants undergoing such processes/procedures may be admitted.

(In the edition of Resolution No. 2022-P-09/78-14-(NPA) dated December 14, 2022).

17. The basis for participation is the signed Agreement and a properly formatted application submitted via ATS.

18. MCPC determines the following conditions: Type of foreign currency swap operation:

• direct or reverse; Parameters:
• terms of the foreign currency swap operation;
• total volume of funds for the foreign currency swap operation;
• swap currency;
• minimum interest rate in national currency for direct foreign currency swap operations;
• maximum interest rate in national currency for reverse foreign currency swap operations;
• fixed interest rate in national currency for direct/reverse foreign currency swap operations;
• interest rate in foreign currency for direct/reverse foreign currency swap operations. Additional conditions:
• possibility, term, and quantity of extensions;
• possibility of early completion;
• possibility and quantity of early partial completion.

(In the edition of Resolution No. 2018-P-09/4-5-(NPA) dated January 31, 2018)

19. Conditions for conducting foreign currency swap operations specified in paragraph 18 are announced by the National Bank via ATS and/or by publishing an informational notice on the official website of the National Bank.

(In the edition of Resolution No. 2018-P-09/4-5-(NPA) dated January 31, 2018)

20. Results of conducted foreign currency swap operations are available in ATS, as well as announced by the National Bank through publication of statistical information on the website.

21. The application must meet the conditions for the foreign currency swap operation announced by the National Bank.

22. An application that does not meet the conditions announced by the National Bank is rejected by ATS.

23. The Participant may modify or withdraw the application in the interval between the start time and end time of application acceptance in ATS.

24. After the end time for accepting applications for the foreign currency swap operation in ATS, participants can no longer submit/modify applications, and applications are considered irrevocable.

25. The National Bank ensures confidentiality of information specified in the application.

26. The interest accrual period for a foreign currency swap operation is defined as the time interval expressed in calendar days, calculated from the day following the debit/credit of funds in national/foreign currency to the day of reverse debit/credit inclusive.

27. When the execution/completion date falls on a non-working day in the Kyrgyz Republic or in correspondent banks' countries, the foreign currency swap operation is executed on the next working day. In this case, recalculation of the amount for the concluding part of the swap and accrued interest is not performed.

28. When conducting foreign currency swap operations, an exchange rate generally equal to the official rate set by the National Bank on the transaction date is used for initial and reverse exchange of funds.

29. Credits and debits of funds in national currency are processed by ATS via correspondent accounts of participants in national currency and the corresponding account of the National Bank.

30. Credits and debits of funds in foreign currency to corresponding accounts are handled independently by participants and the National Bank.

31. By decision of MCPC, early completion, early partial completion, and extension of foreign currency swap operation terms are permitted. Upon early completion, ATS automatically recalculates interest considering the early completion. Upon extension, ATS automatically recalculates interest considering the extension term. Early partial completion of a foreign currency swap operation may be conducted by early completion of the initial operation and conclusion of a new operation under the following conditions:

• volume must equal the difference between the initial swap volume and the early partially completing volume;
• when repeated early partial completion is conducted within one swap, volume must equal the difference between the new swap volume concluded at the previous early partial completion and the new partially completing volume;
• term must equal the period from the date of early partial completion to the date of initial swap completion;
• exchange rate must equal the rate used when concluding the initial swap;
• interest rates in national and foreign currency must equal the rates used when concluding the initial swap. Interest accrual upon early partial completion is performed in accordance with paragraph 26 of this Regulation.

(In the edition of Resolution No. 2018-P-09/4-5-(NPA) dated January 31, 2018)

32. A foreign currency swap operation on an auction basis may be deemed unsuccessful by the National Bank if fewer than two participants participate in it.

(In the edition of Resolution No. 2018-P-09/4-5-(NPA) dated January 31, 2018)

33. The procedure for conducting a foreign currency swap operation is established in accordance with the Regulation on ATS.

34. The settlement procedure for a foreign currency swap operation is established in accordance with this Regulation and the Regulation on ATS.

4. Procedure for Conducting Foreign Currency Swap Operations

35. Direct foreign currency swap operation on an auction basis:

• A Participant may submit no more than 5 (five) applications for each term of the foreign currency swap operation. If more than 5 (five) applications are submitted, subsequent applications by the Participant will be rejected and not accepted.
• The application is indivisible into lots and must be a multiple of the volume announced by the National Bank.
• The total volume of submitted applications must not exceed the announced volume of swap operations by the National Bank.
• Applications with an interest rate higher than or equal to the minimum national currency interest rate announced by the National Bank are admitted.
• For a direct foreign currency swap operation, applications offering the highest interest rates (above the minimum announced rate) are satisfied first. Thus, satisfaction proceeds from the highest offered national currency interest rate downward to the National Bank's minimum rate.

(In the edition of Resolution No. 2018-P-09/4-5-(NPA) dated January 31, 2018)

36. Reverse foreign currency swap operation on an auction basis:

• A Participant may submit no more than 5 (five) applications for each term of the foreign currency swap operation. If more than 5 (five) applications are submitted, subsequent applications by the Participant will be rejected and not accepted.
• The application is indivisible into lots and must be a multiple of the volume announced by the National Bank.
• The total volume of submitted applications must not exceed the announced volume of swap operations by the National Bank.
• Applications with a national currency interest rate lower than or equal to the maximum announced rate are admitted.
• Applications offering the lowest interest rates (below the maximum announced rate) are satisfied first. Thus, satisfaction proceeds from the lowest offered national currency interest rate upward to the National Bank's maximum rate.

(In the edition of Resolution No. 2018-P-09/4-5-(NPA) dated January 31, 2018)

37. If participants' applications offer the same national currency interest rates, applications will be satisfied proportionally to their weight.

38. A Participant may receive real-time information on the status of its applications for the foreign currency swap operation at the Participant's workstation in ATS.

39. ATS calculates and determines results for the foreign currency swap operation.

39-1. Direct and reverse foreign currency swap operations on a non-auction basis are conducted by concluding transactions between the National Bank and the Participant in accordance with the Trading Rules on the Interbank Currency Market through ATS, approved by Resolution No. 10/16 dated March 28, 2013.

(In the edition of Resolution No. 2018-P-09/4-5-(NPA) dated January 31, 2018)

5. Rights, Obligations and Liability of Participants

40. The rights and obligations of the Participant and the National Bank are determined in accordance with this Regulation and the Regulation on ATS.

41. The Participant agrees to the conditions for concluding a foreign currency swap operation set forth in this Regulation and is bound not to refuse performance of obligations under the concluded swap.

42. Non-performance by a Participant regarding a foreign currency swap operation is: For a direct foreign currency swap operation:

• incomplete and/or untimely crediting of the fund amount in foreign currency to the National Bank's correspondent account in foreign currency on the execution date;
• insufficient fund amount in national currency on the Participant's correspondent account at the National Bank on the completion, early completion, or early partial completion date. For a reverse foreign currency swap operation:
• insufficient fund amount in national currency on the Participant's correspondent account at the National Bank on the execution date;
• incomplete and/or untimely crediting of the fund amount in foreign currency to the National Bank's correspondent account in foreign currency on the completion, early completion, or early partial completion date.

(In the edition of Resolution No. 2018-P-09/4-5-(NPA) dated January 31, 2018)

43. Non-performance by the National Bank regarding a foreign currency swap operation is:

• for a direct foreign currency swap operation - incomplete and/or untimely crediting of the fund amount in foreign currency to the Participant's correspondent account in foreign currency on the completion, early completion, or early partial completion date;
• for a reverse foreign currency swap operation - incomplete and/or untimely crediting of the fund amount in foreign currency to the Participant's correspondent account in foreign currency on the execution date.

(In the edition of Resolution No. 2018-P-09/4-5-(NPA) dated January 31, 2018)

44. If a Participant fails to perform its obligations on the execution/completion/early completion/early partial completion date, the Participant pays a one-time penalty to the National Bank by crediting it to the corresponding account in an amount of 0.5% of the relevant fund amount (initial/concluding/early completing/partially completing part).

(In the edition of Resolution No. 2018-P-09/4-5-(NPA) dated January 31, 2018)

45. If the one-time penalty in national currency cannot be debited from the Participant's correspondent account, the National Bank's structural unit responsible for swap settlements will debit the penalty amount as funds become available in the Participant's correspondent account.

46. If the National Bank fails to perform its obligations on the execution/completion/early completion/early partial completion date, the National Bank pays a one-time penalty to the Participant by crediting it to the Participant's correspondent account at the National Bank in an amount of 0.5% of the relevant fund amount (initial/concluding/early completing/partially completing part).

(In the edition of Resolution No. 2018-P-09/4-5-(NPA) dated January 31, 2018)

6. Final Provisions

47. The procedure for conducting foreign currency swap operations by the National Bank is governed by this Regulation, the Agreement, and the Regulation on ATS.

48. Amendments and additions to this Regulation may be introduced by the National Bank to improve the process of conducting foreign currency swap operations.

Appendix 1 to the Regulation on the procedure for conducting foreign currency swap operations by the National Bank of the Kyrgyz Republic dated March 28, 2013 No. 10\13

Standard Format AGREEMENT between the National Bank of the Kyrgyz Republic and the Participant

---

(name of commercial bank) on the procedure for conducting foreign currency swap operations

(In the edition of Resolutions of the Board of the National Bank of the Kyrgyz Republic dated April 26, 2017 No. 17/3, August 30, 2017 No. 2017-P-09/39-7-(DCP), January 31, 2018 No. 2018-P-09/4-5-(NPA))

Bishkek No. ________________ dated "_" ______________ 20

The National Bank of the Kyrgyz Republic, hereinafter referred to as "National Bank", represented by _______________________________________, acting on the basis of ___________________________________, on one part, and _________________________ __________________________, hereinafter referred to as "Participant", represented by ____________________________________ , acting on the basis of ___________________________ on the other part, together hereinafter referred to as "Parties", based on the Regulation on the operation of the automated trading system of the National Bank of the Kyrgyz Republic (Resolution No. ____ dated "" _______ 2013) and the Regulation "On the Procedure for Conducting Foreign Currency Swap Operations by the National Bank of the Kyrgyz Republic" (Resolution No. ____ dated "" _______ 2013) (hereinafter - Regulation), have concluded this Agreement on the procedure for conducting foreign currency swap operations (hereinafter - Agreement) as follows:

1. Subject of the Agreement

1.1. The subject of this Agreement is to define the conditions and procedure for regulating relations arising from conducting foreign currency swap operations between the National Bank and the Participant.

1.2. Definitions and terms used in this Agreement are analogous to those defined in the Regulation.

1.3. Settlements for foreign currency swap operations are carried out via the Participant's correspondent account in national currency at the National Bank, the registered correspondent account of the Participant for each type of foreign currency in ATS, and the corresponding accounts of the National Bank.

2. General Conditions for Conducting Foreign Currency Swap Operations

2.1. To conduct a foreign currency swap operation, the Participant must meet the requirements specified in paragraph 16 of the Regulation on the date of conducting the operation.

2.2. Conditions for conducting a foreign currency swap operation specified in paragraph 18 are determined by MCPC of the National Bank and announced in ATS and/or by publishing an informational notice on the official website.

(In the edition of Resolution No. 2018-P-09/4-5-(NPA) dated January 31, 2018)

2.3. Results of conducted foreign currency swap operations are announced by the National Bank in ATS and/or by publishing statistical information on the official website.

(In the edition of Resolution No. 2018-P-09/4-5-(NPA) dated January 31, 2018)

2.4. The basis for participation in a foreign currency swap operation is the existence of a signed Agreement and an Application for participation, properly formatted and submitted via ATS.

2.5. The Participant's Application must meet the conditions for the foreign currency swap operation announced by the National Bank.

2.6. A submitted Application implies the Participant's consent to the conditions announced by the National Bank.

2.7. Applications not meeting the conditions announced by the National Bank are rejected by ATS.

2.8. The Participant may modify or withdraw the Application in the interval between the start time and end time of application acceptance in ATS.

2.9. After the end time for accepting Applications for the foreign currency swap operation in ATS, Participants can no longer submit/modify Applications, and Applications are considered irrevocable.

2.10. The National Bank ensures confidentiality of information specified in the Application.

2.11. Credits and debits of funds in national currency are processed by ATS via correspondent accounts of participants in national currency and the corresponding account of the National Bank.

2.12. Credits and debits of funds in foreign currency to corresponding accounts are handled independently by participants and the National Bank.

2.13. By decision of MCPC, early completion, early partial completion, and extension of foreign currency swap operation terms are permitted.

2.13.1. Upon early completion, ATS automatically recalculates interest considering the early completion.

2.13.2. Upon extension, ATS automatically recalculates interest considering the extension term.

2.13.3. Early partial completion of a foreign currency swap operation may be conducted by early completion of the initial operation and conclusion of a new operation under the following conditions:

• volume must equal the difference between the initial swap volume and the early partially completing volume;
• when repeated early partial completion is conducted within one swap, volume must equal the difference between the new swap volume concluded at the previous early partial completion and the new partially completing volume;
• term must equal the period from the date of early partial completion to the date of initial swap completion;
• exchange rate must equal the rate used when concluding the initial swap;
• interest rates in national and foreign currency must equal the rates used when concluding the initial swap. Interest accrual upon early partial completion is performed in accordance with paragraph 26 of this Regulation.