Instruction No. 006-DOM/19 on Money Market Instruments

[LOGO: CENTRAL BANK OF MADAGASCAR]

DIRECTION
OF MONETARY OPERATIONS

INSTRUCTION No. 006-DOM/19
on Money Market Instruments

The Governor of the Central Bank of Madagascar,

Having regard to Law No. 2016-004 of July 29, 2016, supplemented by Law No. 2016-057 of February 2, 2017, establishing the Statutes of the Central Bank of Madagascar,

Having regard to Decree No. 2014-1684 of October 29, 2014, appointing the Governor of the Central Bank of Madagascar,

DECIDES

TITLE I: General Provisions

Article 1: Purpose

This Instruction aims to establish the procedures for implementing the money market instruments of the Central Bank of Madagascar, hereinafter referred to as "CBM".

Article 2: Definitions

For the purposes of this Instruction, the following terms shall mean:

• Treasury Bills: negotiable debt securities issued by the Public Treasury;
• Eligible Participants: credit institutions
  i. meeting the solvency ratio required by Instruction No. 001/06-CSBF of October 13, 2006 on the date of the most recent related declaration, ii. subject to the mandatory reserve requirements set forth in Instruction No. 008-DOM/19 of October 25, 2019 on the general framework governing mandatory reserves, iii. not restricted or suspended from accessing monetary policy operations;

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P.O. Box 550 Antananarivo (101) - Madagascar ■ Tel. (261) 20 22 217 51/ 20 22 234 65 ■ Fax (261) 20 22 345 32 E-mail: central-bank@bfm.mg ■ Website: www.central-bank.mg

• Standing Facilities: operations aimed at meeting both temporary refinancing needs and temporary liquidity placements of eligible participants;
• Repo Operations: the operation by which the party borrowing funds offers securities as collateral for its refinancing;
• CBM Securities: placement certificates issued by the CBM during liquidity absorption operations and negotiable debt securities issued by the CBM on the secondary market;
• Placement Certificates: securities issued by the CBM resulting from its liquidity absorption operations for a fixed term;
• Marginal Tranche: the last tranche to be shared among multiple bidders who propose equal rates.

Article 3: Money Market Instruments

The CBM has instruments represented by the following money market operations:

3.1. Liquidity injection and absorption operations initiated by the CBM, which include:

• main operations;
• fine-tuning operations;
• longer-term operations;
• securities sales;
• fixed-rate operations with total or partial allocation of bids.

3.2. Standing facilities initiated by eligible participants, consisting of:

• the marginal lending facility,
• the deposit facility.

Article 4: Collateral for Liquidity Injection Operations

The execution of liquidity injection operations by the CBM, as provided for in Article 3.1, is subject to the prior provision of collateral by the eligible participant.

Securities accepted as collateral are limited exclusively to dematerialized Treasury Bills and CBM securities.

Securities pledged by eligible participants are returned to them at the maturity of the operation after full repayment.

TITLE II: Monetary Operations

Chapter I: Operations Initiated by the CBM

Article 5: Main Operations

Main operations include:

• main liquidity injection operations;
• main liquidity absorption operations.

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5.1. Main Liquidity Injection Operations

5.1.1. Main liquidity injection operations consist of liquidity provision backed by collateral as provided for in Article 4. They are executed through tender processes, which in principle take place weekly and have a maturity of seven (7) days.

5.1.2. Tenders are conducted based on the liquidity needs estimated by the CBM for the period covered by the tender.

5.1.3. The general procedure for the tender follows the provisions of Article 11 below.

5.1.4. Eligible participants must indicate in their tender bids the amount, proposed rates, reference, and number of securities to be pledged for each operation, according to the model in Annex I.

5.1.5. Following the bid evaluation, the CBM accepts offers by prioritizing those submitted at the highest rates.

5.1.6. Requests are fulfilled up to the volume of liquidity to be injected. The marginal tranche is therefore fulfilled at a percentage defined by the CBM.

5.1.7. At maturity, the amounts plus interest are debited to the beneficiary's account, and the pledged securities are returned to the pledgor.

5.2. Main Liquidity Absorption Operations

5.2.1. Main liquidity absorption operations consist of liquidity withdrawal. They are executed through tender procedures, which in principle take place weekly and have a maturity of seven (7) days.

5.2.2. Tenders are conducted based on the liquidity surpluses estimated by the CBM for the period covered by the tender.

5.2.3. The general procedure for the tender follows the provisions of Article 11 below.

5.2.4. Main liquidity absorption operations result in the issuance by the CBM of placement certificates whose characteristics correspond to the accepted offers. Placement certificates are dematerialized and held in securities accounts on the CBM's books. They are accepted as collateral for refinancing operations carried out by the CBM for eligible participants and are negotiable on the interbank market.

5.2.5. Eligible participants must indicate in their bids the submitted amount and the rates they propose relative to the CBM's request, according to the model in Annex I.

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5.2.6. Following the bid evaluation, the CBM accepts offers by prioritizing those submitted at the lowest rates.

5.2.7. Bids are accepted up to the volume of liquidity to be absorbed. The marginal tranche is therefore fulfilled at a percentage defined by the CBM.

5.2.8. At maturity, the amounts plus interest are credited to the eligible participant's account.

Article 6: Fine-Tuning Operations

Fine-tuning operations include:

• fine-tuning liquidity injection operations;
• fine-tuning liquidity absorption operations.

6.1. Fine-Tuning Liquidity Injection Operations

6.1.1. Fine-tuning liquidity injection operations with a maturity of one (1) to six (6) days consist of liquidity provision backed by eligible liquidity instruments, in order to correct liquidity imbalances during the reserve maintenance period. The frequency and maturity of these operations are not standardized.

6.1.2. The CBM conducts fine-tuning liquidity injection operations through bilateral procedures or tenders. In the bilateral procedure, participation in fine-tuning operations is reserved for a limited number of eligible participants previously selected and directly contacted by the CBM. The operations are not announced to all eligible participants. Furthermore, results are communicated only to the concerned participants.

6.1.3. In case of a tender, the general procedure follows the provisions of Article 11 below.

6.1.4. Eligible participants must indicate in their bid the submitted amount, proposed rate, nature, reference, number, and amount of securities to be pledged, according to the model in Annex II.

6.1.5. Following the bid evaluation, the CBM accepts offers by prioritizing those submitted at the highest rates.

6.1.6. Requests are fulfilled up to the volume of liquidity to be injected. The marginal tranche is therefore fulfilled at a percentage defined by the CBM.

6.1.7. At maturity, the amounts plus interest are debited to the beneficiary's account, and the pledged securities are returned to the pledgor.

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6.2. Fine-Tuning Liquidity Absorption Operations

6.2.1. Fine-tuning liquidity absorption operations with a maturity of one (1) to six (6) days consist of liquidity withdrawal in order to correct liquidity imbalances during the reserve maintenance period. The frequency and maturity of these operations are not standardized.

6.2.2. The CBM conducts fine-tuning liquidity absorption operations through bilateral procedures or tenders. In the bilateral procedure, participation in fine-tuning operations is reserved for a limited number of eligible participants previously selected and directly contacted by the CBM. The operations are not announced to all eligible participants. Furthermore, results are communicated only to the concerned participants.

6.2.3. In case of a tender, the general procedure follows the provisions of Article 11 below.

6.2.4. Fine-tuning liquidity absorption operations result in the issuance by the CBM of placement certificates whose characteristics correspond to the accepted offers. Placement certificates are dematerialized and held in securities accounts on the CBM's books. They are accepted as collateral for refinancing operations carried out by the CBM for eligible participants and are negotiable on the interbank market.

6.2.5. Eligible participants must indicate in their bid the submitted amount and the rates they propose relative to the CBM's request, according to the model in Annex II.

6.2.6. Following the bid evaluation, the CBM accepts offers by prioritizing those submitted at the lowest rates.

6.2.7. Bids are accepted up to the volume of liquidity to be absorbed. The marginal tranche is therefore fulfilled at a percentage defined by the CBM.

6.2.8. At maturity, the amounts plus interest are credited to the beneficiary's account.

Article 7: Longer-Term Operations

Longer-term operations include:

• longer-term liquidity injection operations;
• longer-term liquidity absorption operations.

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7.1 Longer-Term Liquidity Injection Operations

7.1.1. The CBM may conduct longer-term liquidity injection operations backed by eligible instruments in its portfolio with a maturity of more than seven (7) days. They are executed through tender procedures.

7.1.2. Tenders are conducted based on the liquidity needs estimated by the CBM for the period covered by the tender.

7.1.3. The general procedure for the tender follows the provisions of Article 11 below.

7.1.4. Eligible participants must indicate in their tender bids the submitted amount, proposed rates, nature, reference, number, and amount of securities to be pledged for each operation, according to the model in Annex III.

7.1.5. Following the bid evaluation, the CBM accepts offers by prioritizing those submitted at the highest rates.

7.1.6. Requests are fulfilled up to the volume of liquidity to be injected. The marginal tranche is therefore fulfilled at a percentage defined by the CBM.

7.1.7. At maturity, the amounts plus interest are debited to the beneficiary's account, and the pledged securities are returned to the pledgor.

7.2 Longer-Term Liquidity Absorption Operations

7.2.1. The CBM may conduct longer-term liquidity absorption operations with a maturity of more than seven (7) days, consisting of liquidity withdrawal. They are executed through tender procedures.

7.2.2. Tenders are conducted based on the liquidity surpluses estimated by the CBM for the period covered by the tender.

7.2.3. The general procedure for the tender follows the provisions of Article 11 below.

7.2.4. Longer-term liquidity absorption operations result in the issuance by the CBM of placement certificates whose characteristics correspond to the accepted offers. Placement certificates are dematerialized and held in securities accounts on the CBM's books. They are accepted as collateral for refinancing operations carried out by the CBM for eligible participants and are negotiable on the interbank market.

7.2.5. Eligible participants must indicate in their bids the submitted amount and the rates they propose relative to the CBM's request, according to the model in Annex III.

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7.2.6. Following the bid evaluation, the CBM accepts offers by prioritizing those submitted at the lowest rates.

7.2.7. Bids are accepted up to the volume of liquidity to be absorbed. The marginal tranche is therefore fulfilled at a percentage defined by the CBM.

7.2.8. At maturity, the amounts plus interest are credited to the account of the concerned eligible participant.

Article 8: Securities Sales

8.1. The CBM may proceed with the sale, on the secondary market, of securities with maturities ranging from fourteen (14) days to twelve (12) months in order to sterilize liquidity surpluses held by eligible participants.

8.2. The general procedure for the tender follows the provisions of Article 11 below.

8.3. Eligible participants must indicate in their bid the nature, reference, maturity, number, amount of securities, and proposed rate, according to the model in Annex IV.

8.4. Following the bid evaluation, the CBM accepts offers by prioritizing those submitted at the lowest rates.

8.5. Bids are accepted up to the volume of liquidity to be absorbed. The marginal tranche is therefore fulfilled at a percentage defined by the CBM.

8.6. At maturity, the amounts plus interest are credited to the beneficiary's account, and the securities are returned by the latter to the CBM.

Article 9: Fixed-Rate Operations with Total or Partial Allocation of Bids

9.1. Fixed-rate operations with total or partial allocation of bids include:

• liquidity injection operations;
• liquidity absorption operations.

9.2. The procedures applicable to fixed-rate operations with total or partial allocation of bids are identical, depending on their maturity, to those for:

• fine-tuning operations,
• main operations,
• and longer-term operations.

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9.3. However, without prejudice to the procedures common to other operations, those with fixed rates and total or partial allocation of bids are subject to the following specific procedures:

• a single auction rate is set by the CBM and disseminated at the time of the announcement,
• no amount is announced by the CBM, as eligible participants on the money market bid at their discretion,
• the total amount retained by the CBM depends on the estimated liquidity needs or surpluses for the period covered in the announcement.

9.4. Eligible participants must indicate in their bid, according to the model in Annex VII, the amount of their offer relative to the single rate announced by the CBM.

9.5. Upon dissemination of results, the CBM communicates by any written traceable method to each eligible participant:

• the total amount of offers or requests received;
• the number of bidders;
• the global amount of liquidity withdrawals or injections;
• the amount of liquidity withdrawals or injections granted to the credit institution;

9.6. Results are communicated on the same day as the auction. The accounts of eligible participants whose proposals are accepted are, as applicable, debited or credited by the CBM with the granted amount on the settlement day.

9.7. When maturity falls on a holiday, the settlement date is postponed to the next following business day.

Chapter II: Standing Facilities

Article 10: Principle

The rates of the standing facilities, comprising the marginal lending facility rate and the deposit facility rate, form the interest rate corridor for money market operations. The width of this interest rate corridor is defined by the CBM Monetary Committee or by the decision-making bodies possessing related authority.

10.1. The Marginal Lending Facility

10.1.1. The collateralized marginal lending facility consists of the CBM making liquidity available to eligible participants. Eligible participants may use repos with value date of the same day. The duration of the marginal lending facility is one (1) day, renewable at the discretion of eligible participants.

10.1.2. The rate for the marginal lending facility is set by instruction, respecting the width of the interest rate corridor fixed by the CBM Monetary Committee or by the decision-making bodies possessing related authority.

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10.1.3. Eligible participants interested in this operation must send their request to the CBM by any written traceable method, according to the model in Annex V, before the daily closing of the money market.

10.1.4. The CBM notifies its decision by any written traceable method on the same day and proceeds with book entries.

10.1.5. At maturity, the amounts plus interest are debited to the beneficiary's account, and the pledged securities are returned to the pledgor.

10.2. The Deposit Facility

10.2.1. The deposit facility consists of eligible participants placing their liquidity with the CBM. Eligible participants may make deposits with value date of the same day. The duration of the deposit facility is one (1) day, renewable at the discretion of eligible participants.

10.2.2. The rate for the deposit facility is set by instruction, respecting the width of the interest rate corridor fixed by the CBM Monetary Committee or by the decision-making bodies possessing related authority.

10.2.3. Eligible participants interested in this operation must send their request to the CBM by any written traceable method, according to the model in Annex VI, before the daily closing of the money market.

10.2.4. The CBM notifies its decision by any written traceable method on the same day and proceeds with book entries.

10.2.5. At maturity, the amounts plus interest are credited to the beneficiary's account.

TITLE V: Miscellaneous Provisions

Article 11: Common Provisions for Tenders

11.1. If the Platform for Monetary and Interbank Operations or POMI, as provided for by Instruction No. 004-DOM/19 of May 3, 2019, is not operational, the procedures set out in Annex I of said instruction shall be followed. Failing that, the following provisions shall apply, in accordance with Article 13 of the aforementioned instruction.

11.2. The CBM announces the launch of a tender by any written traceable method.

To this end, the following are disseminated to participants:

• the amount to be absorbed or injected. This amount is announced for indicative purposes; the CBM reserves the right to modify the awarded amount;
• the settlement date and the maturity date of the operation;
• the deadline date and time for receiving offers.

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11.3. Bids from eligible participants must reach the CBM by any written traceable method on the day following the launch or on a pre-indicated date in case of a holiday, before 10:00 AM, and prepared according to the models in Annexes I, II, III, and IV of this Instruction.

Participants must indicate in their bids:

• the submitted amount
• the proposed rate

In case of injection:

• the nature, reference, maturity
• the number and amount of pledged securities

11.4. The maximum number of offers allowed is limited to five (5) per eligible participant.

11.5. Tender bids are irrevocable.

11.6. Upon dissemination of results, the CBM communicates by any written traceable method to each eligible participant:

• the total amount of offers or requests received;
• the range of proposed rates;
• the number of bidders;
• the global amount of liquidity withdrawals or injections;
• the range of accepted rates;
• the amount of liquidity withdrawals or injections granted to the credit institution;
• the percentage of offers or requests fulfilled for the marginal tranche;
• the weighted average rate of fulfilled offers or requests.

11.7. Results are communicated on the same day as the auction. The accounts of eligible participants whose proposals are accepted are, as applicable, debited or credited by the CBM with the granted amount on the settlement day.

11.8. When maturity falls on a holiday, the settlement date is postponed to the next following business day.

Article 12: Common Provisions for Standing Facility Rates

Periodic reviews of standing facility rates relative to the level of other monetary policy instruments will take place when the economic context requires it.

Article 13: Annexes

The annexes form an integral part of this Instruction.

Article 14: Entry into Force

This Instruction enters into force as of November 1, 2019.

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Article 15:

All provisions contrary to this Instruction are hereby repealed, notably those of:

• Instruction No. 005-DOM/17 of December 19, 2017, modified and supplemented by Instructions No. 002-DOM/2018 of September 28, 2018 and No. 001-DOM/19 of May 3, 2019, on the implementation of monetary policy instruments of the Central Bank of Madagascar,

• Instruction No. 002-DOM/19 of May 3, 2019 on the key rates of the Central Bank of Madagascar,

• Instruction No. 003-DOM/19 of May 3, 2019 setting the rates of the standing facilities of the Central Bank of Madagascar.

The provisions of Instructions No. 001-DOM/2018 of February 15, 2018, No. 004-DOM/19 of May 3, 2019, and No. 005-DOM/19 of June 17, 2019, remain in force.

Antananarivo, October 25, 2019

[Stamp: CENTRAL BANK OF MADAGASCAR - ANTANANARIVO - DOM] [Signature] THE GOVERNOR ALAIN H. RASOLOFONDRAIBE

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ANNEX I

BIDS FOR MAIN OPERATIONS

• INJECTION (1)
• ABSORPTION (1)

Bank Name:

Launch of ____________________

	BIDS
ORDER NO.	Amount (in Ariary)	Proposed Rates (with two decimals)
Total

COLLATERAL (2):

Total collateral amount (3) (4): Ariary………………… Interest amount: Ariary……………………………

ORDER NO.	Nature	Reference	Acquisition Rate	Maturity	Number of Securities	Nominal Amount of Security (in Ariary