Notice No. 11/GBM/2005 of 18 October - Interbank Money Market

BANCO DE MOÇAMBIQUE NOTICE No. 11/GBM/2005 SUBJECT: INTERBANK MONEY MARKET

Given the need to introduce a new type of operations and to monitor the dynamics of the financial market, it is necessary to adjust the regulatory framework governing the Interbank Money Market. Thus, the Bank of Mozambique, in the exercise of the powers conferred upon it by paragraph 1 of Article 21 of Law No. 1/92 - Organic Law of the Bank – of January 3, determines:

1. The Regulation of the Interbank Money Market, attached hereto, is approved, forming an integral part of this Notice.
2. This Notice enters into force 20 days after the date of its signature and revokes Notice No. 02/GGBM/2003, of August 11.
3. Any doubts arising in the interpretation and application of this Notice shall be submitted to the Markets Department of the Bank of Mozambique.

Maputo, October 18, 2005 The Governor (Adriano Afonso Maleiane)

REGULATION OF THE INTERBANK MONEY MARKET

CHAPTER I INTERBANK MONEY MARKET

Article 1 (Concept and objectives of the IMM)

1. The Interbank Money Market, hereinafter referred to as IMM, is a segment of the Metical money market, regulated, in which authorized institutions exchange funds represented by balances in their demand deposit accounts at the Bank of Mozambique or dematerialized securities registered in title accounts at this same Bank, aiming to balance surpluses and needs for primary currency among monetary institutions.
2. The Bank of Mozambique may intervene in the IMM, absorbing or providing liquidity, through the purchase, sale, or issuance of securities or via deposits, referred to as deposit auctions.

Article 2 (Minimum amount of IMM operations) The amounts of operations carried out in the IMM shall be expressed in millions of centavos, and the value of each operation shall not be less than 5 million centavos.

CHAPTER II LIQUIDITY TRANSFER OPERATIONS BETWEEN PARTICIPATING INSTITUTIONS

Article 3 (Transfer and acquisition of funds)

1. Financial institutions previously authorized by the Bank of Mozambique may, on a trust basis, transfer funds held in their respective demand deposit accounts at the Bank of Mozambique to other institutions authorized to participate in the IMM.

2. The same institutions may also obtain funds in the form of demand deposits at the Bank of Mozambique, by transferring to other institutions participating in the market dematerialized securities registered in title accounts at the Bank of Mozambique, namely, Treasury Bills, Monetary Authority Titles, hereinafter referred to as TBs and MATs, respectively.

Article 4 (Requirements to be observed in operations) Institutions shall negotiate operations, observing the following: a) The amounts of the operations shall be stipulated in compliance with the provisions of Article 2 of this regulation. b) The operations shall be carried out for a fixed term, which shall not exceed one year. c) Whenever the maturity date of the operations does not coincide with a business day, the term shall be considered terminated on the immediately preceding business day. d) Interest rates shall be expressed up to the hundredth of a percentage point. e) Unsecured operations, contracted in accordance with paragraph 1 of Article 3, shall be carried out for the negotiated amount. f) The negotiated amounts, relating to secured operations, contracted in accordance with paragraph 2 of Article 3, shall refer to the nominal value of the securities, and shall be carried out at the present value of the transacted securities.

Article 5 (Requirement to notify the BM)

1. The operations shall be communicated to the Bank of Mozambique immediately after they have been negotiated by both contracting parties, in accordance with the provisions of the Regulation of the Market Operations System, hereinafter referred to as SOM.
2. Money market operations, with and without security of securities, may be communicated to the Bank of Mozambique, at any term up to one year, declared in days, with value date: a) of the same day; b) of the immediately following business day; and, c) of the second following business day.
3. If by the market closing time there are operations that cannot be "processed" due to lack of communication by one of the parties or for any other reason, the Bank of Mozambique shall proceed to reject them.
4. The Bank of Mozambique shall daily disclose to participating institutions information regarding the amounts and the minimum, maximum, and average interest rates of contracted operations, according to the value date of the operations and for various terms, which may be grouped into statistical classes representative of the market.

CHAPTER III LIQUIDITY REGULATION OPERATIONS CARRIED OUT BY THE BANK OF MOZAMBIQUE WITH PARTICIPATING INSTITUTIONS

Article 6 (Absorption and provision of liquidity by initiative of the BM)

1. The Bank of Mozambique shall carry out, with authorized institutions, operations of purchase, sale, or issuance of securities and deposit auctions, by its own initiative, aiming at the regulation of liquidity in the banking system and the maintenance of interest rates at levels adequate to the balance of different markets.
2. The operations of absorption or provision of liquidity, in exchange for the sale/issuance or purchase of securities and deposit auction operations, shall have a regular or occasional character and shall be carried out under the conditions announced by the Bank through the SOM.

Article 7 (Announcement of conditions, deferral terms, and maturity)

1. The Bank of Mozambique shall announce, through the SOM, the conditions for carrying out operations, namely amounts, rates, terms, value dates, securities accepted for transaction, and deadline hours for submission of proposals.

2. The payment date, by debit or credit of the deposit account(s) of the acquiring or selling institution(s) of securities, may have a deferral of one or more business days relative to the contracting date of the operations, such fact being announced through the SOM.

3. Whenever the maturity date of the operations does not coincide with a business day, the term shall be considered terminated on the immediately preceding business day.

Article 8 (Proposals)

1. The absorption and provision of liquidity operations carried out by the Bank of Mozambique in the IMM shall be based on proposals presented by institutions, through the SOM.
2. When the operations are announced in the form of an interest rate auction, with or without fixed amount, institutions may present up to 6 proposals to which the following rules shall apply: a) proposals shall be satisfied starting from those presenting rates for purchase or sale of securities that are lower or higher, successively, until the amount proposed by the Bank of Mozambique is met or until the rate that it considers as the limit to carry out the operations is reached. b) the amount to be transacted at the last rate that satisfies the requirements of item a) shall, when necessary, be prorated in proportion to the amounts proposed by participating institutions at the said rate.
3. In proposals, interest rates shall be expressed up to the hundredth of a percentage point and amounts shall correspond to multiples of one million centavos, with each proposal not being less than the amount established in Article 2 of this regulation.
4. The Bank of Mozambique shall communicate to each proposing institution, through the SOM, the reimbursement value and the net discount amount regarding the securities purchased and/or sold to the institution and the set of institutions, as well as the weighted average rate of the transactions carried out, whenever the rate of the operations is determined in an auction system and other information it deems fit to transmit to the market.

Article 9 (Absorption and provision of liquidity by initiative of participating institutions)

1. The Bank of Mozambique shall carry out, with authorized institutions, liquidity absorption operations through acceptance of deposits, by their initiative, aiming at the regulation of liquidity in the banking system.
2. Also by the initiative of authorized institutions, the Bank of Mozambique shall carry out provision operations, in exchange for the purchase of securities, aiming to solve a potential liquidity shortage.
3. The liquidity absorption and provision operations of the initiative of authorized institutions shall have a permanent character and shall be carried out with value date of the same day and at the interest rate previously announced by the Bank of Mozambique, through the SOM.
4. Operations relating to permanent deposit and liquidity provision facilities shall mature on the business day immediately following their value dates.
5. The Bank of Mozambique reserves the right to suspend, for an indefinite period and with prior notice, the permanent deposit and liquidity provision facilities.

Article 10 (Last-minute facility)

1. On the last business day of each period for the constitution of mandatory reserves, for 30 minutes after the normal operating hours, the Bank of Mozambique shall provide, through the SOM, exclusively to institutions subject to the constitution of mandatory reserves, the possibility of obtaining funds, against the delivery of securities to the Bank of Mozambique.
2. This operation shall mature on the immediately following business day, and authorized institutions may request that the desired amount be justified based on the value predicted for the constitution of mandatory reserves.
3. The interest rate to be applied in this operation shall be determined by the Bank of Mozambique and previously announced through the SOM.
4. The Bank of Mozambique reserves the right to suspend, for an indefinite period and with prior notice, the last-minute facilities.

CHAPTER IV TRANSACTABLE SECURITIES

Article 11 (Security) In liquidity transfer operations between participating institutions with security of securities and in liquidity regulation operations carried out by the Bank of Mozambique with participating institutions, TBs and MATs may be used as security.

Article 12 (Value of securities to be transacted)

1. Securities shall be transacted in lots of nominal value multiple of 1 million Meticals and in a minimum value established in Article 2 of this regulation.
2. Transactions shall, as a rule, be carried out at the present value of the securities.
3. Issuances and operations where the maturity date coincides with the repayment date of the transacted securities shall be carried out at the discounted value of the same, according to the formula contained in Annex 1.
4. The purchase with agreement to resell or the sale with agreement to repurchase securities whose issuance was made at a discount, shall be made at the present value of the securities, calculated according to the formula contained in Annex 2.

Article 13 (Transfer of ownership) The execution of operations with security of securities, including those carried out by the Bank of Mozambique, presupposes the transfer of ownership of the securities subject to transaction.

Article 14 (Registrations) Operations that have as their object securities represented book-entry, namely, in the form of TBs and MATs, materialized by their registration in title accounts opened at the Bank of Mozambique in the name of their respective holders, shall be registered in title accounts of the acquiring and/or selling institutions of the securities, through their respective registrations or cancellations.

CHAPTER V GENERAL PROVISIONS

Article 15 (Evidence) The Bank of Mozambique, on the value date of the operations and on the maturity date, shall proceed to the movement of the demand deposit accounts of the intervening institutions and shall issue Debit and/or Credit Bordereaux, which shall constitute sufficient proof of the execution of the operations.

Article 16 (Interest) The payment of interest shall be processed with the reimbursement of the amounts of the operations, on the dates of their respective maturities, the Bank of Mozambique issuing the corresponding Debit/Credit Bordereaux.

Article 17 (Suspension) The Bank of Mozambique may suspend any institution from carrying out the operations provided for in the IMM in situations that may affect the proper functioning of the market.

ANNEX 1 FORMULA TO BE APPLIED IN THE CALCULATION OF THE TRANSACTION VALUE OF TREASURY BILLS AND MONETARY AUTHORITY TITLES, WHEN THE MATURITY DATE OF THE OPERATIONS COINCIDES WITH THE MATURITY DATE OF THE SECURITIES

a) On the date of execution of the operation

VT = (VN * 36500) / (36500 + t*n)

where: VT = value 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 up to the hundredth of a percentage point n = term of the operation in days

b) On the maturity date of the operation Repayment Value = Nominal Value

ANNEX 2 FORMULA TO BE APPLIED IN REPO OR REVERSE REPO OPERATIONS OF TREASURY BILLS AND MONETARY AUTHORITY TITLES

a) On the date of execution of the operation

where: VT = value to be credited or debited in the account of institutions VN = nominal value t = interest rate of the operation on an annual basis, expressed in percentage points and rounded up to the hundredth of a percentage point n = remaining term of the transacted securities, expressed in days, on the date of execution of the operation d = term of the operation carried out with resale agreement, expressed in days.

b) On the maturity date of the operation

where: VT = repayment value VN = nominal value t = interest rate of the operation on an annual basis, expressed in percentage points and rounded up to the hundredth of a percentage point n' = remaining term of the transacted securities, expressed in days, on the maturity date of the operation

VT = [VN * 36500 / (36500 + t*(n-d))] * [36500 / (36500 + t*d)]

VT = (VN * 36500) / (36500 + t*n')