Notice No. 11/GBM/2007 - Operations with Repurchase and Resale Agreements for Fixed Income Securities

NOTICE NO. 11/GBM/2007

SUBJECT: OPERATIONS WITH REPURCHASE AND RESALE AGREEMENTS FOR FIXED INCOME SECURITIES

Given the need to introduce operations with repurchase and resale agreements for securities of the Interbank Money Market, the Bank of Mozambique, using the powers conferred upon it by paragraph 1 of Article 21 of Law No. 1/92, of January 3, - Organic Law of the Bank - determines:

1. The Regulation on Operations with Repurchase and Resale Agreements for Fixed Income Securities, which constitutes the annex and is an integral part of this Notice, is approved.

2. This Notice enters into force on the date of its publication.

Doubts arising from the interpretation and application of this Notice will be clarified by the Markets Department of the Bank of Mozambique.

Maputo, June 15, 2007

Ernesto Gouveia Gove Governor

ANNEX

REGULATION ON OPERATIONS WITH REPURCHASE AND RESALE AGREEMENTS FOR FIXED INCOME SECURITIES

CHAPTER I

GENERAL PROVISIONS

Article 1

(Object)

This Regulation aims to establish the regime for operations with repurchase and resale agreements for Fixed Income Securities of the Interbank Money Market.

Article 2

(Definitions)

For the purposes of this Regulation, the following are understood:

a) Treasury Bills (BTs) - book-entry securities representing short-term loans of the Republic of Mozambique, denominated in national currency;

b) Large Risk - the risk assumed by a credit institution when its value, individually or together with other existing ones regarding the same client, represents at least 10% of the institution's own funds;

c) Interbank Money Market (MMI) – a segment of the Metical money market, regulated, in which authorized institutions exchange funds represented by balances of their current 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.

d) Meticalnet - the Bank of Mozambique's computer system;

e) Repurchase operations – sale of securities with a repurchase agreement assumed by the seller, conjugated with a resale agreement assumed by the buyer, for settlement on a pre-established date;

f) Resale operations - purchase of securities with a resale agreement assumed by the buyer, conjugated with the repurchase agreement assumed by the seller, for settlement on a pre-established date;

g) Risk - any facility, used or not, granted by a credit institution and translated, notably, in the attribution of credit, even in the form of surety, bank guarantee or other similar, and in the acquisition or holding of financial participations or securities of any nature issued by the same client;

h) Market Operations System (SOM) - set of norms and procedures observed by the Bank of Mozambique and by authorized institutions to participate in the Interbank Money Market, regarding operations carried out in this market;

i) Monetary Authority Securities (TAMs) - deposit securities used by the Bank of Mozambique with the objective of intervention in the money market;

j) Fixed Income Securities - Assets that provide for the correction of their nominal value by a defined yield or a previously established remuneration parameter.

Article 3

(Access Conditions)

The operations subject to this Regulation may only be carried out between institutions participating in the Market Operations System, under the terms established in the respective Regulation approved by Notice No. 03/GGBM/2003, of August 11.

CHAPTER II

SECURITIES

Article 4

(Eligible Securities)

The following securities are eligible for the operations subject to this Regulation:

a) Treasury Bills;

b) Monetary Authority Securities;

c) Other securities that may be authorized by the Bank of Mozambique.

Article 5

(Registration)

The securities referred to in the previous article may only serve as the basis for the operations subject to this Regulation when duly registered in the Bank of Mozambique's Registration, Settlement and Custody System, designated Meticalnet, or in an asset registration and financial settlement system authorized by the Bank of Mozambique.

Article 6

(Ownership)

The operations subject to this Regulation may only be carried out with securities of definitive ownership by the seller, except when carried out again with the original owner of the securities.

Article 7

(Guarantee Period)

Securities subject to resale agreements may only serve as collateral in repurchase operations that have a settlement date equal to or prior to the resale date.

CHAPTER III

CARRIAGE OUT OF OPERATIONS

Article 8

(Operational Terms)

The operations subject to this Regulation may not be agreed upon for terms exceeding those of the maturity of the securities that serve as their basis.

Article 9

(Price and Settlement Value)

The operations subject to this Regulation must be carried out at fixed prices, negotiated between the parties, and the settlement value must be defined in advance.

Article 10

(Financial Settlement)

1. The financial settlement of operations that do not involve the Bank of Mozambique is effected, by debit or credit to current deposit accounts held at the Bank of Mozambique, on the same day the operation is carried out, observing the principle of delivery versus payment, through Meticalnet.

2. The financial settlement of operations involving the Bank of Mozambique is effected, by debit or credit to current deposit accounts held at the Bank of Mozambique, in exchange for a specific account of the Bank of Mozambique, on the same day the operation is carried out, observing the principle of delivery versus payment, through Meticalnet.

CHAPTER IV

OPERATIONAL LIMITS

Article 11

(Basis for Calculation of Limits)

In carrying out the operations subject to this Regulation, the basis for calculating the operational limits of the institution is their respective own funds as defined by Notice No. 5/GBM/2007, of May 2.

Article 12

(Limits)

1. Institutions authorized to carry out operations provided for in this Regulation that have received securities in exchange for the cession of financial resources must observe the following limits:

a) Regarding a single seller of securities, they must not carry out resale operations whose value, in aggregate, exceeds 25% of their own funds.

b) The aggregated value of purchases of securities classified as large risk must not exceed eight times the value of the own funds.

2. The value of sales with repurchase agreements, in individual and aggregated terms, with Treasury Bills, Monetary Authority Securities, and Other Securities that may be authorized by the Bank of Mozambique, regardless of remuneration conditions and term, must not exceed eight times the value of their own funds.

3. When a risk on an entity is guaranteed by a third party, in an irrevocable and legally binding manner, it is considered that such risk is assumed on that third party and not on the entity.

Article 13

(Verification)

The verification of compliance with the operational limits established in the previous article is carried out based on the computation of the effective values of the settlement of the operations.

CHAPTER V

OFFENCES AND SANCTIONS

Article 14

(Offences)

The following constitute offences against this Regulation:

a) the carrying out of repurchase and resale operations involving securities other than those referred to in Article 4 of this Regulation;

b) the sale of securities without the seller having ownership of the traded securities at the time;

c) the trading of securities at a unit price manifestly different from that practiced in the market or, in the absence of publication informing the market price, at a price manifestly different from the current nominal value;

d) the creation of artificial trading conditions or manipulation of prices of securities subject to repurchase or resale operations;

e) non-observance of the operational limits established in this Regulation;

f) non-compliance with the obligation to remit, within the timeframes established in current regulation, information regarding repurchase or resale operations of securities;

g) the adoption of practices that deliberately imply the presentation of inaccurate information.

Article 15

(Sanctions)

Without prejudice to other sanctions that may apply, under the terms provided in other applicable legal or regulatory provisions, the violation of the norms provided for in this Regulation and complementary norms subjects the offending entity to the suspension of the carrying out of any of the types of repurchase or resale operations of securities, for a period of no less than six months counted from the date of communication of the respective decision taken by the Bank of Mozambique.

CHAPTER VI

FINAL PROVISIONS

Article 16

(Duty to Communicate)

Institutions authorized to carry out operations subject to this Regulation are obliged to communicate to the Bank of Mozambique all repurchase and resale operations of securities carried out by them, in the form, timeframes, and other terms provided for in the Regulations of the MMI and SOM.

Article 17

(Disclosure of Information and Submission of Documents)

The Bank of Mozambique will communicate the conditions for the provision and disclosure of information regarding the operations subject to this Regulation.