Notice No. 12/GGBM/97 of 27 September - Interbank Money Market

BANCO DE MOÇAMBIQUE NOTICE No. 12/GGBM/97 SUBJECT: INTERBANK MONEY MARKET

Law No. 1/92 of January 3 confers upon the Bank of Mozambique the competence to guide and control monetary policy, as well as to regulate the functioning of the money market.

Currently, there are asymmetries in the distribution of liquidity within the banking system, leading to an increase in inflationary pressures only partially contained by the use of direct monetary policy management instruments.

In light of this situation, it is pertinent to create conditions that allow for the exchange of liquidity between credit institutions, establishing the regulatory framework in which this exchange must take place.

Thus, in the exercise of the powers assigned to it by paragraph 1 of Article 21 of Law No. 1/92 – Organic Law of the Bank, of January 3 – the Bank of Mozambique determines the creation of the Interbank Money Market, hereinafter abbreviated as MMI, and approves its Regulations which form an integral part of this Notice.

Maputo, 29 September 1997 The Governor Adriano Afonso Maleiane

REGULATIONS OF THE INTERBANK MONEY MARKET

CHAPTER I INTERBANK MONEY MARKET

Article 1 (Concept of MMI and Objectives)

1. The Interbank Money Market is a segment of the Metical money market, regulated herein, in which authorized institutions exchange funds represented by balances in their demand deposit accounts at the Bank of Mozambique or by dematerialized securities registered in title accounts at this same Bank, aiming to balance surpluses and needs for primary currency among monetary institutions.
2. In this market, the Bank of Mozambique may also intervene, absorbing or providing liquidity, with these operations always carried out through the purchase, sale, or issuance of securities.

CHAPTER II LIQUIDITY TRANSFER OPERATIONS BETWEEN PARTICIPATING INSTITUTIONS

Article 2 (Cession and Acquisition of Funds)

1. In the MMI, financial institutions previously authorized by the Bank of Mozambique may lend, on a trust basis, funds held in their demand deposit accounts at the Bank of Mozambique to other institutions authorized to participate in the market.
2. The same institutions may also obtain funds in the form of demand deposits at the Bank of Mozambique by ceding to other participating institutions dematerialized securities registered in title accounts at the Bank of Mozambique, namely Treasury Bills and Monetary Authority Titles, hereinafter referred to as BTs and TAMs, respectively.

Article 3 (Requirements to be Observed in Operations) Institutions shall negotiate operations observing the following:

a) The amounts of operations shall be expressed in thousands of contos, and the value of each operation may not be less than 5 million contos. b) Operations shall be carried out for a fixed term, which may not exceed one year. c) Interest rates shall be expressed to the hundredth of a percentage point. d) Unsecured operations, contracted in accordance with paragraph 1 of Article 2, shall be carried out at the negotiated amount. e) The negotiated amounts for secured operations, contracted in accordance with paragraph 2 of Article 2, refer to the nominal value of the securities, and operations shall be carried out at the present value of the transacted securities.

Article 4 (Requirement to Notify the BM)

1. Operations shall be communicated to the Bank of Mozambique immediately after being negotiated by both contracting parties, in accordance with the provisions of the Regulations of the Market Operations System, hereinafter referred to as SOM.
2. Money market operations, with or without securities collateral, may be communicated to the Bank of Mozambique at any term up to one year, declared in days, with the following value dates: a) Same day; b) The next business day; c) The second business day following.
3. When, at the close of the market, there are operations that cannot be "closed" due to lack of communication by one of the parties or due to discrepancies in the transmitted elements, the registered institutions with interveners will be contacted to regularize the situation.
4. The Bank of Mozambique will daily publish, with reference to the previous day's activity, 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.

Article 7 (Proposals)

1. Liquidity absorption and cession operations carried out by the Bank of Mozambique in the MMI shall be based on proposals presented by institutions, through the SOM.
2. When operations are announced in the form of an interest rate auction, with or without fixed amounts, institutions may present up to 6 proposals to which the following rules apply: a) Proposals shall be satisfied starting from those presenting the lowest/highest rates for purchase/sale of securities, successively, until the amount proposed by the Bank of Mozambique is fulfilled or until the rate it considers as a limit for carrying out operations is reached. b) The amount to be transacted at the last rate satisfying the requirements of item a) shall, when necessary, be prorated in proportion to the amounts proposed by participating institutions at said rate.
3. In proposals, interest rates shall be expressed to the hundredth of a percentage point, and amounts shall correspond to multiples of 1 million contos, with each proposal not being less than 5 million contos.
4. The Bank of Mozambique shall communicate to each proposing institution, through the SOM, the repayment value and the net amount of discount regarding the securities purchased and/or sold to the institution and the set of institutions, as well as the weighted average rate of transactions carried out, whenever the rate of operations is determined in an auction system and other information it deems appropriate to transmit to the market.

CHAPTER IV TRANSACTIONABLE SECURITIES

Article 8 (Collateral) In liquidity transfer operations between participating institutions with securities collateral and liquidity regulation operations carried out by the Bank of Mozambique with participating institutions, BTs and TAMs may be used as collateral.

Article 9 (Values of Securities to be Transacted)

1. Securities shall be transacted in lots with a nominal value multiple of 1 million Meticais and with a minimum value of 5 million contos.
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 are 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, BTs and TAMs, is carried out at the present value of the securities, calculated according to the formula contained in Annex 2.

Article 10 (Transfer of Ownership) The execution of operations with securities collateral, including those carried out by the Bank of Mozambique, presupposes the transfer of ownership of the securities subject to transaction.

Article 11 (Registrations) Operations involving securities represented in book form, BTs or TAMs, materialized by their registration in title accounts opened at the Bank of Mozambique in the name of their respective holders, shall give rise to registration in the title accounts of the acquiring and/or ceding institutions of the securities, through their respective registrations or cancellations.

CHAPTER V GENERAL PROVISIONS

Article 12 (Evidence)

1. 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 Orders of Execution, which, together with the confirmation document referred to in paragraph 1 of Article 9 of the SOM Regulations, issued by the intervening institutions, shall constitute sufficient proof of the execution of the operations.
2. The confirmation document must be delivered to the Bank of Mozambique on the value date of the operations, by 15:00.
3. In case of discrepancy between the elements transmitted to the Bank of Mozambique and those contained in the confirmation document, the latter must be rectified.

Article 13 (Interest)

1. The payment of interest – expressed in Meticais – shall be processed with the repayment of the operation amounts, on the respective maturity dates, with the Bank of Mozambique issuing the corresponding Orders of Execution.
2. The Orders of Execution shall be delivered by the Bank of Mozambique, Credit Operations Department.

Article 14 (Suspension) The Bank of Mozambique has the competence to suspend the carrying out of operations provided for in the MMI by any institution, in cases of proven irregularity in the compliance with these regulations.

Article 15 (Clarity) Any doubts raised by this Notice shall be clarified by the Bank of Mozambique, Credit Operations Department.

ANNEX 1 FORMULA TO BE APPLIED IN THE CALCULATION OF THE TRANSACTION VALUE OF TREASURY BILLS AND DEPOSIT 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 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 OPERATIONS OF PURCHASE WITH AGREEMENT TO RESELL OR SALE WITH AGREEMENT TO REPURCHASE TREASURY BILLS AND DEPOSIT TITLES

a) On the date of execution of the operation VT = VN * (36500 / (36500 + t(n-d))) * (36500 / (36500 + td))

where: VT = value to be credited or debited in the institutions' accounts VN = nominal value t = interest rate of the operation on an annual basis, expressed in percentage points and rounded 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 agreement to resell, expressed in days.

b) On the maturity date of the operation VT = VN * 36500 / (36500 + tn')

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