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An Amendment to Procedures for Delivery Failure of JGBs in JGB-related Operations

June 6, 2002
Bank of Japan

(Uploaded to this website on August 2, 2002)

The Bank of Japan has decided to settle JGB issues whose proceeds are paid in by online instructions on a real-time gross settlement (RTGS) basis since June 10, 2002.

Following this decision, the Bank of Japan decided to amend "Procedures for delivery failure of JGBs in JGB-related operations", which was released on May 29, 2001. This amendment will be effective on June 10, 2002.

See Attachment for the full text of the amended "Procedures for delivery failure of JGBs in JGB-related operations".


Attachment

Procedures for delivery failure of JGBs in JGB-related operations

1. Scope of JGB-related operations

  1. a. Borrowing of JGBs against cash collateral (JGB repo operations)
  2. b. Outright purchases of JGBs
  3. c. Outright purchases of TBs/FBs
  4. d. Purchases of TBs/FBs under repurchase agreements
  5. e. Sales of TBs/FBs under repurchase agreements

Failure to deliver JGBs by a counterparty may occur at the start transactions of a., b., c., d.and end transactions of e.The first three transactions are settled by designated-time settlement (at 3:00 p.m.) and the others are settled on RTGS basis.

2. The Procedures

(1) In case of failure to deliver JGBs by the designated time

  1. a. Operations settled by designated-time settlement (at 3:00 p.m.)
    In case that a counterparty fails to deliver JGBs at 3:00 p.m., the Bank will permit the counterparty to deliver the JGBs after 3:00 p.m., if the Bank deems that the counterparty has secured sufficient JGBs no later than one hour before the end of the operating hours of BOJ-NET JGB Services and can take necessary steps.
  2. b. Operations settled on RTGS basis
    In case that a counterparty fails to deliver JGBs by the designated time (one hour before the end of the operating hours of BOJ-NET JGB Services), the Bank will permit the counterparty to deliver the JGBs after the designated time, if the Bank deems that the counterparty has secured sufficient JGBs no later than one hour before the end of the operating hours of BOJ-NET JGB Services and can take necessary steps.

(2) In case of failure to deliver JGBs by the end of the operating hours of BOJ-NET JGB Services

In case that a counterparty fails to deliver JGBs by the end of operating hours of BOJ-NET JGB Services, the Bank will reduce the settlement volume for the operation concerned. (Transactions in which JGBs were not delivered will be annulled.)

(3) Actions against counterparties failing to deliver

Each case of delivery failure in each type of operations will be scored according to the rules described below in a.and b.According to the aggregate score, the Bank will take actions described below in c.

  1. a. Scoring rule
    1. a) 0.5 point for failure to deliver JGBs on time but ultimately making delivery (i.e.not (2) )
    2. b) 1.0 point for failure to ultimately deliver JGBs (i.e. both (1) and (2) )
  2. b. Effective period of the score
    The score will stand for 3 months starting from the date of failure to deliver JGBs.
  3. c. Procedures
    1. a) From the day when a counterparty's total score reaches 1.5 points for each type of operation, offers to the counterparty will be suspended for a month.
    2. b) From the day when a counterparty's total score reaches 2.5 points for each type of operation, offers to the counterparty will be suspended for a month.
    3. c) If a counterparty's total score reaches 3.5 points for each type of operation, it loses the status as a counterparty in the operations.

3. Effective date

This procedure will be effective on May 30, 2001.

If the Bank recognizes that a failure to deliver JGBs is caused by factors, such as intentionally engaging in unfair trading practices or deterioration in a counterparty's creditworthiness, it may not follow the procedures above.

The Bank envisages that the procedures will be revisited as progress is made by all those concerned in the efforts for enhancing the smooth settlement of JGBs.