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September 18, 2002
Bank of Japan
At the Monetary Policy Meeting held today, the Policy Board of the Bank of Japan decided to introduce a new type of market operation, "the Purchase/ Sale of Japanese Government Securities with Repurchase Agreements", with a view to facilitating the Bank's money market operations (regarding the terms and conditions of the new operation, see Attachment).
The new operation is designed to replace the two types of existing operations for Japanese government securities, namely, "the Purchase/Sale of TBs/FBs with Repurchase Agreements" and "the Borrowing of JGBs against Cash Collateral (JGB repo)".
As for the selection of counterparties, the Bank also established the selection procedure for the new operations (No English version available). This selection procedure is also applied to "the Outright Purchase/Sale of TBs/FBs".
The selection of counterparties in the new operation under the procedure mentioned above is scheduled to take place about eight months after the effective date of the new operation. Until then, as transitional measures, the existing counterparties in "the Purchase/ Sale of TBs/FBs with Repurchase Agreements" and "the Borrowing of JGBs against Cash Collateral (JGB repo)" are entitled to be those in the new operation on condition that they meet certain criteria the Bank requires.
Principal Terms and Conditions for the Purchase/Sale of Japanese Government Securities with Repurchase Agreements
These Principal Terms and Conditions prescribe the principles for the Bank of Japan's purchase/sale of Japanese government bonds with coupons, treasury bills <TBs> and financing bills <FBs> with repurchase agreements with the aim of facilitating money market operations.
At the Head Office (Operations Department) of the Bank.
Eligible counterparties shall, pursuant to the Bank's relevant rules, be selected from financial institutions (as defined in Article 37, Paragraph 1 of the Bank of Japan Law, Law No.89, 1997, excluding the Resolution and Collection Corporation and bridge banks <as defined in Article 2, Paragraph 13 of the Deposit Insurance Law, Law No.34, 1971>), domestic and foreign securities companies (Article 10, Paragraph 1, Clause 2 of the Bank of Japan Law Enforcement Order <Order No. 385, 1997> and Article 10, Paragraph 1, Clause 4 of the same Order, respectively), securities finance companies (Article 10, Paragraph 1, Clause 3 of the Order), and tanshi companies (Article 10, Paragraph 1, Clause 5 of the Order).
Japanese government securities (Japanese government bonds with coupons, TBs and FBs).
Securities purchased/sold shall be resold/repurchased within six months from the next day of the purchase/sale date.
The purchasing/selling price for each issue is obtained by dividing "market price" (prevailing prices in financial markets) by margin ratios.
Margin ratios shall be as follows;
The reselling price is calculated by adding the amount obtained by multiplying the purchasing price by purchasing yields to the purchasing price.
The repurchasing price is calculated by adding the amount obtained by multiplying the selling price by selling yields to the selling price.
"Net exposure" is the amount by which the amount provided in (a) exceeds the amount provided in (b) on a certain business day, assuming that the securities are resold or repurchased on that day.
When net exposure accrues to the Bank, the Bank shall exercise margin calls against the counterparties by requiring them either to supply additional collateral or return excess collateral.
When net exposure accrues to the counterparties and the counterparties exercise margin calls against the Bank, the Bank shall either supply additional collateral or return excess collateral.
Japanese government bonds with coupons, discount Japanese government bonds, TBs and FBs.
Collateral prices shall be as follows;
The Bank, if appropriate, shall allow the counterparties to substitute securities that have been sold to the Bank. The Bank may, subject to the counterparties' approval, substitute securities that have been sold to the counterparties.
These terms and conditions shall become effective on a day designated by the Governor, which shall be no later than November 30, 2002.