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Principal Terms and Conditions for the Purchase/Sale of Japanese Government Securities with Repurchase Agreements

September 18, 2002

Revision:October 10, 2003
February 5, 2004
September 8, 2005
October 13, 2006
September 19, 2007
October 11, 2007
October 7, 2008
October 14, 2008
January 22, 2009
October 14, 2009
October 5, 2010
October 7, 2011
October 5, 2012
October 4, 2013
November 21, 2013
February 18, 2014
October 7, 2014
October 7, 2015
September 21, 2016
January 31, 2017

1. Purpose

These Principal Terms and Conditions prescribe the principles for the Bank of Japan's purchase/sale of Japanese government bonds with coupons and treasury discount bills (treasury bills and financing bills) with repurchase agreements with the aim of facilitating money market operations.

2. Location of Purchases/Sales

At the Head Office (Operations Department) of the Bank.

3. Eligible Counterparties

  1. (1) Eligible counterparties shall, pursuant to the Bank's relevant rules, be selected from financial institutions, etc. (as defined in Article 37, Paragraph 1 of the Bank of Japan Act [Act No. 89, 1997]) satisfying the eligibility criteria listed below.
    1. (a) To have a current account at the Bank.
    2. (b) To be deemed sufficiently creditworthy in light of its capital condition and other relevant information obtained through the Bank's on-site examinations and so forth.
  2. (2) In principle, the Bank shall review eligible counterparties annually.
  3. (3) If the Bank specifically deems it necessary in order to conduct money market operations smoothly, it can implement such measures as an exclusion of the institution in question from eligible counterparties.

4. Securities to be Purchased/Sold

Japanese government securities (Japanese government bonds with coupons and treasury discount bills).

5. Repurchase Agreements

Securities purchased shall be resold within one year from the next day of the purchase date. Securities sold shall be repurchased within six months from the next day of the sale date.

6. Method for Auctions

(1) Purchases with repurchase agreements

A multiple-price competitive auction shall be conducted for each purchase where counterparties bid "purchasing yields" (yields for the period during which securities are held by the Bank).

(2) Sales with repurchase agreements

A multiple-price competitive auction shall be conducted for each sale where counterparties bid "selling yields" (yields for the period during which securities are held by counterparties).

7. Purchasing/Selling and Reselling/Repurchasing Price

(1) Purchasing/Selling price

The purchasing/selling price for each issue is obtained by dividing "market price" (prevailing prices in financial markets) by margin ratios.

(2) Margin ratios

  1. (a) Margin ratios shall be calculated based on historical market price fluctuations over the period of time necessary for the Bank to exercise its rights concerning the purchases/sales. However, the margin ratios shall be adjusted when necessary to ensure consistency in the margin ratio table as a whole.
  2. (b) The margin ratios prescribed in (a) shall be reviewed annually, in principle, in light of financial market conditions, and be amended when necessary.

(3) Reselling price

The reselling price is calculated by adding the amount obtained by multiplying the purchasing price by purchasing yields to the purchasing price.

(4) Repurchasing price

The repurchasing price is calculated by adding the amount obtained by multiplying the selling price by selling yields to the selling price.

8. Collateral and Margin Calls

(1) Net exposure

"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.

  1. (a) Total amount of (i) the amount obtained by multiplying the proceeds that the Bank or counterparties would receive when they resell or repurchase securities by margin ratios and (ii) the market value of the securities that the Bank or counterparties have sold.
  2. (b) Total amount of (i) the amount obtained by multiplying the proceeds that the Bank or counterparties would pay when they resell or repurchase securities by margin ratios and (ii) the market value of the securities that the Bank or counterparties have purchased.

(2) Margin calls by the Bank

  1. (a) When net exposure accrues to the Bank, the Bank shall accept eligible collateral from the counterparties.
  2. (b) The "Guidelines on Eligible Collateral" (Policy Board Decision on October 13, 2000) and the "Collateral Guidelines on Eligible Foreign Bonds" (Policy Board Decision on May 22, 2009) shall apply to the collateral for the net exposure.

9. Substitution of the Securities

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.

10. Dates for purchase/sale, amount of securities to be purchased/sold, etc.

Taking into account the conditions of financial markets, the Bank shall determine specifications necessary for purchases/sales, including dates, amount of securities to be purchased/sold, counterparties, and issues to be purchased/sold, for each purchase/sale.