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

November 11, 2002
Bank of Japan

(Uploaded to this website on May 9, 2003)

The Bank of Japan has decided to introduce a new type of market operation, "the Purchase/Sale of Japanese Government Securities with Repurchase Agreements", which replaces 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)" ,since November 11,2002.

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 November 11, 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. Outright purchases of JGBs
  2. b. Outright purchases of TBs/FBs
  3. c. Purchases of JGBs with repurchase agreements
  4. d. Sales of JGBs with repurchase agreements

These procedures apply to start transactions of a., b., c.and end transactions of d.(These procedures shall not apply to cases where a counterparty fails to deliver collateral JGBs and cases where a counterparty fails to substitute JGBs by the designated time at transactions of c.and d.).The first two 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.