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Establishment of Principal Terms and Conditions for the Sale of Japanese Government Securities with Repurchase Agreements to Provide the Markets with a Secondary Source of Japanese Government Securities

April 9, 2004
Bank of Japan

At the Monetary Policy Meeting held today, the Policy Board of the Bank decided to establish Principal Terms and Conditions for the Sale of Japanese Government Securities with Repurchase Agreements to Provide the Markets with a Secondary Source of Japanese Government Securities, with a view to facilitating the Bank's money market operations as well as to contributing to smooth settlement of both Japanese government securities and funds (see Attachment for the full text of the Principal Terms and Conditions).


Attachment

Principal Terms and Conditions for the Sale of Japanese Government Securities with Repurchase Agreements to Provide the Markets with a Secondary Source of Japanese Government Securities

1. Purpose

These Principal Terms and Conditions prescribe the principles for the Bank of Japan's sale of Japanese government securities (JGSs) with repurchase agreements to provide a temporary and secondary source of JGSs to the markets, with a view to facilitating the Bank's money market operations as well as to contributing to smooth settlement of both JGSs and funds.

2. Location of Sales/Repurchases

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

3. Eligible Counterparties

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).

4. Securities to be Sold

Securities to be sold shall, pursuant to the Bank's relevant rules, be selected from JGSs (Japanese government bonds with coupons, treasury bills and financing bills) held by the Bank.

5. Decision on the Use of the Facility

The Bank shall decide to sell specific issues of JGSs when the Bank deems it appropriate in light of the conditions of financial markets. The conditions include such cases that the liquidity of those issues is likely to decline significantly and the negative effect can spread over JGS markets.

6. Repurchase Agreements

Securities sold shall be repurchased on the next business day of the date of sales. When the date of sales is four business days prior to the date of interest payment of the securities, those securities shall be repurchased on the date of interest payment.

7. Method for Auctions

  1. (1) 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).
  2. (2) Upper limit to the amount of sales in total and per issue/counterparty
    The Bank shall set the upper limit to the total amount of sales per day as well as the amount of sales per issue/counterparty, taking into account the conditions of financial markets and the amount outstanding of the Bank's holdings of each issue.
  3. (3) Upper limit to the selling yields
    The Bank shall set the upper limit to the selling yields, taking into account the conditions of financial markets.

8. Prices

  1. (1) Selling price
    The selling price for each issue is obtained by dividing "market price" (prevailing prices in financial markets on the date of sales) by margin ratios.
  2. (2) Margin ratios
    Margin ratios shall be as follows;
    A residual maturity of:
Table :Margin ratios Margin ratios shall be as follows; A residual maturity of:
(i) up to 1 year 0.997
(ii) more than 1 year and up to 5 years 0.994
(iii) more than 5 years and up to 10 years 0.980
(iv) more than 10 years and up to 20 years 0.964
(v) more than 20 years 0.948
  1. (3) Repurchasing priceThe repurchasing price is calculated by adding the amount obtained by multiplying the selling price by selling yields to the selling price.

9. Roll-overs

  1. (1) Roll-overs
    At the request of the counterparties, the Bank may roll over sales transactions. Taking into account the relevant market practice, the Bank shall set the upper limit to the number of roll-overs.
  2. (2) Repurchase agreements and selling/repurchasing prices for transactions that have been rolled over (roll-over transactions)
    Paragraph 6. and 8. shall be applied respectively to the repurchase agreements and selling/repurchasing prices for roll-over transactions.
  3. (3) Selling yields for roll-over transactions
    Taking into account the conditions of financial markets, the Bank shall determine the selling yields for roll-over transactions. Those yields shall not be higher than the selling yields applied to the initial sales.

10. Miscellaneous

  1. (1) Dates for sale, amount of securities to be sold, and other conditions
    Taking into account the conditions of financial markets, the Bank shall determine specifications for sales, including dates, amount and issues of securities to be sold, and counterparties for each sale.
  2. (2) Interest payments on the securities sold
    When the interests of the JGSs sold by the Bank accrue, the Bank shall receive the amount equal to the accrued interests from the counterparties.

(Supplementary Provision)

These Principal Terms and Conditions shall become effective on a date designated by the Governor, which shall be no later than May 31, 2004.

Eligible counterparties prescribed in paragraph 3. can be selected on and after April 9, 2004.