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An Amendment to Procedures for Delivery Failure of JGSs in JGS-related Operations

May 31, 2004
Bank of Japan

The Bank of Japan has decided to introduce "Sale of Japanese Government Securities with Repurchase Agreements to Provide the Markets with a Secondary Source of Japanese Government Securities" as of May 10, 2004.

Following this decision, the Bank decided to amend "Procedures for delivery failure of JGSs in JGS-related operations,"* which was released on May 29, 2001. This amendment will be effective as of May 10, 2004.

  • This amendment is added in order for these procedures not to apply to transactions related to "Sale of Japanese Government Securities with Repurchase Agreements to Provide the Markets with a Secondary Source of Japanese Government Securities." See the last paragraph of Article 1. of the amended "Procedures for delivery failure of JGSs in JGS-related operations."

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


Attachment

Procedures for delivery failure of JGSs in JGS-related operations

1. Scope of JGS-related operations

  1. a. Outright purchases of Japanese government bonds (JGBs)
  2. b. Outright purchases of treasury bills (TBs)/financing bills (FBs)
  3. c. Purchases of Japanese government securities (JGSs)1 with repurchase agreements
  4. d. Sales of JGSs with repurchase agreements
  1. "JGSs" includes JGBs and TBs/FBs.

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 JGSs and cases where a counterparty fails to substitute JGSs by the designated time for transactions c. and d.).

These procedures shall not apply to transactions related to "Sale of Japanese Government Securities with Repurchase Agreements to Provide the Markets with a Secondary Source of Japanese Government Securities."

2. The Procedures

  1. (1) In case of failure to deliver JGSs by the designated time
    In case that a counterparty fails to deliver JGSs by the designated time (one hour before the end of the operating hours of the BOJ-NET JGB Services),2 the Bank will permit the counterparty to deliver the JGSs after the designated time, if the Bank deems that the counterparty has secured sufficient JGSs no later than one hour before the end of the operating hours of the BOJ-NET JGB Services and can take necessary steps.
    1. 2An online network system for the transfer of JGSs (JGBs and TBs/FBs).
    1. (2) In case of failure to deliver JGSs by the end of the operating hours of the BOJ-NET JGB Services
      In case that a counterparty fails to deliver JGSs by the end of the operating hours of the BOJ-NET JGB Services, the Bank will reduce the settlement volume for the operation concerned. (Transactions in which JGSs were not delivered will be annulled.)
    2. (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 JGSs on time but ultimately making delivery (i.e. not (2) )
      2. b) 1.0 point for failure to ultimately deliver JGSs (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 JGSs.
    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.

    Effective date

    These procedures will be effective as of May 30, 2001.

    If the Bank recognizes that a failure to deliver JGSs 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.