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Outline of Transactions for the Securities Lending Facility

As of June 10, 2019
Bank of Japan
Financial Markets Department

I.  Introduction

This document is an outline of the Securities Lending Facility (SLF), which the Bank of Japan operates based on the "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." Please note that the following information may change in the future.

II.  Principles

A.  Location of sales

The Bank's Head Office (Operations Department).

B.  Decisions on use of the facility

The Bank shall decide on the conduct of auctions in light of the conditions of financial markets.

Such conditions shall be limited to the following two for the time being.

  1. In principle, when the Bank is requested to implement an offer by one or more counterparties per issue.
  2. When the Bank deems it necessary in light of the conditions of financial markets following the occurrence of events such as natural disasters and large-scale system failures.

C.  Securities to be sold

Among the Japanese government securities (JGSs) held by the Bank, issues to be sold shall be selected pursuant to the Bank's relevant rules. Issues to be sold shall be as follows for the time being.

  1. In the case of II. B. 1:
    In principle, among the JGSs held by the Bank, issues requested by one or more counterparties.
  2. In the case of II. B. 2:
    Among the JGSs held by the Bank, issues determined by the Bank.

D.  Repurchase agreements

Securities sold shall be repurchased on the business day following the sale date.

E.  Method for auctions

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

F.  Upper limit on selling yields

With the aim of setting a "minimum fee rate," the Bank sets an upper limit on selling yields taking account of conditions in financial markets.

The upper limit on selling yields will be considered in light of the Tokyo Repo Rate and the developments in fee rates applied to financial transactions, to prevent market participants from relying excessively on this facility. Specifically, the upper limit on selling yields, in principle, shall be calculated as follows: The rate considered in light of the Tokyo Repo Rate1 minus the minimum fee rate2.

  1. Notes 1: The rate released on the previous business day (rounded off to the first decimal place) will be used. The Bank shall apply the other rate in light of the conditions of financial markets, if appropriate.
  2. 2: The minimum fee rate will be 0.25 percent for the time being.

III.  Auction

A.  Notification of auction guidelines (offer)

When operating the SLF, the Bank selects auction participants from eligible counterparties and notifies them of the following matters through the Bank of Japan Financial Network System (BOJ-NET).

  1. (a) Total amount of offer3
  2. (b) Issues to be sold
  3. (c) Upper limit on the amount of sales per issue to be sold4
  4. (d) Upper limit on the amount of bids (per issue and total amount)
  5. (e) Upper limit on selling yields
  6. (f) Sale date
  7. (g) Repurchase date
  8. (h) Bid-submission cut-off date and time
  9. (i) Other matters deemed necessary by the Bank
  1. Notes 3: No upper limit will be set for the time being.
  2. 4: For both JGBs with coupons and T-bills, the amount outstanding of the Bank's holdings The amount sold in the morning offer will be deducted from the afternoon offer.

B.  Submission of bids

Auction participants notify the Bank of their desired selling yield and desired amount of purchase per issue, and the total amount through the BOJ-NET by the bid-submission cut-off date and time notified in subsection A.

C.  Acceptance of bids (notification of respective results to auction participants)

The Bank, after receiving bids as described in subsection B, accepts bids by starting with the lowest desired selling yield and continuing up until the total amount of bids accepted reaches the amount offered per issue. However, the Bank reserves the right to reject all or some of bids which a counterparty submits when deemed appropriate, such as when counterparties bid for a certain issue which they have consecutively been purchasing from the Bank for a certain period5.

When accepting bids, the Bank, through the BOJ-NET, notifies auction participants who submitted bids as described in subsection B of the issues it will sell, selling yield and amount of sale per issue. Here and hereinafter, those who receive such notifications will be referred to as purchasers.

  1. Notes 5: In principle, counterparties will be permitted to consecutively purchase the same issue from the Bank for a maximum of 50 business days for JGBs with coupons and a maximum of five business days for T-bills.

IV.  Sale of JGSs and Settlement on the Repurchase Date

A.  Sale of JGSs

On the sale date notified in subsection III. A, the Bank delivers JGSs to the purchaser simultaneously with the purchaser's payment of the selling price to the Bank.

B.  Settlement on the repurchase date

On the repurchase date notified in subsection III. A, the purchaser delivers JGSs to the Bank simultaneously with the Bank's payment of the repurchasing price to the purchaser.

V.  Roll-overs

A.  Requesting roll-overs

Purchasers may request a roll-over of JGSs purchased from the Bank up to 21 times per issue pursuant to the Bank's relevant rules. When requesting roll-overs, purchasers shall submit a form by the cut-off date and time set by the Bank.

  1. Repurchase agreements
    Securities sold shall be repurchased on the business day following the sale date.
  2. Selling yields
    Three percent deducted from the Bank's target interest rate6 (the lowest limit if this is set in a range) or 0 percent, whichever is lower. However, for each issue eligible for roll-overs, the most recently contracted selling yield is applied when lower than this rate
  1. Notes 6: When not set, it shall be 0 percent.

B.  Notifying of the acceptance or rejection of roll-over requests

The Bank, after deciding to accept or reject a roll-over request, promptly notifies the purchaser who made the request by telephone or another method.

C.  Roll-overs (final settlement for transactions eligible for roll-overs and initial settlement for roll-overs)

JGS transfers are not necessary.

For fund settlements, the difference between the final price of a transaction eligible for a roll-over and the initial price of the roll-over will be paid to or deducted from the purchaser's current account.

D.  Settlement on the repurchase date

The same transaction as that described in section IV. B will be undertaken.

VI.  Prices

A.  Selling price

The selling price shall be calculated as follows:

  • Selling price (per 100 yen face value)=market price (per 100 yen face value)/margin ratio

B.  Margin ratios

Margin ratios are decided in accordance with the types of JGSs and their residual maturities. (Please see 2. of "Margin Ratios for the Purchase/Sale of Japanese Government Securities with Repurchase Agreements" for specific numbers.)

C.  Repurchasing price

The repurchasing price shall be calculated as follows:

  • Repurchasing price (per 100 yen face value)=selling price × (1+selling yield (%)/100 × holding period/365)

VII.  Operation Timetable

Please refer to the "Operation Timetable" for the timetable of operations described in sections III and IV.