In a bid to further deepen the country’s financial sector, the Bank of Ghana has launched its Guidelines for Repurchase Agreements
This is expected to promote a more vibrant and liquid secondary bonds market since “repos” as they are popularly known in financial sector parlance play a major role.
As at August 2019, the stock of repos and reverse repos outstanding between the BoG and the commercial banks in the country was equivalent to US$ 350 million.
At the launch of the Guidelines during the World Bank/IMF Annual Meetings 2019 in Washington, the Governor of the central bank, Dr. Ernest Addison said, “Repo markets facilitate the flow of cash and securities in financial markets. A well-functioning repo market contributes to the efficient allocation of capital in the real economy by supporting liquidity in other markets.”
“Repo markets serve several benefits; they provide a low-risk option for cash investment, transform collateral, support cash-market efficiency and liquidity, facilitate the hedging of risk and enable investors to monetize liquid assets,” he added.
The guidelines are based on the standard 2011 Global Master Repurchase Agreement (GMRA).
All the directives contained in the guidelines are binding on eligible counterparties and serve as regulatory guidance for repo activity trading in Ghana.
The Governor noted that a key feature of adopting the GMRA is the transfer of title to collateral securities from the seller to the buyer.
The title transfer under GMRA will reduce credit and liquidity risk as it allows the buyer to make use of the collateral during the tenor of the transaction but return the same or equivalent securities at maturity.
“This will boost secondary trading and price discovery of bonds and offer a cheaper and increased source of short-term funding,” Dr. Addison said.
The guidelines also specify a wider array of eligible collateral securities and would promote a more liquid repo market.
The eligible participants have also been expanded to cover not only banks but specialized deposit-taking institutions, securities dealers, corporates and high net worth individuals.
Dr. Addison stated that, there is an elaborate training program available in Ghana to ensure that key market players and stakeholders are adequately trained on this product which is new to many of the targeted participants.
This training will cover the banks and the Judiciary.
“The Judiciary is seen as a key stakeholder as it plays a key role in giving legal certainty to the enforceability of standard financial markets master agreements such as the GMRA,” he said.