To further boost repo trading on the Ghana Fixed Income Market (GFIM), the Bank of Ghana has issued a new directive, allowing banks and other contractual counterparts to easily settle differences in repo transactions.
The directive takes effect from July 2020, in line with Section 134 (5) of the Bank and Specialised Deposit Taking Institutions Act (Act 930).
This follows the implementation of the Global Master Repurchase Agreement (GMRA)-based Guidelines in April 2020.
The Bank of Ghana indicated that pursuant to Section 134 of Act 930, all Global Master Repurchase Agreements transacted (GMRA-based repos) qualify as eligible financial contracts to which netting arrangements shall apply.
According to the section 134 (4), “net termination value” means the net amount obtained after setting off the mutual obligations between the parties to an eligible financial contract in accordance with the provisions of that contract.
GMRA-based guidelines contain a key feature which allows the transfer of title to collateral securities from the seller to the buyer. The title transfer under GMRA reduces 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 to the seller at maturity.
Some market analysts have indicated that, ultimately, these dealings should boost secondary market trading and price discovery of bonds and offer a cheaper and increased volume source of short-term funding.
The repos are effective tools for effective monetary policy transmission and serve as the channel through which the central bank can act more swiftly as a lender of last resort during periods of market stress.
Currently, repos and reverse repos in the domestic financial markets are already serving as effective instruments for the conduct of monetary policy market operations by the central bank and as sources of short-term liquidity for market participants.
According to the Central Securities Depository (CSD), as at end May 2020, a total of GHc 51.63 billion of repo transactions had been settled. Transactions between commercial banks amounted to GHc 44.46 billion, whereas the transactions between BoG as well as SNNIT with commercial banks amounted to GH 725 million and GHc 6.44 billion.
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