Stipulating Conditions of the National Bank of Slovakia for Conducting Trading Operations with Banks and Branches of Foreign Banks in the Open Market

DECISION

of the National Bank of Slovakia

dated 28 October 1999

Stipulating Conditions of the National Bank of Slovakia for Conducting Trading Operations with Banks and Branches of Foreign Banks in the Open Market

Under §§ 22, 23(b), 24 and 27 of Act of the National Council of the Slovak Republic No. 566/1992 Zb. on the National Bank of Slovakia, as amended by Act of the National Council of the Slovak Republic No. 118/1996 Z.z. on Protection of Deposits and on Modifications and Amendments to Some Acts, the National Bank of Slovakia has stipulated:

PART ONE

Basic Provisions

§ 1

/1/ This Decision is to stipulate conditions of the National Bank of Slovakia (hereinafter the "NBS") for conducting trading operations with banks and branches of foreign banks (hereinafter the "bank") in the open market.

/2/ The NBS shall conduct trading operations with banks in the open market (hereinafter the "operations with banks") in order to regulate the liquidity of banks by way of intervention, whilst pursuing the basic goals of monetary policy.

/3/ Subject to operations with banks shall be Treasury bills, NBS bills, government bonds and deposits.

/4/ The NBS shall determine the minimum volume of operations with banks.

/5/ For the purposes of this Decision:

a) operations with banks shall be understood as:

  1. the extension or receipt of a loan backed by the transfer of securities (hereinafter the "REPO operation");
  2. the extension or receipt of a loan backed by the transfer of securities conducted in the form of auctions (hereinafter the "REPO tender");
  3. the purchase and sale of securities up to their maturity (hereinafter the "purchase and sale of securities");
  4. the issuance of NBS bills;
  5. receipt of deposits.

b) a debtor shall be understood as a party to the contract who receives a loan from a creditor and transfers to that entity securities as a collateral, and in so doing undertakes to repay the loan, including an agreed interest, by the fixed date under the condition that the securities are returned (retransferred) to him by the creditor;

c) a creditor shall be understood as a party to the contract who extends a loan to a debtor and accepts securities as a collateral for the loan and, at the same time, undertakes to retransfer the securities to the debtor by the fixed date under the condition that the loan (including an agreed interest) is repaid to him by the debtor.

/6/ The NBS shall conduct these operations in the open market with banks, and/or a selected range of banks.

PART TWO

REPO Operation

§ 2

/1/ For the purposes of this Decision, a REPO operation shall comprise spot and forward transactions.

/2/ A spot transaction shall be the extension of a loan to a debtor backed by the transfer of securities to a creditor.

/3/ A forward transaction shall be the repayment of the loan including an agreed interest to a creditor, together with the retransfer of securities to a debtor, on a pre-determined date.

/4/ A refinancing REPO operation shall be a spot extension of a loan to a bank together with a forward repayment of this loan (including an agreed interest) to the NBS.

/5/ A sterilisation REPO operation shall be a spot extension of a loan to the NBS and a forward repayment of this loan (including an agreed interest) to the bank.

/6/ Yields from securities paid off during the life of a REPO operation shall accrue to a debtor.

§ 3

/1/ In line with its monetary goals, the NBS may announce a refinancing REPO rate, sterilisation REPO rate, or both of these rates at the same time. The formula for calculating the REPO rate is set out in Annex 2 hereto.

/2/ The NBS shall give notice of such REPO rates via the REUTERS system. The NBS shall have the right to impose limitations on the overall volume of REPO operations.

/3/ A REPO operation shall be conducted on the basis of a framework contract on the extension of loans backed by the transfer of securities. A specimen of this framework contract is given in Annex 1 hereto.

/4/ The NBS and a bank shall send to each other a certificate (confirmation) of concluded REPO operations in line with a framework contact on the extension of loans backed by the transfer of securities.

/5/ The minimum period for which a REPO operation is concluded shall be one day. The overall length of a REPO operation may not exceed the maturity of a security less the number of business days laid down in the Rules of Procedure for the Central Registry maintained in the NBS (hereinafter the "Rules of Procedure") for securities registered in the central register maintained in the NBS (hereinafter the "CR"). For government bonds it may not exceed their maturity less the number of days during the course of which trading in these securities was discontinued at Burza Cennuch Papierov, a.s. Bratislava (the Bratislava Stock Exchange, hereinafter the "BCPB") as requested by the Ministry of Finance of the Slovak Republic.

/6/ On the day of the transfer of a security serving as a collateral, a creditor shall be obligated to ensure that the funds are remitted to the account of the other party to the contract. Likewise, a debtor shall have to discharge his obligation on the day of a retransfer of this security.

/7/ In the event that the NBS finds out that a bank does not own the securities used to back a loan as part of a refinancing REPO operation, the NBS shall have the right to temporarily suspend its involvement in refinancing REPO operations, or even exclude it completely.

/8/ An input price of a REPO operation shall be understood as the amount of a loan extended to a debtor by a creditor backed by the transfer of a specific security from the debtor's to the creditor's securities account.

/9/ An output price of a REPO operation shall be understood as the loan amount repaid by a debtor, including an agreed interest accrued to a creditor, together with a retransfer of the given security from the creditor's to the debtor's securities account.

PART THREE

REPO Tender

§ 4

/1/ Depending on its aim of either withdrawing or supplying liquidity to the banking sector, the NBS may conduct the following types of REPO tenders:

a) a refinancing REPO tender (hereinafter the "RRT"), should there be a need to supply liquidity to the banking sector;

b) a sterilisation REPO tender (hereinafter the "SRT"), should there be a need to withdraw a surplus liquidity from the banking sector.

/2/ A REPO tender may be conducted in the form of:

a) a tender where an interest rate is not determined, namely via:

  1. an American-style auction;
  2. a Dutch-style auction;

b) a tender with a fixed interest rate.

/3/ An American-style auction shall be understood as an auction where applications are ordered by the level of interest rates and all participants accepted in the auction are satisfied at the rate stated by them in the application for the auction.

/4/ A Dutch-style auction shall be understood as an auction where applications are ordered by the level of interest rates and all participants accepted in the auction are satisfied at the same rate (namely, the rate accepted in the auction as last in order).

/5/ Upon announcing a REPO tender, the NBS shall be obligated to make public:

a) the type of a REPO tender;

b) the list of securities for the REPO tender in question;

c) an input price of securities according to the type of the REPO tender;

d) the form of tender and, in the event of a tender where an interest rate is not determined, also the way in which the auction is to be conducted;

e) the duration of the REPO tender (the day of its commencement and conclusion and the number of days of the REPO tender);

f) the deadline for accepting applications;

g) an interest rate where a tender with a fixed interest rate is involved.

/6/ Besides the obligatory data listed in paragraph 5, the NBS may also publish a threshold interest rate, the overall volume of the REPO tender, the maximum number of requisites, and/or other data.

/7/ Banks shall be notified of the conditions of a REPO tender via the REUTERS system, and/or by fax immediately after a decision on conducting it is made.

/8/ A REPO tender shall be conducted on the basis of a framework contract on the extension of loans backed by the transfer of securities. The specimen of this contract forms Annex 1 hereto.

/9/ Yields from securities, paid off during the REPO tender life, shall accrue to a debtor.

§ 5

/1/ A bank may take part in a REPO tender on the basis of an application. The application must in particular contain the following data:

a) the type and number of a REPO tender;

b) the identification data of a bank;

c) the specification of a security for RRTs;

d) the number of individual securities;

e) an interest rate for tenders with no predetermined interest rate;

f) the date of sending the application;

g) the signature of an authorised bank officer as per the specimen signature; a sample of the specimen signature is set out in Annex 3 hereto;

h) the bank's seal affixed.

/2/ A bank shall send its application by fax, via the REUTERS system; or another system set by the NBS, by the deadline fixed for the acceptance of applications, but not later than on the day of the REPO tender. The bank shall verify by phone applications sent by fax.

/3/ Unless provided otherwise in the conditions for a REPO tender in question, a bank may submit the maximum of three requisites at different interest rates for a REPO tender conducted via an American or Dutch style auction with no predetermined interest rate. Unless provided otherwise, a bank may give the maximum of three different securities of the same kind to cover an individual requisite in the event of RRT.

/4/ On the day of a REPO tender, the NBS, after having reviewed an application in terms of its substance and form, shall make a decision on its acceptance or exclusion from the REPO tender.

/5/ A bank that in a RRT backs its requisites by securities, must be the owner of these securities, and such securities may not be freely traded up until the end of the REPO tender.

/6/ In the event that the NBS finds out that a bank does not own securities used by it to back a loan in a RRT, the NBS shall have the right to temporarily suspend its involvement in RRTs, or even exclude it completely.

/7/ The NBS may cancel a REPO tender should it detect any error made during its course or in its outcomes. The NBS shall have the right to eventually cut down the last requisite or a group of requisites carrying the same interest rate also in cases where the overall volume of a REPO tender has not been set.

/8/ In the event of a REPO tender with a determined interest rate, requisites of banks shall be satisfied depending on the overall volume of the REPO tender in question. If the volume of requisites is in excess of the overall volume of the REPO tender, banks shall be satisfied on a pro rata basis. The time of sending the orders shall not decide.

/9/ If the NBS has cut down a bank's requisite, it shall take out the underlying securities.

/10/ In the event of a SRT, securities ordered by increasing input prices shall be offered, unless provided otherwise. The matching shall be done so as to assign the securities with the greatest input price to the lowest interest rate first.

/11/ The NBS and a bank shall send to each other a certificate (confirmation) of concluded REPO operations in line with a framework contact on the extension of loans backed by the transfer of securities.

/12/ The NBS shall make notice of the results of a REPO tender via the REUTERS system.

/13/ The minimum period for which a REPO tender is concluded shall be one day. The overall length of a REPO tender may not exceed the maturity of a security less the number of business days laid down in the Rules of Procedure for securities registered in the CR. For government bonds it may not exceed their maturity less the number of days during the course of which trading in these securities was discontinued at the BCPB as requested by the Ministry of Finance of the Slovak Republic.

/14/ On the day of the underlying transfer of a security, a creditor shall be obligated to ensure that the funds are remitted to the account of the other party to the contract. A debtor shall have to discharge the same obligation on the day of a retransfer of this security.

/15/ The formula for calculating the REPO rate is set out in Annex 2 hereto.

 

PART FOUR

Purchasing and Selling Securities

§ 6

/1/ Depending on its aim of either supplying or withdrawing liquidity from the banking sector, the NBS may intervene by either buying or selling securities.

/2/ The purchases and sales of securities shall be made in the form of separate operations. The NBS shall disclose applicable interest rates either via the REUTERS system or via a telephone request.

/3/ The NBS shall have the right to impose limitations on the overall volume of securities to be purchased.

/4/ A buyer shall be obliged to settle the total amount payable for an operation so as to make it available on the seller's account on the day of the operation.

PART FIVE

Issuing NBS Bills

§ 7

/1/ With a view to reducing surplus liquidity, the NBS may issue NBS bills (hereinafter the "NBS bills").

/2/ NBS bills shall be issued as short-term, non-coupon and dematerialised securities.

/3/ The primary sale of NBS bills shall be conducted in the form of:

a) an American-style auction;

b) a Dutch-style auction;

c) a sale at a fixed price.

/4/ An American-style auction shall be understood as an auction where applications are ordered by the level of interest rates and all participants accepted in the auction are satisfied at the rate stated by them in the application for the auction.

/5/ A Dutch-style auction shall be understood as an auction where applications are ordered by the level of interest rates and all participants accepted in the auction are satisfied at the same rate (namely, the rate accepted in the auction as last in order).

/6/ A sale at a fixed price shall be understood as a sale during the course of which requisites of banks shall be satisfied depending on the overall volume of the primary sale in question. If the volume of requisites is in excess of the overall volume available for the primary sale, banks shall be satisfied on a pro rata basis. The time of sending the applications shall not decide.

/7/ NBS bills shall be registered with the CR.

/8/ The NBS shall disclose the terms of issue and, subsequently, the overall outcome of the primary sale by means available to it, especially in professional press and via the REUTERS system. The NBS shall notify banks of individual outcomes via the REUTERS system or by phone.

/9/ A bank shall take part in the primary sale of NBS bills on the basis of an application sent by fax, or via the REUTERS system. The application must contain the following data:

a) the identification of a primary sale participant;

b) the number of individual securities;

c) the selling price;

d) the date of submitting the application;

e) the signature of an authorised bank's officer as per a specimen signature; Annex 3 hereto;

f) affixed seal of the bank.

/10/ A buyer shall be obliged to settle the total amount of purchased NBS bills so as to make it available on the NBS account on the day of the issue.

PART SIX

Taking Deposits

§ 8

/1/ With a view to reducing surplus liquidity, the NBS may accept deposits from banks. A bank shall not be entitled to dispose of the deposit prior to its maturity.

/2/ The NBS shall disclose the level of interest rates and the total amounts deposited via the REUTERS system or via a telephone request.

/3/ The NBS may set limitations on deposits to be taken from particular banks.

/4/ The minimum acceptable amount of deposits to be taken shall be SKK one million and its whole multiples.

/5/ The NBS shall take deposits on the basis of a written request, which must contain:

a) the details of a depositor;

b) the amount of a deposit;

c) the maturity of a deposit;

d) the account number of a bank whereto the NBS shall transfer a deposit after its maturity lapses;

e) a text of the following wording: "deposits taken shall be governed by the provisions of the Decision of the National Bank of Slovakia No. .../1999, Stipulating the Conditions of the NBS for Conducting Trading Operations with Banks and Branches of Foreign Banks in the Open Market and §§ 716 to 719 of the Commercial Code";

f) the place and date;

g) the signature of an authorised bank officer as per a specimen signature; a sample of the specimen signature is given in Annex 3 hereto.

/6/ The NBS shall confirm the receipt of a deposit in writing.

/7/ An application and confirmation shall be made in writing, if they are transmitted by wire, telex or electronic means in a way that makes it possible to capture their content and determine the person who made them.

PART SEVEN

Sanctions

§ 9

/1/ If, within a fixed deadline, a bank does not pay the total amount due from operations listed under clauses 3, 4 and 5 of § 1(5a) hereof, the NBS shall be entitled to penalty interest amounting to 0.01% of the price for each day, including the already-commenced day of the delay. The right of the NBS to damages shall not be compromised thereby.

/2/ If, within ten business days from a fixed deadline, a bank does not pay the price as per paragraph 1, the NBS shall have the right to temporarily suspend its involvement in such operations, or even exclude it completely.

/3/ Sanctions in respect of operations mentioned under clauses 1 and 2 of § 1(5a) shall be arranged within a framework contract set out in Annex 1 hereto.

PART EIGHT

Transitory Provisions

§ 10

Operations with banks concluded prior to 1 April 2000, the maturity of which extends to a period following the effective date of this Decision, shall be settled in accordance with the conditions agreed at the time of their concluding.

PART NINE

Final Provisions

§ 11

The Conditions of the National Bank of Slovakia dated 15 May 1997 for Conducting Operations in the Open Market for Securities shall hereby be repealed.

§ 12

This Decision shall take effect on 1 April 2000.

Marian Jusko
Governor
 

Issuing unit: Banking Transactions Department