The State Bank of Pakistan (SBP) Monday issued master circular on "open market operations" aimed at facilitating the participating institutions. According to master circular, the SBP will not accept any bid on telephone and all eligible participants will be required to submit their bids through Reuters Dealing System or fax/electronic mode in case of unavailability of Reuters Dealing Terminal for any reason.
As part of its monetary policy implementation, the State Bank conducts open market operations (OMOs) to keep the money market overnight repo rate close to the SBP target "policy rate" introduced under the revised Interest Rate Corridor Framework. All scheduled banks and Primary Dealers are allowed to participate in these OMOs; however, the SBP may also conduct special OMOs in which only Primary Dealers will be eligible to participate.
In order to facilitate these participating institutions, instructions issued by the SBP from time to time on OMO now have been consolidated in the form of this master circular. As per the master circular, Government of Pakistan Market Treasury Bills, Pakistan Investment Bonds and any other security notified by the SBP for this purpose will be eligible securities for OMO and the securities classified by the eligible participants under Held to Maturity category cannot be used in OMOs.
The SBP will announce OMOs as and when required by the market conditions. The OMO notice will be published on SBPK pages on Reuters and Bloomberg and eligible participants can submit their bids through Reuters Dealing System using SBP's primary dealing code "SBPD" or using SBP format via fax/electronic mode, etc, in case of unavailability of Reuters Dealing Terminal for any reason. However, the SBP will not accept any bid on telephone.
An eligible participant can submit up to three bids in a single OMO tenor and in case of OMO injection (reverse Repo), the participants will also submit the realized value of underlying securities along with bid amount (face value). The minimum bid amount will be Rs 100 million and multiples of Rs 50 million thereof. In additions, the participants have been advised to strictly observe the cut-off time for submission of bids in the OMO. Any bid submitted after the cut-off time will not be entertained by the SBP.
For pricing mechanism, OMOs will be based on multiple price competitive auction process and PKRV rates will be used to calculate 1st price of securities involved in repo-based transactions (OMO mop-up/injection) between the SBP and participants. In addition, if any repo/reverse repo contracts are maturing on public/bank holidays such contracts will be extended to the next business day, and interest calculations will incorporate this extended period. For calculations purposes, the interest rate will remain the same for extended period as used in original contracts.
The SBP will have the discretion to accept bids submitted in Open Market Operations on a 'pro-rata volume' basis if the amount of bids submitted up to the cut-off rate in a particular tenor is more than the amount required by the SBP. In case, the SBP decides to accept bids on a pro-rata volume basis, participants will be allocated an amount equivalent to their proportion in the total bids submitted at the given cut-off rate.
Amounts allocated to the participants on pro-rata volume basis will be rounded off to the nearest Rs 50 million (face value) subject to minimum of Rs 100 million.
The result will be announced on SBPK pages on Reuters and Bloomberg. However, the SBP reserves the right to reject all or any of the bids without assigning any reason in the OMOs. For submission of OMO contracts, the OMO contracts of successful bids will be addressed to Chief Manager, SBP-BSC Karachi Office and the contracts and allied documents will be submitted to Securities Division, SBP-BSC Karachi as per already issued instructions in this regard.