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GUIDELINES ON STANDING FACILITIES

JABATAN OPERASI PELABURAN DAN PASARAN KEWANGAN BANK NEGARA MALAYSIA

KUALA LUMPUR

APRIL 2004

Guidelines on Standing Facilities

Bank Negara Malaysia 2

FOREWORD Under the new interest rate framework, Bank Negara Malaysia

(BNM) announces its monetary policy stance through the changes in the overnight

policy rate (OPR). In this regard, the implementation of monetary policy targets

the overnight interbank rate to fluctuate within a corridor around the OPR.

2. BNM’s standing facilities are introduced to ensure that overnight

interbank rates trade within a corridor by providing a lending facility and a deposit

facility at the upper (ceiling rate) and lower limit (floor rate) of the corridor

respectively. Market participants would therefore transact among interbank

institutions at a rate within this operating band to meet their short-term liquidity

needs before utilising BNM’s standing facilities. The operating band will be

transparent to market participants and revised in line with any changes in the

OPR.

3. This Guidelines on Standing Facilities is issued pursuant to section

126 of the Banking and Financial Institutions Act 1989 (BAFIA) to be complied by

interbank institutions which utilise these facilities. It will assist interbank institutions

in understanding the framework in which BNM operates its standing facilities and

sets out the terms and conditions of the standing facilities.

For any clarification on the Guidelines, enquiries can be directed to:-

Pengarah Jabatan Operasi Pelaburan dan Pasaran Kewangan Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur (u.p. Seksyen Perlaksanaan Dasar Monetari)



ARRANGEMENT OF SECTIONS Page PART I GENERAL 1. Objective and Effective Date 4

2. Coverage 4

3. Interpretations 4

PART II LENDING FACILITY 4. Type of Instrument 6

5. Legal Nature 7

6. Maturity and Interest Terms 8

PART III DEPOSIT FACILITY 7. Type of Instrument 8

8. Maturity and Interest Terms 9

PART IV ACCESS TO STANDING FACILITIES 9. Access Conditions 9

10. Utilisation of Standing Facilities 10

11. Suspension of Facility 10



GENERAL

PART I

1.0 Objective and Effective Date

1.1 The Guidelines on Standing Facilities (Guidelines) is issued pursuant to

section 126 of the Banking and Financial Institutions Act 1989 (BAFIA) and

aims to provide a uniform set of rules to govern the conduct of interbank

institutions in using the standing facilities.

1.2 The Guidelines shall be effective from 26 April 2004.

1.3 The Guidelines may, from time to time, be varied, added or revoked in

order to reflect current market conditions.

2.0 Coverage

2.1 This Guidelines is applicable to all interbank institutions and should be read

in conjunction with:-

(a) The Rules on the Scripless Securities under the Real Time

Electronic Transfer of Funds and Securities (RENTAS) System;

(b) ACI Model Code with Malaysia’s local addendum; and

(c) Any other rules, guidelines, codes and directives issued by BNM

from time to time.

3.0 Interpretation

Unless the context otherwise requires, the following expressions shall bear

the following meanings hereby respectively assigned to them, namely:-

“BNM” means Bank Negara Malaysia, a body established under the

Central Bank of Malaysia Act 1958;

“Ceiling rate” refers to the upper limit of the corridor at which BNM will

lend under the lending facility;



“Corridor” refers to the operating band in which overnight interbank rate is

allowed to fluctuate;

“Deposit facility” means the deposit facility for interbank institutions to

place overnight excess funds with BNM;

“Floor rate” refers to the lower limit of the corridor at which BNM will pay

to interbank institutions for the placement of excess funds;

“GMRA” refers to the General Master Repurchase Agreement, an

international standard repurchase agreement prepared by The Bond

Market Association (TBMA) and International Securities Market Association

(ISMA). The GMRA executed between BNM and interbank institutions

elaborates the provisions that govern the repurchase transactions between

the two parties;

“Guidelines” means the Guidelines on Standing Facilities;

“Interbank institutions” means approved interbank institutions that

participate in the wholesale interbank market;

“Lending facility” means the lending facility provided by BNM to satisfy

temporary liquidity needs of interbank institutions;

“Margin” means the initial margin imposed by BNM to interbank

institutions on the eligible collateral for the lending facility;

“Policy Rate” means the overnight policy rate under BNM’s new interest

rate framework;



LENDING FACILITY

“SSTS” in relation to RENTAS means Scripless Securities Trading

System. The SSTS effects and records the transmission of scripless

securities between RENTAS members; and

“RENTAS” means Real Time Electronic Transfer of Funds and Securities

System, which is a scripless book-entry securities trading and funds

transfer system maintained by BNM and as varied, upgraded or substituted

from time to time by BNM.

PART II

4.0 Type of Instrument

4.1 Interbank institutions may use the lending facility to obtain overnight

liquidity from BNM via repurchase agreements or collateralised loans

against eligible collaterals. The facility is intended to satisfy temporary

liquidity needs of interbank institutions.

4.2 The interest rate on the lending facility will be at the upper band of the

corridor and provides a ceiling for the overnight interbank rates.

4.3 The eligible collaterals that qualify for the lending facility are the following

SSTS specified securities:-

(a) Malaysian Government Securities;

(b) Malaysian Treasury Bills;

(c) Government Investment Issues;

(d) Bank Negara Bills;

(e) Bank Negara Negotiable Notes;

(f) Khazanah Securities;

(g) Cagamas Securities; and

(h) Other securities that may be specified by BNM from time to time.



4.4 BNM may however, at its discretion, accept securities other than those

listed above as collaterals.

4.5 An appropriate margin will be used on the above eligible collaterals in

calculating the net price as follows:-

Net price = 100 – Margin x Market price 100

BNM reserves the right to change the margin applied in order to reflect

current market conditions.

For Government, Government-guaranteed and Bank Negara securities the

margins applied are as follows:-

Margin

With a residual maturity of up to one year 0.5%

With a residual maturity more than one year and up to three years 1.5%

With a residual maturity more than three years and up to seven years 3.5%

With a residual maturity more than seven years 6.5%

For other securities, the following margins will be applied:-

Margin

With a residual maturity of up to one year 0.8%

With a residual maturity more than one year and up to three years 3.6%

With a residual maturity more than three years and up to seven years 5.8%

With a residual maturity more than seven years 10.0%

5.0 Legal Nature

5.1 The lending facility will be provided in the form of :-

(a) overnight repurchase agreements (i.e. the ownership of the asset is

transferred to BNM, while both parties agree to reverse the

transaction through a re-transfer of the asset back to the interbank

institutions on the next business day); or



DEPOSIT FACILITY

(b) overnight collateralised loans (i.e. an enforceable security interest is

provided over the assets but, assuming fulfilment of the debt

obligation, ownership of the asset is retained by the interbank

institution).

5.2 Further provisions for the repurchase agreements are specified in the

TBMA/ISMA GMRA agreement executed between BNM and the interbank

institutions.

6.0 Maturity and Interest Terms

6.1 The maturity of the credit extended under the lending facility is overnight

and the credit is repaid on the next business day.

6.2 The lending facility utilised by interbank institutions is charged at a fixed

rate of interest (ceiling rate).

6.3 The interest rate is calculated as a simple interest rate with day-count

convention of “actual/365”.

6.4 Upon announcement of a change in the overnight policy rate, the new

ceiling rate will be effective accordingly.

PART III

7.0 Type of Instrument

7.1 Interbank institutions can use the deposit facility to place overnight excess

funds with BNM.

7.2 The interest rate on the deposit facility will be at the lower band of the

corridor and provides a floor for the overnight market interest rate.



ACCESS TO STANDING FACILITIES

8.0 Maturity and Interest Terms

8.1 The maturity of the deposits held under the deposit facility is overnight and

will mature on the next business day.

8.2 The overnight deposits accepted from interbank institutions are

remunerated at a fixed rate of interest (floor rate).

8.3 No collateral is given to the interbank institutions in exchange for the

deposits.

8.4 The interest rate is calculated as a simple interest rate with day-count

convention of “actual/365” and the interest on the deposits is payable upon

maturity of the deposit.

8.5 Upon announcement of a change in the overnight policy rate, the new floor

rate will be effective accordingly.

PART IV

9.0 Access Conditions

9.1 The standing facilities are available to all interbank institutions on a daily

basis, at their request, from 4 p.m. onwards.

9.2 However, in order for BNM to process the request for the standing facilities,

interbank institutions must submit their request to BNM by contacting BNM

dealers at Seksyen Perlaksanaan Dasar Monetari, Jabatan Operasi

Pelaburan dan Pasaran Kewangan by 5.30 p.m. Interbank institutions will

bear any cost incurred to extend RENTAS closing time.



9.3 At the cut-off time of 6 p.m., unredeemed intraday credit provided by BNM

via RENTAS will be automatically converted to the lending facility.

9.4 There is no limit to the amount an interbank institution may borrow or

deposit under the standing facilities. However, under the lending facility,

the amount borrowed is subject to sufficient underlying eligible collaterals.

10.0 Utilisation of Standing Facilities

10.1 BNM will monitor persistent reliance on the usage of the standing facilities

by interbank institutions. Interbank institutions that demonstrate over-

reliance on lending facility despite excess liquidity will be subjected to

greater scrutiny by BNM.

10.2 BNM will not hesitate to impose penalty to interbank institutions, should

there be inappropriate utilisation of the standing facilities.

11.0 Suspension of Facility

11.1 BNM may suspend or revise the conditions of any one or both of the

standing facilities if it does not meet the overall objective of BNM’s

monetary policy stance.

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