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The Role of REPO Market for Government Bond Market. Merrill Lynch Japan Incorporated Jun Ono July 25, 2000. Over view. Static of JGB Outstanding volume (source JSDA). Over view (continued). Static of Cash JGB Transaction volume (source JSDA). Over view (continued).

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The role of repo market for government bond market

The Role of REPO Market for Government Bond Market

Merrill Lynch Japan Incorporated

Jun Ono

July 25, 2000


Over view
Over view

  • Static of JGB Outstanding volume (source JSDA)


Over view continued
Over view (continued)

  • Static of Cash JGB Transaction volume (source JSDA)


Over view continued1
Over view (continued)

  • Static of REPO Outstanding volume (source JSDA)


Over view continued2
Over view (continued)

  • Static of REPO Transaction volume (source JSDA)


Over view continued3
Over view (continued)

  • Outstanding of Market Operation by BOJ


Over view continued4
Over view(continued)

  • BOJ Financial Market Operation

  • Month end outstanding (as of June/2000)


Over view continued5
Over view(continued)

  • JGB Issue & Outstanding volume of Repo + Buy/Sell Back

  • Month end outstanding trend (January, 1997 ~ May, 2000)


The importance of repo for government bond
The Importance of REPO for Government Bond

  • Definition of REPO

    • REPO/REVERSE Transaction

    • Buy/Sell Back Transaction

    • Securities Lending versus Cash Collateral

Market which enables to exchange Securities (Government Bond etc. ) and Cash for certain term


The importance of repo for government bond continued
The Importance of REPO for Government Bond (continued)

  • REPO

    = Repurchase Transaction based on agreement (include Buy/Sell back)

    • TMBA MASTER REPURCHASE AGREEMENT

      TBMA= The Bond Market Association

    • TBMA/ISMA GLOBAL MASTER REPURCHASE AGREEMENT

      ISMA = International Securities Market Association

    • JSDA Master Agreement

      JSDA= Japan Securities Dealers Association


Japanese repo securities lending versus cash collateral
Japanese REPOSecurities Lending versus cash collateral

Effective (Start) Date

Bond (JGB)

Lender

(Seller)

Borrower

(Buyer)

Collateral (Cash)

Settlement (End of) Date

Bond (JGB)

Lender

(Seller)

Borrower

(Buyer)

Fee

Collateral (Cash)

Interest rate cash


The importance of repo for government bond continued1
The Importance of REPO for Government Bond (continued)

  • Market Perspective

    • Provide liquidity in the market

    • Enable to short sale

    • Provide Funding facility for inventory

    • Offer major money market

    • Supply market operation utility


The importance of repo for government bond continued2
The Importance of REPO for Government Bond (continued)

  • Risk Management perspective

    • Master agreement

    • Close out netting at events of default

    • Marked to Market

    • Margin maintenance


Change of government bond market in japan
Change of Government Bond Market in Japan

  • G-30 Recommendation 1989 Mar.

  • Revise of Short Sale rule 1989 May.

  • TB T+3 Rolling Settlement 1990 Oct.

  • JGB DVP Start 1994 Apr.

  • Japanese REPO Start 1996 Apr.

  • JGB T+7 Rolling Settlement 1996 Oct.

  • JGB T+3 Rolling Settlement 1997 May.

  • JGB RTGS 2001 Jan.


Change of government bond market in japan sample

JGB RTGS (January, 2001)

JGB T+3 Rolling Settlement (May, 1997)

JGB T+7 Rolling Settlement (Oct., 1996)

Japanese REPO Start (Apr., 1996)

JGB DVP Start (Apr., 1994)

TB T+3 Rolling Settlement (Oct., 1990)

Revise of Short Sale rule (May, 1989)

G-30 Recommendation (March, 1989)

Change of Government Bond Market in Japan (Sample)

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001


Introduction of rtgs
Introduction of RTGS

  • Current = Designate Time Net Settlement

    • Every transactions are settled on time at PM 3:00 on a multiple net settlement basis.

    • Settlement instructions can be entered for forward date.

  • RTGS = Real Time Gross Settlement

    • Individual transactions are settled real time basis.

    • Settlement instructions can be only entered on settlement date.


Towards rtgs
Towards RTGS

  • New Market Practices

    (JSDA Guide Line)

    • Accepting “ Fail “ ( Cut- Off Time / Buy -In Rule )

    • Minimizing settlement ammounts for each transaction

    • Netting Procedure


Towards rtgs continued
Towards RTGS (continued)

  • “Fail to deliver secuirites” practice

    • Accepting “Fail”

      • Avoid to admit trade cancellation by “ fail”

      • Avoid to charge special penal regulation ( avoid to claim for damages by delay)

    • Establish “Cut-Off Time”

      • The time for recognizing “ Fail” at PM 3:00

    • “Buy-In” Rule

      • After “Fail” happens, it takes 24days till JGB delivery through buy-in , at least


Towards rtgs continued1
Towards RTGS (continued)

  • “Minimizing settlement amounts for each tranzaction”

    • Maximum deal of one JGB transaction should be JPY 5Billon at the time of trade execution.

  • “Netting” Procedure

    • Bilatteral pair-off netting ( In case of “ Fail”, netted transaction is rewound back to the original contract.

    • Able to do other types of “ Netting” by mutual agreement.


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