Codified Rule Book for Money Market. November 2013

Transcription

1 Codified Book for Money Market. November 2013

2 Table of Contents Introduction... 4 Key Definitions... 5 Codified Book for Money Market... 6 General Standards... 6 Powers Exercisable... 6 Committees... 6 Interpretation... 6 Applicability... 6 Amendments... 6 Authorisations & Approvals for Membership... 7 Eligible Institutions... 7 Eligibility Criteria... 7 Technical Requirements... 7 Organisation Requirements... 8 Termination of Membership (Suspension and Revocation of Licence)... 9 Obligations & Rights Market Making

3 Manipulative or other Fraudulent Devices Trading & Execution Types of Transactions Trading Hours Trading Parameters Trading Halt Other Trading Practices Clearing & Settlement Trade Reporting Trade Confirmation Trade Settlement Dispute Resolution Mediation Arbitration Reference

4 Introduction In a bid to develop the Nigerian wholesale money market, it has become pertinent that a comprehensive code of conduct and operating rules be instituted to guide the two-way quote market in trading money market instruments activities. Adherence to these rules and tenets of professionalism by market participants is necessary to demonstrate a well-functioning market with minimal need for oversight by the Central Bank of Nigeria (). These rules shall be binding on all trading members that are Money Market Dealers (MMDs). has adopted the existing Financial Markets Dealers Association (FMDA) rules which complement the provisions of the Central Bank of Nigeria s 2007 Money Market Dealership System in Nigeria: Operational Procedure. intends to re-work some parts of these rules after its launch. Each trading member is responsible for the activities of its personnel (both dealing and support staff). These rules are therefore addressed, not only to the management of the trading members, but to the dealers and the relevant operational support staff. Management should clearly document the authorities and responsibilities within which dealing and support staff should operate. These shall include: General dealing policy including reporting procedures Persons authorised to deal Products to be dealt in Risk management (counterparty, position and stop-loss limits etc.) and internal controls Confirmation and settlement procedures Relationships with member firms Other relevant guidelines as considered appropriate Management should ensure that individual dealers are aware of their responsibility to act professionally at all times. It is the responsibility of management and staff to ensure that they are aware of legal requirements applicable to the transactions they undertake and to abide e with them. These rules shall be read in conjunction with, and shall not be superior to any Laws and Enactments of the Federal Republic of Nigeria or any directive(s) of the and other regulatory/ monetary authorities. While steps have been taken to ensure that these rules are as comprehensive, these rules may not be exhaustive. It is our hope that both the letter and the spirit of the rules will be adhered to. 4

5 Key Definitions Acronym AMCON CSCS DMB DH FGN FBB IPHC MMD MVPS MPC MSA NMRA OBB O/N Repo RTGS SEC SDF SLF TDC TRF Description Asset Management Corporation of Nigeria The Central Bank of Nigeria Central Securities Clearing System Deposit Money Bank Discount House Federal Government of Nigeria Fixed-Buy-Back Financial Markets Dealers Quotations Initial Pre-Hearing Conference Money Market Dealers Market Value of Purchased Securities Monetary Policy Committee Mediation Submission Agreement Nigerian Master Repo Agreement Open-Buy-Back Overnight Repurchase Agreement Real Time Gross Settlement Securities and Exchange Commission Standing Deposit Facility Standing Lending Facility Treasury Dealership Certificate Term Repurchase Facility 5

6 Codified Book for Money Market Section Reference Detail General Standards Powers Exercisable 1111 Institutional Arrangements i. Trading members shall be supervised by the on all issues relating to primary dealership ii. A trading member shall apply administrative and institutional arrangements that allow for transparent and safe operations iii. Appointment of a trading member shall be terminated by the, upon the breach of any of the provisions of the guidelines GPD Sec. 5 (iiii) Committees 1121 i. s Executive Regulation & Supervision Committee and the Board Regulation & Supervision Committee shall rule on disputes/infractions referred to it by trading member, customer or the Market Surveillance Unit of on matters relating to dealing relationships, market standards and conduct of the trading members Interpretation 1131 i. The operational procedure (Money Market Dealership System in Nigeria April 24, 2007) should be read along with the s Guidelines for Dealership in Money Market Instruments published in January The two documents are available on the website MMDS Sec. 1.3 Applicability 1141 i. Following the appointment of Money Market Dealers (MMDs), the operational guidelines stated above are required to guide the money market activities MMDS Sec. 1.1 Amendments 1151 i. shall file with the Securities and Exchange Commission (SEC), three copies of a report of any proposed amendment or repeal of or any addition to its rules within 30 days (or such shorter period as SEC may authorise) before any action is taken on such SEC SRR Sec. 6

7 Section Reference Detail amendments, revocation or addition by its members or by any governing body thereof 192(1) 1152 ii. shall copy on all proposed amendment or repeal or addition to its rules Authorisations & Approvals for Membership Eligible Institutions Eligibility Criteria 1211 i. All Deposit Money Banks (DMBs) that are appointed by as MMDs 1221 i. A trading member shall be either a bank or a Discount House (DH) CABD GPD Sec. 4 (iiii) ii. A trading member is required to maintain a minimum capital base of N3.00 billion and comply with the liquidity and other regulatory requirements of the GCRC Sec. II (4) Technical Requirements 1241 i. A trading member shall abide by the guidelines, rules and regulations on primary dealership and any other requirements that may be stipulated by the Central Bank of Nigeria from time to time ii. A trading member shall operate a current account with the for the purpose of dealing in money market instruments iii. A trading member shall ensure that its account is properly maintained at all times, and shall not be overdrawn for any reason iv. A trading member shall be linked to the on-line trading system v. A trading member shall have secure internet access and dedicated telephone lines for dealing with vi. A trading member shall have voice recording machines GPD Sec. 4 (ivi) 7

8 Section Reference Detail Organisation Requirements 1261 A trading member shall have Chief Dealer/Financial Markets Officer/Dealers whose sole/primary responsibilities shall include: CFB Appendix C i. Monitoring market performance ii. Monitoring incoming electronic trade instructions iii. Processing or executing trades either by telephone or online iv. Analysing research compiled by investment analysts to identify market opportunities v. Advising fund /investment managers and stockbrokers on significant changes in market and recommending buy /sell actions vi. Deciding on the products to buy and sell, using careful judgement and research to try and predict how the markets are likely to move vii. Preparing reports to summarise trading activities viii. Ensuring details of any problems or delays in processing instructions are reported to the relevant authority ix. Regularly monitoring global economic and political developments that can affect prices x. Constantly networking to maintain strong relationships with analysts, investment managers and brokers xi. Compliance with legal requirements, industry regulations, organisational policies and professional code 1262 Required Certifications Skills and Competencies for Chief Dealer/ Financial Markets Officer/Dealers: i. Broad knowledge about securities market with detailed knowledge relating to the specific area you are trading in ii. Quick thinking and ability to perform under pressure iii. Accurate and excellent attention to detail iv. Swift reactions to changing market conditions v. Good analytical skills, with the ability to digest and summarize CFB Appendix C 8

9 Section Reference Detail multiple sources of information vi. Accountable for actions and decisions vii. Resilient and ability to operate in a lively, fast-paced environment viii. Self-confident ix. Discrete and ethical x. Well-organised xi. Outstanding business communication and interpersonal skills 1263 Generic Skills for Chief Dealer/Financial Markets Officer/Dealers: i. Articulate, clear communicator ii. Strong client service ethic iii. Excellent IT and numeracy skills iv. Driven to work in a team setting CFB Appendix C 1264 Minimum Qualifications A first degree and relevant professional certifications such as ACI or Treasury Dealership Certificate (TDC) CFB Appendix C 1265 Minimum Experience i. Minimum of 12 years post qualification experience for chief dealer out of which 8 years have been spent in treasury related function ii. Minimum of 2 years treasury experience for dealers CFB Appendix C Termination of Membership (Suspension and Revocation of 1281 i. The may suspend members, acting in a manner contrary to these guidelines, from dealing in the money market. Suspension, which will be preceded by a written warning, may arise if three reported cases of misconduct are established against the erring party ii. The written warning will be issued after the second offence. The GTMM Sec.2.2 9

10 Section Reference Detail Licence) period of suspension may not exceed six calendar months. The will be advised of this suspension from the market Obligations & Rights Market Making 1311 Quoting trading members shall i. give two-way quotes for standard amount and spread without undue delay, during trading hours (Current practice is that trading members give one-way quote for a specified amount) ii. deal, for at least the specified amount, if calling trading member finds one of its quotes attractive GTMM Sec Calling trading members shall i. decide promptly what to do on the quote supplied by the quoting trading member, during trading hours. ii. call a quoting trading member as many times as it desires during trading hours iii. close one deal per quote or phone call, if it finds one of the quoting trading members rates attractive. iv. reserve the right not to deal if it finds the quotes unattractive GTMM Sec Manipulative or other Fraudulent Devices 1321 i. Trading members are expected to be professional in their dealings ii. They shall refrain from engaging in any activity that could impact negatively on the money market iii. Trading members are in a position of the highest trust and responsibility and shall always conduct themselves in a manner as to be worthy of this MMDS Sec

11 Section Reference Detail Trading & Execution Types of Transactions 1411 A. Inter-bank Transactions i. Unsecured placements & takings i.e. Overnight, Call, Tenored (Current practice is that minimum of 24 hours notice is required by a trading member to re-price or liquidate call transactions) ii. Secured placements and takings i.e. Open-Buy-Back (OBB) and Fixed-Buy-Back (FBB) iii. The pledged Treasury bills for OBB transactions shall not be treated as a sale, but shall remain in the books of the trading members that pledged the treasury bills as part of their other assets and not reported as liquid assets iv. The tenors of the inter-bank transactions shall range from overnight to 364 days (Current practice is that trading members active transactions range from overnight to 30 days) Market Practice CTOT B. Repo (Repurchase Agreement) i. A repo is a borrowing or funding transaction whereby the first party borrows money from the second party, using the asset as collateral. At the end of the agreed period, the first party repays the second party, the repo interest and repurchases the asset 11

12 Section Reference Detail 1412 and Trading Members Transactions A. Standing Lending Facility: i. The Standing Lending Facility (SLF) is an overnight advance available to trading members GEDWO Sec. 27 & 32 ii. The SLF rate is set by the Monetary Policy Committee (MPC) of the and is published on the website. It is the applicable Pricing Rate pursuant to section 2 of the NMRA GCRC Sec III (5) B. Standing Deposit Facility i. The Standing Deposit Facility (SDF) is the deposit facility for trading members to place overnight excess funds with the C. Term Repurchase Facility i. Term repos can be transacted with the for periods and at rates as published on the website. The term repo rate is the applicable Pricing Rate pursuant to section 2 of the NMRA 1413 Purchase & Repurchase Prices i. The purchase price is the price at which the purchased securities are to be transferred from seller (borrower) to buyer (lender) on the purchase date ii. The price will be calculated using appropriate market yields and after applying the appropriate margin ratio iii. The repurchase price is the price at which the purchased securities are to be transferred from buyer to seller on the repurchase date. It is calculated using a money market formula with the applicable rate being either the rate as applied to the SLF (in the case of an SLF transaction) or the relevant term repo rate (in the case of a TRF transaction) GCRC Sec III (6) GCRC Sec IV (8-9) 12

13 Section Reference Detail 1414 Purchased Securities i. The will accept the following securities for the standing lending and term repo facilities: Nigerian Treasury bills Federal Government of Nigeria bonds bills Asset Management Corporation of Nigeria (AMCON) bonds ii. The maturity dates of all securities to be used must be at least 3 business days after the repurchase date of the transaction 1415 Market Value of Purchased Securities (MVPS) i. The MVPS will be based on yields as obtained from generally recognised sources ii. Up-to-date secondary market yields will be obtained from iii. In the absence of secondary market yields for AMCON bonds, the will use the equivalent modified duration of FGN bond yields iv. A margin may be added if the considers that the AMCON bond should trade at premium (in yield) to FGN bonds 1416 Margin Ratio i. The will apply a margin ratio to compensate for the risk that the value of securities could fall during the period of the repo ii. For securities with a term-to-maturity of less than 5years, the margin ratio will be 1.05, and for securities of greater than 5years, the margin ratio will be 1.10 iii. Where there is a combination of securities provided (i.e. some shorter than 5years and some longer than 5years), the margin ratio will be a weighted-average of the securities provided iv. In recognition of the fall in price of a bond after the coupon is due together with the requirement for the buyer to transfer the GCRC Sec IV (10-11) GCRC Sec IV (17,19) GCRC Sec IV (12-14) 13

14 Section Reference Detail coupon to the seller, where a bond provided has an income payment date that falls within the period of the repo, then the applicable margin ratio for such transaction will be increased by one half of the coupon rate applicable to the bond 1417 Margin Maintenance i. may request that a trading member make a margin transfer ii. The may make such a request in the circumstances where the MVPS together with the market value of margin transfers (cash and securities transferred when meeting previous margin transfers) falls below 102 percent of the aggregate of the repurchase prices of all repo transactions undertaken between the and the particular trading member iii. Margin transfer can be made in either cash (cash margin) or in securities (margin securities) iv. The may require that all margin transfer be in the form of margin securities v. The value of the margin transfer must be such that the ratio of MVPS plus margin transfer divided by the aggregate of all repurchase prices, restores the margin ratio to the ratio applicable at the commencement of the repos (the ratio may be a weightedaverage in circumstances where some securities have a term-tomaturity of less than five years and some have more than five years vi. When the gives notice of a margin transfer, the trading member must transfer to the, the cash margin and/or margin securities by 3pm on the day after which the margin transfer was requested 1418 Treatment of Coupon Payments i. Where a transaction extends over the income payment date (i.e. coupon payment date), the buyer () shall credit the seller (trading member) with income received on the same day that it GCRT Sec. IV (20-24) GCRC Sec. IV (25) 14

15 Section Reference Detail receives the income 1419 Substitution of Securities i. Substitution of securities under the standing lending and term repo facilities is not allowed GCRC Sec. IV (26) Trading Hours 1421 Inter-bank Transactions i. Trading hours shall be between 10.00am to 2.00pm every working day (Current practice is 9.00am to 6.30pm) GTMM Sec /Trading Members Transactions i. The standing lending facility is available between the hours of 2.00pm and 3.30pm every working day ii. The term repo facility is available between the hours of 9.00am and 3.30pm every working day GCRT Sec. 5 & 6 Trading Parameters 1431 Standard Amount i. Inter-bank transactions: There is no standard amount for interbank transaction ii. Transactions under SLF and term repo can be conducted in amounts (based on the face values) of a minimum of N100 million and in multiples of N1 million thereafter Market Practice GCRT Sec. 5 & Spread i. There is no standard spread for the inter-bank transactions Market Practice 15

16 Section Reference Detail Trading Halt 1461 may declare a trading halt in circumstances where trading activity: i. is being or could be undertaken by persons possessing unpublished price-sensitive information that relates to that security ii. is being influenced by a manipulative or deceptive trading practice; or iii. may otherwise give rise to an artificial price for that security where the bond market becomes illiquid due to some external event IIMMA Sec. 4.5 Other Trading Practices 1471 Mode of Communication i. Current practice is that dealings are done on telephone Market Practice 1472 Concluding a Deal i. A deal shall be consummated when the calling trading member confirms placing or taking a specified amount quoted for at the bid or offer rate indicated by the quoting trading member ii. A trading member shall not refuse to deal after quoting a rate, if the calling trading member decides to place or take at either of the rates quoted GTMM Sec

17 Section Reference Detail Clearing & Settlement Trade Reporting 1511 Standing Lending Facility & Term Repo Facility: i. A trading member wishing to access funds through the SLF and TRF must submit a request to Central Securities Clearing System (CSCS) for it to transfer securities from the account of the trading member to the account of the ii. The trading member shall provide to the Market Liquidity Management Office, Financial Markets Department, Lagos, in line with current deadlines, a copy of the confirmation that the securities have been transferred GCRC Sec.(IV) 28 Trade Confirmation 1521 i. Current practice is that confirmation of trades by trading members are done by telephone and exchange of letters Market Practice 17

18 Section Reference Detail Trade Settlement 1541 A. Unsecured Transactions i. The standard settlement date is T + 0 or as mutually agreed by the trading members for the unsecured transactions ii. Unsecured transactions (O/N & Call) shall be settled through the Real Time Gross Settlement (RTGS) B. Secured Transactions i. The securities and funds (principal) are transferred by the trading members on T+0 for the OBB, or as mutually agreed for FBB & repo on the trade initiation day ii. On maturity day, the equivalent funds (principal + interest) and securities shall be transferred between trading members iii. Secured transactions are settled through the s T24 platform C. Standing Lending & Deposit Facilities i. Standing lending and deposit facilities settle on T+0 basis Market Practice D. Repos i. Once the receives acknowledgement from CSCS that the collaterals (FGN bonds) have been moved, it will credit the trading member s T24 account with the purchase price of the repo ii. On the repurchase date, the trading member s T24 account at the will be debited with the repurchase price and the purchased securities will be transferred to the trading member s account at the CSCS 18

19 Section Reference Detail Dispute Resolution Mediation 1611 Initiation i. A trading member must file a request for mediation to ii. shall contact the other trading member to confirm if they agree to mediate or arbitrate the dispute 1612 Selection i. shall assist in the selection of a mediator (a financial markets expert) by providing the trading members a list of mediators from which to choose along with a detailed report on mediator s background (disclosure report) for each mediator ii. The trading members shall select a mediator that they all agree to work with 1613 Sessions i. The trading members, their representatives and the mediator must sign s Mediation Submission Agreement (MSA) before the mediation can take place ii. shall schedule and communicate the mediation date and location iii. The trading members shall discuss all the areas of dispute under the mediator s guidance 1614 Settlement i. If the trading members agree to settle, shall draft an enforceable agreement for both trading members to sign 1615 Impasse i. If the trading members do not reach a settlement, an arbitration case can be filed, or, if one was previously filed, request can be made to continue the case 19

20 Section Reference Detail Arbitration 1616 Fees i. Trading members shall be required to pay administrative fees for mediating through and are responsible for the mediator's fee and attendant expenses 1621 Filing a Claim i. The trading member (claimant) initiating the arbitration shall submit a Statement of Claim, which includes a description of the dispute, the parties involved, relevant facts and remedies requested either by mail or online to ii. Claimant shall also submit the appropriate filing fee as may be determined by 1622 Answering a Claim i. shall notify trading member (respondent) of the case by sending or serving respondent a case packet by mail. If the respondent is registered with, the respondent must arbitrate with claimant ii. A respondent shall respond to an arbitration claim by filing an answer that specifies the relevant facts and available defenses to the statement of claim iii. A respondent shall have 48 hours to research the claim, prepare and serve a response 1623 Selection i. shall analyse the claim, the nature of the dispute and the type of financial instruments involved, and decide how many arbitrator(s) will be required ii. will provide list of possible arbitrators with a detailed report on each arbitrator s background (a disclosure report) for the case to both trading members of the dispute iii. Both trading members shall be allowed to determine the arbitrators for the case 20

21 Section Reference Detail 1624 Pre-Hearing Conferences i. will schedule an Initial Pre-Hearing Conference (IPHC) with the arbitrator(s) and trading members representatives. The IPHC will hold over the telephone or other electronic means such as VOIP etc. ii. will notify the trading members and arbitrator(s) of the date and time of the IPHC at least 72 hours prior to the conference iii. shall provide arbitrators with any written submissions pertaining to the issues or disputes to be addressed at the conference prior to a IPHC iv. At the IPHC, the panel will schedule evidentiary hearing dates; set discovery date, briefing date and motions deadlines; and, address other preliminary matters v. At the conclusion of the IPHC, the chairperson shall sign the Hearing Scheduling Order on behalf of the panel and submit it to the for distribution to the trading members 1625 Discovery - Exchange of documents/ information & identify witnesses i. Trading members must produce all documents required or agreed to be produced ii. Trading members are required to serve on each other copies of documents in their possession that they intend to present at the hearing and to identify witnesses they intend to call at least 72 hours prior to the first scheduled hearing date iii. Any trading member that is unable to provide required documents shall state the reasons in writing iv. Trading members may shorten or lengthen the exchange deadlines by agreement v. The witness lists will also be sent to the arbitrators by for review prior to a hearing 21

22 Section Reference Detail 1626 Hearings i. The trading members and arbitrators shall meet in person to conduct the hearing in which the trading members shall present arguments and evidence in support of their respective cases ii. Arbitrators may proceed in the absence of a trading member if it fails to appear at a hearing after having been duly notified of the time, date and place of the hearing by Witnesses i. Unless all parties agree otherwise, the panel shall not allow fact witnesses whilst expert witnesses shall be permitted to attend all hearings Starting the hearing i. Hearings shall be held at office, or any other location as may be agreed ii. will handle all logistics for the hearing and communicate to the trading members and the arbitrators Record of the Hearing i. All hearings shall be digitally recorded ii. Arbitrator(s) shall employ an attendance list to track the attendance of the trading members, representatives and witnesses; and an exhibit list (claimant s exhibits and respondent s exhibits) to track the trading members exhibits in order to ensure complete record of the hearing Exclusion of Evidence During the Parties Presentation i. Arbitrator(s) may exclude from the hearing any documents not exchanged during the discovery period ii. Arbitrator(s) may exclude from the hearing witnesses not identified during the discovery period Executive Sessions i. Executive sessions (separate discussions among the arbitrators) shall be held outside the presence of the trading members and their representatives and witnesses ii. All executive sessions shall be off the record 22

23 Section Reference Detail Exiting the Hearing Room i. At the conclusion of a hearing, a pre-designated panel member shall collect all accepted exhibits and return them to as the official record ii. shall release all case-related materials to arbitrator(s) if discussions are adjourned 1627 Decision i. Arbitrator(s) shall review the hearing record, the pleadings and submissions and their notes before they deliberate the facts of the case and render a written decision called an award ii. Arbitrator(s) may also request that the trading members submit post-hearing briefs to help clarify issues Rendering the Award i. Arbitrator(s) shall be required to render an award within 24 hours from the date the hearing is concluded Form of the Award i. All awards must be in writing and signed by all the arbitrators. An arbitrator who disagrees with the award may note the dissent ii. All awards rendered are legally binding and final and are not subject to review or appeal within unless there is a challenge from the Oversight Committee Awarding Fees and Costs i. Arbitrator(s) shall decide which trading member shall pay the costs incurred as a result of the arbitration Arbitrator Immunity i. Arbitrators shall have immunity from civil liability that may arise out of their conduct while serving as arbitrators Penalty i. Trading members must comply with the award within 24 hours. Any trading member that does not comply in a timely manner may be suspended by 23

24 Section Reference Detail Challenging Arbitration Decision i. A trading member may challenge an arbitration decision by requesting the Oversight Committee to set the award aside as void ii. The motion must be made within 24 hours of the award 24

25 Reference S/N Acronym Description 1 GTMM Guidelines for Two-Way Quote Trading in Money Market (Inter-bank Placements/Deposits) 2 GPD Guidelines for Primary Dealership in Money Market Instruments (July 18, 2006) 3 CABD Circular on Appointment of Deposit Money Banks and Discount Houses as Money Market Dealers (May 25, 2012) 4 GEDWO Guidelines on the Expanded Discount Window Operations CTOT Circular on Treatment of Open-Buy-Back Transactions by Banks GCRC Guidelines for the Conduct of Repurchase Transactions under Standing Facilities April IIMMA Inspection and Instruction Manual of OTC Members Activities - November