The National Treasury announces the General Terms and Conditions of the Reverse Repurchase Agreement Transactions Facility (Repo facility) in Inflation Linked Bonds (ILBs).
The ILB Reverse Repo facility will be conducted by the South African Reserve Bank (SARB) on behalf of the National Treasury on an auction basis. All market participants are given until the 28 June 2006 to engage the National Treasury and the SARB to clarify any issues of uncertainty regarding the repo facility. The effective date of the repo facility will be announced in due course.
The total nominal amount under this facility will not exceed R1 billion.
All existing maturities will be on offer i.e. R198 (3.8%:2008), R189 (6.25%:2013), R197 (5.5%:2023) and R202 (3.45%:2033).
The auctions will be conducted on a weekly basis.
The term/tenure of the repos will be disclosed in the invitation.
The announcement will be made at 08h30 on the morning of the auction on the SARB's wire services pages.
The auction will, unless specified otherwise, be conducted on Thursdays.
The auction will close at 10:00 and the results will be released at 11h00 on the SARB's wire services pages.
Bids cannot be changed after the auction has closed.
The cash amounts which the participants want to invest in the ILB reverse repo auction.
The reverse repo rate which the participant wants to earn on the cash amount tendered (expressed to the nearest 0, 01%).
Participants are required to submit bids in minimum cash amounts of R5 million, and thereafter, in multiples of R1 million.
Bids will be allocated in an ascending order based on the individual reverse repo rates tendered.
The amounts allocated for each of the bonds on offer will be at the discretion of the National Treasury who may decide to allocate all or nothing of the bonds on offer.
Settlement will take place on a T+3 basis.
Cash settlements will take place via SAMOS.
In terms of the established convention with respect to reverse repos conducted by the SARB, the coupon interest on the bond will be payable to the supplier of the stock.
Bids must be submitted to the SARB via the Money Market Internet System (MMIS).
In case the MMIS is not functional, participants should call the SARB's dealing desk (012-313 4952/7) with the details of their bids, before the auction closes. Telephonic bids should be confirmed with a confirmation fax to the dealing room (012-313 4278).
The Reference CPI rates, as well as, the index ratios needed for the calculation of the nominal amounts of ILBs to be allotted to successful bidders will be released with the auction invitation.
The prevailing real yields on the respective ILBs will be provided by the SARB at the closure of the auction on its wire services pages.
On maturity of the reverse repurchase transaction, the ILBs will be repurchased from participants at the agreed price. Upon receiving payment (via SAMOS), participants must deliver the equivalent securities purchased in the first leg of the transaction.
Participants will be called for margin in order to mitigate against market and credit risk.
ILBs held by the counterparty are marked-to-market daily using BESA closing rates. The SARB will call for margin if the market value of the ILBs exceeds the cash plus total interest for the period of the transaction (repurchase price) by an amount equal to or greater than R1 million.
If the repurchase price exceeds the total market value of the ILBs purchased by participants by R1 million, the SARB will at the request of the counterparty transfer the excess margin.
Interest on cash margins will be calculated at the SAONIA rate on a daily basis and paid to the counterparty at maturity of the reverse repurchase transaction. The same principle will apply when the SARB is called for margin.
Participants should have signed both the SARB'S Master Repurchase Agreement (MRA) and the addendum to the MRA in order to participate in the ILB reverse repo auctions.