Decision No. 85/2000/QĐ-NHNN on Issuing the Open Market Operations Regulation

DECISION OF THE GOVERNOR OF THE STATE BANK OF VIETNAM

Regarding the issuance of the Open Market Operations Regulation

 

GOVERNOR OF THE STATE BANK OF VIETNAM

Pursuant to the Law on the State Bank of Vietnam No. 01/1997/QH10 dated December 12, 1997 and the Law on Credit Organizations No. 01/1997/QH10 dated December 26, 1997;

Pursuant to Decree No. 15/CP dated March 2, 1993 of the Government on the tasks, powers, and responsibilities for state management of ministries and ministerial-level agencies;

At the proposal of the Director of the Credit Department,

 

DECISION:

Article 1. The Open Market Operations Regulation is hereby promulgated together with this Decision.

Article 2. This Decision takes effect 15 days after the date of signature.

Article 3. The Heads of the Office, the Department Heads of Monetary Policy, the Director of the State Bank's Trading Department, the Department Heads of Credit, the Heads of relevant units under the State Bank, the Directors of the State Bank Branches in provinces and centrally-administered cities, the Chairmen of the Management Boards, and the General Managers (Directors) of credit organizations participating in open market operations shall be responsible for implementing this Decision.

                                   

OPEN MARKET OPERATIONS REGULATION

(Issued together with Decision No. 85/2000/QĐ-NHNN14

dated March 9, 2000 of the Governor of the State Bank)

 

PART I. GENERAL PROVISIONS

Article 1.Scope of regulation and applicable subjects

This regulation governs the purchase and sale of Treasury bills, deposit certificates, State Bank bills, and other short-term negotiable instruments (hereinafter referred to as negotiable instruments) between the State Bank and credit organizations in the money market for the implementation of national monetary policy.

Article 2. Explanation of terms

1. Remaining term: Is the remaining payment time of the negotiable instrument with a maturity date, calculated from the day the negotiable instrument is purchased or sold through open market operations to the due date of payment.

2. Sale and repurchase agreement (referred to as term transaction)):Is the act where the seller (State Bank or credit organization) sells and transfers ownership of the negotiable instrument to the buyer (credit organization or State Bank) while committing to repurchase and reclaim ownership of the negotiable instrument after a certain period.

3. Purchase or outright sale: Is the act of purchasing or selling and transferring ownership of the negotiable instrument from the seller to the buyer without accompanying an agreement to repurchase or resell the negotiable instrument.

4. Quantity bidding:Is the determination of the winning bid volume of credit organizations participating in open market operations based on the bidding volume of credit organizations, the quantity of negotiable instruments purchased or sold, and the interest rate announced by the State Bank.

5. Interest rate bidding: Is the determination of the winning bid interest rate of credit organizations participating in open market operations based on the bidding interest rate of credit organizations and the quantity of negotiable instruments purchased or sold announced by the State Bank.

6.Announcement date:: Is the day when the State Bank sends out announcements regarding the purchase or sale of negotiable instruments.

7.Bidding date: Is the day when credit organizations submit their bids, the State Bank organizes the evaluation of bids, and announces the bidding results.

8. Settlement date: Is the day when winning credit organizations implement the delivery, receipt, and settlement of negotiable instruments with the State Bank, two days after the bidding date.

Article 3. Open Market Operations Management Board

The Open Market Operations Management Board is established by the State Bank, headed by a Deputy Governor, and its members are representatives of relevant units under the State Bank. The Open Market Operations Management Board is organized and operates according to the regulations of the Governor of the State Bank.

Article 4.Participants in open market operations

Participants in open market operations are credit organizations established and operating under the Law on Credit Organizations that meet the conditions stipulated in Article 5 of this Regulation.

Article 5. Conditions for participation in the open market

Credit organizations recognized as participants in open market operations must meet the following conditions:

1. Having an account at the State Bank (Trading Department of the State Bank or State Bank branch in provinces and centrally-administered cities);

2. Possessing all necessary means to participate in open market operations including connecting computers to the State Bank network, having fax machines and telephones for transactions with the State Bank;

3. Registering to participate in open market operations (as per Appendix No. 01/TTM attached to this Regulation).

Article 6:Recognition of participants in open market operations

Credit organizations meeting the conditions stipulated in Article 5 of this Regulation shall be granted a certificate by the State Bank recognizing them as members of the market.

Article 7. Authorization for participation in transactions

The General Manager (Director) of a credit organization is the person who decides and signs documents related to open market operations transactions. The General Manager (Director) may authorize the Deputy General Manager (Deputy Director) or the Head of the Head Office or Branch of the credit organization to make decisions and sign transaction documents for open market operations and shall bear responsibility for such authorization.

Article 8. Types of negotiable instruments traded through the open market

1. Treasury bills.

2. State Bank bills.

3. Other types of short-term negotiable instruments specified by the Governor of the State Bank during each period.

Article 9. Methods of purchasing or selling negotiable instruments

The Open Market Operations Management Board decides that each trading session will apply only one of the following methods

1. Sale and repurchase agreement (term transaction).

2. Outright purchase or sale.

Article 10.Issuing transaction codes to credit organizations

Credit organizations recognized by the State Bank as participants in open market operations are issued codes, keys for computer and fax transactions, and signature codes for authorized representatives to implement security measures for open market operations transactions.

Article 11. Trading days and periodic organization of open market operations

1. Trading days for open market operations are counted based on working days, excluding weekends, holidays, and Tet holidays.

2. Periodicity and trading days for organizing open market operations are specifically defined by the Open Market Operations Management Board during each period.

 PART II. SPECIFIC PROVISIONS 

Article 12.Conditions for trading through the open market of securities

Securities prescribed in Article 8 of this Regulation must meet the followingconditions to be traded through open market operations:

1. They must be tradable;

2. They must be issued in Vietnamese dong;

3. They must be registered with the State Bank of Vietnam in accordance with theregistration regulations for limited-term securities of the State Bank of Vietnam;

4. The remaining term of the securities being bought or sold outright must not exceed90 days.

Article 13. Auction methods

The purchase or sale of various types of securities between the State Bank ofVietnam and credit organizations shall be conducted through quantity auctionmethods or interest rate auction methods.

1. Quantity auction

a. The State Bank of Vietnam informs credit organizations of the interest rates andquantities of various types of securities that need to be purchased or sold.

b. Credit organizations bid on the quantities of securities that need to be purchasedor sold at the interest rate announced by the State Bank of Vietnam.

c. In cases where the total bid quantity of credit organizations equals or is lowerthan the quantity the State Bank of Vietnam needs to purchase or sell, the winningquantity of each credit organization is the bid quantity of that organization.

d. In cases where the total bid quantity of credit organizations exceeds the quantitythe State Bank of Vietnam needs to purchase or sell, the winning quantity ofsecurities will be allocated proportionally to the bid quantity of creditorganizations and rounded up to 10 million dong.

2. Interest rate auction

a. The State Bank of Vietnam announces the quantities of various types of securitiesneeded to be purchased or sold.

b. Credit organizations bid on the interest rates and quantities of securities neededto be purchased or sold corresponding to those interest rates. Bidding interestrates are calculated as percentages per annum and rounded to two decimal places.

c. Bids from credit organizations are ranked in descending order of biddinginterest rates when the State Bank of Vietnam purchases securities, or in ascendingorder of bidding interest rates when the State Bank of Vietnam sells securities.

d. The winning interest rate is the lowest bidding interest rate (when the State Bankof Vietnam purchases securities) or the highest bidding interest rate (when theState Bank of Vietnam sells securities) at which the required quantity of securitiesis achieved.

e. The winning quantity of credit organizations is the quantity of bids with interestrates equal to or higher than the winning interest rate (when the State Bank ofVietnam purchases securities) or with bidding interest rates equal to or lower thanthe winning interest rate (when the State Bank of Vietnam sells securities).

g. During each period, the Open Market Operations Management Board will announcethe application of either a uniform interest rate tender method or individualinterest rate tender method.

- Uniform interest rate: The entire winning quantity is calculated uniformly at thewinning interest rate.

- Individual interest rate: Each winning quantity is calculated separately accordingto each bidding interest rate.

h. In cases where the total bid quantity of credit organizations exceeds the quantityof securities the State Bank of Vietnam needs to purchase or sell at the winninginterest rate, the winning quantity of securities of credit organizations at thewinning interest rate will be allocated proportionally to their bid quantities at thewinning interest rate and rounded up to 10 million dong; In cases where a creditorganization has multiple types of securities to sell or buy at the winning interestrate, the State Bank of Vietnam will determine the winning quantity according tothe following order:

- Securities with larger registration quantities for sale or purchase;

- Securities with shorter sale or purchase terms (in case of outright sale orpurchase);

- Shorter remaining term of securities.

Article 14. Determination of the quantity and term of securities needed to be purchased orsold

From 8:00 to 10:00 on the announcement day, the Head of the Open MarketOperations Management Board or the Deputy Head authorized by the Headshall convene a meeting with members of the Open Market OperationsManagement Board to determine the following main contents:

a. The quantities of various types of securities needed to be purchased or sold;

b. The auction method;

c. The tender method (in case of interest rate auction);

d. The term of the purchase or sale transaction with a term;

c. The purchase or sale interest rate (in case of quantity auction).

2. The determination of these contents is based on the following grounds:

a. The objectives of monetary policy;

b. The results of available capital forecasts;

c. The winning quantities and interest rates of short-term securities that the StateBank of Vietnam has purchased or sold through open market operations in theprevious auction session;

d. Reference to current interest rates in the market;

e. The situation of refinancing activities of the State Bank of Vietnam towardscredit organizations.

3. By no later than 11:30 on the announcement day, the Open Market OperationsManagement Board will inform the State Bank of Vietnam Trading Department(Open Market Operations Section) of the contents stipulated in Clause 1 of thisArticle.

Article 15. Announcement of Purchase or Sale of Securities

From 13:00 to 14:30 on the announcement day, the State Bank of Vietnam TradingDepartment (Open Market Operations Section) will announce the purchase ofsecurities (Annex 02/TTM) or the sale of securities (Annex 03/TTM) to creditorganizations and branches of the State Bank of Vietnam via computer networkwith the following main contents:

1. Auction date;

2. Payment date;

3. Types of securities needed to be purchased or sold;

4. Term of securities;

5. Form of securities needed to be purchased or sold (certificates, book entries);

6. Quantity needed to be purchased or sold (calculated based on the value at maturityof the securities);

7. Maturity date of each type of short-term securities (In case of sale by the StateBank of Vietnam);

8. Term of the transaction with a term;

9. Auction method;

10. Tender method (In case of interest rate auction);

11. Purchase or sale method;

12. Interest rate applied by the State Bank of Vietnam when purchasing or selling (Incase of quantity auction).

At each purchase or sale session, the State Bank of Vietnam only applies a unifiedterm for purchasing or selling all types of securities and only applies either aninterest rate auction method or a quantity auction method.

Article 16.Submission of Bid Forms

From 8:00 to 10:00 on the auction day (immediately following the announcement), credit institutions shall submit tender registration forms to purchase (Annex No. 04/TTM) or sell (Annex No. 05/TTM) securities based on the State Bank of Vietnam's announcement regarding the purchase or sale of securities through the State Bank of Vietnam Trading Department’s network with the following contents:

1.Types of securities to be purchased or sold;

2.Maturity period of securities;

3.Form of securities to be purchased or sold (certificates, book entries);

4.Quantity to be purchased or sold (based on the value at maturity of the securities);

5.Bid interest rates for each type of security to be purchased or sold (in the case of interest rate bidding);

6.Maturity date of each type;

7.Method of purchase or sale;

8.Purchase or sale period for each type (number of days);

9.Signature code of the transaction representative (the person filling out the form), the supervisor, and the authorized person.

Within the tender submission period, credit institutions may change the content of their tender by submitting a new tender form or withdraw their tender through the computer network. Any changes to the tender content by credit institutions will only take effect after the previous tender has been withdrawn.

The minimum total quantity of securities registered for purchase or sale by a credit institution in a single tender must be at least 100 million VND.

Article 17.Invalid tender

A credit institution's tender will be considered invalid in the following cases:

1.The tender does not match the specified code;

2.The signature code of the credit institution's representative in the tender does not match the code issued by the State Bank of Vietnam;

3.The bid interest rate is not rounded to two decimal places;

4.The tender specifically requests to buy at the lowest price or sell at the highest price;

5.The total quantity of securities listed in a tender is less than 100 million VND;

6.The contents in the tender are not filled out according to the provisions of this Regulation;

7.A credit institution sells securities without having such securities registered with the State Bank of Vietnam as required; the remaining maturity period of the securities to be sold is shorter than the maturity period of the sale and repurchase agreement.

For invalid tenders, the State Bank of Vietnam (Trading Department) will notify the credit institution via the computer network or by fax.

Article 18. Tender evaluation body

1.From 10:00 to 11:30 on the auction day, the State Bank of Vietnam will conduct the tender evaluation. The Governor of the State Bank of Vietnam assigns the Director of the State Bank of Vietnam Trading Department to organize the tender evaluation process, witnessed by members of the Open Market Operations Management Committee appointed by the Chairman.

2.The tender evaluation process will be carried out according to the announcement of the Open Market Operations Management Committee and the open market operations procedures of the State Bank of Vietnam Trading Department.

3.In the case where a credit institution sells securities without sufficient securities registered with the State Bank of Vietnam or the remaining maturity period of the securities to be sold is shorter than the maturity period of the sale and repurchase agreement, the State Bank of Vietnam will only accept the evaluation of the quantity corresponding to the quantity of securities already registered with the State Bank of Vietnam or the quantity of securities with a longer maturity period than that of the sale and repurchase agreement.

Article 19.Determining the purchase or sale price of securities

1.In the case of selling with a term accompanied by a sale and repurchase agreement:

a.The sale price between the State Bank of Vietnam and credit institutions is determined according to the following formula:

Gđ : Sale price;

GT: Value of the security at maturity;

T : Remaining maturity period of the security (in days);

L : Unified interest rate or individual interest rate (in the case of interest rate bidding) or the interest rate announced by the State Bank of Vietnam (in the case of volume bidding) at the auction session, expressed as %/year;

365 : Number of days in a year.

b.The repurchase price between the State Bank of Vietnam and credit institutions is determined according to the following formula:

Gv: Repurchase price;

Gđ: Sale price;

L: Unified interest rate or individual interest rate (in the case of interest rate bidding) or the interest rate announced by the State Bank of Vietnam (in the case of volume bidding) at the auction session, expressed as %/year;

Tb: Sale period (in days);

365: Number of days in a year.

2.In the case of outright purchase or sale of securities between the State Bank of Vietnam and credit institutions:

The outright purchase or sale of securities is applied according to the formula prescribed in Clause 1, Point a of this Article.

Article 20. Announcing the auction results

1.By no later than 14:00 on the auction day, the State Bank of Vietnam will announce the auction results to participating credit institutions and provincial branches of the State Bank of Vietnam through the computer network. The auction result announcement includes the following main contents:

a.Auction date;

b.Quantity awarded;

c.Quantity not awarded;

d.Awarded interest rate;

e.Payment amount;

g.Payment date.

2.The auction result announcement serves as the basis for the transfer, receipt, and payment of securities in the case of outright purchase or sale of securities; it also serves as the basis for establishing the sale and repurchase agreement in the case of term purchase or sale.

Article 21. Establishing and transferring the sale and repurchase agreement

1.The sale and repurchase agreement of securities is established by the seller (Annex No. 06/TTM attached to this Regulation).

2.After receiving the auction result announcement from the State Bank of Vietnam, the credit institution selling securities establishes the sale and repurchase agreement and sends it to the State Bank of Vietnam through the computer network and by fax.

3.The State Bank of Vietnam (Trading Department) establishes the sale and repurchase agreement in the case where the State Bank of Vietnam sells securities to a credit institution. The sale and repurchase agreement established by the State Bank of Vietnam is sent to the winning credit institution through the computer network and by fax.

4.The deadline for establishing and sending the sale and repurchase agreement is no later than 15:00 on the auction day.

5. After receiving the buy and sell-back contract, the authorized person of the winning bidding credit institution or the State Bank of Vietnam Trading Department shall sign and stamp on the FAX copy of the contract and send it to the seller via computer network and FAX no later than 15:30 on the bidding day.

6. The Open Market Operations Department (State Bank of Vietnam Trading Department) will transmit by FAX the buy and sell-back contract to relevant departments of the Trading Department and State Bank of Vietnam branch before 16:30 on the same day.

7. The buy and sell-back contract serves as the basis for implementing payment and delivery of securities between the State Bank of Vietnam and credit institutions in the case of term transactions.

Article 22.Payment and transfer of ownership of securities

1. Upon receipt of the bidding result notification or the signed buy and sell-back contract, the seller must transfer ownership of the securities to the buyer; simultaneously, the buyer must pay the purchase price to the seller. The payment and transfer of ownership of securities shall be carried out on the payment date.

2. In the event that the credit institution winning the bid to buy securities does not have sufficient funds for payment, the State Bank of Vietnam (Trading Department) will deduct from the account of the winning bidder at the State Bank of Vietnam the corresponding amount of money for the quantity won; if the required amount is still insufficient, the State Bank of Vietnam will cancel the unfulfilled portion of the bid results.

3. On the contract termination date, the buyer and seller will carry out the transfer of ownership of securities and payment according to the commitments made by both parties in the buy and sell-back contract.

4. In the event that a credit institution selling and committed to repurchasing securities fails to make payment or makes an insufficient payment upon maturity, the State Bank of Vietnam (Trading Department) will deduct from the account of such credit institution at the State Bank of Vietnam the corresponding amount due. If this measure still leaves an insufficient amount due, the State Bank of Vietnam will temporarily hold the equivalent quantity of securities in a separate account. If the credit institution fails to make full payment within ten days from the due date, the State Bank of Vietnam will sell those securities to recover the capital. Payment will be made through the credit institution's deposit account at the State Bank of Vietnam.

Article 23.Handling Violations

Credit institutions participating in the bidding who violate any of the following situations three consecutive times will be temporarily suspended from participating in buying and selling for a period of three months from the date of the third violation notice:

1. Not registering sufficient securities corresponding to the bidding volume (in the case of credit institutions selling securities).

2. Not having sufficient funds to cover the payment amount announced by the State Bank of Vietnam for the winning bid volume.

3. Failing to make payment or making an insufficient payment when due in the case of credit institutions selling and committed to repurchasing.

"d) Within no more than one working day from the date of receiving the dossier submitted for administrative procedures by the specialized agency assigned by the Provincial People's Committee, the Chairman of the Provincial People's Committee shall issue a notification of the result of the inspection of plant-based food exports or a certificate at the request of the importing country.".Reporting on open market operations

After each trading session, the State Bank of Vietnam Trading Department shall prepare a report (Annex 07/TTM attached to this Regulation) and submit it to the Governor of the State Bank of Vietnam, the Open Market Operations Management Board, and the Credit Department regarding the results of that trading session.

Monthly, quarterly, and annually, the State Bank of Vietnam Trading Department shall compile and report on the implementation of open market operations during the period to the Governor of the State Bank of Vietnam, the Open Market Operations Management Board, and related units.

 

CHPART III. IMPLEMENTATION PROVISIONS

Article 25. Responsibilities of units under the State Bank of Vietnam       

1. Credit Department:

a. Provide information on refinancing activities to the Open Market Operations Management Board and the Available Capital Management Unit.

b. Coordinate with the State Bank of Vietnam Trading Department to determine the structure of securities traded through open market operations.

2. Monetary Policy Department:

a. Manage, monitor, and provide periodic available capital forecasts of credit institutions to the Open Market Operations Management Board in accordance with the Available Capital Management Regulation.

b. Propose to the Open Market Operations Management Board the quantities of short-term securities needed to be bought or sold, the terms needed to buy or sell, and anticipated interest rates when buying or selling securities.

c. Coordinate with the Credit Department and the State Bank of Vietnam Trading Department to submit to the Governor of the State Bank of Vietnam proposals to supplement or remove types of securities used as tools for open market operations.

3. State Bank of Vietnam’s Trading Department:

a. Examine and recognize credit institutions as members participating in open market operations; coordinate with the Banking Information Technology Bureau to establish codes, passwords for transactions via computer networks and FAX, and signature codes for participants in open market operations transactions.

b. Carry out buy or sell transactions of securities with credit institutions.

c. Register, manage, and monitor securities.

d. Pay securities.

e. Issue guidelines for implementing open market operations.

g. Coordinate with the Credit Department and the Monetary Policy Department to advise the Open Market Operations Management Board on the structure, terms needed to buy or sell various types of securities.

h. Implement the delivery, custody, and accounting of securities in accordance with regulations.

i. Compile, monitor, and report information on open market operations to the Open Market Operations Management Board, the Credit Department, and the Monetary Policy Department.

4. Accounting-Finance Department:

Guide accounting procedures related to open market operations.

5. Banking Information Technology Bureau:

Develop software programs for open market operations and organize their installation to ensure safe and secure operation.

6. State Bank of Vietnam Branches:

a. Carry out the delivery, receipt, custody, payment, and accounting of securities in accordance with regulations.

b. Notify the State Bank of Vietnam Trading Department of the balance of the custodial accounts of credit institutions.

Article 26.1. Amend and supplement Point d of Clause 2 of Article 24 as follows:

Amendments and supplements to this Regulation shall be decided by the Governor of the State Bank of Vietnam.