Kathmandu. KATHMANDU: Nepal Rastra Bank (NRB) has implemented the Open Market Transaction Procedure, 2078 (Ninth Amendment, 2083) in order to make the open market transaction more effective, transparent and technology-friendly.

The amended work procedure has made the provisions related to the use of monetary instruments for open market transactions, bidding process, securities management, payment, online participation and long-term liquidity management. The central bank has been using open market transactions as a key tool for the effective implementation of monetary policy. The open market is divided into two categories: regular and structural.

The Open Market Trading Operation Committee will meet every Friday to manage the new and excess liquidity in the financial market. The meeting will review the transactions objectively.

In the banking system, instruments such as repo, reverse repo, direct purchase, direct sale, long-term repo and long-term deposit collection are operated with the objective of disseminating liquidity as per the need or managing excess liquidity. The amendment has made the operation process of these devices more clear, uniform and modern.

The main provision of the revised procedure is to provide the facility of bidding through online medium to the banks and financial institutions participating in open market transactions. Applications can also be submitted through electronic means along with the existing paper process. This is expected to make the transaction more efficient, convenient and transparent.

As per the work procedure, the minimum bid amount has been fixed at Rs 100 million for most instruments including repo, reverse repo, direct purchase, direct sale and long-term deposit collection. Similarly, if Rs 10 crore is divided, bids can be made up to the maximum amount called.

Provision has been made for the proportional allocation of the amount on pro-rata basis if the demand is more than the amount approved from the tender received at the same interest rate or the same price. This will ensure equal treatment among the participating institutions and make the bidding process more systematic.

The Ninth Amendment has also given special importance to long-term liquidity management. According to the working procedure, repo and long-term deposit collection instruments of up to six months period can be operated on the basis of need. Such instruments will be operated through a multi-interest rate system. For this, the process of bidding, fund allocation, certificate issuance and payment has been clearly defined.

The procedure for transacting treasury bills through direct purchase and direct sale has been made more clear in the procedure.

The meeting covers the issues of call for bidding, bidding process, transfer of ownership of treasury bills, payment and settlement of accounts. In addition, the NRB shall publish a public notice through its website or other electronic means while conducting open market transactions.

The revised working procedure has also tightened the deadline for completion of transactions and the disciplinary provisions. Banks and financial institutions failing to complete the approved transactions, failing to submit the required securities or documents within the stipulated time and failing to follow other prescribed procedures will be penalized. Similarly, the government has barred participation in the open market trading for six months. Apart from this, the compensation has been arranged at the rate of 2.50 percent.

The work procedure has also made clear the accounting and regulatory provisions of the amount mobilized through repo, reverse repo and long-term deposit collection. Such amounts will be counted as an investment portfolio but will not be counted in the cash reserve ratio (CRR). Similarly, the statutory liquidity ratio (SLR) and total deposit ratio can be calculated.

Similarly, the application form, certificate and transaction schedules have also been updated. The revised working procedure clearly incorporates the procedures, rights, responsibilities and documentation required for the operation of various monetary instruments. According to the NRB, this will maintain uniformity in the operation of open market transactions and make the implementation of the monetary policy more effective.

The ninth amendment to the working procedure has laid the grounds for making open market transactions more systematic in transaction operation, liquidity management, risk control and regulatory compliance by gradually moving the open market transactions from paper to digital system. Through the ninth amendment, Nepal Rastra Bank has made the open market transaction operation process more technology-friendly, transparent and systematic.