The Central Bank of Nigeria has released guidelines for the conduct of repurchase transactions under the apex bank’s standing facilities.

A circular by the CBN on Monday said the guidelines contained the terms and conditions for the operation of the standing lending facility and term repurchase facility and should be read in conjunction with the Nigerian Master Repurchase Agreement.

A repurchase agreement, also known as a repo, is the sale of securities together with an agreement for the seller to buy back the securities at a later date

It said, “The CBN offers to enter repurchase transactions under its SLF and TRF. The objectives of these facilities are to provide naira liquidity to eligible institutions that are unable to access funds on the inter-bank market and to set an upper limit on rates. The rates on the facilities are set at margins above expected market rates so as to provide sufficient incentive for banks to look first to the inter-bank market before seeking recourse to the CBN for funds.”

The circular added that in the absence of secondary markets yields for Asset Management Corporation of Nigeria’s bonds, the CBN would use the equivalent modified duration FGN bond yield, adding that “a margin may be added if the CBN considers that the AMCON bond should trade at a premium (in yield) to FGN bonds.”

Also, the apex bank announced that the restriction on the use of the Wholesale Dutch Auction System to negotiate unconfirmed letters of credit had been reviewed.

It said, “Consequently, WDAS funds can be used to negotiate ULC established for the importation of raw materials, plant and machinery only. For the avoidance of doubt, funds for the negotiation of ULC established for importation of general merchndise shall be from the inter-bank market.”

Source: Punch/Ademola Alawiye