The government issued decrees that took force on Saturday, amending the accounting of repo rules with the aim of freeing up more liquidity for commercial banks, the Finance Ministry told MTI on Monday.
The old repo accounting rules required daily revaluation of government securities received, thus generating risks and costs and acting as a disincentive for repo deals. The new rules will exempt banks from such obligations for repo deals struck for a maximum of one year in which the receiver of the security is allowed to trade it during the run of the transaction - the so-called “delivery repo.” Interest due on the papers during the run of the deal must be paid to the original owner.
The amended regulations make the accounting of repo deals similar to general practice in the EU, László András Borbély, deputy head of Hungary's Government Debt Management Agency (ÁKK) told Econews on Monday.
Borbély expects the amended repo rules to boost liquidity on the government securities market too, as both the volume and the number of repo deals can rise as a result of the move. Banks blamed administrative and financing costs related to the daily revaluation obligation for their unwillingness to enter into repo deals with ÁKK, he said. ÁKK has long lobbied for the change, he added.
ÁKK operates two types of repo facilities, both delivery-type. One is a one-week reverse repo facility available to primary dealer partners on a daily basis at a fixed rate. The rate for the facility, which is intended to fill a gap in the market, is the average of the central bank O/N and two-week depo rates, currently 8.0%. The other facility is for government liquidity management purposes. AKK invites bids from contracted repo partners on a case-by-case basis for either active or reverse repo deals. The facility is operated for one-day and one-week maturities. ÁKK is free to accept bids in full or in part, or reject them. (MTI – Econews)