Regulatory Changes to Repurchase Agreements

NCB CAPITAL MARKETS LIMITED ADOPTS NEW REGULATIONS

In order to comply with new Regulations governing Repurchase Agreements (Repo), NCB Capital Markets Limited (NCBCM) will be restructuring its operational framework for repos.

The changes will impact clients who invest in repos in which NCB Capital Markets give beneficial interests (i.e. the right to receive benefits on assets held by another party) in the securities to the client, instead of selling or transferring such securities outright to the client. This type of repo has been labelled Retail Repurchase Agreements (Retail Repo) by the regulations.

 

WHY IS THIS CHANGE REQUIRED?

Under the current International Monetary Fund (IMF) Agreement, one of the primary objectives of the Government’s Financial Sector Reform Programme is to reduce the level of risk associated with the Retail Repo business.

Against this background, the Government revised the stipulations governing this framework and introduced The Securities (Retail Repurchase Agreements) Regulations, 2014, to enhance the legal and regulatory framework for the Retail Repo market.

The new framework serves to provide increased protection for Retail Repo clients by removing control of the assets underlying the repurchase agreement, from the dealer, for the term of the contract, and placing it in the custody of an independent trustee.

 

WHO DOES THIS IMPACT?

The reform impacts all securities dealers and is being spearheaded by the Financial Services Commission.

Under this new mandate, all securities dealers must adopt the new Retail Repo structure and ensure that all Retail Repos are compliant byAugust 31, 2015. Additionally, the transition of existing clients with Retail Repos to the new structure will commence by June 30, 2015.

 

WHAT ARE THE FUNDAMENTAL CHANGES?

The fundamental changes include:

  • Introduction of a Trustee and a Tri-party Transaction Structure
  • Regulatory Minimum Transaction Size for Repos
  • Limitation on the allowable Currencies to JMD and USD only

 

WHAT IS REQUIRED OF THE INVESTOR TO ENTER THIS NEW REPO MODEL?

To comply with the new Regulations, NCBCM has revised its Master Retail Repurchase Agreement (MRRA) and all clients are required to accept this new MRRA, as well as an updated Client Account Opening Agreement.

By accepting the new MRRA, clients authorize NCBCM to transfer the securities underlying their Repos to the trust arrangement when it becomes effective.  NCBCM is required to have all its clients sign the new MRRA in order to be compliant with the Securities (Retail Repurchase Agreements) Regulations, 2014.

Additionally, investors must:

  • Have a new Retail Repo Jamaica Centralized Securities Depository Trustee Services number (JCSD-TS)
  • Have a Tax Registration Number (TRN) from Tax Administration Jamaica (TAJ). All joint account holders will also need a TRN.
  • Submit investment & encashment orders by 12 noon in order to receive same day value

 

For more information, please access the documents outlined below:

  1. Financial Services Commission (FSC) Retail Repo Fact Sheet
  2. Financial Services Commission (FSC) Retail Repo Letter
  3. Frequently Asked Questions
  4. The Securities (Retail Repurchase Agreement ) Regulations 2014
  5. Financial Services Commission Guidelines - Minimum Transaction Sizes for Retail Repurchase Agreements
  6. Forms - Client Opening Agreement and Master Retail Repurchase Agreement (MRRA)