Term Repos: Terms and Conditions

April 21, 2020

Operation details

  • Auction date, amount, minimum bid rate, settlement date, maturity date, transaction type and other information will be announced by the Bank of Canada on the term repo webpage ahead of each auction.


Type of transaction

  • Two types of term repo transactions will be conducted by the Bank of Canada. These transactions will be referred to in the Terms and Conditions as “regular” and “National Housing Act Mortgage-Backed Securities” (NHA MBS).


Type of auction

  • All term repo transactions will be conducted though a multiple rate competitive auction for a fixed Canadian dollar (Can$) cash-value amount.


Term

  • All term repo transactions will be for terms up to 24 months. Exact dates for all transactions will be confirmed ahead of each operation. At the Bank of Canada’s discretion, transactions may also be for shorter or longer terms.


Eligible counterparties

  • Canadian Primary Dealers in Government of Canada securities. The Bank of Canada has sole discretion to remove a Primary Dealer from the list of approved eligible counterparties for term repo transactions, cap or limit a counterparty’s awards in a particular auction or otherwise cease to enter into term repo transactions with such counterparty for any reason.


Tender process

  • All term repo transactions will normally be conducted at 9:45 a.m. (EST) with a deadline of 10:00 a.m. (EST) for participants to submit tenders. The Bank of Canada reserves the right to conduct these transactions earlier or later in the day, with an approximate 15-minute tender submission deadline to be set by the Bank of Canada.

  • Tenders must specify a bid rate and an amount on a cash-value basis. A maximum of two tenders can be submitted by each participant for each term on offer.

  • Each operation will have a minimum bid rate which will be announced on the Bank’s term repo webpage 30 minutes before the auction deadline. The minimum bid rate is based on the equivalent maturity overnight index swap (OIS) rate as determined by the Bank of Canada. At the Bank of Canada’s discretion, it may impose a spread to the OIS rate to determine the minimum bid rate for the operation.

  • Each bid rate must be submitted on a yield basis, up to two decimal places.

  • Tender amounts are subject to maximum allocation limits. The minimum tender amount is $10 million, with minimum increments of $1 million.

  • Verbal tenders must be confirmed in writing by sending an email to .

  • The Bank of Canada reserves the right to accept or reject any or all bids, in whole or in part, including, without limitation, the right to accept less than the total amount specified ahead of the auction.


Allocation mechanism

  • Tenders with the highest bid rate will be accepted and allocated first. Tenders with successively lower bid rates will continue to be accepted until the auction is completely allocated. The lowest accepted bid rate is the cut-off rate. If the sum of the tender amounts at the cut-off rate exceeds the amount available to allocate, these tenders will be allocated on a pro-rated basis and rounded to the nearest $1 million.


Maximum allocation

  • For each regular and NHA MBS term repo operation, winning participants will be awarded up to a maximum of 25 percent or 12.5 percent of the total amount offered for each transaction. The per tranche limit is based on each institution’s annual average market share in the primary, secondary and repo markets for Government of Canada bonds and treasury bills, as determined by the Bank of Canada, and will be reviewed at least annually. No aggregate limit applies to regular and NHA MBS term repo operations.

  • All limits will be communicated to eligible counterparties directly.


Timing of results

  • Winning counterparties will be notified by telephone following the allotment of the auction. The Bank of Canada will email or fax a confirmation to each winning participant, setting out the specific terms of the transaction, including the securities.

  • Results will be published on the Bank of Canada’s term repo webpage as soon as possible following the auction. These transactions will also be reflected on the Bank of Canada’s balance sheet.


Eligible securities

  • For regular transactions with the exception of the noted, the full range of securities eligible for the Standing Liquidity Facility plus bankers’ acceptances (BAs) and promissory notes of LVTS participants, including those issued by the PD or its affiliate, own-name covered bonds, own-name Term ABS and own-name ABCP, but excluding the non-mortgage loan portfolio, NHA MBS, Special Deposit Accounts held at the Bank and USD securities. The securities must not mature on or prior to the date of maturity of the term repo operation. The Bank will not accept BAs, promissory notes or ABCP with a term to maturity of greater than 365 days.

  • The combined value of own-name BAs/promissory notes that a Primary Dealer can use at each operation cannot exceed 12.5% of the total size of the term repo operation if it is subject to a 25% Maximum Allocation or 6.25% of the total size of the term repo operation if it is subject to a 12.5% Maximum Allocation. Concentration limits will not apply to any other securities eligible for term repo operations.

  • For NHA MBS transactions, only NHA MBS pool types with prefix 975, both syndicated and non-syndicated, are eligible. These securities must not mature within 6-months of the maturity date of the transaction and the security must also meet the eligibility requirements for the Standing Liquidity Facility.


Notification of securities to be used

  • Counterparties must notify the Bank of Canada, in the form instructed, of the securities that will be used within 60 minutes of allocating the auction.


Margins

  • Eligible securities are subject to the same margin requirements as those applicable in the Standing Liquidity Facility (See Margin Requirements).


Margin calls

  • Transactions, on a combined regular and NHA MBS basis, will be subject to margin calls if the value of the posted eligible securities falls below a threshold acceptable to the Bank of Canada. All eligible securities for both regular and NHA MBS transactions may be provided for margin calls, except own-name BAs or promissory notes.


Interest calculation

  • Interest on the funds will be calculated on an actual/365-day basis.


Cash flow payments

  • For regular transactions, all coupon payments received by the Bank of Canada on the securities during the term of the transaction will be kept by the Bank of Canada. The final settlement amount will be adjusted, as required, to account for these receipts in accordance with the Bank of Canada's Master Repurchase Agreement.

  • For NHA MBS transactions, all cash flows will be returned one business day after they are received. Not adjusting the final settlement amount is in accordance with the Bank of Canada’s Master Repurchase Agreement. The Bank of Canada will hold the cash flow for a term of one business day without paying interest and will return it to the eligible counterparty the following business day.


Counterparty settlement instructions

  • Securities shall be delivered to the Bank of Canada by 4:00 p.m. (EST) through CDSX on the settlement day of the auction, on a delivery of securities versus payment of funds basis. Securities to be delivered shall be confirmed with and priced by the Bank of Canada after the auction and prior to delivery.

  • The Bank of Canada’s CDS settlement customer unit identifier (CUID) is BOCB.


Substitution

  • Participants will have the right to choose one (1) day each week to substitute a maximum of four (4) securities underlying all term repo transactions. Participants must give the Bank of Canada notice of the substitution by noon two business days prior to the substitution date and in accordance with the Bank's Master Repurchase Agreement. Substitutions must be confirmed in writing by sending an email to operations@bankofcanada.ca.

  • Securities used for substitution must meet the eligibility requirements for the original transaction. Only NHA MBS satisfying the eligibility requirements may be used for NHA MBS transactions. Own-name bankers’ acceptances’ and own-name promissory notes cannot be used as substitute securities. All other eligible securities, excluding NHA MBS, may be used for regular transactions.


Legal arrangements

  • Eligible counterparties must have made the appropriate legal arrangements with the Bank of Canada.

  • The Bank of Canada reserves the right to change the terms of subsequent term repo transactions by posting a revised version of these terms and conditions.

  • Each tender shall be unconditional and shall be received by the Bank of Canada, not later than the time, and on the auction day, announced ahead of the auction.

  • The Bank of Canada may, in addition to and without prejudice to any rights under the Bank of Canada’s Master Repurchase Agreement, sanction a Primary Dealer if the Bank of Canada is of the view that the Dealer breached any of the terms, including, failing to return cash or securities on the maturity date. The sanctions that the Bank of Canada may impose include, without limitation, suspending the Primary Dealer from participating in one or more future auctions and changing, on a temporary basis, the bidding limit applicable to the Dealer.