Saudi central bank to launch repo operations using Bloomberg from this month

The Saudi Central Bank (SAMA) has announced that it will conduct repo, reverse repurchase and Open Market Operations (OMO) transactions with locally operating banks using Bloomberg’s auction system at from January 2022.
Image Credit: SAMA

Dubai: The Saudi Central Bank (SAMA) announced that it will conduct repo, reverse repurchase and Open Market (OMO) transactions with banks operating locally using the auction system by Bloomberg from January 2022.

SAMA announced in 2018 the completion of the development of the SAMA and Murabaha voucher issuance system using Bloomberg.

“This collaboration with Bloomberg marks the next step in the development of central bank operations. The increased efficiency of liquidity management operations will have a positive impact on the banking sector. It also aligns with international best practices in liquidity management through e-commerce, ”said Ayman Alsayari, vice-governor of SAMA.

Bloomberg’s auction system, part of Bloomberg’s enterprise solution for central banks and government financial agencies, is used to conduct tenders electronically and by market participants to track these bidding and entering bids. The system provides a safe and secure environment for issuing and redeeming debt, and performing other open market operations, including repo and reverse repurchase auctions, all from one integrated solution. unique. It is fully integrated with the data, news, analysis and communication tools available on the Bloomberg Terminal. Bloomberg’s auction system is used in more than 30 countries around the world.

“The Bloomberg auction system is part of a suite of Bloomberg solutions designed to help bring greater transparency, liquidity and efficiency to capital markets. We are excited about this continued collaboration with SAMA to further support the electronization of its markets, ”said Nicholas Bean, Global Head of Electronic Trading Solutions at Bloomberg.

What are repo, reverse repurchase and open market transactions

The repurchase agreement (repo) and reverse repurchase agreement (RRP) are two key tools used by many large financial institutions, banks and some businesses to manage their short-term liquidity. Most of the world’s central banks use repo and RRP as a method of controlling the money supply.
Essentially, repo and reverse repo are two sides of the same transaction, reflecting the role of each party. A repo is an agreement between parties in which the buyer agrees to temporarily purchase a basket or group of securities for a specified period. The buyer agrees to sell those same assets back to the original owner for a slightly higher price using a reverse repurchase agreement.
There is a constant flow of funds between the central bank and other banks. The rates at which these funds change hands determine the rates at which lenders make loans to others, including retail borrowers.
The repo rate is the rate at which the central bank grants loans to commercial banks against government securities. The reverse repo rate is the interest that central banks pay banks for the funds they deposit with them. So, if the repo rate goes up, it means that the banks are getting funds from the central bank at a higher cost. This, in turn, will mean that banks will also lend to others at a higher cost. These two rates are key monetary policy tools for central banks in setting the cost of short-term funds.
Open market operations deal directly with the money supply and indirectly with interest rates. open market operations involve the buying and selling of government securities and sometimes commercial paper by central banks constantly regulating money supply and credit conditions. When the central bank buys securities in the open market, the effects will be (1) to increase the reserves of commercial banks, the basis on which they can expand their loans and investments; A rise in the price of government securities, equivalent to a fall in their interest rates; and lower interest rates in general, thus encouraging business investment. If the central bank sold securities, the effects would be reversed.

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