Tuesday 19 June, 2018

BOJ to start FX platform buy operations

Each weekly B‐FXITT announcement will be a four‐week advance notice of either a buy operation, a sell operation or no operation.

Each weekly B‐FXITT announcement will be a four‐week advance notice of either a buy operation, a sell operation or no operation.

Having completed the rollout of the sell side of the Bank of Jamaica (BOJ) Foreign Exchange Intervention & Trading Tool (B‐FXITT), the BOJ said it is now in a position to start buy side operations.

B-FXITT is a rules-based competitive multiple-price mechanism used by the BOJ to buy from and sell to authorised foreign exchange dealers and cambios.

Each weekly B‐FXITT announcement will be a four‐week advance notice of either a buy operation, a sell operation or no operation.

However, buying and selling operations will not be conducted simultaneously.

Decisions to conduct a buy operation will also be driven by market intelligence and the Bank’s assessment of market conditions as has been the case since sell operations in July last year.

In a press release on Wednesday, the BOJ said it has been purchasing foreign exchange from the market on a regular basis through the surrender arrangements and therefore B‐FXITT buy operations will not fundamentally change market dynamics.

“The difference is that using the competitive auctioning process of B‐FXITT to buy foreign exchange from the market is a more modern, efficient and transparent approach,” the central bank said.

Regular buy operations using B‐FXITT are intended gradually to replace the Bank’s purchases through the surrender. The Bank has already begun to reduce the surrender requirement, which is now 10 percentage points lower than the period before October 2017.

“Ultimately, as the market deepens and supply conditions continue to improve, it is expected that dealers will begin trading more among themselves to source or sell funds for clients instead of depending on central bank intervention, thereby allowing the Bank to reduce its footprint in the foreign exchange market,” the release stated.

In addition to reductions in the surrender arrangements to boost foreign exchange liquidity, Bank of Jamaica’s readiness to introduce the buy side of B‐FXITT follows an update to the B‐FXITT rules to accommodate these operations.

It also follows the introduction of foreign currency net open position limits and foreign currency position limits for authorized dealers and cambios, respectively, for the overall smooth functioning of the market.

The rules of the buy operation are similar to those of the sell operation. Participation for authorized dealers and cambios is not mandatory.

The current schedule for BFXITT operations is given below.

  • March 7 2018;  March 14 2018;  March 21, 2018; March 28, 2018
  • March 8, 2018; March 15, 2018; March 22, 2018; March 29, 2018
  • Sale US$20 million; US$ 20 million

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