New BOJ FX trading platform to be rolled out by March 31

New BOJ FX trading platform to be rolled out by March 31

Tuesday, February 25, 2020

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PHASE one of the newly proposed Bank of Jamaica (BOJ) foreign exchange trading platform is expected to be rolled out by March 31.

This was disclosed by Deputy Governor Natalie Haynes during the bank's quarterly media briefing at the BOJ, in downtown Kingston, last Thursday Haynes said the initial phase entails establishment of the order market arrangement involving the matching of trades — bids and offers — for foreign exchange market dealers, primarily banks and cambios. She further advised that the large corporate entities that utilise and supply foreign

exchange will be registered on the platform in order to view the bids, in keeping with the focus on facilitating a transparent process. The new platform will be the second to be introduced by the BOJ since the start of the 2020 calendar year.

In January the bank rolled out the Foreign Exchange Swap Arrangement under which the BOJ sells US dollars to dealers at an agreed “spot rate”, defined as the current midday rate plus a spread based on the duration of the contract agreed on by the parties.

It also facilitates an agreement between the parties to repurchase the same amount of US dollars at an agreed forward rate.

The forward rate would be the spot rate at the time of the transaction, adjusted for the differential between a Jamaican-dollar interest rate (91-day Government of Jamaica Treasury Bill) and the US-dollar interest rate (90-day US LIBOR).

The stock of contracts under this arrangement totalled US$41.5 million as at February 18.

Both platforms will complement the BOJ Foreign Exchange Intervention and Trading Tool (B-FXITT), currently used for sales to market intermediaries.

The facility, which was introduced in 2017, utilises two mechanisms to announce a four-week schedule of the total amount of foreign exchange the BOJ will sell to the market via auctions, each week.

These are the Standard Intervention Tool (SIT) and Flask Intervention Tool (FIT).

Under the SIT, the bank sells pre-announced amounts of foreign exchange to authorised dealers and cambios. The amount of the intervention sale is partly determined by the BOJ's assessment of the market's liquidity needs.

The FIT entails flash foreign exchange sales by the BOJ outside of the regular intervention window in circumstances of adverse market developments.

It is tailored to offset the effects of excessive volatility in the foreign exchange market and/or abnormal market demand or supply.

Central bank Governor Richard Byles said that with these initiatives, “the onus is on all stakeholders [suppliers and users of foreign exchange, authorised dealers and cambios] to ensure that the market functions efficiently and smoothly”.

“The liberalisation of Jamaica's foreign exchange market is essential to our economic development, but the benefits of this regime can only be realised if the private sector participants [banks and end-users] manage the market in a responsible way,” he emphasised.

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