The Vice-President Dr. Mahamudu Bawumia has launched the Global Master Repurchase Agreement (GMRA) and Ghana Fixed Income Market (GFIM) guideline that contains directives and best practices for stock market participants who intend to trade Repurchase Agreements (Repos) in Ghana
The GMRA is a master agreement used globally and published by the International Capital Market Association (ICMA), which contains standard provisions suitable for the most common types of repo business and may be supplemented by market standard products or jurisdiction specific annexes.
The GFIM facilitates the secondary trading of all fixed income securities and other securities to be determined from time to time by all stakeholders with the main regulator being the Securities and Exchange Commission (SEC)
During the launch, the Vice President said the growth in the fixed income market over the years has been quite phenomenal which shows that it is a vibrant market but what Ghana has been missing out is integrating into the global market because at the global market you cannot play it by your own rules; so the GMRA shall provide the general framework under which repos are transacted in Ghana
“We have to integrate into the global market and this is where standardization becomes quite important and GMRA is surely the way to go.
“The growth of financial markets is undoubtedly one of the key pillars of economic development. The control of liquidity, flow of funds and ensuring efficient allocation of credit where credit is most needed certainly are crucial for the transformation of the economy.
“The recent strives at improving our financial market has been anchored by sustained economic growth, improved macroeconomic stability and progressive financial sector reforms. These reforms have become necessary and are contributing to growing attraction to foreign direct investment, portfolio investment and other forms of capital flows,” he emphasized.
Further indicated that next on the agenda of Ghana after the economic sector reforms is to build a robust regulatory framework of international standard, which will serve as an anchor for an envisioned financial market that will serve the needs of all participants and be able to manage risk as well as efficient flow of funds and resources.
The Governor, Bank of Ghana, Dr Ernest Addison, indicated that the introduction of GMRA will address some of the existing gaps in Ghana’s financial market and ultimately deepen the financial market in Ghana by promoting a more vibrant and liquid secondary bonds market as it will improve market transparency, liquidity and participation.
“A well-functioning repo market contributes to the efficient allocation of capital in the real economy by supporting liquidity. The repo market contributes several other benefits such as facilitating the growth of cash and liquidity in other financial markets, providing low risk options for cash investment there by supporting cash market efficiency and liquidity, and transferring collateral as well as enabling market-to-market transactions,” he said.
He further indicated that the GMRA guidelines supersede all previous notices and guidelines issued by the BoG and in particular notice no. BG/TD/98/65 issued on August 03, 1998.
The Minister of Finance, Ken Ofori-Atta, said that the GMRA will improve legal certainty for investors in the repo market and by extension provide more liquidity in the primary and secondary local bond market which remain a key source of financing of the government budget.
“As we strive to secure lower cost of financing, for our national development agenda, the impact of reducing financing cost ties in well with the country’s 2019 medium term debt management strategy of ensuring that the government’s financing requirements and payment obligations are met at the lowest cost possible,” he stressed.
Definition of a Repo
A repo is a generic name for both a repurchased transaction and a sell or buy-back. It is a sale of a quantity of securities at a purchase price at the start of the transaction and a simultaneous agreement to repurchase the securities from the other party (buyer) at a different price and at a future date.
The sale of the securities implies outright transfer of legal title from the seller to the buyer. The collateral becomes the unencumbered property of the buyer who has the unfettered right to reuse/ sell the collateral.