Operational Notice - South African Reserve Bank

Operational NoticePertaining to open-market operationsconducted by theFinancial Markets DepartmentMay 2003South African Reserve Bank

SA RESERVE BANKTable of contents1. Background ....................................................................................... 12. Types of open-market operations .................................................... 32.1 Repurchase transactions................................................................................ 32.2 Final square-off auctions ................................................................................ 42.3 The marginal lending facility............................................................................ 42.4 Reverse-repurchase transactions ................................................................... 52.5 Averaging of cash reserves............................................................................. 62.6 Reserve Bank debentures .............................................................................. 63. Eligible securities ...................................................................................... 73.1 List of eligible securities.................................................................................. 73.2 Definitions....................................................................................................... 84. Tender procedures for repurchase transactions ............................... 104.1 Announcement of auction and invitation for bids ............................................ 104.2 Submission of bids......................................................................................... 114.3 Acceptance of bids and announcement of results.......................................... 124.4 Valuation of securities and calculation of haircut............................................. 124.5 Maturity of repurchase transaction ................................................................. 144.6 Detail of underlying securities ......................................................................... 144.7 Delivery confirmation ...................................................................................... 144.8 Emergency procedures .................................................................................. 155. Delivery and settlement of securities5.1 Delivery .......................................................................................................... 165.2 Settlement...................................................................................................... 175.3 Repurchase of securities ................................................................................ 176. Margin maintenance .................................................................................... 186.1 Repurchase transactions................................................................................ 186.2 Reverse repurchase transactions.................................................................... 207. Legal and accounting framework .......................................................... 22AppendicesAppendix IAppendix IIAppendix IIIAppendix IVAppendix VAppendix VIAppendix VIITimetable for repurchase operationsExample of announcements on wire servicesRepurchase transaction formSupplementary/final clearing reverse repo formMargin transfer to the South African Reserve BankSouth African Reserve Bank debenturesSouth African Reserve Bank longer-term reverse reposOPERATIONAL NOTICE 1

SA RESERVE BANK1. Background1.1 This Operational Notice clarifies the procedures which will governparticipation in the South African Reserve Bank’s open-market operations.It should be read in conjunction with the Master Repurchase Agreement(Master Agreement) which is based on the International Securities MarketAssociation Agreement (ISMA Agreement) by which all transactionsreferred to in this Operational Notice are governed and which must besigned by all participants in the Reserve Bank’s repurchase and reverserepurchase transactions. In the event of any conflict between this Noticeand the Master Agreement, the latter prevails.1.2 The present refinancing facility, based on repurchase agreements (repos),was introduced by the Reserve Bank on 9 March 1998. Some refinementsto the system were, however, introduced on 5 September 2001.1.3 The repurchase/reverse repurchase market involves three very similar typesof transactions, namely the classic (or American style) repurchasetransaction, the buy/sell-back, and securities lending. Although the vastmajority of transactions referred to as “repos” in the domestic market arein reality buy/sell-backs (or carries), the repurchase/reverse repurchaseagreements entered into between the Reserve Bank and its counterpartieswill be conducted and booked on the basis of a classic money-market repowhere the cash taker (i.e. supplier or seller of the securities) retains the rightto any coupon payments. If a coupon payment relating to the stockinvolved in the specific repurchase transaction is made to the cash provider(i.e. buyer of the securities), such coupon receipts should immediately bepassed on to the cash taker. Failure to do so would constitute an event ofdefault.1.4 As prescribed by Regulation 16(12) of the Regulations Relating to Bankspublished in Government Gazette No. 21726, of 8 November 2000 issuedby the Minister of Finance in terms of section 90 of the Banks Act (No. 94of 1990), the seller shall continue to reflect an asset of which it had been theoutright owner sold by it in terms of a repurchase agreement as such anasset in its monthly balance sheet (form DI 100) opposite the relevant assetcategory, at the value at which that asset appeared in the accountingrecords of the seller prior to the sale thereof.1.5 The seller will, however, indicate that the said security is subject to arepurchase agreement with the buyer (counterparty) so as not to misleadpotential creditors or investors and because this accounting procedure isdesigned for practical and risk weighting purposes. The buyer will recordthe security as an asset in its books in the category “Securities underrepurchase agreements” until the seller repurchases the security inquestion.1.6 The Reserve Bank may from time to time amend this Operational Noticewhich should be regarded as a guideline for conducting open-marketoperations by the Financial Markets Department. The Reserve Bank willendeavour to give reasonable notice of any amendments, but reservesthe right to introduce any amendment with immediate effect, ifnecessary. The Reserve Bank may also vary the operational timetable or2 OPERATIONAL NOTICE

SA RESERVE BANKvary or omit any of the procedures described on any particular day, ifdeemed necessary.1.7 In addition to various types of repurchase transactions, the Reserve Bank’srefinancing system also provides for the averaging of cash reserves and amarginal lending facility. These facilities are available to banks to bridgetemporary liquidity needs.2. Types of open-market operations2.1 Repurchase transactions2.1.1 The Reserve Bank, as part of its monetary operations, conducts fixed-ratemain repurchase auctions with one-week maturities. These auctions arenormally conducted at 12:00 on Wednesdays. If, for whatever reason, thetender cannot be conducted at 12:00, it will be postponed until 15:00. Ifnecessary, a final square-off auction (see point 2.2 below) with a one-daymaturity (except weekends and public holidays) is held just prior to the endof the day cycle as prescribed by the South African Multiple OptionSettlement System (SAMOS System).2.1.2 The rate at which the main repurchase auctions are conducted isdetermined by the Monetary Policy Committee (MPC).2.1.3 Holders of eligible assets as defined in Section 3 of this Notice, should havefull title of the assets offered for the repurchase transaction and theseassets may not become redeemable during the life of the repurchasetransaction for which they are used. Securities offered for repurchaseshould not mature on or before the maturity date of the specific repurchasetransaction.2.1.4 The Reserve Bank at 12:00 provides yields on its wire services pages 1 forthe valuation of securities acceptable in the repurchase transactions.2.1.5 As mentioned in paragraph 1.3 coupon payments received on securitiesthat are sold in terms of a repurchase agreement would be paid over to thesupplier/seller of the securities (cash taker) on the interest payment date.1 Reuters, Bloomberg,InetBridge (Telerate) andinternet. See Annexure IIfor more detail2.2 Final square-off auctions2.2.1 The Reserve Bank may, at its discretion, conduct final square-off auctions whena liquidity imbalance exists in the market towards the end of the settlementcycle. The same eligible securities as listed in Section 3 are acceptable.2.2.2 The final square-off auction can either be in the form of a liquidity-providingrepurchase transaction or a reverse repurchase transaction where surplusliquidity is drained from the market.2.2.3 The rates applicable to final square-off repurchase transactions and reverserepurchase transactions can, at the discretion of the Reserve Bank, eitherbe equal to the prevailing repurchase rate (supplementary auction) or 150basis points above or below the prevailing repurchase rate (final clearingauction). The Reserve Bank also reserves the right to change this spread.OPERATIONAL NOTICE3

SA RESERVE BANK2.3 The marginal lending facility2.3.1 The marginal lending facility is available as a last resort to banks at theirinitiative to bridge overnight liquidity needs against securities as specifiedin Section 3. These loans must be covered by at least 105 per cent of themarket value of securities pledged.2.3.2 The marginal lending facility forms an integral part of the SAMOS System.In terms of this system all registered banks are eligible to open settlementand loan accounts at the Reserve Bank, in order to participate in theinterbank settlement process. Banks that opted not to open SAMOSsettlement accounts will only have access to Reserve Bank liquidity via itssponsoring (settlement) bank.2.3.3 The marginal lending rate is currently fixed at 5 percentage points abovethe prevailing repurchase rate.2.4 Reverse repurchase transactions2.4.1 Longer-term reverse repurchase transactions constitute the selling ofsecurities under repurchase contracts by the Reserve Bank to drain liquidityfrom the market. After announcing the cash amounts as well as theunderlying bonds on offer in the reverse repo auction (see Appendix VII)market participants are requested to submit bids for the amount of cash, thecommensurate cash rates and the underlying bond. Bids are ranked andallotted in ascending order (cash rate) and should be expressed as a rate tothe nearest 0,01 per cent.2.4.2 The cash taker (i.e. the Reserve Bank) retains the right to any couponpayments on securities used in longer-term reverse repurchase transactions.Failure to pass on the coupon payments to the Reserve Bank onthe payment date would constitute an event of default.2.4.3 The Reserve Bank reserves the right to reject any tender or to allot it in part.2.4.4 The Reserve Bank provides valuation rates for the securities on auction at10:00 on its wire services pages (see 2.1.4).2.5 Averaging of cash reserves2 A maintenance periodstarts on the 15thworking day of a monthand ends on the 14thworking day of thefollowing month.2.5.1 The averaging of cash reserves was introduced by the Reserve Bank witheffect from 20 March 1998 to provide banks with greater flexibility as far astheir daily liquidity management is concerned. This enables banks tocomply with the statutory cash reserve requirements on an average basisover each maintenance period 2 . At the time of the introduction of theaveraging principle, the South African Reserve Bank Act, 1989 (Act No. 90of 1989 – “SARB Act”) did not provide for averaging on the Cash ReserveAccounts (CRAs). The Cash Reserve Contra Accounts (CRCAs) wereconsequently created to provide for this additional refinancing instrument.However, the Act has since been amended to allow for averaging on theCRAs. As a result, the CRCAs were abolished with effect from 21 February2003. The CRAs may, therefore, be used by the banks at their discretionsubject to certain limitations as determined by the Reserve Bank.4 OPERATIONAL NOTICE

SA RESERVE BANK2.5.2 When accessing their CRAs, banks have to differentiate whether such actionsare either for the updating of balances according to Form DI 310 or forrefinancing purposes (i.e. averaging). The following rec codes (SAMOSdescription code for each transaction submitted) should be used:MDRES – for updating balances according to Form DI 310; andMDCRA – for refinancing and/or averaging purposes.2.6 Reserve Bank debentures2.6.1 The Reserve Bank issues its own debentures with maturities of up to 91days to drain excess liquidity from the market. Market participants areinvited to offer cash to the Bank on a tender basis (see Appendix VI). Bids(expressed to the nearest 0,005 per cent) are either submitted via SWIFT,the Money Market Internet System (MMIS) or by submitting original tenderforms at the Reserve Bank’s head office or any of its branches. Specialarrangements can be made to submit bids telephonically, but priorapproval is required from the Financial Markets Department in Pretoria.2.6.2 South African Reserve Bank debentures qualify as liquid assets and are issuedas an interest bearing instrument. The yield on debentures is calculated on aninterest add-on basis and the maturity value includes interest.2.6.3 The Reserve Bank reserves the right to reject individual tenders and toaccept individual tenders in part.2.6.4 Certificates are not issued as Reserve Bank debentures are fullydematerialised. More information on administrative procedures regardingdebenture tenders and the transfer of ownership can be obtained from theReserve Bank’s web site: www.reservebank.co.za.3. Eligible securities3.1 List of eligible securities3.1.1 The Reserve Bank accepts and uses the following instruments in itsrepurchase and reverse repurchase transactions and as collateral for themarginal lending facility:- Rand denominated Government bonds- Treasury bills- Reserve Bank debentures- Land Bank bills- Coupon and principal STRIPS of government bonds3.2 Definitions3.2.1 Government bonds are fixed-interest bearing securities issued by thecentral government under the Public Finance Management Act (No. 1 of1999) and constitute evidence of debt of the Republic of South Africa andtherefore represent a charge on the revenues and assets of the Republic.3.2.2 Treasury bills are short-term debt obligations of the central government andrepresent a charge on the revenues and assets of the Republic of SouthOPERATIONAL NOTICE5

SA RESERVE BANKAfrica. The issuing of Treasury bills is governed by the Public FinanceManagement Act (No. 1 of 1999). Treasury bills are issued at a discount totheir face value.3.2.3 Reserve Bank debentures are issued by the Reserve Bank in terms of theReserve Bank Act for monetary control purposes. The yield on debenturesis calculated on an interest add-on basis and subsequently the maturityvalue includes interest. At this stage, the Reserve Bank issues debentureswith maturities of up to 91 days by means of a weekly tender. The ReserveBank has the discretion to either change the maturities or redeem the billsprior to maturity.3.2.4 Land Bank bills are issued at a discount to their face value by the LandBank under the Land Bank Act, (No. 13 of 1944), and represents a liabilityof the Land Bank.3.2.5 Separate Trading of Registered Interest and Principal of Securities(STRIPS), issued in terms of the Public Finance Management Act, No. 1 of1999. The Act provides the Minister of Finance with the authority to borrowmoney and to convert such loans into any other loan with the concurrenceof the lender. These strips trade as zero coupon instruments.4. Tender procedures for repurchase transactions4.1 Announcement of auction and invitation for bids4.1.1 In its invitation to participate in the repurchase auctions, the Reserve Bankannounces the rate but not the estimated amount of liquidity required bythe market on its wire services pages (see Appendix II for examples). Finalsquare-off repurchase or reverse repurchase auctions could also beannounced towards the end of the day cycle. Depending on the marketposition immediately before the final window of the day, the Reserve Bankcan either provide liquidity to the market via a repurchase transaction ordrain excess liquidity via a reverse repurchase transaction. The final squareoffauction(s) can either be conducted at the level of the prevailingrepurchase rate (supplementary tender) and/or at 150 basis points aboveor below the prevailing repurchase rate (final clearing tender). The type offinal square-off facilities that the banks will be allowed to use aredetermined by the Reserve Bank at its discretion.4.1.2 The Reserve Bank could postpone the 12:00 main repurchase auction until15:00 if, for whatever reason, the Bank is unable to conduct the mainauction at 12:00. The market would be informed by the Bank of anydecision in this regard on its wire services pages.4.1.3 The Reserve Bank normally conducts the weekly main repo auction at 12:00on a Wednesday. The Reserve Bank publishes a screen announcement inthe form of Appendix II. This announcement will state, among other things:- the maturity date;- the fixed repurchase rate; and- the closing time of the tender.4.1.4 The Reserve Bank also publishes invitations to participate in the final6 OPERATIONAL NOTICE

SA RESERVE BANKsquare-off auctions. The type of square-off auction as well as the closingtime will be announced on the Bank’s wire services (see Appendix II). Neitherthe amount on tender nor the cash position of the market will be disclosed.4.2 Submission of bids4.2.1 Bids for final clearing or supplementary auctions should be submittedwithin 15 minutes after the announcement of the auction.4.2.2 Bids for funds are irrevocable once the auction has closed. A participantcommits itself to entering into a repurchase transaction up to the amountspecified in the bid(s) submitted at the close of the auction.4.2.3 Participants in repurchase auctions should call the Reserve Bank’s dealingroom (telephone 012 313-4952/7) with the details of their bids, before theclosing time of the auction as specified in the invitation.4.2.4 When submitting a bid, participants must state only the total amount offunds for which they wish to bid. The type of securities to be sold to theReserve Bank should not be specified when submitting bids but only afterthe announcement of results as specified in Section 4.4 below.4.2.5 The minimum amount for bids is R10 million and thereafter bids should besubmitted in multiples of R1 million.4.2.6 The size of the allotment amount in all auctions is always determined at thediscretion of the Reserve Bank.4.2.7 In the event of a dispute, reference will be made to recordings of telephoneconversations. All telephone conversations received and made by theReserve Bank’s dealers are recorded.4.3 Acceptance of bids and announcement of results4.3.1 The total amount allocated is determined at the discretion of the Reserve Bank.In the event of the total amount of bids received exceeding the amount whichthe Bank intended to provide to the market, participants receive a partialallocation at the repurchase rate specified by the Reserve Bank in the invitation.4.3.2 The Reserve Bank normally announces the results of the main repurchaseand the final square-off auctions within fifteen minutes of the closure of theauctions (see Appendix II) stating, among other things:- the total amount of bids received;- the total amount allotted; and- the type of final square-off auction (i.e. repurchase or reverserepurchase)4.3.3 Once the auction results are released participants have to call the ReserveBank’s dealers to obtain confirmation whether the full amount of their bidshad been accepted or, if not, their partial allotment. The Reserve Bankreserves the right to reject individual bids and to accept individual bids in part.4.4 Valuation of securities and calculation of haircut4.4.1 Participants receive cash to the exact value of an accepted bid in aOPERATIONAL NOTICE7

SA RESERVE BANKrepurchase auction, but to protect the Reserve Bank against credit andmarket risks, the banks must provide the Reserve Bank with securities withan adjusted market value (“haircut valuation”). The adjusted market valuemeans that the value of the securities divided by an appropriate ratio, asset out below, must at least be equal to the total repurchase price (thepurchase price plus the interest on the repurchase transaction). Thesemargins may be changed at any time at the discretion of the Reserve Bank.Bonds with residual maturity longer than 10 years: 1,035Bonds with residual maturity between 1 and 10 years: 1,025Bonds, debentures and bills with residual maturity of up to 1 year: 1,0104.4.2 Government bonds are valued at the yields released at approximately 12:00by the Reserve Bank on its wire services page RBMR (See Appendix II).4.4.3 Treasury bills are valued at the previous Friday’s auction’s discount rates.(The Reserve Bank retains the right to adjust the valuation rates in the eventof substantial rate fluctuations.) There are two maturity bands withcorresponding rates.1 – 91 days: Previous Friday’s auction for 91-day Treasure bills average discount rate92 – 182 days: Previous Friday’s auction for 182-day Treasure bills average discountrate4.4.4 Land Bank bills are valued on the same basis as Treasury bills.4.4.5 Reserve Bank debentures are valued at the average yield determined at themost recently held debenture auction on RBMR. If a relevant debenturerate is not available the applicable prevailing Treasury bill yield will be used.4.5 Maturity of repurchase transactions4.5.1 The repurchase date is set on the day that the securities are bought (orsold) by the Reserve Bank. Should the repurchase date be declared apublic holiday after the auction was conducted, the second leg of thetransaction will be shifted to the working day following the public holidaywithout any adjustment to the original interest amount.4.6 Details of underlying securities4.6.1 For both the 12:00 and 15:00 repo auctions, participants should submitdetails of the type of securities to be sold to the Reserve Bank within 30minutes after the publication of the auction results, either by fax or SWIFTmessage. The fax/SWIFT should include the signatures of two authorisedsignatories.4.6.2 Participants should fax the details of securities to be sold to or bought fromthe Reserve Bank in final square-off auctions within 10 minutes after theannouncement of the auction results.4.6.3 Examples of the format and the information to be submitted referred to in4.6.1 and 4.6.2, are included in Appendices III and IV.8 OPERATIONAL NOTICE

SA RESERVE BANK4.7 Delivery confirmation4.7.1 Detail of securities to be delivered in respect of auctions held at 12:00should be sent to the Financial Instrument Register (FIR) by fax or throughSWIFT, within one hour after the announcement of the results, using theform in Appendix III.4.7.2 In the case of a 15:00 auction, participants should fax (or send via SWIFT)detail of securities to the FIR (also using the form in Appendix III) not laterthan 16:00.4.7.3 Due to time constraints regarding square-off auctions held at around 08:05the next day, detail of securities to be delivered should be sent to the FIRby fax or via SWIFT before the closure of the final SAMOS window, usingeither the form in Appendix III or IV.4.7.4 Failure to accurately disclose and deliver the underlying securities willconstitute an event of default and can result in a penalty of up to R100 000and/or the cancellation of the transaction by the Reserve Bank.4.8 Emergency procedures4.8.1 If the aforementioned procedures cannot be followed for whatever reason,the Reserve Bank reserves the right to change the procedures as deemednecessary. The market would be informed accordingly on the relevant wireservices pages.5. Delivery and settlement of securities5.1 Delivery5.1.1 All banks that wish to make use of the repurchase facility are required toopen a FIR account at the Reserve Bank’s Settlement Division inJohannesburg.5.1.2 All securities to be used for repurchase transactions should either bephysically delivered to the Settlement Division (in the case of Land Bankbills) or transferred to the Reserve Bank’s safe custody accounts in theCentral Depository (in the case of bonds) or the FIR (in the case of Treasurybills and Reserve Bank debentures).5.1.3 Securities to be sold to the Reserve Bank following a 12:00 auction shouldbe available in the relevant accounts within one hour after theannouncement of the auction results.5.1.4 Securities to be sold to the Reserve Bank following a 15:00 auction shouldbe available in the relevant accounts before 16:00.5.1.5 Securities to be sold to the Reserve Bank following a final square-offauction should be available in the relevant accounts before the closure ofthe final SAMOS window.OPERATIONAL NOTICE9

SA RESERVE BANKThe delivered securities should correspond with those specified in Appendix III.5.2 Settlement5.2.1 Provided that sufficient collateral has been secured in the Central Depositoryor the FIR, the Reserve Bank and the participants will transfer the fundswithin one hour via the SAMOS System. Banks that do not participate in theSAMOS system must settle through their settlement banks.5.3 Repurchase of securities5.3.1 When a repurchase transaction matures, participants purchase securitiesfrom the Reserve Bank equivalent in value to those that it has sold to theReserve Bank in the first leg of the transaction. On or after receivingpayment (via SAMOS) the Reserve Bank delivers to the participantsecurities equivalent to those sold to it.6. Margin maintenance6.1 Repurchase transactions6.1.1 In order to provide for potential losses, the Reserve Bank uses twocalculations to cover risk. In addition to the “haircut” valuation explained inparagraph 4.4 the Reserve Bank also utilises margin calls to neutralisemark-to-market losses.6.1.2 Calculation of margin deficitThe Reserve Bank marks to market each bank’s repurchase portfolio daily.The market value of assets provided as collateral in all the outstandingrepurchase transactions of each participant is compared with therepurchase price of these transactions. The Reserve Bank calls for margin ifthe market value falls below the total repurchase price by an amount equalto or greater than R5 million. The Reserve Bank may change this call triggeramount at its discretion. Margin calls can be settled in securities or cash,which are taken into account in subsequent mark-to-market valuations.Example:Margin deficit when total market value < total repurchase pricePurchase price (repurchase tender allotment) R350 000 000Interest (at repurchase tender rate) + 142 000Total repurchase price (sell-back cash consideration)R350 142 000 (A)Value of bonds sold to the Bank R201 336 488Value of Treasury bills sold to the Bank + R143 424 081Total market valueR344 760 569 (B)Thus, margin deficit is:Total market value (B) R344 760 569Total repurchase price (sell-back price) (A) - R350 142 000Margin deficit (B) – (A) R 5 381 43110 OPERATIONAL NOTICE

SA RESERVE BANKIn the above example, the Reserve Bank requires margin securities or cashwith a total market value of at least R5 381 431.The Reserve Bank will advise participants before 09:30 of the exact amountof any margin transfers to be made, based on the official BESA closingrates for value the previous day.If the Reserve Bank exercises a margin call, detail of the securities/cash tobe delivered to the Bank should be confirmed by fax before 10:30 on theday of the call. Securities should be delivered before 11:00. Cash marginsshould also be paid before 11:00 via SAMOS to the Bank’s SettlementDivision in Johannesburg (see Appendix V). The Reserve Bank reserves theright to reject the composition of any proposed margin transfer.Interest on cash margins will be calculated at the SAONIA rate on a daily basisand paid to the counterparty on the first business day of the next month. Thesame principle will apply when the Reserve Bank is called for margin.6.1.3 Repayment of excess marginIf the total value of securities exceeds the total repurchase price for allrepurchase transactions outstanding with a participant by an amount equalto or greater than R5 million, the Reserve Bank will, at the request of theparticipant, transfer the excess margin. Participants should request theBank before 09:30 for such transfers.6.1.4 Margin transfersWhere securities are provided as margin, the maturity dates of suchsecurities must exceed the maturity date of the longest outstandingrepurchase transaction with that participant.6.2 Longer-term reverse repurchase transactions6.2.1 Calculation of margin deficitLonger-term reverse repurchase transactions are not subject to haircutvaluations. However, such transactions are marked to market daily usingBESA closing rates. The Reserve Bank will call for margin if the market valueof the securities sold to the counterparty exceeds the cash plus total interestfor the period of the transaction (repurchase price) by an amount equal to orgreater than R5 million. Outstanding repurchase and reverse repurchasetransactions are netted.Interest at the SAONIA rate will be calculated daily on cash margins and paidto the counterparty on the first business day of the next month. The sameprinciple applies when the Reserve Bank honours a margin call in cash.6.2.2 Margin transfersCounterparties subject to a margin call should be informed of such a callbefore 09:30. Securities to be delivered should be confirmed via fax by10:30 and settled before 11:00. The maturity date of any security providedas margin must exceed the maturity date of the longest reverse repooutstanding with that participant.OPERATIONAL NOTICE11

SA RESERVE BANK7. Legal and accounting framework7.1 A repurchase agreement entered into between the Reserve Bank and acounterparty is an irrevocable undertaking by the counterparty (seller) torepurchase the securities sold to the Reserve Bank under this agreementand by the Reserve Bank to sell them back at an agreed price and on astated date. For the purpose of this legal and accounting framework, the“borrower” means the seller of the securities or the cash taker, and the“lender” refers to the buyer of the securities under the repurchaseagreement, or the cash provider.7.2 In the repurchase agreements conducted between the Reserve Bank anda counterparty there is full transfer of ownership of the securities from theborrower to the lender for the period of the transaction. This transfer ofownership is accompanied by an irrevocable undertaking by the borrowerto repurchase the underlying securities and by the lender to sell them backat an agreed price and on a stated date. In case of default by the borrowerto repurchase the securities, as agreed, the ownership of the securitiesremains with the lender. The lender has no further claim on the defaultingborrower.7.3 This document should be read in conjunction with the Master RepurchaseAgreement (Master Agreement) which is based on the ISMA Agreement bywhich all transactions referred to in this Operational Notice are governedand which must be signed by all participants in the Reserve Bank’s repooperations. In the event of any conflict between this notice and the MasterAgreement, the latter prevails.7.4 For accounting purposes, the borrower shall continue to reflect theunderlying securities as assets on its balance sheet, as prescribed byRegulation 16(12) of the Regulations Relating to Banks, issued by theMinister of Finance in terms of section 90 of the Banks Act (No. 94 of 1990)and published in Government Gazette No. 21726 of 8 November 2000.According to this regulation, the borrower shall continue to reflect an assetof which it had been the outright owner but which it had sold in terms of arepurchase agreement as such an asset in its monthly balance sheet (formDI 100) opposite the relevant asset category, at the value at which thatasset appeared in its accounting records prior to the sale thereof. Theborrower will, however, indicate that the said security is subject to arepurchase agreement so as not to mislead potential investors. Thisaccounting procedures is designed for practical and risk-weightingpurposes and does not impair the legal claim of the lender on theunderlying securities in the case of default.7.5 The legal and accounting principles described above for repurchaseagreements will apply mutatis mutandis to reverse repurchase agreements.12 OPERATIONAL NOTICE

Appendix ITIMETABLE FOR REPURCHASE OPERATIONSElectronic announcementsby Reserve BankTime Activity Action by participant Action by Reserve BankWeekly:Auction invitation 12:00 Main repurchase auction Enter telephonic bids Receive, process and allocate bids(FM Pta)Bidding closes 12:15Auction results 12:20 Confirm amounts received Confirm allocated amounts withparticipants (FM Pta)12:50 Fax split of securities Check faxes received from participants(FM Pta)13:20 Deliver securities Receive securities as specified in faxesand transfer funds (FM Jhb)Auction invitation 15:00 Main repurchase auction if Enter telephonic bids Receive, process and allocate bidsthe 12:00 auction was (FM Pta)Bidding closes 15:15 postponedAuction results 15:20 Confirm amounts received Confirm allocated amounts withparticipants (FM Pta)15:50 Fax split of securities Check faxes received from participants(FM Pta)16:00 Deliver securities Receive securities as specified in faxesand transfer funds(FM Jhb)Daily square-off operations:Auction invitation 08:05 Supplementary and/or final Enter telephonic bids Receive, process and allocate bidsclearing repurchase/reverse (FM Pta)repurchase auctionBidding closes 08:10Auction results 08:12 Confirm amounts received Confirm allocated amounts withparticipants (FM Pta)08:20 Fax split of securities Check faxes received from participants(FM Pta)08:30 Deliver securities Receive securities as specified in faxesand transfer funds (FM Jhb)13

EXAMPLES OF ANNOUNCEMENTS ON WIRE SERVICESAppendix II1. MAIN REPURCHASE AUCTIONEstimated time of release: Invitation at 12:00 and/or 15:00 and results at around 12:20 and/or 15:20FIGURE 1: InvitationFIGURE 2: ResultsDate________________________A round of fixed rate repo operations is invited.Maturity date = __________________________.Repo rate = _____________________%The closing time for bids __________________.Date________________________Repo results:Total amount received = R______________million.Total amount allotted = R _______________million.2. SUPPLEMENTARY AND FINAL CLEARING REPURCHASE/REVERSEREPURCHASE AUCTIONEstimated time of release: Invitation at 08:05 and results at around 08:15FIGURE 3: Supplementary tender invitationFIGURE 4: Results of supplementary tender andfinal clearing tender invitationDate________________________Bids for a supplementary repo/reverse repo auctionare invited for value date ______________________at a rate of ___________________ %Maturity date = _______________The closing time for bids is ____________.Date________________________Auction results of supplementary repo/reverse repoauction for value date _______________________.Total amount received = R______________million.Total amount allotted = R _______________million.******************************************************************Bids for a final clearing (FC) repo/reverse repo areinvited for value date _________________.At a rate of (repo - 1,5%) / (repo + 1,5%)Maturity date = ______________________The closing time for bids is ____________.FIGURE 5: Supplementary and final clearingauction resultsDate________________________Auction results of supplementary repo/reverse repoauction for value date_________________________.Total amount received = R______________million.Total amount allotted = R _______________milion.***************************************************************Auction results of final clearing (FC) auctionsFor value date _________________.At a rate of (repo - 1,5%) / (repo + 1,5%)Type Rate ReceivedFC repo _____% R ____________ million.FC reverse repo _____% R ____________ million.14

3. REFINANCING STATISTICSFIGURE 6: Estimated time of release 11:00SARB note and coin liabilityDate ________ = R ________ millionDate ________ = R ________ millionRefinancing statistics:Repo (main) Date_____ Date _____Repo (final clearing)R ______ M R ______ MRepo (supplementary)R ______ M R ______ MMarginal lending facility R ______ M R ______ MReserve account maintenance R ______ M R ______ MReserve account utilisation R ______ M R ______ MMain repo outstandingR ______ M R ______ MLonger term reverse repo outst. R ______ M R ______ MSARB debentures outstanding R ______ M R ______ MSpecial notice:4. ASSET VALUATION RATESFIGURE 7Date ___________The following rates will be applicable for valuation purposesin the event of a repo auction at ______________________R150 ________________ 0 - 91 days to maturity ________________R184 ________________ 92 - 182 days to maturity ________________R177 ________________ R189 Ref CPI _______________R194 ________________ SAONIA _________________% R ______________ millionR153 ________________ SAONIA+ _________________% R ______________ millionR157 ________________ FX forwards ________________% R ______________ millionR186 ________________ Carry rates ________________% R ______________ millionDebenture ________________% (28 day) ____________% (91 days)5. SUMMARY OF WIRE SERVICESThe Financial Markets Department communicates with the market via its electronic wire services. These servicesinclude Reuters, Bloomberg, InetBridge (Telerate) and the internet (www.reservebank.co.za). The information isfirst transferred to Reuters, Bloomberg and InetBridge. A few seconds later the Bank’s web site on the internetis updated with the same information to serve as backup.• The REUTERS pages used are the following:FIGURE 8DescriptionPageSummary of pages usedSpecial auctonsSwitch auction invitation/ResultsBond auction invitationBond auction results• The Reserve Bank’s pages on BLOOMBERG canbe found under the code “SARB”.Treasury bills (invitation/results)SARB debenturesRepo (main & final clearing)Longer term reverse repoPLEASE NOTE THAT FIGURES 1 TO 8 AREILLUSTRATIONS. THE RESERVE BANK RESERVES THERIGHT TO AMEND THE CONTENTS OF ANY PAGE ATITS DISCRETION.15

Appendix IIIREPURCHASE TRANSACTION FORMDATE ________________Contact Name: _____________ Attention: FMD Pta Attention: FMD JhbContact tel no: ______________ Fax: (012) 313 4278 Fax: (011) 240 0835REPOS BETWEEN :____________________________________ AND THE SOUTH AFRICAN RESERVE BANKWe refer to the Reserve Bank’s telephone confirmation that, as a result of the acceptance of bids for the auctionspecified above, we enter into the following repo transaction(s) with the Reserve Bank.Summary of bidsBid allocation Purchase price Repo maturity Repo rate Repurchase priceFirst bidSecond bidTotal < A+B+CParticulars of securities to be transferred to the South African Reserve Bank:Government bondsType Nominal YTM Value Haircut ratio Adjusted valueTotal ATreasury / Land Bank billsType Nominal Days to Maturity Disc Value Haircut Adjustedmaturity date rate valueTotal BSARB debenturesNom Maturity Days to Maturity Yield Value Haircut Adjustedvalue maturity date valueTotal CTotal A+B+CPlease note: The total of all assets (adjusted value) must be greater than the repurchase price.16__________________________________________________AUTHORISED SIGNATURE 1 AUTHORISED SIGNATURE 2

SUPPLEMENTARY/FINAL CLEARING REVERSE REPO FORMAppendix IVContact Name: _____________ Attention: FMD Pta Attention: FMD JhbContact tel no: ______________ Fax: (012) 313 4278 Fax: (011) 240 0835REVERSE REPOS BETWEEN: ______________________________AND THE SOUTH AFRICAN RESERVE BANKTENDER DATE: ________________________VALUE DATE: _________________________We refer to the Reserve Bank’s telephone confirmation that, as a result of the acceptance of bids for the auctionspecified above, we enter into the following reverse repo transaction(s) with the Reserve Bank.Summary of bidsBid allocation Sell price Reverse repo maturity date Reverse repo rate Repurchase priceFirst bidSecond bidTotalParticulars of securities to be transferred to _____________________ (buyer).AssetType Nominal Maturity date Yield to maturity ValueSARB debenture____________________________________________________AUTHORISED SIGNATURE 1 AUTHORISED SIGNATURE 217

Appendix VContact Name: _____________ Attention: FMD Pta Attention: FMD JhbContact tel no: ______________ Fax: (012) 313 4278 Fax: (011) 240 0835MARGIN TRANSFER TO THE SOUTH AFRICAN RESERVE BANKFROM _____________________________________Government bondsType Nominal YTM ValueTotal ATreasury / Land Bank billsType Nominal Days to maturity Discount rate ValueTotal BReserve Bank debenturesNominal Maturity value Days to maturity Yield ValueTotal CCashTotal DTotal A + B + C + D__________________________________________________AUTHORISED SIGNATURE 1 AUTHORISED SIGNATURE 218

SOUTH AFRICAN RESERVE BANK DEBENTURESAppendix VI1. SCREEN ANNOUNCEMENTEstimated time of release: Invitation normally at around 08:00 on the morning of the auctionResults at around 11:00.FIGURE 1: InvitationTenders are invited for up to R______________ million 28 or 91-day SARB debentures.Issue date: _____________________Settlement date: ________________ (via SAMOS)Maturity date: ___________ (28 days) __________ (91 days)Minimum bid is limited to R1 million, thereafter bids must be submitted in multiples of R1 million. Bids will be rankedand allotted in ascending order and should be expressed as a rate to the nearest 0.005%. Kindly submit bids to JHBFMD via SWIFT before 10:00. Results will be published at approximately 11:00. Results to be confirmed with PTAFMD at 012 - 313 4952/7FIGURE 2: ResultsTenders are invited for up to R______________ million 28 or 91-day SARB debentures.Issue date: _____________________Settlement date: ________________ (via SAMOS)Maturity date: ___________ (28 days) __________ (91 days)Tender results: ___________ (28 days) __________ (91 days)Total amount alloted = R ___________ M R ___________ MTotal amount received = R ___________ M R ___________ MAverage rate = _____________ %Please note that figures 1 and 2 are illustrations. The Reserve Bank reserves the right to amend the contents ofany page at its discretion.19

Appendix VIISOUTH AFRICAN RESERVE BANK LONGER-TERM REVERSE REPOS1. SCREEN ANNOUNCEMENTEstimated time of release: Invitation normally at around 15:00 on the working day before the auction.Results at around 11:00.FIGURE 1: Reverse repo InvitationTenders for reverse repo acutions are invited against the selling of up to R ______ M R194’s and/or R ______ MR150’s and/or R ______ M R186’s with maturities of 28 or 91 daysAuction date: __________; Settlement: ___________ Maturity date: ___________ (28 days) __________ (91 days)Minimum bid is limited to R10 million, thereafter bids must be submitted in multiples of R1 million. Bids to beexpressed to the nearest 0,01% and submitted to FMD telephonically at 012 - 313 4952/7 before 10:00. Results willbe announced at approximately 11:00. Please note that in terms of the established convention w.r.t. classic moneymarket repos, the coupon interest on the above bond is payable to the supplier of the stock (i.e. SARB).FIGURE 2: Reverse Repo ResultsTender results: R150 R194 R18628-day resultsTotal amount alloted = R ___________ M = R ___________ M = R ___________ MTotal amount received = R ___________ M = R ___________ M = R ___________ MAverage reverse repo rate: _____________ % _____________ % _____________ %91-day resultsTotal amount alloted = R ___________ M = R ___________ M = R ___________ MTotal amount received = R ___________ M = R ___________ M = R ___________ MAverage reverse repo rate: _____________ % _____________ % _____________ %Outstanding L/T reverse repos amount to R ______________ million as of _______________________________ .Please note that figures 1 and 2 are illustrations. The Reserve Bank reserves the right to amend the contents ofany page at its discretion.20

SOUTH AFRICAN RESERVE BANK LONGER-TERM REVERSE REPO FORMContact Name: _____________ Attention: FMD Pta Attention: FMD JhbContact tel no: ______________ Fax: (012) 313 4278 Fax: (011) 240 0835REVERSE REPOS BETWEEN: ______________________________AND THE SOUTH AFRICAN RESERVE BANKTENDER DATE: _________VALUE DATE: _________We refer to the Reserve Bank’s telephone confirmation that, as a result of the acceptance of bids for the reverserepo auction specified above, we are to enter today into the following reverse repo transaction(s).Summary of BidsBid AllocationSell priceRevers repomaturity dateReverserepo rateSell back priceFirst BidSecond BidTotalBondTypeNominal(Rm)Yield to maturityMarket ValuePLEASE NOTE THAT SUPPLIER OF THE BONDS RECEIVES THE COUPONCoupon interest to be paid to the Reserve Bank on __________________________ amounts to R ____________All the above figures are checked and confirmed.CounterpartyCounterpartyReserve BankReserve Bank21