SBP to conduct Ijara Sukuk trade via OMO

In a major development to facilitate the Islamic Banking Industry (IBI) for liquidity management, the State Bank of Pakistan (SBP) on Thursday announced outright trade of Government of Pakistan Ijara Sukuk through Open Market Operations (OMOs). Previously, Market Treasury Bills (MTBs) were being traded through OMO for conventional banking industry, and now the SBP will also conduct operations for GIS.
According to a DMMD Circular No 17 of 2014 issued on October 16, 2014, in order to facilitate IBI in their liquidity management and more effective transmission of monetary policy, it has been decided that SBP may outright purchase or sell Government of Pakistan Ijara Sukuk (GIS) through Open Market Operations (OMOs) based on multiple price competitive bidding auction process. These transactions will be made either on deferred payment basis (Bai-Muajjal) or on ready payment basis.
As per transaction modalities for OMOs against GoP Ijara Sukuk announced by SBP, all Islamic banks and conventional banks having Islamic branches will be eligible to participate in these OMOs. Notice for OMO will be issued by SBP through Reuters/Bloomberg and all eligible participants will send their bids as per required format through fax/Reuters detailing face value of security and deferred price (in case of Bai-Muajjal) or price (in case of ready payment basis) to participate in the OMO. The price should include accrued profit and can be quoted up to four decimal places.
Each eligible participant will be allowed to submit maximum three bids in an OMO and minimum bid size will be Rs 25 million and its multiple thereof. However, the SBP made it clear that it reserves the right to reject all or any of the bids without assigning any reason.
According to the circular, if the deferred payment date falls on public/bank scheduled or unscheduled holidays, the contracts will be extended to the next business day and there will be no change in the deferred payment price. The SBP will have the discretion to accept the bids on a 'pro-rata volume' basis as par rules stipulated in DMMD Circular No 02 of 2007 dated September 29, 2007, it added.
The OMO result will be announced by the SBP through Reuters/Bloomberg on the same date and successful bidders will send a contract to the SBP for confirmation and settlement. In case of purchase or sale of GIS on deferred payment basis, the GIS will be transferred to the SGLA of the buyer on deal date, while payment will be made on deferred payment date.
Once the deal finalised, cannot be terminated before the deferred payment date. In case of sale of GIS on deferred payment basis to the SBP, banks cannot include the GIS in their SLR calculations from the deal date. In case of purchase or sale of GIS on ready payment basis, the GIS will be transferred to the SGLA of the buyer on the deal date against payment on the same date, the circular said.