Central Securities Depository Of IRAN

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OPEN MARKET OPERATIONS AND CSDI'S ROLE

Open Market Operations entail the trade of government securities by the Central Bank and is the main policy tool for influencing the level of liquidity in the domestic financial system.

Open Market Operations entail the trade of government securities by the Central Bank and is the main policy tool for influencing the level of liquidity in the domestic financial system. 

On a daily basis, the Central Bank assesses market requirements with a view to either increasing or reducing the level of liquidity in the banking system. If liquidity is deemed to be short or insufficient, the Central Bank buys securities outright or engages in short term collateralized lending through the repurchase facility, thereby adding liquidity to the system. Conversely, when the system is deemed to be long or there is too much liquidity, the Central Bank sells securities to the system, thereby reducing the level of liquidity.

In order to conduct these operations, the Central Bank of Iran has established a system of primary dealers as its main counterparties in the market.  At present, the commercial banks are the main primary dealers. 

In Iran, due to the prohibition of Riba and consequently the impossibility of using interest-based bonds, the law on non-Riba banking operations did not allow the banking system to use this instrument. Hence, securities issued in open market operations are mainly the Government of Islamic Republic of Iran Islamic treasury bills and treasury notes governed by statutory limits as outlined by the law and Act 2 (5) of the 2019-2020 government budget plan. Open Market Operations securities are short-term in nature. 

Banks also use these securities to cover deficits or to consume surplus funds and will use this market to proportionate their cash balances at the end of the day.

These deals come from the marketplace of Iran's new financial instruments market at the Iran FaraBourse.

During open market operations, banks submit their orders to the Central Bank's independent trader, and then the independent trader enters these orders into the system, and the transaction is executed.

The settlement date of these transactions is T+0 and it is settled at the end of each trading day.

For clearing and settlement, Central Securities Depository of Iran (CSDI) transfers the securities between the banks and sends the transaction information to the Central Bank's SATNA system, which transfers the money resulting from the purchase and sale of such securities, on the same trading day. The money is then transferred between the buyer and the seller through the SATNA system.

It is worth mentioning that on one occasion, on the first day of trading, 10,000 sheets of Islamic Treasury notes were traded between the Central Bank of Iran and one of the licensed banks in the market to provide its liquidity shortages.

Release Date: 2020-03-09