The National Bank of Ukraine has streamlined the rules governing the purchase of foreign currency by primary dealer banks that have purchased domestic sovereign bonds denominated in foreign currency through primary placement auctions and subsequently resold these securities in the secondary market. On 14 January 2016, NBU Board Resolution No. 7 On Amendments to NBU Board Resolution No. 863, dated 4 December 2015, was issued to this effect.

Transactions involving the sale of domestic sovereign bonds denominated in foreign currency in the secondary market are settled in domestic currency, whereas those involving the purchase of bonds through primary auctions are settled in the currency of bond issuance. This may affect the foreign exchange position of a primary dealer bank.

The resolution enables a primary dealer bank to balance its foreign exchange position. Henceforth, subject to the conclusion of a bond sale agreement no later than the next day following the day of the primary auction and crediting of FX funds to the State Treasury's account, primary dealer banks shall be allowed to include the total amount of domestic sovereign bonds (at par value) that they have sold to another bank or a customer in the balance, which is the amount by which their total FX purchases exceed FX sales.

The total amount of sold domestic sovereign bonds shall be included in calculation of the balance on the next day following the day on which the Ministry of Finance of Ukraine conducts a primary auction. After this, a primary dealer bank will be able to purchase foreign currency either from another bank or from a customer.

A primary dealer bank shall sell bonds to a customer provided that, on the date of signing the bond purchase/sale agreement, the latter has sold foreign currency under the TOD settlement terms from a current/investment account opened with the primary dealer bank. The amount of foreign currency sold by the customer shall not be less than the amount of domestic sovereign bonds purchased at par value by this customer.

This resolution will help balance the FX market while contributing to the development of the stock market and facilitating banks to trade in domestic sovereign bonds denominated in foreign currency.

This Resolution shall come into force from 16 January 2016 and remain in effect through 4 March 2016