The National Bank of Ukraine has streamlined a short-term refinancing instrument, such as swap operations  involving the purchase/sale of foreign currency with authorized banks.

On 31 March 2016,  NBU Board Resolution No. 222 On Approval of the Regulation on the Execution by the National Bank of Ukraine of Swap Operations Involving the Purchase/Sale of Foreign Currency was issued to this effect.

The new rules governing swap operations between the NBU and an authorized bank mandate that such operations   involve the  purchase or sale of US dollars and euros. The maturity of swap operations shall not exceed 30 calendar days.

The resolution specifies that the NBU purchases foreign currency from the bank under the "tod", “tom" or "spot" terms and sells foreign currency under the "spot" or “forward” terms.

A swap transaction consists of two legs (transactions). The first transaction is executed at the  official exchange rate of hryvnia to foreign currencies set by the NBU on the transaction date less haircut. The second transaction is executed at the exchange rate calculated as the difference between interest rates on funds denominated in domestic currency and those denominated in foreign currency (diff).

The haircut shall be approved by by a separate ordinance of the NBU and shall be communicated to banks.

The NBU shall perform swap transactions through forward auctions and upon request from banks based on their applications.

The first and second leg of the swap transaction are settled on an advance payment basis.

The resolution allows banks to net out swap transactions if the settlement dates under swap agreements converge.

The NBU is entitled to terminate a swap transaction and recalculate  the forward exchange rate at which the second leg of the swap transaction is settled.

The new rules governing FX swap  operations will enable banks to meet their short-term liquidity needs. At the same time, this move will sharpen the NBU’s ability to enhance the effectiveness of its monetary policy.

The new rules governing FX swap operations will come into force from 2 April 2016.