The National Bank of Ukraine has established a regulatory framework for conducting a new type of FX interventions - an intervention performed in the form of a request for best quotation in accordance with the recently approved NBU’s Foreign Exchange Market Intervention Strategy for 2016-2020 .
An advantage of this new type of currency intervention is that it can be promptly used by the regulator. A FX auction is the most appropriate type of currency interventions for the purpose of international reserve accumulation, whereas a currency intervention in the form of a request for best quotation is the most efficient tool to smooth excessive FX market volatility. This new type of currency interventions will enable the NBU to promptly respond to changes in the FX market conditions.
The intervention in the form of a request for best quotation shall be performed as follows: First, the NBU requests banks to quote buying and selling prices for foreign currency through trading information systems. After receiving bids from banks, the NBU enters into an agreement with the bank that has quoted the best price.
The NBU will select banks to participate in the currency intervention in the form of a request for best quotation based on transparent eligibility criteria. In particular, to qualify to participate in these currency interventions, a bank has to be listed among the top twenty banks in terms of the largest volumes of FX purchase and sale transactions performed in the interbank market in the previous quarter.
At the beginning of each quarter, the NBU shall send to banks via e-mail a list of banks that can qualify to participate in these FX interventions in the current quarter.
At the same time, the NBU has authorized the use of trading and information systems (TIS) for conducting FX interventions. The roadmap for improving operations of the interbank FX market was presented by the NBU to financial market participants last week. Going forward, the NBU plans to shift away from using the Val_Kli system and the System for the submission of information about interbank hryvnia loan purchase and sale agreements (the CredInfo system). Instead, the NBU intends to switch to trading information systems (TIS) operated by Bloomberg and Reuters in accordance with international practices.
The aforementioned amendments to this effect have been approved by NBU Board Resolution No. 397 of 28 October 2016 On Amendments to Some NBU Regulations. This resolution shall come into effect from 29 October 2016.