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Bond Lending Facility
MINISTRY OF FINANCE BOND LENDING FACILITY FOR PRIMARY DEALERS The Ministry of Finance is setting up a bond lending facility which will be available to the Primary Dealers in Israel Government bonds. The facility is operated by the Tel-Aviv Stock Exchange Clearing House, under an agreement with the Ministry of Finance. Each Primary Dealer may borrow up to NIS 500 million worth of bonds from the facility, against the deposit of cash collateral in the Ministry of Finance accounts at the Bank of Israel; a separate account is kept for the collateral provided by each borrower. For each such account a "shadow account" is kept at the Clearing House, where all transfers of money are recorded immediately, the actual transfers of bonds and of cash are carried out by the Clearing House in the ordinary course of its clearing operations. The Clearing House uses the "shadow account"
to make certain that an appropriate amount of collateral
is at all times on deposit from each Primary Dealer. Before bonds can be borrowed, cash collateral must be deposited by giving an appropriate instruction to the Clearing House, up to the cut-off time on any day on which the Clearing House is open. The appropriate amount of collateral will be withdrawn from the Clearing House member's cash account at the Bank of Israel and credited to the appropriate Ministry of Finance collateral account at the Bank of Israel. If the Primary Dealer is a Clearing House member, but not a bank, the collateral will be withdrawn from the account of the bank that performs monetary transactions for it. If the Primary Dealer is not a Clearing House member, the collateral will be withdrawn from the monetary account of the Clearing House member that clears for it. Deposits of collateral will be entered immediately in the "shadow accounts" and will be cleared with value of the day on which the request has been submitted to the Clearing House. Primary Dealers may borrow bonds by requesting them
from the Clearing House on any day on which the Clearing
House in open, up to the hour on that day. Borrowed
bonds will be credited to the Clearing House member's
proprietary ("nostro") account. Bonds with less than fifteen months to their final
redemption cannot be borrowed. Borrowed bonds must be
returned to the leading facility not later than one
year before their final redemption. There is no time limit on bond borrowings, except for the aforesaid restriction on bonds in the last year before their redemption. The return of borrowed bonds is affected through the Stock Exchange Clearing House, by an order given up to the cut- off hour on any day on which the Clearing House is open. Returned bonds will be withdrawn from the Clearing House member's nostro account, or from the relevant member's sub-account for the Primary Dealer that is not a Clearing House member. The return of borrowed bonds will be cleared immediately if the member has s sufficient balance in his securities account. If the balance does not suffice, than the operation will fail and will be canceled. The return of borrowed bonds will reduce the amount of collateral that the Clearing House member must keep on deposit in a Ministry of Finance is collateral account at the Bank of Israel, but will not cause the freed collateral to be transferred automatically from the said to the borrower's own cash account at the Bank of Israel. To effect that transfer, the borrowed must - up to
cut-off time on any day on which the Clearing House
is open - request the Clearing House to perform it.
Returned collateral will be withdrawn from the appropriate
Ministry of Finance's collateral account at the Bank
of Israel and credited to the borrower's cash account
with the Bank of Israel, which the Clearing House member
or the Primary Dealer uses for its trading activity. The Ministry of Finance will pay borrowers daily interest for the cash collateral on deposit. At the end of each clearing day, the Stock Exchange Clearing House shall credit each "shadow account" with interest for the cash collateral balance carried on it. The Stock Exchange Clearing House is not responsible for the payment of this interest and it shall not transmit the orders for it to the Bank of Israel. Entering the interest in the account is intended to increase the collateral carried in the "shadow account" to the member's credit. Each evening, after the daily interest payment has
been calculated, the Stock Exchange Clearing House shall
adjust collateral requirements to the closing prices
in that day's continuous trading phase and compare them
to the collateral actually on deposit. If there is a
shortfall in any borrower's collateral, the Clearing
House will automatically collect collateral to cover
that shortfall. This operation is entered immediately
in the "shadow account", and it will be cleared
with value as of the clearing day after the adjustment
has been completed. If a borrower holds borrowed bonds on the entitlement date for the payment of the annual interest on those bonds, then he shall be debited for the gross interest on the day on which it is paid. In order to secure that payment the amount of interest shall be added to the collateral required of the borrower from the end of clearing on the entitlement date for the interest payment and until the day following the day on which the interest is actually paid. If this should cause a shortfall in any borrower' collateral, the Clearing House shall collect that shortfall automatically. These operations shall be entered immediately in the "shadow account", and they shall be cleared with value as of the clearing day after the entitlement date for the interest payment. The Clearing House shall not perform any act when collateral requirements are reduced in respect of the interest payment, except for a reduction of the requirement for collateral. Excess collateral may be released at the borrower's initiative. Reporting The Stock Exchange Clearing House shall report the borrowing of bonds and their return, as well as the monetary transactions connected to the management of the collateral, in its different reporting media. The collateral requirements and the total of collateral entered in the "shadow account" shall be reported in separate media. For details of these reports, see the attached "Ministry of Finance Lending Facility Reports". 
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© Copyrights 2006