Dubai: The Central Bank of the UAE has launched a new securities issuance programme - Monetary Bills - for licensed financial institutions and eligible investors. These securities will be auctioned and traded through Bloomberg’s primary and secondary market solutions and settled through a local platform - compliant with international standards - built and operated by Euroclear Bank.
“The objective is to provide a holistic solution to manage liquidity within the UAE banking sector,” the Central Bank said in a statement. The launch of the Monetary Bills (M-Bills) replaces the conventional certificates of deposit (CD) programme and marks a milestone towards the implementation of the new Dirham Monetary Framework announced earlier this year.
“The launch provides us with the opportunity to establish robust infrastructure required not only to manage liquidity, but also provide a stable collateralized source of funds to banks and financial institutions operating in the UAE,” said Saif Hadef Al Shamsi, Deputy Governor of the CBUAE.
M-Bills’ settlement cycle will include primary issuance to secondary market trading through a seamless interfaced platform developed with Euroclear Bank, the Brussels-based international central securities depository, and Bloomberg.
The CBUAE will be using Bloomberg AIM for order management processes of market operations. The issuance of M-Bills will be through an auction process conducted on a regular basis.
The CBUAE will set the calendar and volumes to be offered and maintain specific control over the maturity periods. The establishment of a domestic platform, along with the auctioning and tradability of the M-Bills through Bloomberg's Bond Auction and E-Bond systems, will facilitate broader access to the M-Bills market for eligible investors.
This will also allow market participants in the UAE to maintain a single, robust pool of dirham liquidity.
* Under the current form, eligible institutions were bidding for CDs directly on the CBUAE platform on the basis of yield starting from maturities ranging from one week to 5 years.
* The M-Bills will be auctioned and traded through Bloomberg’s primary and secondary market solutions. The price discovery will be based on a transparent auction mechanism.
Creation of yield curve
With the launch of the M-Bills programme, the CBUAE is intending to promote the development of a secondary market for securities denominated in dirhams and thus contribute to the establishment of a risk-free pricing benchmark (yield curve) for domestic debt instruments.
The CBUAE expects that the establishment of a pool of dirham liquidity resulting in higher trading volumes of M-Bills and - potentially - help in reducing the overall volatility of borrowing costs and stabilizing yields in domestic money and capital markets.
“As a result of our collaboration with Central Bank of the UAE and Bloomberg, we have together been able to achieve a market-first offering,” said Stephan Pouyat, Global Head of Capital Markets and Funds Services at Euroclear.