The Bank of Ghana (BOG) has announced some guidelines that will govern the conduct of foreign exchange (FX) forward auctions on the interbank foreign exchange market for Bulk Oil Distributors (BDC) licensed by the National Petroleum Authority (NPA) going forward.

According to the Central Bank, the bespoke multiple price forward FX auctions is intended to minimise the uncertainty of the future availability of FX and aid price discovery, especially for the general pricing window within the downstream sector.

One of the first regulations stipulated by the Bank of Ghana to be governing the forex exchange auction is the publication of foreign exchange auction calendar. The BoG indicated that it will publish an auction target incorporating inputs received from the National Petroleum Authority (NPA) for the foreign exchange forwards on a bi-weekly basis. The target will be published four days preceding the pricing window for the downstream sector on the Bank of Ghana website to enable market participants plan adequately. The announcement shall list the date and time, auction volume target, settlement and other relevant information.

Another guideline stated by the Central Bank is eligibility. It noted that participation in the auction is restricted to only authorised Bulk Distribution Companies licensed by the NPA through their authorized Licensed Foreign Exchange Dealing Banks.

The Central Bank tasked BDC to take eligible currency and quotation convention seriously.

“The auctions shall be limited to the purchase of the United States Dollar (USD) against equivalent value in the national currency – Ghana Cedi (GHS) on a forward basis at 30- day tenor. The quotation of rates for bids submitted in the auction shall indicate the equivalent value in the national currency (Ghana Cedi/ GHS), expressed against one unit of the USD quoted up to 4 decimal places. Example of the rate quotation for bid is 7.0000.

“In consultation with the NPA on pricing window schedules, the FX auction shall be held bi-weekly and conducted no later than three working days before the 1st and 16th of each month.”
BoG

According to BoG guidelines, authorized Banks shall submit their bids via a designated email in the approved format provided by the BOG, as bids with incomplete, missing information or submitted after deadline shall not be accepted. It added that bids exceeding the maximum single bid amount or lower than the minimum bid amount shall not be accepted. “BOG reserves the right to reject the bid submitted at the lowest exchange rate.”

“Each bid is final and is irrevocably binding on the bidding bank. Once a bid has been submitted, no request for changes will be entertained by the BOG.”
BoG

Allocation Methodology

Allocation Methodology is part of the guidelines issued by the Bank of Ghana. It noted that multiple-price auctions would be fixed volume format; the auction cut-off rate would clear the target volume offered in the said auction. Meanwhile, the general principle followed would be that the amount accepted at the auction be kept close to the announced volume, probable variance of not more than ±10 percent of auction target.

BoG averred that there will be an auction committee that will be formed as part of the guidelines.

“An auction committee comprising BOG staff appointed by the Governor shall oversee the conduct of the auction and decide on the cut-off rate, guided by an allocation methodology. Only authorized BOG officials may be present at the time of the auction allocation process. Details of individual bids of banks will be kept confidential.”
BoG

With the communication of auction results to the market, FX Auction results will be published on REFINITIV dealing system by 3.00pm on the day of the auction. Unless otherwise announced, BOG indicated that the settlement period for both USD and cedi leg shall be on T+30.

“BOG dealers shall call FX dealers of the successful banks via the REFINITV Dealing System to confirm and conclude trades for accepted bids to facilitate STP settlement. BOG reserves the right to change the mode of trading.”
BoG

BoG also required participating BDCs to maintain escrow accounts with banks through which their bids are submitted.

“BDCs will be required to fund these escrow accounts with cash collections as validated by NPA. Activities of BDCs escrow accounts will be closely monitored by BOG. BDCs can only participate through banks holding their escrow accounts for any particular auction window.”
BoG

BoG indicated that FX market conduct rules will apply to foreign exchange funds acquired or sold at the auction. The bank called on all Authorized Foreign Exchange Dealer Banks to also comply with the provisions of the Code of Conduct for the Interbank Foreign Exchange market in Ghana.