Central Bank of UAE to launch M-bills to manage liquidity

Effective from Jan 11: Bloomberg, Euroclear to be partners

ABU DHABI/December 21-2020: The Central Bank of the UAE (CBUAE) will introduce, effective January 11, 2021, a new securities issuance program, named Monetary Bills (M-bills), to 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 of the new issuance program is to provide a holistic solution to manage liquidity within the UAE banking sector.

The launch of the M-Bills, replacing the existing conventional certificates of deposit (CD) program, represents another important milestone towards the implementation of the new Dirham Monetary Framework announced earlier this year.

Settlement

M-Bills’ settlement cycle will include primary issuance to secondary market trading through a seamless interfaced platform developed jointly with Euroclear Bank, the Brussels-based international central securities depository, and Bloomberg, the global business and financial information and news leader.

CBUAE will be using Bloomberg AIM for order management processes of market operations. The issuance of M-Bills will be through a transparent auction process conducted on a regular basis.

The CBUAE shall set the calendar and the volumes to be offered, and shall maintain specific control over the maturity periods.

The establishment of an innovative Euroclearable domestic platform, along with the auctioning and tradability of the M-Bills through the Bloomberg Bond Auction and E-Bond systems, will facilitate broader access to the M-Bills market for eligible investors – in a more secure, efficient, and a standardised way. This will also allow market participants in the UAE to maintain a transparent, single, robust pool of Dirham liquidity.

Yield curve

With the launch of the M-Bills program, the CBUAE is intending to promote the development of a secondary market for securities denominated in UAE Dirham and thus contribute to the establishment of the risk-free pricing benchmark (yield curve), which could stimulate further domestic market activities. Accordingly, the CBUAE expects that the establishment of such pool of Dirham liquidity will result in higher trading volumes of M-Bills.

Saif Hadef Al Shamsi, Deputy Governor of the CBUAE, said that the launch of the M-Bills program provides the opportunity to establish robust infrastructure required not only to manage liquidity, but also to provide a stable collateralised source of funds to banks and financial institutions operating in the UAE. “We are confident that the set-up of such infrastructure will also assist in the development of a Dirham local market for securities issued by the public sector in the UAE in future,” Al Shamsi said.

Market first offering

Stephan Pouyat, Global Head of Capital Markets and Funds Services at Euroclear, said that as a result of the collaboration with the Central Bank of the UAE and Bloomberg, Euroclear has together been able to achieve a market first offering.

“This solution is an efficient, end-to-end local solution that will bring value and opportunities to local investors,” he added.

Nicholas Bean, Global Head of Electronic Trading Solutions at Bloomberg said, “E-Bond and our Bond Auction System are part of a range of Bloomberg solutions designed to help bring more transparency to regional markets. It provides the solutions and technical infrastructure that help bring greater liquidity and efficiency to capital markets.”

 

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