30 April 2020
The Magyar Nemzeti Bank (MNB) has made several decisions, complementing each other, to make an increasingly large part of its set of central bank instruments available to investment funds. Matching the role investment funds play in monetary transmission, the 10 largest asset managers headquartered in Hungary managing public and open-ended investment funds, will be included in the group of counterparty institutions participating in the Bond Funding for Growth Scheme and the government securities purchase programme. In addition, investment funds will have access to collateralised central bank loans at all maturities, including loans with three and five-year maturities, and the range of eligible collateral has been extended with forint-denominated securities and mutual fund shares issued by investment funds.
Given their role in monetary transmission, the MNB has taken coordinated measures to make the largest possible part of its instruments available to investment funds.
Based on experience gained in recent periods and consultations with capital market participants, the Terms and Conditions of central bank purchases in the secondary market has been modified under the Funding for Growth Scheme. Consequently, the MNB now may purchase corporate bonds from the ten largest asset managers headquartered in Hungary who manage public and open-ended securities funds, and from voluntary pension funds whose assets are managed by these AMs. As a result of these changes, a wider group of investors may appear at corporate-bond auctions bringing about successful issuances, thereby providing more liquidity in the corporate-bond market.
In addition to banks playing a key role in the government securities market, investment funds may also participate via the leading investment fund management firms in the government securities purchase programme starting on 4 May 2020. Consistent with the Bond Funding for Growth Scheme, public and open-ended securities funds managed by the ten largest investment fund managers headquartered in Hungary will be allowed to participate in the programme. At the central bank auctions, one asset manager may submit aggregate bids for one security on behalf of three funds it manages; and in the individual out-of-auction purchases the funds will form part of the potential range of central bank counterparties.
Consistent with the relevant government decree, the terms and conditions of direct borrowing by investment funds from the central bank have been set out. Accordingly, from 4 May 2020 investment funds may also execute the loan tenders at maturities of three and five years, in addition to maturities of three, six and twelve months. A Notice specifying the rules for participating with banks as intermediaries states that investment funds may repay their loan at any time before maturity. The operative and technical details of direct access by investment funds to the long-term lending facility are being developed; the programme in a disintermediated kind is expected to be launched in the coming weeks.
The MNB has modified its Terms and Conditions, under which the range of collateral eligible for central bank operations has been extended to shares issued by open-ended, public, forint-denominated money market, liquidity, bond and real estate funds. Depending on the assets of funds, the haircuts applied have been fixed between 5 and 60 per cent. The modified Terms and Conditions will come into effect on 11 May 2020, i.e. after this date credit institutions belonging to monetary policy counterparties may deliver mutual fund shares they hold as collateral.