MNI POLICY: BOJ Sets ETF Lending Facility To Improve Mechanism

     TOKYO (MNI) - The Bank of Japan board Thursday outlined a new lending

facility for Exchange Traded Funds, a move first posited in April in order to

boost liquidity in the ETF secondary market.

     The following are the main points:

     -The bank will lend ETFs to financial institutions selected by the BOJ for

one year but due dates are not specified in the contract and either party may

request to terminate at any time.

     -The BOJ will review the financial institutions list annually.

     -Lending rates will be determined by multiple-rate competitive auctions or

by the BOJ in advance.

     -The BOJ shall determine the specifications necessary for lending,

including the lending dates, the amount of ETFs to be lent, and the

counterparties.

     -The trustee shall accept cash collateral, which is calculated by

multiplying market prices of ETFs by margins.

     -The interest rate applied to cash collateral shall be the rate applied to

the Policy-Rate Balances.

     In April, the BOJ decided to introduce an ETF lending facility to restore

some of the liquidity it has drained from the market via its massive monetary

easing program.

     The decision is also aimed at improving the sustainability of its asset

buying, which has distorted markets due to its sheer scale.

     The bank's Japan stock ETF holdings totalled Y28.9 trillion as of March 31,

amounting to nearly 80% of the entire market. The BOJ is on track to top Japan's

Government Pension Investment Fund as the leading holder of Tokyo-listed stocks

as early as next year.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: MMJBJ$,M$A$$$,M$J$$$,MT$$$$]