Frontclear arranges an ISDA-documented landmark local currency cross-border repo transaction with State Bank Mongolia

Credit risk, legal and operational risks plus wrong-way risk concerns continue to make it difficult for Mongolian banks to be connected to global money markets. The transaction made it possible for State Bank to competitively access local currency funding from global markets. It also once again underscored that Frontclear deal arranging and structuring can be tailored to overcome certain legal and operational issues related to Mongolia. 

“Frontclear has closed more than 10 repo and swap transactions in Mongolia since 2018. We are proud of our catalytic role we have played in originating the first of its kind local currency repo where Frontclear directly provided synthetic MNT currency to State Bank against Eurobond collateral using offshore sources for both funding and hedging. The transaction provides a template to exercise cross-border repos between Mongolian banks and global banks and hedge providers using both local and offshore collateral. It sets a benchmark for the development of Mongolia’s money market going forward.” 
– Andrei Shinkevich, SVP Frontclear 

"We are delighted to successfully execute this inaugural synthetic local currency cross-border repo transaction with Frontclear. Since our initial collaboration in 2018, our partnership has continued to strengthen, playing a key role in the growth of Mongolia’s financial market through the adoption of international best practices. This innovative transaction has enabled State Bank to access competitive local currency funding from global markets, greatly enhancing our liquidity management capabilities. We believe this mechanism creates opportunities to reach the international money market, contributing significantly to the development of the domestic capital market."
– Gantur Ulzii, Chief Executive Officer, “State Bank” JSC of Mongolia 

“This transaction showcases TCX’s contribution to market development in Mongolia and its additionality. The historically successful onshore hedging facility provided by Bank of Mongolia is downscaling, which allows other hedge providers to take up a more significant role in supporting the market. Consequently, TCX’s ability to facilitate hedging transactions for a range of use cases, tenors and currencies, combined with conducive pricing has resulted in a large pick up in the MNT business through its partners such as Frontclear and other impact investors. We are glad to see the increasing awareness of currency risk and to be part of this impact story.” 
- Xander Goudriaan, Head of Trading, TCX 

In this transaction, Frontclear has sourced USD liquidity from the European Bank of Reconstruction and Development (EBRD) and simultaneously executed a MNT/USD hedge with TCX, therefore being able to provide synthetic MNT repo funding to State Bank. This repurchase transaction is documented under an International Swap and Derivatives Association (ISDA) agreement, whereby Frontclear customized the swap confirmation to account for legal issues in the Mongolian market. The transaction documentation introduced best practice operational and legal concepts including for local currency denominated repo. TCX and Frontclear are part of Cardano Development.