Open Market Operations (OMOs) entail the purchase and sale of government securities by the Central Bank and is the main policy tool for influencing the level of liquidity in the domestic financial system. On a daily basis, the Central Bank assesses market requirements with a view to either increasing or reducing the level of liquidity in the banking system. If liquidity is deemed to be short or insufficient, the Central Bank buys securities outright or engages in short term collateralized lending through the repurchase facility, thereby adding liquidity to the system. Conversely, when the system is deemed to be long or there is too much liquidity, the Central Bank sells securities to the system, thereby reducing the level of liquidity.
In order to conduct these operations, the Central Bank has established a system of primary dealers as its main counterparties in the market. At present, the commercial banks are the main primary dealers. Securities issued in open market operations are mainly Government of Trinidad and Tobago treasury bills and treasury notes governed by statutory limits as outlined in the Treasury Bills Act Chapter 71:40 and the Treasury Notes Act Chapter 71:39. OMO securities are short-term in nature with maturities ranging from 3 months to 3 years. They are issued on an auction basis at market-determined interest rates.