BANK OF GHANA GUIDELINES FOR THE GOVERNMENT SECURITIES MARKET FOR PRIMARY DEALERS

Transcription

1 BANK OF GHANA GUIDELINES FOR THE GOVERNMENT SECURITIES MARKET FOR PRIMARY DEALERS

2 TABLE OF CONTENTS Introduction 3 Government Securities 3 Wholesale Auction 5 A Introduction 5 B Auction Guidelines 5 1. Eligibility 5 2. Available Financial Instruments 5 3. Application Procedure 6 4. New Products 7 5. Pricing and Allotment Competitive Bids Non-competitive bids 9 6. Notification of results and settlement Payment and settlement Underwriting commitments Registration of Applicants Settlement Defaults Redemption on Maturity Commissions / Charges Miscellaneous 16 Secondary Market 17 Page a. Market Share 17 b. Market making procedure 17 c. Outright transactions 17 i. Dealing Practice 18 ii. Price quotation 18 iii. Market lot transactions 18 iv. Value date 18 v. Business hours 19 vi. Confirmation of deals 19 vii. Settlement 20 General Default 21 Organizational Structure 21 Abbreviations 22 2

3 GUIDELINES FOR THE GOVERNMENT SECURITIES MARKET INTRODUCTION Bank of Ghana introduced the weekly treasury bills tender in The tender was opened to banks, discount houses and the public at large, although the public had to submit their applications through the banks. The tender was operated side by side with the tap sales where customers could purchase bills directly from Bank of Ghana. A fully-fledged money market was established in Ghana in 1992 when the Bank of Ghana abolished all direct controls of monetary management and started to rely primarily on OMO to transmit monetary policy. Although significant progress has been made in the development of money markets in Ghana, the market is still evolving. Bank of Ghana has initiated moves to broaden the market and limit access to rediscounting at the Bank. This is with the view to develop a vibrant secondary market in Government securities. The Listing of Government Securities, especially the medium and long-term instruments, is a further effort to facilitate secondary market activity and improve upon the liquidity of government securities. The Bank of Ghana introduced the Central Securities Depository in November 2004 to further enhance the book entry system of registering holdings and to reenforce the non-issue of certificates for Government securities GOVERNMENT SECURITIES Bank of Ghana on behalf of the Government of Ghana issues all Government securities. The Bank may also issue securities in its own name for its Open Market Operations. All these securities are issued at the primary market through the wholesale auction process. 3

4 i. Government Securities Government securities (bills, bonds) constitute direct, unsecured and unconditional obligations of the Government. The principal of and discount / interest on Government securities will be a charge on the Consolidated Fund. Government securities sold in the primary market in Ghana, all of which can be traded in the secondary market, include the following: day Treasury Bill, day Treasury Bill, - 1-year Treasury Note, - 2-year Treasury Note, - 3-year Medium Term Bond, and - 5-year Medium Term Bond. - and any other securities that may be issued. The securities are issued for the financing of Government cash shortfalls and to redeem maturing securities. Government Securities are also issued for the development of the financial market by providing risk-free benchmark securities as reference for the issue of debt instruments in the money and capital market by corporates and non-government institutions. ii Bank of Ghana Bills These include the present Bank of Ghana Bills of 1 week, 2-week, 28-day (1 month) and 56-day (2 months) maturities and others that may be issued in future for OMO purposes. Bank of Ghana issues these securities in its Open Market Operations (OMO) for market liquidity management. iii Currency Securities under these guidelines will be denominated in the local currency Ghana Cedis (GH ). All payments in respect of subscription and redemption will be made in Ghana Cedis. 4

5 WHOLESALE AUCTION A. INTRODUCTION The Wholesale Auction, introduced on March 1, 1996, is intended to help achieve the development of the secondary market. Selected financial institutions have been permitted to participate in the periodic wholesale auction. Each is designated as a Primary Dealer (PD). PDs can participate in the primary auction as principal for their own accounts and/or as agents on behalf of their customers. The auction is intended to increase competition among dealers and thereby contribute to a more efficient, dynamic and vibrant secondary market. Individuals and other firms and institutions are expected to obtain their requirements from the dealers. B. AUCTION GUIDELINES 1.0 Eligibility a. Only financial institutions authorized by Bank of Ghana shall be eligible to participate in the wholesale auction for Government of Ghana and Bank of Ghana securities. b. For the purposes of these guidelines, financial institutions so authorized shall be referred to as "PRIMARY DEALERS" (PDS). 2.0 Available Financial Instruments a. The Ministry of Finance through BOG shall publish an annual calendar for the issuance of Government securities for a calendar year not later than 15 th day of December of the preceding year. The calendar so published would be reviewed every quarter of the year. b. Based on the published calendar, Bank of Ghana shall announce periodically but not less than a week before an auction, the amounts and specific details of the financial instruments available at the next auction and their maturity profiles. 5

6 c. For the issue of medium and longer-term securities, a separate notice or prospectus shall be placed in the daily newspapers and on the Bank of Ghana website. 3.0 Application Procedure For Auction a. An advertisement inviting bids for the securities to be issued shall be placed in the national dailies and on the Bank of Ghana website in advance of the auction by Bank of Ghana. b. For the issuance of Bonds, BoG shall publish a Prospectus, inviting bids for the Bonds to be issued, in advance of the auction. c. Auctions for Government Securities (G-Secs) shall make provision for bids to be made on competitive or non-competitive basis. d. For its own OMO activities, Bank of Ghana may from time to time hold additional auctions at short notice. Such auctions will be limited to primary dealers bidding on their own behalf. PDs may trade these instruments with non-pd. e. Each tender application for the purchase of securities shall be submitted electronically through the CSD auction system by the PDs to the Public Debt Division, BOG. f. PDs shall submit bids on the basis of the demand from their customers and their own requirements. g. For each security, PDs may quote a single bid rate or a series of bid rates indicating the amount required at each bid rate. However, no interest rate shall be submitted for non-competitive bids. h. Unless otherwise stated in a prospectus in the case of a Bond issue, Auctions shall be set up on Fridays and made available to all PDs on the Auction Terminal for the input of bids, same day at 8.30 am. Submission of bids through the auction system ends at 6

7 1.00 p.m. on same day, after which time the bidding screen shall be closed and made unavailable to PDs. (Changes to be made to be in sync with CSD s new operational procedures once finalized) i. The auction shall normally be held on Fridays, between 2:00 p.m. and 3:00 p.m. However, if Friday happens to be a holiday, the auction shall be held on the preceding Thursday and submission of bids shall therefore close at 1:00 p.m. on Thursday or the preceding working day. j. In the case of medium term bond issues open to external investors, the auction shall normally be held on Thursday, between 2:00 p.m. and 3:00 p.m. However, if Thursday happens to be a holiday, the auction shall be held on the preceding Wednesday and submission of bids shall therefore close at 1:00 p.m. on Wednesday or the preceding working day. k. The BoG may accept or reject or refuse to recognise any or all bids or tenders. BoG shall not award more Bills/Bonds than the amount advertised or specified in any Prospectus or notice. The BoG further reserves the right to waive any provision or provisions of, any Prospectus, notice or application form for any or all bidders up until the time a bid is accepted and the price settled. 4.0 New Products New products refer to non conventional bonds with tenors for which the last issue date is over two years. BOG shall notify the market at least three months in advance before such new products are issued. 7

8 5.0 Pricing And Allotment 5.1 Competitive Bids (a) (b) (c) (d) Each competitive bid must be for one amount and at a desired price or interest rate expressed as a percentage. A person may submit one or more competitive bids at different prices or interest rates. Each competitive bid must be for a minimum of GH 10,000 nominal of Bonds and for multiples of GH 1,000. No sale will be made of an amount less than GH 1,000 nominal of Bonds. Competitive bids for the auction will be ranked in descending order of price or ascending order of discount / interest rate, Bills / Bonds will be sold to applicants whose competitive bids are at or above the lowest price or at or below the highest interest rate at which the BoG decides that any competitive bid should be accepted (the "lowest accepted price" or "highest accepted rate"). In the case of auctions of Conventional Bills, applicants whose competitive bids are accepted will purchase Bills at the prices or rates at which they bid where allotments are made by the multiple price method. Competitive bids which are accepted and which are made at prices above the lowest accepted price or below the highest accepted rate will be satisfied in full. Competitive bids which are accepted and which are made at the lowest accepted price or highest accepted rate may be satisfied in part only or on pro rata basis. (e) Where allotments are made by the uniform allotment price method (which shall be restricted to the issue of Bonds), all successful bidders will purchase the Bonds at that price, irrespective of the price quoted. Competitive bids which are accepted and which are made at prices above the uniform allotment price or rates below the highest accepted rate would be satisfied in full. Competitive bids which are accepted and which are made at the uniform allotment price may be satisfied in part only. 8

9 (f) In making a competitive bid, each bidder represents and undertakes that it has not discussed its bid, or the bid of anyone else, with any other person nor, in any other way whatsoever, has it disclosed its bid to any other person, or had anyone s bid disclosed to it, nor has it colluded or sought to collude with any other person as to its own bid or that of any other person or the pricing of the auction generally. The foregoing does not relate to any discussions, instructions or reporting between a Primary Dealer and any third party solely in relation to the bid that the third party wishes to make through the agency of the Primary Dealer, provided the Primary Dealer: i. discloses to the BoG that it is bidding as nominee on behalf of the third party; ii. does not discuss or disclose to the third party any bid it is making on its own behalf or on behalf of another third party nor does it collude in any way whatsoever with the third party for the purpose of influencing the pricing of the auction. (g) PDs shall submit bids for their proprietary account and for and on behalf of their clients. 5.2 Non-Competitive Bids (a) (b) (c) Only individuals are eligible to submit non-competitive bids. PDs, Firms, Institutions, and Insurance Companies are not allowed to submit non-competitive bids. Each PD shall make all reasonable effort to inform its individual clients of the option of submitting a non-competitive bid and to explain the considerations regarding that choice. Individuals may submit no more than one non-competitive bid for each instrument sold at each auction. Individuals are not allowed to submit non-competitive bids for the same security through multiple dealers at the same auction. 9

10 (d) (e) (f) (g) (h) (i) A non-competitive bid must be for not less than GH 1,000 nominal of bills/bonds, and must be for multiples of GH 100 nominal of securities. Only one non-competitive bid may be submitted for the benefit of any one person (separate bids may be made by Primary Distributors on behalf of separate individual clients). Multiple applications or suspected multiple applications will be rejected. Only one non-competitive bid may be submitted on any one application. No more than 20% of the securities on offer will be offered noncompetitively. If the total amount of non-competitive bids exceeds 20% of the auction amount at any auction, Bank of Ghana reserves the right to pro-rate those non-competitive bids and to allocate to PDs their prorata shares. Bids submitted by Bank of Ghana for its own account are not subject to these limits Non-competitive bids, which are accepted, will be allotted in full at the non-competitive sale price. The non-competitive sale price for auctions of Conventional bills/bonds will be equal to: i. the average of the prices or rates at which competitive bids have been accepted (under the multiple price system), the average being weighted by reference to the amount accepted at each price or each rate and rounded down to the nearest multiple of GH 100. ii. the uniform allotment price or uniform allotment rate where allotments are in accordance with the single or uniform pricing method. (j) (k) The non-competitive sale price for auctions of Index Linked Bonds will be equal to the uniform allotment price or uniform allotment rate accepted for competitive bids. The BoG will bid on a non-competitive basis. 10

11 (l) CSD will advise each PD of its allotment after each auction. 6.0 Notification of Results 6.1 The detailed results of any auction shall be available from 4.30pm on the Auction Module available to all PDs on the auction day and in any event the Primary Dealer and other non-competitive bidders shall be notified (whether by or by fax) of their allotments by no later than the end of the first Business Day following the auction. 6.2 The BoG will publish a detailed report and analysis of each auction in a press notice and on BOG website by close of business on the first business day following the auction date. Where appropriate, such reports and analyses will include: i. in the case of a Conventional Bills / Bond a. the highest, average and lowest accepted prices or rates (with the pro rata allocation of amounts bid for at the lowest accepted price or highest accepted rate); b. the gross redemption yields equivalent to those prices or rates; c. the total value of accepted non-competitive bids, split between Primary Dealer and third parties on behalf of whom they bid; and d. the ratio of the total value of bids received to the amount on offer, including bids rejected in whole or in part on account of price or rate. e. Volume of bids submitted for the various tenors f. Range of rates submitted for the various tenors 11

12 ii. in the case of an Index-Linked Bond a. the uniform allotment price or uniform allotment rate; b. the pro rata allocation of amounts bid for at such price or rate; c. in the case of an Index-Linked Bond issued at a uniform allotment price, the real yield equivalent to that price (and the assumption made in calculating the real yield); d. the total value of accepted non-competitive bids; e. the allotment split between Primary Dealer and third parties on behalf of whom they bid; and f. the ratio of the total value of bids received to the amount on offer, including bids rejected in whole or in part on account of price or rate. g. Applicable index value 7.0 Payment and Settlement 7.1 Unless otherwise announced, the settlement period for primary issues of Government securities shall be T+1, that is, the first working day after the auction. 7.2 In the case of medium term bond issues open to external investors, settlement shall take place not later than two days after the auction to enable external investors arrange for the domestic currency required for successful allotments. 7.3 The amount of payment to be effected on settlement day for discount securities will be calculated on the basis of the actual number of days to maturity (D), a year of 364 days and the accepted discount rate using the following formula: Cost = F(1-D/364 x r/100) Where F - is the Face or Nominal value D - is number of days r - is the accepted discount rate 12

13 7.4 Settlement for of interest bearing securities, settlement shall be at par unless otherwise stated in the prospectus for the particular issue 7.5 All payments for Government Securities shall be made through the cash accounts of settlement partners at the BoG. Holders of such accounts must ensure that they have enough funds in their accounts at the date of the auction to cover purchases of securities made on their own behalf and on behalf of their clients. 7.6 PDs shall ensure that they have enough funds in their accounts to cover purchases made. 7.7 On the issue and settlement Date, the BoG shall: a. Debit the BoG Cash Account of the successful bidder by the amount the bidder is required to pay for the New Bonds; and b. Advice the CSD to credit the New Bonds sold to the Securities Account of successful bidder. 7.8 CSD shall update the Register accordingly. 7.9 The holdings of each Bondholder shall be recorded by electronic book entry on the Central Securities Depository. 8.0 Underwriting Commitments 8.1 Bank of Ghana may invite PDs to underwrite any unsold securities at the auction within three working days after the auction, i.e. Monday to Wednesday. 8.2 The minimum value of securities underwritten shall be GH 1,000,000 (one million Ghana Cedis) and multiples of GH 100,000 (one hundred thousand Ghana Cedis) thereafter. 8.3 PDs shall be paid the fees as prescribed in the Requirements and Responsibilities of Primary Dealers in the Government Securities Market document. 13

14 9.0 Registration of Applicants 9.1 A register of the Government Securities in electronic book entry form shall be maintained by the Central Securities Depository (CSD). An entry in the Register of the name of an investor shall constitute prima facie evidence that the investor is the legal owner of the securities referred to against his/her name. 9.2 Holders of Government securities shall be registered and have an account with the CSD. For first time purchasers of Government Securities, the Primary Dealer will register and obtain a unique identification number and a securities account number on the CSD for the client. 9.3 Government securities shall only be sold to applicants that have been registered and hold Securities account with the CSD. 9.4 The Register shall contain the following information: i. The Issue Date of the securities; ii. iii. iv. The serial numbers of the securities; The amount, type and maturity of each security held by each investor and the date the investor became registered as owner of the security; The name and address of the investor; and v. Whether the investor is holding the securities as nominee for a beneficial owner. 9.5 Although the Register shall not be open to the public, the CSD shall meet all reasonable written requests for information about the securities held by the investor, on payment to the CSD of a prescribed fee that will be published. 9.6 The Register shall be closed for the purpose of making payments on Existing Bonds five (5) Business Days prior to an Interest Payment Date and the Maturity Date (in each case, the "Record Date"). Accordingly, if the Bonds are transferred to a new Bondholder after the Record Date but 14

15 before an Interest Payment Date or the Maturity Date, the BoG will make the payment in question to the person who was the Bondholder as at the close of business on the Record Date. 9.7 The CSD will act in good faith in maintaining and updating the Register under this clause, and it shall not be responsible for any losses or liabilities suffered or incurred by a Bondholder or other member of the public who relies on information obtained from the Register which is not correct or is misleading as long as the error was not caused by the CSD. 9.8 In carrying out its duties under clause 10 (Secondary Market) and clause 11, the CSD may rely on a Transaction which appears on its face to be genuine and to have been duly signed by authorised signatories of the party or parties to it, or captured in the CSD system by authorised user, and shall not be liable in any way should it later transpire that the Transaction was a forgery or that it was not duly authorised by a party Settlement Defaults 10.1 When a person or an entity fails to comply with the requirements of this Guideline, any Prospectus or notice, the BoG will consider the circumstances of such failure and determine an appropriate remedy. Such remedy may include prohibiting the person or entity from participating in future auctions for its own account, for the account of others, or both. The BoG may also refer such occurrences to the appropriate regulatory agency for enforcement action. In determining whether or not there has been any such failure, the BoG may request, and investors, bidders and Primary Dealers will supply, such information as the BoG may reasonably require for its determination. Any such determination by the BoG shall be conclusive If, notwithstanding a default in making due payment, the BoG accepts payment after the Issue Date, it may charge interest on the amount payable in respect of the period from the Issue Date to the date of payment, at a rate equal to the BoG Prime Rate plus 2% per annum. 15

16 11.0 Redemption on Maturity 1. Proceeds of securities purchased and/or those underwritten at auction shall be paid on maturity to the account of the PDs Commission/Charges/Brokerage Fees 1. Brokerage fees will be paid to the PDs acting on behalf of clients at the auction as prescribed in the Requirements and Responsibilities of Primary Dealers in the Government Securities Market document. 2. PDs submitting orders on behalf of clients at an auction should therefore not levy any charge for such a service. 3. For instruments listed on the Ghana Stock Exchange (GSE), commission or fees regarding secondary market transactions will be in accordance with the rules of the GSE 13.0 Miscellaneous Rules and Procedures 1. Bids once submitted to Bank of Ghana, may not be withdrawn. 2. Inadequately completed bids shall not be eligible for the auction 3. Bank of Ghana shall publish weekly reports and analysis of the auctions, giving details of: i. the range and amount of bids received, ii. the range and weighted average discount and/or interest rate of successful bids for each security, iii. iv. the amount of each security sold, and the amount of the auction dedicated, respectively, to: (a) (b) the financing of the government and the redemption of maturing securities and the activities of the Bank of Ghana in connection with its open market operations. 16

17 4. Bank of Ghana shall also announce publicly the results of any additional auctions held by the Bank in connection with its OMO operations. 5. Bank of Ghana shall monitor and review the operation of the wholesale auction arrangements and make necessary modifications to ensure the smooth running of the new arrangements. 6. Any question relating to the auction may be referred to Bank of Ghana. SECONDARY MARKET a. Market Share PDs are expected to achieve and maintain a market presence sufficient to earn them an appropriate share of secondary market turnover. The BOG expects all PDs to achieve and maintain trading volume of at least 1/3 of its proportional market share of all secondary market activity, on a 6-month rolling average b. Market Making Procedures All dealers must show a commitment to participate actively as market makers over the long-term. Dealers must quote continuous two-way prices in all market conditions. Quotes by a dealer are considered firm, unless otherwise stated. c. Outright Transactions i) Dealing Practices ii) Price Quotations iii) Market lot transactions iv) Value date v) Business hours vi) Confirmation of deals vii) Settlement 17

18 i) Dealing Practices Government bonds/notes shall be traded on a yield basis but settled on a price "plus accrued" (dirty price) basis. Prices are to be quoted in multiples of GH 0.01 for all transactions. Dirty price should be quoted to four decimal places For "when issued" trading on or prior to the auction date, quotations are on a yield basis specified to two decimal places. The prices, based on the transacted yields, are to be expressed to three decimal places Similarly, for new issues sold at auctions, bidding for competitive tenders is on a yield basis with bids specified to two decimal places. The prices, based on the successful yield bids, are to be expressed to three decimal places. Treasury bills are quoted on a rate of discount basis, in percentage terms, expressed to two decimal places. The resultant prices are to be expressed to three decimal places. ii) Price Quotations Primary dealers are expected to make continuous two-way price quotation. iii) Market lot Transaction The standard "market lot" transaction between dealers shall be GH 100,000 for current and 'off-the-run' Government notes/bonds and Treasury bills. iv) Value Date The normal value date shall be the two business days following the transaction date (T+2) (such trades are referred to as regular trades), unless otherwise specified at the time of dealing. 18

19 v) Business Hours Regular Trades: The normal business hours for regular trade are as follows: 9:00 am to 3:00 p.m. from Mondays to Fridays. Cash Trades: The normal business hours for cash trades (same day settlement) are as follows: 9:00 a.m. to 2:00 p.m. from Mondays to Fridays. vi) Confirmation of Deals Issue of Sale/When Issue Message by Seller For interbank transactions, the seller shall create a Sale/When Issue message using trading module and transmit the message to the buyer via the system. For cash trades, the message shall be sent out immediately so that the transaction can be confirmed before the cut-off time. For regular trades, the message shall be sent out not later than system cut-off time on the trade date The message shall include the following information:- i. the seller's code. ii. iii. iv. the buyer's code. the seller's custody code. the buyer's custody code. v. the issue code. vi. vii. viii. the nominal amount of the security sold and the price at which the transaction was effected, coupon interest, if any, and the total proceeds of the transaction. the transaction date and value date of the transaction. the message unit reference number. 19

20 For transactions between banks and BOG, BOG shall transmit instructions to settle the transactions upon receiving confirmations from the banks. Rejection or Confirmation of Deals By Buyer For interbank transactions, the buyer shall on receipt of a Sale/When Issue message from the seller check the details of the transaction. If the details of the transaction are in order, he shall confirm immediately. Otherwise, he shall reject the message and inform the seller of any disagreement, errors or omissions immediately (for cash and other trades). If, for some reason(s), the buyer is unable to inform the seller of any disagreement, errors or omissions immediately for a non-cash trade, the buyer shall do so not later than the next business day following the receipt of the unconfirmed message. For cash trades, the Sale/When Issue message shall be confirmed before the cut-off time; for the non-cash trades, the message shall be confirmed not later than the cut-off time on the value date. For transactions between banks and BOG, banks should confirm the transaction before the value date for regular trades, and within an hour of the transaction for cash trades. vii) Settlement a. Payment against Delivery Unless otherwise mutually agreed to between the buyer and seller, settlement shall be on the basis of payment against delivery of the security transacted. b. Settlement date The settlement of a transaction shall be effected on the value date of the transaction within the time stipulated by the guidelines, if any, issued by the BOG. 20

21 c. Settlement Procedures All settlement procedures shall also be in accordance with the operating rules in relation to the GIS AND BOOK-ENTRY SYSTEMS, specifically the rule on transactions and DVP. d. Interest claim arising from delay in settlement. Where the dealer has caused any delay in settlement, the counterparty shall have the right to claim from the dealer the loss, if any, on the net amount of the transactions, calculated in accordance to the latest ABS guidelines on latement. In the settlement of an interest claim, both parties involved shall observe the rule of non-profit through undue enrichment. GENERAL DEFAULT When a person or an entity fails to comply with the requirements of this Guideline, any Prospectus or notice, the BoG will consider the circumstances of such failure and determine an appropriate remedy. Such remedy may include prohibiting the person or entity from participating in future auctions for its own account, for the account of others, or both. The BoG may also refer such occurrences to the appropriate regulatory agency for enforcement action. In determining whether or not there has been any such failure, the BoG may request, and investors, bidders and Primary Dealers will supply, such information as the BoG may reasonably require for its determination. An aggrieved party to this document may seek redress through arbitration. ORGANIZATIONAL STRUCTURE A. Organization PDs will provide the BOG with an organizational chart of its bond trading unit and the names of individuals with management responsibilities for trading activities. This list should include the following 21

22 a) All individuals with oversight responsibilities for trading activities related to GOG Securities, b) All individuals with authority to buy or sell GOG Securities, including the manager of the relevant department. Any changes in personnel with trading authourity must be reported to the BOG, within seven (7) working days of assumption of duty by such staff: and, c) The Manager for clearing and settlement operations A PD shall not engage any individual who has been sanctioned in activities relating to the GoG Securities Market to perform functions relating to same. Abbreviations ABS - BOG - OMO - CSD - Asset Backed Security Bank of Ghana Open Market Operations Central Securities Depository PDs - Primary Dealers GoG - G-Sec - Government of Ghana Government Securities 22