The Regulation on the Primary and Secondary Markets for issuance of. Government Securities

Transcription

1 I to the public using the Primary Dealer System set forth in section B of this regulation. 1.1 Auction means a bidding process by which the MoF sells Government securities 1. In this regulation the following definitions will apply: Article 1 Definitions SECTION A DEFINITIONS AND GENERAL PROVISIONS as set out below. as throughout this regulation, Section B outlines specific Procedures for Secondary Market Section A contains Definitions and General Provisions that apply to the primary auction as well on Central Bank of the Republic of Kosovo (No.03/L 209) for the Ministry of Finance (M0F) The Central Bank of the Republic of Kosovo acts as fiscal agent under the provisions of the Law Government Securities The Regulation on the Primary and Secondary Markets for issuance of Pursuant to the Law on Public Debt (03/L-175) hereby issues: and issues government securities on behalf of the Government of Kosovo. Government securities participants are allocated securities at prices quoted, while in non-competitive tenders, The Minister of Finance and the Governor of the Central Bank of the Republic of Kosovo, are issued on a competitive and non-competitive basis. In competitive tenders, successful participants are price takers, i.e. government securities are allocated at a pre-determined price, all Transactions and Section C outlines the Primary Dealer System.

2 1.6 CBK means the Central Bank of the Republic of Kosovo. 1.7 Competitive Bid means a discount rate or nominal price and an amount of 2 government securities submitted by a participant in an auction. expressed as the following formula: Government Securities and payment for those Government Securities are accomplished investment of government finds and issuances of domestic debt. the Treasurer, the Governor and the designated staff of the MoF and CBK that approves 1.12 Face Value means the value of a discounted Treasury Bill at maturity Liquidity Committee means the Committee established by MoF consisting of 1.14 Issue Date means that date on which the Government Security is issued and on Treasury Bills. the MoF on behalf of the Government of Kosovo under the Public Debt Law Government Security means Treasury bills and Government bonds issued by 1.11 DVP means Delivery vs. Payment so that the registration of new ownership of 1.10 Discount Rate means the simple interest rate used to establish the nominal price Discount Rate x number of days to maturity x Face Value / 360. of a Treasury Bill. of days to maturity, multiplied by the face value and divided by 360 days. This can be business. 1.5 Business Day means any day in which the Central Bank of Kosovo is open for 1.3 Basis Point means 1/100 of one percent. Bank. under the Banking Laws and regulations of the Republic of Kosovo and the Central recording, sale arid transfer of Government Securities. simultaneously. from which date interest begins to accrue. 1.2 Bank means a joint stock company conducting banking business and licensed 1.4 BES is the book entry system to enable the wholly electronic issuance, 1.8 Discount means the difference between the face value and the principal amount 1.9 Discount Amount or DA, means the discount rate multiplied by the number

3 Par Amount means the Face Value of a Government Bond at original issue Single-price auction means an auction in which all the successful bidders pay 1.30 Settlement Day means the day on which payment is made. becomes due and payable and ceases to earn interest. securities at the weighted average yield, or discount rate of awards to competitive they each bid. bidders Minimum Bid Amount means the smallest amount of a Government Security Face Value the lowest nominal price of accepted bids regardless of the yields or the discount rates bidders. For a multiple price auction, non competitive bid means a bid to purchase 1.21 Non-Competitive Bid for a single price auction means a bid to purchase 1.20 Nominal Price means the Discount Rate x number of days to maturity / 360. = Principal are authorized to enter bids and offers in the BES. in the purchase or sale of Government Securities who is not a Primary Dealer Participant or Investor means any individual or legal person who participates 1.23 Par means equal to the nominal or Face Value of a Government Bond. investors, and non-primary dealers submit bids and offers for trading of Government DA Treasury Bills. This may be expressed as the following formula: that will be issued to a bidder as set forth in these rules. bidder pays the nominal price derived from the yield or the discount rate that was bid. government securities at the same discount rate or yield awarded to the competitive Securities to each other Principal Amount means the Face Value minus the Discount Amount for 1.17 Maturity Date means the date specified on which a Government Security 1.19 Multiple Price Auction means an auction in which a successful competitive 1.22 OTC market means the over-the-counter market created when Primary Dealers, 1.26 Primary Dealers are those banks authorized to submit bids in the auction and 1.28 Yield means the annualized rate of return to maturity expressed as a percentage Treasury means the Treasury Department within the MoF.

4 1.4 The maximum non competitive bid amount is one million (1, ) Euros Face 4 Value and thereafter in multiples often thousand (10,000) Euros Face Value. The Value. Participants with amounts in excess of one million (1,000,000) Euros sales at the primary auction, electronic trading and the central securities open an account in the BES using Form 1. This Form 1 is obtainable at the CBK. who are authorized to submit bids on behalf of their bank or corporate institution. bid can be submitted. The application must contain a list of those natural persons required and multiples, as and when deemed necessary. Advance notice will be provided for any such changes made. minimum and increments. The maximum amount of non-competitive bid amounts Government Security purchased. Therefore, all Primary Dealers are required to using Form I which contains current information on file with the CBK before a transactions through the BES, which term includes the initial electronic auction 1.5 The CBK maintains, records, trades and settles all Government Security in any Auction is ten percent (10%) of the Auction amount. and when deemed necessary. Advance notice will be provided for changes in CBK reserves the right to change the minimum amount required and multiples, as should refer to the rules and guidelines outlined under Section A. 1.3 The minimum non competitive bid amount is one hundred thousand (100,000) CBK reserves the right to change the number of bids and minimum amount Euros Face Value and thereafter in multiples often thousand (10,000) Euros. The 1.2 The minimum competitive bid amount is fifty thousand (50,000) Euros Face 1.6 Primary Dealers who intend to submit bids in an auction must have an application customers participating in Government Securities Auctions. depository. All Government Security records are stored and processed electronically. This means that no physical certificate shall be issued for any 1.1 Only Primary Dealers are eligible to submit bids for their institution and for Eligibility: hereby delegated the authority to implement the provisions of this regulation. The Treasury under the Law on Public Financial Management and Accountability (03/L-48) is General Provisions Article 2

5 5 and separate bids for its own proprietary account. No single bidder may be are irrevocable unless notification is received by the CBK beforel 1:00 AM on the Auction Day. event the customers are successful bidders, then the identity and banking each auction date subject to the sole discretion of the Treasury and the CBK. In the minimum Primary Dealers must submit separate bids on behalf of its customers 1.2 Primary Dealers shall be allowed to submit multiple bid applications. At a The CBK at the direction of the Treasury may issue Treasury bills in primarily Term to maturity: A. TREASURY BILLS Procedures for Primary market Auctions Article The announcement of the Face Value of Government Securities to be auctioned Day. shall be published in at least two (2) of the daily newspapers in Kosovo, one week Securities mature on a public holiday, the payment date will be the next Business prior to auction day and on the CBK website prior to the auction day. four maturity categories: 13 weeks, 26 weeks, 39 weeks and 52 weeks although the I.7 Scheduled Auctions are held on Tuesdays at 11:00 AM. In the event Government Thereafter any corporate institution desiring to update the information in their application must send an updated Form Ito the CBK. Treasury may, at its discretion, choose any maturity up through 3M days. awarded more than fifty percent (50%) of the amount of each maturity offered on information for all such participants must provided to the CBK on or before No bid application can be withdrawn after 11:00 AM on the auction day. All bids tender day.

6 6 at CBK. Primary Dealers agree to pay liquidated damages of 1% of the principal 2.2 The CBK shall pro-rate bids at the cut-off price. This means that the CBK will issue on the CBK website and on the MoF website on the following Business day after 4.2 Settlement of Treasury bills awarded shall be through the bank s current accounts immediately provided electronically to all Primary Dealers and the public. Treasury Bills. Individual results of the tender shall be announced to participants within two (2) hours after the auction through issuance of award notices to auction date or the next Business Day. Any changes to settlement date shall be 4.1 Settlement Day for all Treasury bills awarded is T+1 or one business day after the mechanism as and when deemed necessary. Adequate notice will be given to all participants for any change in the pricing mechanism. price, such that the amount on offer is exhausted. offer, the CBK will proportionally allocate amounts of Treasury bills at the cut-off If bids at the cut-off price exhausting the amount on offer exceed the Face Value on to exclude bids that are not consistent with market fundamentals. 2.3 The Treasury, acting through the CBK, reserves the right to change the pricing 3.3 Electronic statements showing a Primary Dealer s holdings by auction shall be each auction. 3.2 A consolidated summary of the auction results shall be submitted for publication be announced on the CBK website. discount rate of the last bid to be accepted. However, the Treasury reserves the right Treasury bills up to the amount advertised on each maturity category at Face Value. successful bidders and rejection notices to unsuccessful bidders. Results will also available to the Minister and the Governor of the CBK upon request. price awarded to both competitive and non-competitive bidders is the highest 2.1 The CBK applies the single price system to sell Treasury bills. This means that the 3. Announcement of results: 3.1 The Treasury will review the auction results and either accept or reject the sale of 2. Pricing mechanism and allotment: 4. Settlement Procedure:

7 7 and banking account information for each Participant for whom the Primary Dealer 4.3 Primary Dealers are required to submit certain information including the identity awarded securities on or before the announced Settlement Day. maturity date the CBK shall credit the maturity proceeds to the current accounts of regulations. However in the event income on Government Securities becomes taxable, it is the responsibility of the Primary Dealers and other investors to meet the Primary Banks held at the CBK. 5.2 Primary dealers will credit their customer accounts that received maturity 6.2 Income earned on Treasury bills is not subject to taxation as per current tax right to change this fee as and when deemed necessary. 5.3 At maturity, the investor will be paid the Face Value. current account for the payment of au amounts due to be paid. Thereafter on 5.1 On or before maturity date the Treasury shall instruct the CBK to debit the MoF 5. Maturity Payment Procedures: 6. Maturity Settlement Charges: 6.1 The CBK charges a fixed fee on a per transaction basis for all Treasury bill Auction Day. transactions of two (2) Euros. With the Treasury s agreement, CBK reserves the amount of the Treasury Bills awarded them in an auction if they fail to pay for the submitted a bid to the BES central depository at the CBK at the time of submission payments on maturity date. their tax obligations.

8 8 The specific dates of the bond auction shall be announced in the national press Bonds. This means that both competitive and non-competitive bids will be not consistent with market fbndamentals. Bids at the highest accepted yield will amount shall be published in at least two (2) of the daily newspapers in Kosovo, awarded more than fifty percent (50%) of the amount of each maturity tender on irrevocable unless notification is received by the CBK before 11:00 AM on the awarded based upon the price of the last bid to be accepted which will be the same for everyone. It is the equivalent to the lowest price and highest yield at public offering. However, the Treasury reserves the right to exclude bids that are 9.1 The CBK uses the single price auction system to award Government Notes and information for all such participants must be provided to the CBK on or before auction day. minimum Primary Dealers must submit separate bids on behalf of its customers 8.2 Primary Dealers shall be allowed to submit multiple bid applications. At a 8.3 No bid maybe withdrawn after 11:00 am on the auction day. All bids are each auction date subject to the sole discretion of the Treasury and the CBK. In one week prior to auction day and on the CBK website two weeks prior to the and separate bids for its own proprietary account. No single bidder may be and published on the MoF and CBK websites. The announcement of the auction auction day. the event the customers are successfial bidders, then the identity and banking 8.1 Government Note and Bond auctions are held at the discretion of the Treasury. 8. Government Notes and Bond Auction Procedures: maturities up to twenty years. Auction Day. yields, through successively higher yields up to the amount required to meet the which bids were accepted. Competitive bids are accepted starting with the lowest 7.1 The CBK at the direction of the Treasury may issue Government Securities in 9. Pricing mechanism and allotment: 7. Term to maturity: B. GOVERNMENT NOTES AND BONDS

9 9 Primary Dealers of any change in the pricing mechanism. Government Securities shall be available to the Minister and the Governor upon them if they fail to pay for the securities on or before the announced Settlement Auction Day Electronic statements showing a Primary Dealer s holdings by each issuance of on the CBK website and the MoF websites on the following Business day after 10.2 A consolidated summary of the auction results shall be submitted for publication issuance of award notices to successful bidders and rejection notices to unsuccessful bidders. Results will also be announced on the CBK website. 10. Announcement of results: 10.1 The Treasury will review the auction results and either accept or reject the sale of mechanism as and when deemed necessary. Adequate notice will be given to all Government Notes and Bonds. Individual results of the auctions shall be announced to Primary Dealers within two (2) hours of the auction through Primary Dealer submitted a bid to the BES central depository at the CBK on current accounts at the CBK. Primary Dealers agree to pay, liquidated damages of identity and banking account information for each Participant for whom the shall be submitted to all Primary Dealers and the Public. Day. Primary Dealers are required to submit certain information including the 11.2 Settlement of Government Notes and Bonds awarded shall be through the banks day after the auction date or the next business day. Any changes to settlement date one percent (1%) of the par amount of Government Notes and Bonds awarded to 11.1 Settlement Day for all Government Notes and Bonds awarded is on T±l or one 9.2 The Treasury acting through the CBK, reserves the right to change the pricing 11. Settlement Procedures: offering published amount. each auction. request. be prorated, if necessary, to award a par amount of securities close to the public

10 10 or interest payment date, the CBK shall credit the maturity or interest proceeds to the ownership of the Bonds will be credited with their maturity or interest payments by investors to comply with applicable tax laws. the bank on the same day. Banks current accounts held at the CBK. Bank customer accounts that have current account for the payment of all amounts due to be paid. Thereafter, on maturity stated in the announcement. change this fee, with the agreement of the Treasury, as and when deemed necessary. becomes taxable, it is the responsibility of the Primary Dealer and subsequent taxation regulations. However, in the event income on Government Notes and Bonds 13.2 Income earned on Government Notes and Bonds is not subject to tax as per current by the CBK with the agreement of the Treasury. The CBK reserves the right to transactions of two (2) Euros. The charge is a fixed charge per transaction established 13.1 The CBK charges a transaction fee for all primary Government Note and Bond 13. Settlement Charges: 12.3 Interest payments are made semi-annually (i.e. every six months) unless otherwise 12.1 On or before maturity date the Treasury shall instruct the CBK to debit the MoF 12. InterestlMaturity Payment Procedures: 12.2 At maturity, the investor shall be paid the Par amount and the last interest payment.

11 II Dealers. For further details, investors wishing to participate by submitting a noncompetitive bid shopid contact any Primary Dealer. auction through a Primary Dealer. Customers may use only one Primary dealer in any through the Primary Dealers. transaction from the bidder. The Government Securities shall be credited to the auction price. 1.3 The CBK maintains and processes all Treasury bill and Government Note and Bond 2.1 The CBK shall allocate non-competitive government securities at the single price 2. Pricing mechanism and Allotment: Primary Dealers shall provide the identity and banking information for all participants and the CBK shall issue electronic award notices to all such successful participants credited to their customers accounts. Primary Dealer of the total amount of Treasury bills and Government Notes and Bonds shall be issued for any Treasury bills or Government Notes and bonds purchased. The records are electronically stored and processed. This means that no physical certificate customers account of the Primary Dealer in the BES. The CBK shall notifs the 1.4 All Treasury bills and Government Notes and Bonds issued as a non-competitive transactions through the BES. All Treasury bill and Government Note and Bond transaction shall be paid by debiting the Primary Dealer account at the CBK and it will one auction. 1.2 Participants shall be allowed to submit only one bid per government security per 1.1 Non-competitive transactions shall be conducted through the CBK and Primary 1. GENERAL PROCEDURES: A. TREASURY BILLS AND GOVERNMENT NOTES AND BONDS be the responsibility of that Primary Dealer to secure payment for the non-competitive Procedures for Non-Competitive Transactions Article 4

12 12 3. Maturity proceeds: Settlement Date. applications to the Primary Dealer or with the consent of the Primary dealer on the Primary Dealer s current account at the CBK. Participants should ensure that funds are lodged with the Primary Dealer at the time of submission of bid 2.3 All Treasury bills and Government Notes and Bonds awarded shall be settled through mechanism as and when deemed necessary. Adequate notice will be given to all Primary Dealers of any change in the pricing mechanism. COMPETITIVE BASIS commercial bank or with the CBK. A. REDISCOUNTING OF GOVERNMENT SECURITIES PURCHASED ON A Procedures for Rediscounting Transactions Article S customer accounts the same day. the CBK will credit the Face Value or the par value of the government securities to the Primary Dealers current account(s) at the CBK and each primary dealer will credit bank would first seek to enter into a repurchase agreement with either another 1.1 It is expected that prior to exercising the rediscounting facility that a commercial current account for the payment of all amounts due to be paid. Thereafter, on maturity Commercial banks: 2.2 The Treasury acting through the CBK, reserves the right to change the pricing 3.1 On or before maturity date the Treasury shall instruct the CBK to debit the MoF

13 13 rates applicable are the CBK rediscount rate, which is calculated at twenty-five and utilization of the BES, which can be accessed only by Primary Dealers and CBK. and offer must be communicated to the Primary Dealers and electronically entered into the BES separately by each of the Primary Dealers. The bid and offer price, the 1. All trading of Government Securities in the secondary market shall be effected through Procedures for Secondary Market trading Article Rediscount proceeds shall be credited to the current account of the respective bank. PROCEDURES FOR SECONDARY MARKET SECTION B 1.4 After processing the rediscount application, the CBK shall issue a rediscount notice. CBK. 1.3 Application forms for rediscounts can be obtained from the CBK website, or at the CBK reserves the right to reject any application. B. REDISCOUNTING OF GOVERNMENT SECURITIES PURCHASED ON A NON- Rediscount applications should reach the CBK by 15:00 PM on any business day. The to change the monthly limit and rediscount penalties as and when deemed necessary. market price, then the primary auction price will be used. The CBK reserves the right COMPETITIVE BASIS required to facilitate all secondary market transactions. Securities equal to fifteen percent (15%) of Tier I Capital for each bank. The penalty percent (25%) of the lowest price in the secondary market, or if there is no secondary Government Securities up to a monthly maximum of the Face Value of Government Treasury bills and Government Bonds purchased on non competitive basis shall not be directly rediscountable at the CBK. Investors wishing to sell Government Securities in the secondary market shall do so through the Primary Dealers, who under this regulation are agreement is reached between two parties on each side of the trade transaction, the bid 1.2 The minimum rediscountable amount at the CBK is one million (1,000,000) Euros of 2. An OTC market is also required to operate in conjunction with the BBS. When an

14 3. The BES will match the electronic trade information entered by each Primary Dealer and 4. Trading hours will be every day the CBK is open for business from 10:00 am to 2: The Primary Dealers are committed to participate in the Primary Market and to enhance 3. Primary Dealer activities include the outright purchase and sale and lending of Government 4. Primary Dealers will be authorized by the CBK and registered as Primary Dealers. The CBK in consultation with the Treasury will regulate the Primary Dealers regarding their rights and obligations for all Government securities transactions. General Provisions Article 7 PRIMARY DEALER SYSTEM SECTION C pm. However the hours for market operations can be changed by the OK upon notice to business day. the BES and the current accounts of the Primary Dealers at the CBK will be debited or all Primary Dealers. thereafter clearing and settlement will occur electronically on the books and records of credited accordingly, as directed and authorized by the information entered by the Primary Dealers. Settlement date for all secondary market trades will be T1 or the next government securities which shall include a master repurchase agreement form. Secondary market trading activities. Securities. A separate regulation shall be promulgated on the sale and lending of responsibility of both parties to ensure that the correct information is submitted. to occur between a primary Dealer and its own customer, then both sides of this identification of the security to be traded, account information as well as certain other information will be entered into the BES by each Primary Dealer. In the event a trade is transaction will be entered into the BBS by that Primary Dealer. It will be the

15 15 established by Treasury and the CBK. 5.3 Identification of persons authorized to act on behalf of the Bank as a Primary Dealer, 1.2 Primary Dealers shall abide by all primary issuance auction rules and regulations participant bids must be separately submitted by a Primary Dealer. 1.1 Primary Dealers shall submit bids for their proprietary account and all other and responsibilities of Primary Dealers set out in this regulation. Non-compliance could agreement. Securities quarterly to determine if individual Primary dealers are fulfilling the requirements 7. The Liquidity Committee shall review all of Primary Dealers activities in Government Department at the CBK, recommend the acceptance or non-acceptance of each bank to act as Primary Dealer. Based 5.4 Disclosure of any findings andlor disciplinary actions taken by the Bank Supervision 5.2 Institutional and operational integrity benchmarks. 5.5 Other criteria as may be deemed necessary by the Treasury or CBK. 5.1 Capital and Liquidity requirements as established by the CBK, Primary Dealer Auction Obligations Article S 7.2 Permanent revocation of Primary Dealer status. compliance with the following: upon this recommendation the CBK and each Primary Dealer will sign a Primary Dealer result in the following actions: General Provisions: 5. The CBK will approve specific banks to apply for Primary Dealer status based on their 6. The Liquidity Committee will review the applications for Primary Dealer status and 7.1 Temporary Suspension of Primary Dealer status; or

16 16 orders with the intend to profit by trading in the securities later. the Government security being auctioned. auctions timing, amounts and maturity which may include: Securities. hundred (100,000) Euros on the BES trading platform for all outstanding Government 2.3 Primary Dealer proprietary auction bids must conform to prevailing market levels for Committee will monitor all Primary Dealer activity to determine if each of the 2.2 A Primary Dealer is required to submit winning bids on a regular basis. The Liquidity 3.2 The Treasury will meet with individual Primary Dealers to discuss matters 4.2 Primary Dealers are required to maintain firm bids and offers for a minimum of one advice and recommendations regarding future debt issuances. secondary market for Government Securities Specific auctions no later than three business days prior to the auction date. 4. Primary Dealer Secondary Market Requirements: A monthly announcement of the following month s issuing pians A quarterly estimate of borrowing plans for the following quarter. 3.3 The Treasury will make regularly scheduled public announcements concerning future concerning the dealer or general market conditions. those of the Primary Dealer. A Primary Dealer shall not trade or place an auction order as principal for government securities ahead of customers trades or auction Primary Dealers is fiulfihling its obligation to submit competitive, winnable bids. 2.1 Primary Dealers must give preference to customer trades and auction orders over 3. Treasury Obligations: 3.1 The Treasury will regularly meet with Primary Dealers for the purpose of receiving 4.1 The Treasury and the CBK are responsible for monitoring the activities in the 2. Primary Auction Requirements:

17 5.1 Primary Dealers are prohibited from receiving or paying any fees or commissions for 1.2 Banks must follow the reporting procedures established by the CBK. 17 activities in the secondary market, other than the sale or bid price quoted. specifically required to provide and maintain, at its own expense, the interfaces and non-primary Dealer institutions or individuals. However all transactions must be Government Securities and any other reports not produced by the BES system as may Primary Dealers, customers, the CBK and the BES. Each Primary Dealer is 2.2 Communications equipment consistent with maintaining communications with other 1.4 Primary Dealer must maintain a record of their daily inventory financed through 2.1 A Primary Dealer must have designated office space for trading and sales personnel. 2. Technical Requirements: Repurchase Agreements. be requested by the CBK and/or the Treasury: 1.3 Primary Dealers are required to generate monthly profit and loss reports for their well as Secondary Markets as required by the Treasury and the CBK. 1.1 Primary Dealers must maintain records for their respective activities in the Primary as Reporting and Technical Requirements Article 9 5. Primary Dealers compliance requirements: secondary market activity determined by the Liquidity Committee. entered into the BES. Reporting Requirements: 4.3 Each Government Securities Primary Dealer should maintain a minimum level of 5.2 OTC market trading is specifically authorized between Primary Dealers and between

18 All individuals with authority to buy or sell Government securities, including The Manager for clearing and settlement operations. Yield-To-Maturity. Treasury department and the names of individuals With management responsibilities authority must be reported to the Treasury and CBK. Government securities All individuals with oversight responsibilities for trading activities related to for trading activities. This list should include the following: 1.1 Primary Dealers will provide the Treasury and CBK with an organization chart of its 1. Organization: Organizational Structure Article 10 CBK. 1) And such other reports as may be required by the Treasury and the a) Daily profit and loss. e) Credit review of current open trades with customers Internal technical capabilities for providing reports on the following: b) Fax machines. a) Interconnected telephone system with at least one (1) line per trader c) Desktop computer and printer. e) Trading and data screens capabilities. c) Trading and sales activity Additionally each Primary Dealer must provide: d) Financial Calculators or programs for calculating securities prices and d) Customer activity. all other necessary IT equipment including PCs and workstations required to access the BES and CBK: and salesperson. b) Daily mark-to-market valuation. the manager of the department. Any changes in individuals with trading

19 19 activities and risk limits with regards to institutional organization and policies. These with customers including limits on Repurchase Agreements on a per customer engaging in any activities which could restrict the pricing function of a free and open market for Govermnent securities. The following activities are considered restrictive rumors or false information about the market, price levels or market participants. generate activity Compliance Policy that establishes a system of monitoring institutional and receive any form of compensation, monetary or otherwise, as inducement to Customer Inducements - Customers may not be provided or dealer personnel Market Misrepresentation - Primary Dealer personnel may not disseminate Government Securities. individual compliance to regulations concerning sales and trading by, the functioning of the market, violate this regulation and are likewise forbidden. 1.1 Primary Dealers and their personnel are restricted from making any statements or 1. Personal Integrity: Personal Integrity Article 11 or counter-party basis Credit Policy that enumerates procedures for establishing limits on open trades should include: Risk Policy procedures for establishing institutional position limits in Departmental Risk Policy procedures for establishing individual trader position Central Bank of Kosovo and the Treasury. and in violation of this regulation. Other activities, not stated here, which inhibit the barred from securities investing, trading or sales activities by the Central Bank or any other stock exchange. limits and limits for all counterparts in Government securities. 1.2 A Primary Dealer may not employ any individual that has been officially censured or 2. Systems and Procedures: 2.1 Each Primary Dealer will establish and present its procedures for monitoring trading

20 years. 20 by the commission of the criminal offence. market. Ownership of equities, bonds, mutual funds or other financial each perpetrator shall be punished by a fine and imprisonment of three to before engaging any personal trading or investment activity in Government securities or in activities which are directly related to the Government securities operates as a fraud or deceit to other market participants shall be punished by a results in a material gain exceeding five hundred thousand (500,000) Euros, If the criminal offence provided for in paragraphs I and 2 of the present article fine and by imprisonment of up to five years. his or her property shall be punished by fine and by imprisonment of up to five 1.1 Securities collusion and fraud is a crime so that: Criminal Activities: Criminal Penalties Article Personal Trading Whosoever, with the intent to obtain an unlawful benefit for himself, herself or otherwise engages in any transaction, practice or course of conduct that to manipulate market prices or obstruct the efficient fimctioning of the market Manipulation Whosoever participates in the buying or selling of securities in the Government Primary Primary Dealer personnel must obtain compliance approval instruments should be reported to the dealer s compliance officer or the appropriate dealer management. Securities market and colludes with one or more other participants with the buying or selling of Government Securities that operates as a fraud or deceit, or Dealers may not engage in activities which are intended intent to affect the market in terms of yield, price, or the amount of Government Securities purchased in the auction or in the secondary market, or another person engages in any transaction, practice or course of conduct in the thereby induces a person to do or abstain from doing an act to the detriment of twelve years and further be subject to confiscation of material benefits acquired

21 Article 13 Primary Dealer Association 1. Primary Dealers viii establish a Primary Dealer Association and each Primary Dealer must maintain an active membership. 2. The Primary Dealers Association will propose trading rules, procedures and changes to existing regulation to the Treasury and CBK for approval. These trading rules and procedures will include but not be limited to: 2.1 Method of price quotations to other Primary Dealers in markets making. 2.2 Standard amount. 2.3 Maximum spread, 2.4 Standard settlement. for secondary market trades, 2.5 Trading hours, 2.6 Method of price quotations for non-standard transactions This Regulation is approved and effective as of the date set out below. Date: 4//2i / / // Bedri klarnza j Minister of Finance Øani Gerguri Governor of the Central Batik of the Republic of Kosovo 21