BoG issues new guidelines for securities market

By Elorm Desewu
The Bank of Ghana has issued fresh guidelines aimed at guiding
the securities market in the country.
The purpose of these Guidelines is to guide the purchase of
government securities on the domestic market to the provisions in the Public
Financial Management Act, 2016 (Act 921).
These guidelines would apply to Primary Dealers and the newly
formed Bond Market Specialists.
These guidelines are not intended to be all-encompassing and it
would be used with reference to other Directives issued by the Ministry of
Finance.
For 2020 and beyond, Government’s efforts at having a
well-structured and a well-functioning money market are still on course. In
this regard and to build on the Joint Book Runners (JBR) system, the government
has streamlined its engagements with investors as a way of further developing
the primary and secondary markets.
To this end, the Government has appointed Bond Market Specialists
(BMS) from within the Primary Dealers and licensed investment dealers to
conduct Government’s bond market operations.
This reform is expected to help improve the efficiency and
transparency of the Ghana Fixed Income Market (GFIM). The erstwhile PDs in good
standing will continue to be the exclusive counterparts of Government in the
auction of only Treasury bills while the BMS shall conduct the issuance of
securities with tenor of 2-years and above.
All dealers (PDs and BMS) will be required to comply with
primary market requirements and responsibilities, conducts and obligations and
notices as may be determined by Government.
In 2019, Government introduced the 364-day bill to replace the
1-year note. Also, a 20- year shelf security was added to meet the needs of
investors for long term assets while providing a cost-effective and stable
source of financing for Government.
In 2015, Government announced changes to the issue and trading
of GOG securities, limiting the number of institutions that could act as
Primary dealers. The changes were aimed at strengthening the primary dealership
system, facilitating the development of the fixed income market and at the same
time, creating a stable environment in which PUBLIC private sector investors
could readily meet their investment needs.
PDs were also obliged to act as market makers in GOG
securities, including quoting two-way prices on designated securities and also
help ensure a transparent price discovery at any point in time.
The weekly wholesale auctions of Treasury bills and 1- and 2-
year Notes were complemented with auctions of longer-dated securities via book
building method involving a selected group of financial institutions, known as
Joint Book Runners (JBRs).
From 1992, the BOG abolished all direct controls of monetary
policy management and resorted primarily to Open Market Operation (OMO) in
conducting monetary policy.
In 1996, the BoG introduced the wholesale auction and a system
of Primary Dealers (PDs) in the Government Securities (G-Secs) Market intended
to enhance the ability to achieve adequate funding for the Government of
Ghana’s (GOG) Public Sector Borrowing Requirement (PSBR) through the
development of reliable primary and secondary markets. Selected financial
institutions were permitted to participate in the periodic wholesale auction.
Each was designated as a Primary Dealer (PD). PDs could
participate in the primary auction as principals for their own accounts.
Individuals and institutional investors, however, could participate in the
market by obtaining their securities from the Primary Dealers.
By the end of 2004, the BOG had introduced the Central
Securities Depository (CSD). The CSD’s objective was to enforce the electronic
book-entry system for the registering and maintaining custody of investors’
holdings in GOG and BOG securities. The establishment of CSD led to the
abolishment of the issuance of physical certificate(s) to those who purchase
GOG and BOG instrument(s).
In 1987, the BOG
introduced the weekly treasury bills tender process. The securities market at
that time was opened to banks, discount houses and the general public, although
the public had to submit their applications through their respective banks. The
tender operated side by side with tap sales where customers were allowed to
purchase bills directly from BOG. The dual process of government auction
continued up until 1992 when Ghana transitioned into a full democracy.
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