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.