(Published in MTimes 14 December 2018)
Policies to support development of a government securities market.
Several measures have already been taken towards providing the basis for a deeper government debt market like improving the government’s cash balances forecast, publishing an issue calendar and information about post auction results, issuance of securities in key benchmark maturities and using the same instrument for both the Treasury’s funding operations and the central bank’s monetary policy operations to avoid market fragmentation.
High-quality information about debt structure, funding needs, and debt management strategies are being made available to market participants and the public at large to improve market access and transparency.
At this stage of the primary market development, priority is being given to strengthen and develop the short end of the market. This requires initiatives related to developing an active money market with competitive bidding and market-determined price setting. Improving auction procedures; transparency in government securities operations and, in some cases, reviewing the issuance plan are also important priority areas in the process. Regular consultations with market participants about the borrowing strategy, market preferences and market situation are also essential.
Some of the financial sector specialists had recommended that one of the important steps to further develop a more liquid secondary market for government securities is to review and improve the enabling environment for the secondary market. Much of it is the responsibility of BOM and MOFED which need to be more pro-active and more focused if we want to see real progress towards the development of a stable and efficient domestic debt market.
The major building blocks recommended for developing the government securities market are as follows:
· To collect and disseminate daily transaction prices to the wider market and consider organizing price fixings on a regular basis to promote price transparency.
· To consider organizing a periodic market such as a call market, as a complement to price fixings.
· To revive the discussion on the electronic trading platform. An electronic trading platform should be established in conjunction with other reforms such as a benchmark issuance policy, securities lending/borrowing, enabling short selling, and agreeing upon price quoting obligations with primary dealer/market-makers
· To review the master repurchase agreement between banks and the procedures for carrying out repos and ensure that they are not too cumbersome for executing repos. The repo is an important tool to facilitate securities lending/borrowing and financing dealer portfolios.
· To review the balance of privileges and obligations for primary dealer/market-makers with the principle of being gradual in enforcing price quoting obligations.
· To adopt a gradual approach in enforcing market-making obligations on primary dealer/market-makers with a focus initially on the short end, followed by longer maturity benchmark notes and bonds; and to carefully calibrate privileges such as exclusive access to auctions, non-competitive subscription, access to liquidity facility and securities lending, etc. against obligations of minimum subscription at auctions, price quoting obligations, providing timely market information, etc
