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REPUBLIC OF GHANA
PRIMARY DEALERSHIP IN GHANA
REQUIREMENTS AND RESPONSIBILITIES
OF PRIMARY DEALERS
IN THE GOVERNMENT SECURITIES MARKET
Requirements & Responsibilities for
PDs in Government Securities Market
December 2015
TABLE OF CONTENTS
A.
Introduction............................................................................................................. 3
B.
Definition of Terms................................................................................................... 4
C.
General Provisions .................................................................................................... 6
D.
SPECIAL INSTITUTIONS ........................................................................................... 6
E.
Eligibility.................................................................................................................. 6
F.
Procedure for Authorization....................................................................................... 7
G.
Responsibilities in the Primary Market ........................................................................ 8
H.
Reporting Requirements ........................................................................................... 9
I.
Organizational Structure ........................................................................................... 9
J.
Benefits of Primary Dealership..................................................................................10
K.
Primary Dealers Association .....................................................................................10
L.
Customer Relations .................................................................................................10
M. Restrictions and Activities ........................................................................................11
N.
Taxation .................................................................................................................12
O. Dissemination of Information ...................................................................................12
P.
APPENDIX I ............................................................................................................13
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Requirements & Responsibilities for
PDs in Government Securities Market
December 2015
A. Introduction
1. Preamble
In 1996, Bank of Ghana (BOG) introduced a system of Primary Dealers (PDs) in the
Government Securities (G-Secs) Market which was intended to enhance the ability of
BOG to achieve efficient funding of the Government of Ghana’s (GOG) Public Sector
Borrowing Requirement (PSBR) through the development of strong primary and
secondary markets. BOG/GOG is committed to the development of the fixed income
securities markets not only for the sourcing of funds for government from a rationalized
and efficient market, but also, to facilitate the development of the overall financial
market as a source of longer term financing for government and to enhance monetary
policy operations. The development of the Fixed Income Market will, over time, create a
favourable environment for the growth of cheaper private sector debt financing and the
consequent growth of the domestic economy. It is the objective of the financial
authorities to strengthen the institutional framework of the Primary Dealership system
and the overall debt market.
2. The Role of Primary Dealers
Primary Dealers (PDs) are institutions authorized by BOG and licensed by the Securities
and Exchange Commission (SEC) and thereby made eligible and responsible to
participate in the wholesale auctions conducted by the Bank on behalf of GOG and
through whom the Bank distributes the securities it issues for itself and for GOG. PDs
are also required to participate in all other processes for the issuance of GOG securities.
To accomplish the objectives, both primary and secondary markets need to be broad
and efficient and the secondary market needs to be liquid. In return for a set of
obligations, such as committing to support the take up and distribution of GOG debt at
the auctions and making continuous bid and offer prices in marketable G-Secs, these
firms receive a set of privileges in the market.
The objectives of the PD system are:
i.
to secure maximum participation in the auctions of G-Secs, so assuring the MOF
of a strong voluntary take-up of G-Secs at the primary auctions, at the lowest
possible cost that reconciles the conflicting goals of cost of finance, risk
mitigation and ultimately the terms on which the government is able to finance
its deficit and capital market development.
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Requirements & Responsibilities for
PDs in Government Securities Market
December 2015
ii.
to improve liquidity in the secondary market through a system of market-making
which obligates PDs to quote firm 2-way prices in Fixed Income Market within a
certain spread and to improve the functioning of the primary market.
B. Definition of Terms
Broker/Dealer - Any entity, licensed by SEC, engaged in the business of buying or selling
securities on its own behalf or for others.
Competitive Auction - An auction in which PDs are required to submit bids at reasonable
rates / prices.
Customer - Customers are all Non-PD institutions or individuals that purchase or sell G-Secs or
engage in Repurchase Agreements in G-Secs with a Dealer.
Dealer - An entity that stands ready and willing to buy a security for its own account (at its bid
price) or sell from its own account (at its ask price). A firm acting as a principal in a securities
transaction.
Dutch Auction - An auction in which the lowest price (highest yield) necessary to sell the
entire offering becomes the price at which all securities offered are sold. This is also known as a
single-price auction.
Financial Market Regulators - These include the Bank of Ghana (BOG), Ministry of Finance
(MOF), the Securities and Exchange Commission (SEC), Ghana Stock Exchange (GSE) and the
National Insurance Commission (NIC).
Government Securities (G-Secs) - All G-Secs, (bills, notes and bonds), which constitute
direct, unsecured and unconditional obligations of the GOG. The principal and discount/interest
on G-Secs will be charged on the Consolidated Fund. BOG, on behalf of the Government of
Ghana and other agencies of Government issues all securities1. The Bank may also issue
securities in its own name for its Open Market Operations. The securities may be issued
through the wholesale auction, book-building or any other processes.
Inter-Dealer Brokers - An intermediary between Dealers in securities who matches ‘best’ bids
with the ‘best’ offers to arrive at the right price.
Issue Date - The date on which securities are issued and from which they begin to accrue
interest.
1
For the purpose of these guideline, BOG acts on behalf of the MOF.
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Requirements & Responsibilities for
PDs in Government Securities Market
December 2015
Market Maker - A bank or brokerage company that stands ready to offer a bid and ask price
on any trading day.
Maturity Date - The date on which a security becomes due and payable.
Multiple-price Auction – A competitive auction whereby securities are sold at the highest
price / lowest yield and each successful bidder pays the price that was bid.
Notional Bond Holding Limit – The minimum amount a PD is required for trading in GoG
securities.
Primary Dealer - Any entity duly licensed by SEC and authorized by the BOG to participate in
the primary auction of GOG securities and to make market in the secondary market.
Primary Dealer System - A system whereby qualified and approved institutions are given
exclusive rights to purchase all securities issued for resale and, in which, they support
secondary market activity.
Primary Markets - The market in which new securities are issued either by government, BOG
or by COCOBOD or any other corporate institutions in order to raise funds.
Proportional Market Share – A theoretical number representing each PD’s share in the
market, calculated as total market activity divided by the number of PDs. For example, if there
are 10 PDs, each would have a proportional market share of 10%.
Regulatory Authorities - MOF and Financial Regulators of the different operators in the
financial market i.e. BOG, SEC, GSE and NIC.
Repo or Repurchase Agreement - A transaction with a commitment by the seller of a
security to buy it back from the purchaser at a specified price at a designated future date.
Also called a repo, it represents a collateralized short-term loan. From the purchaser's
perspective, the deal is reported as a reverse repo.
Secondary Market – Post-primary market trading in issued debt securities.
Single Price Auction – see Dutch Auction.
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Requirements & Responsibilities for
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December 2015
Underwriting – The process by which authorized firms or institutions raise investment
capital/funds from investors on behalf of government and corporations that are issuing
securities.
C. General Provisions
1. PDs in Ghana are financial institutions licensed by SEC and authorized by BOG to
participate in the wholesale auctions of debt securities conducted by BOG on behalf of
GoG and its agents.
2. The main roles of the PDs are:
i.
To buy, market and distribute the Primary Issuance of debt securities;
ii.
To actively participate in the secondary market for debt securities, thereby,
facilitating price discovery and developing liquidity in the debt securities market;
iii.
To be an active and effective participant in the BOG’s Open Market Operations
(OMO); sales of BOG Bill
iv.
To participate in the Book-building and other auction processes; and
v.
To participant in the Commodity Bills Auction such as Cocoa Bills and Grain Bills.
Other corporate bonds which are deemed eligible by BOG for Repo and reverse
repo operations.
D. SPECIAL INSTITUTIONS
1. BOG is designated as special institution that is permitted to participate in the primary
auction.
E. Eligibility
1. Applying institutions must be incorporated under the relevant laws of Ghana and be
licensed by the relevant statutory body and/or regulator. Such that:
i.
The Institution must be licensed by SEC to deal in securities.
ii.
Banks and non-banks must be licensed by BOG as PDs.
iii.
Other Institutions should:
a. Be licensed by SEC Ghana to deal in securities;
b. Be authorised by BOG as a PD;
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Requirements & Responsibilities for
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December 2015
c. Be engaged in the securities business and demonstrate active participation
and expertise in the fixed income securities market;
d. All applying institutions should be in good standing with their respective
regulators at the time of their application.
2. Once approved as a PD, all activities in G-Secs shall fall under the supervision of the
BOG.
3. Applicants shall establish units that are dedicated to the conduct of operations in GSecs. These units will have a minimum of Fifty million Ghana Cedis (50,000,000.00)
Notional bond holding limit for their operations in the G-Secs business. The minimum
Notional Bonds Holding Limit (NBHL) may be reviewed and modified by BOG in
consultation with other relevant stakeholders.
4. Applicants must demonstrate appropriate managerial and securities trading capability.
5. Applicants must have adequate systems, equipment (including communications
equipment), and procedures (including the segregation of front, middle and back
offices) in order to manage their business safely and to fulfil their obligations and duties
as PDs.
i.
PDs must be fully computerized and their equipment should include:
a. The Central Securities Depository (CSD) Auction Terminal for bid
submission and settlement.
b. Communications equipment consistent with maintaining communications
with other PDs, customers and BOG.
c. Information technology capable of disseminating market information,
such as Bloomberg, Reuters or any proprietary system that may be
developed with the approval of BOG.
d. Voice recording system.
e. Any other system requested and approved by BOG.
f.
Connection to the BOG high value settlement system (RTGS).
F. Procedure for Application and Authorization as Primary Dealer
1. An eligible institution will be required to submit an application for authorization as a PD
to BOG for consideration.
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Requirements & Responsibilities for
PDs in Government Securities Market
December 2015
2. The consideration will include a visit to the institution’s premises to inspect facilities and
arrangements made for the efficient conduct of its business as a PD.
3. Where an applicant is considered eligible, fit and proper, an approval in principle will be
granted.
4. The applicant will be required, thereafter, to:
i.
Submit an Undertaking to BOG in the form as per Appendix 1 attached.
ii.
Establish a reporting relationship with BOG.
iii.
Get connected to both the Auction and Securities Depository Systems for bid
submission and settlement and/or any other system approved by BOG.
iv.
Open Clearing/Settlement Account with BOG.
5. Upon compliance with the requirements in (4) above, BOG will then issue the applicant
with a letter of authorization to operate as a PD.
6. Failure to comply with the “Primary Market Requirements”, as described below, can lead
to the suspension or revocation of PD status.
G. Responsibilities in the Primary Market
1. PDs shall abide by all primary issuance auction rules and requirements established by
BOG.
2. PDs must support the primary issuance auctions actively by bidding their proportional
market share.
3. PDs shall take up a total amount equal to, at least, 70% of their proportional market
share of all auctions over a rolling six-month period. This applies to sales of all
maturities.
4. BOG shall review all bidding activities of PDs for the period of the preceding six months
to determine if individual dealers are fulfilling their bidding requirements. Noncompliance may result in the following actions:
i.
A warning letter stating that the dealer is not in compliance. The letter will state
the nature of the problem and the date by which it must be rectified.
ii.
Delisting / loss of PD license after non-compliance for the second consecutive
time.
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Requirements & Responsibilities for
PDs in Government Securities Market
December 2015
H. Reporting Requirements
1. Reporting Requirements
i.
CSD shall be required to furnish BOG and the market with monthly reports on
PDs’ activities in the primary market.
ii.
BOG may request PDs to provide any additional information from time to time.
2. PDs shall have internal technical capabilities for providing current reports to
Management, Traders, Salesmen, BOG and other relevant regulatory authorities.
3. BOG shall apply the following sanctions against non-compliance with the reporting
requirements:
i.
Issue a warning letter, stating the nature of non-compliance to the PD.
ii.
Suspend the right of the PD to participate in Auctions.
I. Organizational Structure
1. Organization
PDs will provide the BOG with an organization chart of its PD unit and the names of
individuals with management responsibilities for trading activities. This list should
include the following:
i.
All individuals with oversight responsibilities for trading activities related to GSecs.
ii.
All individuals with authority to buy or sell G-Secs, including the manager of the
unit. Any changes in personnel who have trading authority must be reported to
the BOG immediately.
iii.
The managers of the front, middle and back offices.
2. Systems and Procedures
A PD shall establish, and submit to BOG, its procedures and systems for monitoring
trading activities and risk limits with regard to institutional and organizational policies.
These should include:
i.
Credit Policy that describes procedures for establishing limits on open trades with
customers including limits on Repurchase Agreements on a per-customer or
counter-party basis.
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Requirements & Responsibilities for
PDs in Government Securities Market
December 2015
ii.
Risk Policy procedures for establishing institutional position limits in G-Secs.
iii.
Risk Policy measures for establishing individual trader position limits in G-Secs.
iv.
Compliance Policy that establishes a system of monitoring institutional and
individual compliance to regulations concerning sales and trading by the
regulatory authorities.
J. Benefits of Primary Dealership
1. BOG, in collaboration with the MOF, shall determine specific benefits that accrue to the
PDs. The BOG/MOF reserves the right to modify these benefits from time to time.
2. PDs have the exclusive right to bid at the auctions for their own portfolios and their
trading books.
3. PDs shall purchase securities, warehouse and sell at a spread.
4. The MOF/BOG will publish a league table of the five best performing PDs on an annual
basis to recognize the participation of PDs in both the primary and secondary markets in
fixed income securities.
5. PDs will receive balance of payment supports.
K. Primary Dealers Association
1. PDs shall be required to belong to an association to be known as the “ACI Ghana”, or
any other suitable name.
2. The Association shall promote fair trading practices and undertake to educate investors
and, in general, promote the development of the market.
L. Customer Relations
1. The primary contact with a customer shall be through a well trained officer in treasury
products. The PD is responsible for the regular training as well as the actions of its sales
officers.
2. PDs shall comply with the following rules for customer activities:
i.
All information concerning customer activity is confidential and should not be
provided to any party outside the individual PD with the exception of fulfilling the
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Requirements & Responsibilities for
PDs in Government Securities Market
December 2015
appropriate reporting requirements to the regulatory authorities or competent
court of jurisdiction.
ii.
PDs shall not refuse a request to offer listed/quoted securities to a qualified
institutional investor or individual investor without any justifiable reason.
iii.
Officers shall make requests for customers’ bids or offers to the appropriate
traders. They are required to relay the prices given by the traders to the
customer and immediately provide the customer's response back to the trader.
The flow of prices and information shall be without delay. The officer represents
the customer and must accurately reflect all requests and responses to the
traders in a timely fashion.
iv.
An officer is not allowed to trade for a customer's account without proper
authorization. Standing orders may be placed by the customer and be
subsequently filled by the dealer but the completion of the trade must be
immediately reported to the customer and details confirmed within 24 hours.
Customers shall provide financial information to the PD in order for the PD to
make judgments as to the suitability of the type and the amount of business the
customer is willing to engage in.
v.
Institutional / Corporate customers shall provide the dealer with a mandate
document which will specify the person(s) authorized to enter into transactions
on the customer's behalf.
vi.
PDs shall determine whether a customer's activities are appropriate. They shall
not make decisions for customers but may decide not to participate in a specific
transaction on the basis of appropriateness. Salesmen are responsible for
knowing their customers and their financial strength. A refusal to participate in a
trade should be made with the knowledge of the dealer's management. A dealer
may refuse any transaction that is above the customer's trading limit.
M. Restrictions and Activities
1. PDs and their personnel shall exercise circumspection in the making of statements or
engaging in activities relating to the pricing of fixed income securities. The following
activities are considered restrictive and in violation of this rule:
i.
Market Misrepresentation - PDs’ personnel shall not disseminate rumours or false
information about the market, price levels or market participants.
ii.
Manipulation - Neither PDs nor any other market participant(s) may engage in
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Requirements & Responsibilities for
PDs in Government Securities Market
December 2015
activities, which are intended to manipulate market prices or obstruct the
efficient functioning of the market.
iii.
Personal Trading – The PD’s personnel are restricted from any personal trading
or investment activity in fixed income securities in the secondary market without
prior notice being given to and approval received from the dealer’s compliance
officer. Ownership of equities, bonds, mutual funds or other financial instruments
shall be reported to the dealer's compliance officer or executive management.
iv.
Collusive Activities - Traders and other treasury officers are strictly prohibited
from activities with other dealers, customers, and individuals within the Primary
market resulting in transactions that do not reflect proper market conditions.
v.
Other activities, not stated here, which inhibit the functioning of the market are
likewise forbidden.
2. An adjudicating body comprising the BOG, the Financial Market Association of Ghana
(FMAG), the Association of PDs and other stakeholders shall supervise the general
conduct of participants and apply the appropriate sanctions against all persons engaging
in activities which jeopardize the efficiency of the marketplace. Where it is a corporate
body, its PD status may be revoked.
N. Taxation
Income earned on GOG Securities will be subject to the existing Tax Law in Ghana.
O. Dissemination of Information
1. The BOG may request that a PD comment or make recommendations on policies,
market conditions or other matters that relate to the debt securities market. Requests
outside the PD unit are forbidden.
2. The receipt of confidential information from any unauthorized source must be reported
to the PD’s management and immediately reported to the BOG by the appropriate PD’s
officer.
3. Failure to comply with these mandates or the dissemination of confidential information
may result in disciplinary action by the BOG or the appropriate regulatory authorities.
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Requirements & Responsibilities for
PDs in Government Securities Market
December 2015
P. APPENDIX I
TO:
THE HEAD
TREASURY DEPARTMENT
BANK OF GHANA
ACCRA.
UNDERTAKING FOR PRIMARY DEALER AUTHORISATION
WHEREAS the Bank of Ghana (BOG), in response to our application, has offered in principle to admit
ABC BANK [name of institution]
As a Primary Dealer in debt Securities in accordance with the Revised Guidelines dated DD/MM/YYYY
for Primary Dealers in Fixed Income Securities Market together with the related documents including the
Code of Conduct for Primary Dealers and after studying:
(i)
The Requirements and Responsibilities of Primary Dealers (PDs) in the Government
Securities;
(ii)
The Guidelines for the Government Securities and Information Memorandum for the
Issue of debt securities in Ghana.
(iii)
The Code of Conduct for Primary Dealers in Government Securities market in Ghana.
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Requirements & Responsibilities for
PDs in Government Securities Market
December 2015
HEREBY make and furnish the following undertaking as a precondition to our being authorized
as a Primary Dealer.
1. To commit to actively participate in all the auctions of debt Securities.
2. Primary Dealers shall take up a total amount equal to, at least, 70% of their proportional
market share of all auctions over a rolling six-month period. This applies to sales of all
debt securities.
3. To offer firm two-way quotes, at standardized spreads and for standardized size as
established by in the Ghana Fixed Income Manual.
4. Primary Dealers may trade Government Securities at a fixed spread as detailed in the
“Requirements and Responsibilities of Primary Dealers in the fixed income securities
market”.
5. To achieve a sizeable portfolio in debt Securities and to actively trade in the debt
Securities market.
6. To maintain adequate infrastructure in terms of both physical apparatus and skilled
manpower for efficient participation in primary issues, trading in the secondary market,
and to provide education to investors.
7. To comply with all applicable requirements under the existing Guidelines, as may be
amended or modified from time to time and to abide by the code of conduct as provided
by BOG for Primary Dealers.
8. To submit periodic reports and other documents and information as may be requested
by BOG from time to time.
SIGNED:
AUTHORISED SIGNATURE
AUTHORISED SIGNATURE
NAME:
NAME:
DESIGNATION:
DESIGNATION:
DATE:…………………………..
DATE:………………………….
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Requirements & Responsibilities for
PDs in Government Securities Market
December 2015