All banks now primary dealers as Bank of Uganda eases investing in treasuries

The Central Bank has opened up the primary market for government securities to all 24 licenced commercial banks, a move it says aims to make investing in the securities easier and more accessible to the public.

Previously, the primary auction was open to only six “well-capitalised” dealer banks; Bank of Baroda, Barclays Bank, Centenary Bank, Dfcu bank, Stanbic Bank, and Standard Chartered Bank.

The new system, announced at the Bank of Uganda in Kampala on Tuesday, means that the other 18 banks can now open Central Securities Depository accounts at the central bank for clients, “issue and accept bid submission forms on their behalf, settle their client’s successful bids and buy their clients’ securities if the client wishes to sell.”

“Our expectation is that we will have more participants in the primary market and a more liquid, efficient, competitive, and attractive secondary market for government securities,” the bank’s governor, Emmanuel Tumusiime-Mutebile, said.

Other commercial banks have been working with the primary dealer banks to open accounts for their customers on the CSD at the central bank. The primary dealers then submitted the account opening form to the central bank for endorsement.

Now, account opening forms are available at all commercial banks in addition to Bank of Uganda. Additionally, it is a one two-page form instead of the four forms that previously had to be filled.

“Investors can also access their CSD Account Statements through their respective commercial banks,” Bank of Uganda said in a statement.

“In 2016, the ratio of primary dealer successful bids in the auctions relative to the rest of the market was 61 percent of all auction bids,” Mr Tumusiime-Mutebile said while recognising the role played by primary dealers in the government securities market.

“The auction bid-cover ratio, which is the total size of the bids relative to the amount tendered for treasury bills and bonds in 2016 averaged 1.21,” the governor said. This indicates that “demand for government securities is strong and sufficient to accommodate the needs of government for domestic finance.”

Mr Mutebile added that liquidity in the secondary market also increased in 2016. Total turnover rose 12.5% to Shs3,600bn from Shs3,200bn in 2015.

Bank of Uganda also named Stanbic Bank as the Primary Dealer of the Year (2016), the sixth consecutive year it is winning the award. Stanbic Bank won because of “its participation in the primary auctions, market making capabilities, consistent pricing as well as timely market intelligence.”