Several important economic and financial developments have taken place in the Eastern Caribbean Currency Union in recent times. The Eastern Caribbean Central Bank in partnership with this newspaper, The Anguillian, is presenting this series of financial columns in an effort to ensure that all ECCU citizens can reap the benefits offered by these initiatives, as well as enhance their individual investment skills.

The Nuts and Bolts of the Regional Government Securities Market

The Regional Government Securities Market (RGSM) became operational in November 2002, when the Government of St Kitts and Nevis came to market with a bond issue of $75 million. Since then there have been three issues of treasury bills on the RGSM, by the Government of St Vincent and the Grenadines, each in the amount of $16 million. These were in March, April and May, 2003.

This was not the first time that either of these governments was offering securities, since both of them have issued treasury bills and bonds in their respective countries from time to time. However it was the first time that investors from all of the eight ECCU member countries were able to participate in the issues of the bonds and bills by these two governments.

Prior to the start of the RGSM, each government was free to set the terms and conditions for the issue of their own securities, which were purchased by the citizens and residents from the Treasury Department in the particular country. Now however, the market is expected to play a much larger role in determining the terms and conditions of each offering. This is so because as a number of similar instruments become available to investors, the terms and conditions that they offer will need to be attractive. Obviously investors are most likely to choose the instrument that is the most appealing. But how can the investor determine this?

Any such decision must be made on the basis of information - information about the particular security, and most importantly, about the economic and financial position of the issuing country. All participating governments are required to provide standard information in a document called a prospectus. The prospectus will include details about the issue, for example, the type of instrument, the issuing government, the issue date, the amount being issued the terms and conditions, the deadline for submitting bids and the list of participating licensed financial intermediaries. The economic and fiscal information provided includes details about economic growth, the performance of various sectors in the economy, the country’s balance of payments situation and public finances. Copies of the prospectus are available from the licensed broker dealers.

When a government brings a new issue of securities it does so through the primary market. Government securities issued on the regional market are sold via the Eastern Caribbean Securities Exchange (ECSE) Ltd.

Treasury Bills are sold on the regional market through a single price auction where the yield/price of the security is determined by competitive bidding by investors. Each investor must submit a bid specifying a yield or price for a specified quantity of securities. Those bids that fall within the range accepted by the auction will be awarded the security. Each successful investor pays the same price (or receives the same yield) for their securities.
Treasury Notes and Bonds may be sold on the regional market through the single price an auction or on a fixed price subscription basis, in which the government determines the price before the security is issued, and the investor’s bid is for an amount.

Auctions are run for a stipulated period, and no bids will be accepted once the auction is closed. The intermediaries receive electronic notification of the successful bids, and on the day following the auction the Eastern Caribbean Securities Exchange will inform the public of the final price or prices of each auction. Settlement, the point at which the buyer receives the ownership of the security and the seller receives the money for the securities sold, will occur on the day following the auction.

The computer-based technology and automated systems utilised for the auctioning of government securities on the Regional Government Securities Market promotes efficiency and transparency. This, together with the governing regulatory framework, serves to provide investors desirous of participating in this market with a high degree of confidence.

| Printer-friendly page | Send this article to a friend |

World News