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Centenary Bank Appointed Primary Dealer in Government Securities (FAQs)

 

Introduction of the Primary Dealer System

Beginning on October 1, 2020 Bank of Uganda is implementing reforms to the Primary Dealer System for the Government securities market. The Primary Dealer system is an organized group of 7 commercial banks appointed by Bank of Uganda.

Functions of the Primary Dealer

  • To promote demand for Government securities
  • To participate in auctions of Government securities on a consistent and meaningful basis
  • To provide bid (buy) and ask (sell) prices on a continuous basis of Government securities. This will enable the trading of Government securities by institutions and the general public and provide price discovery
  • To provide Bank of Uganda with useful market information and intelligence

Why Bank of Uganda introduced the Primary Dealer System

  • To increase market efficiency and enhance liquidity, making government securities easier to buy and sell
  • To promote demand for Government securities
  • To encourage secondary market trading of Government Securities
  • To encourage the development of the domestic financial markets
  • To reduce administrative costs associated with issuing government securities by assisting in the distribution of Government securities to the investing public
  • To meet Government’s financing requirements at the minimum cost, subject to a prudent degree of risk.

What are Government Securities?

  • Securities issued by full faith and credit of government
  • Used by government for purposes of fiscal policy (financing the national budget deficit)
  • Provide an investment option for households

There are two types of government securities: Treasury bills & Treasury bonds

      • Treasury bills
        • Instruments issued, short term not more than 1 year.
        • Issued in maturities of 91, 182 and 364 days.
        • Zero coupon
        • Issued in electronic form
      • Treasury bonds
        • Instruments issued, long term more than 1 year
        • Issued in maturities of 2, 3, 5, 10 and 15 years.
        • Fixed coupon (paid semi-annually)
        • Issued in electronic form
        • Listed on Uganda Securities Exchange
        • Issued in electronic form

Advantages of investing in Government Securities

  • Attractive returns
  • Diversification of risk; low risk
  • Saving mechanism
  • Can be sold/pledged in the secondary market
  • Rediscount, money back in less than 91-days

Who invests in Government Securities?

  • Commercial Banks
  • Insurance Companies
  • Individual Companies
  • Government Agencies
  • Pension Funds
  • Individuals
  • Offshore Investors

How do you invest in Government Securities?

  • 1st step: Go to your local Centenary Bank branch and fill in the Central Securities Depository (CSD) account opening form. The prerequisite is to have a Centenary Bank account. You must come with your valid National ID or Passport and one coloured passport photo for each signatory on the account.
  • 2nd step: Once the CSD account is opened, then to invest in the Bank of Uganda Treasury Bill/Treasury Bond auction (Primary Market), you will be given a bid application form. This form will specify the following:
    • The CSD account number and title
    • The amount of money you would like to bid/invest.
    • The period/tenor of the security: T-bills (91-days, 182-days or 364-days); T-bonds (2-years, 3-years, 5-years, 10-years or 15-years)
    • The client account which Centenary Bank is to debit
    • The client account which Centenary Bank is to debit
    • Please note Primary Market auction is only open to clients bidding up to a maximum of UGX 200,000,000
  • 3rd step (Secondary Market): Go to your local Centenary Bank branch and have them contact the Financial Markets Department. The client should have the following information on hand
    • The CSD account number and title
    • The amount of money he/she would like to bid/invest.
    • The tenor of the security: T-bills (91-days, 182-days or 364-days); T-bonds (2-years, 3-years, 5-years, 10-years or 15-years)
    • The client account which Centenary Bank is to debit
    • The Financial Markets Department will then make the client an offer based on their requirements.
    • The client fills in a purchase/sale confirmation form to conclude the transaction