Bonds are issued by governments, companies and other bodies seeking to raise capital or funds from the public. Bond Purchase literally means lending money to the bond issuer. This implies that, the reward for lending money is to receive a steady stream of payments (also known as interest payments or coupons) at periodic intervals throughout the tenure or the lifetime of the bond. This amount received (interest payments or coupons) is expressed as a percentage of the face value (the original money lent). At the end of the bond’s tenure or lifetime, the lender then receives a 100 percent of the bond’s face value.
On the other hand, there are some bonds that do not offer coupon or interest payments (zero-coupon bonds), these are priced at a discounted rate from their face value. When the bond reaches maturity or ends its lifetime, the face value (original amount) of the bond, along with the accumulated interest will be received. The yield of a bond is dependent on the credit quality (default rate) of the bond issuer. The top quality bonds are usually issued by the government, followed by bonds from government-linked companies, banks and corporations.
The secondary market for fixed income securities had been dominated by over-the-counter (OTC) activities by dealers of banks such as Barclays, Stanbic, Standard Chartered and Societe Generale. These had operated without any structured rules and regulations. The types of securities on the OTC market had been mainly the Government of Ghana instruments and a few corporate bonds. Earlier attempts made by Ghana Stock Exchange to establish a well-structured secondary market for fixed income securities had failed.
The Central Government had also supported the effort to establish the market by listing its issues of notes and bonds on the Ghana Stock Exchange. Notwithstanding such efforts, these securities had been traded OTC. Again, in the 2015 National Budget Statement, the Government of Ghana indicated some policy measures to facilitate the growth and deepening the bonds market in Ghana. At this backdrop, key stakeholders in the financial market led by Bank of Ghana and the Ghana Stock Exchange came together to take up measures and steps to set up a well-functioning secondary debt market called GFIM, to support the Ghana economy.
The Stakeholder institutions that came together to establish GFIM include;
GFIM has been established with the objectives such as:
Prior to the establishment of the market, a technical committee made up of market operators and regulators was set up and tasked with the following:
In doing their work, the technical team consulted and had discussions with a number of stakeholders to seek their views and have their endorsement. These include
The Technical Committee included:
1. Kofi Pianim - Dealer, SBG, President of ACI, Ghana
2. Emmanuel Nambware - Dealer, SCB
3. Bliss Hini - Dealer, EBG
4. Nikoi Kotey - Dealer, CAL
5. Kojo Darpaah - Dealer, BBG
6. Winston Nelson Jnr - CEO, African Alliance Securities Ltd
7. David Tetteh - CEO, CAL Brokers
8. Patrick Assan - Treasury, BoG
9. Stephen Tetteh - CEO, CSD
10. Kofi S. Yamoah - MD, GSE
11. Ekow Afedzie - DMD, GSE
12. Elizabeth Mate Kole - GM, GSE
13. Frank Berle - FC and H/CSS, GSE
14. Augustine Simons - Head of IT, GSE.
GFIM currently operates as a division or department of the Ghana Stock Exchange. In due course a separate company will be set up to be owned by the stakeholders. The initial stakeholders of the GFIM below may take shares in the incorporated company:
The operations of the GFIM prior to being incorporated as a separate legal entity, is being overseen by a Governing Committee comprising of;
In addition to this governance structure in place, the GFIM comes under the regulation of the Securities and Exchange Commission. However, Bank of Ghana could be consulted on issues pertaining to the primary dealers on the market.
The types of securities listed and traded on the GFIM include
Some of the securities could be tagged as benchmarked securities if they meet the criteria for benchmarking. For a security to be tagged as a benchmarked security
Trading on the GFIM is limited to only authorized dealing members. These include:
Any other entity must trade through one of the above mentioned GFIM dealing members. However, the Bank of Ghana, for monetary policy purposes, is permitted to deal in Government of Ghana or Bank of Ghana securities listed on the GFIM.
At the time of the GFIM going live with the technology platform (the Bloomberg E-Bond system), on August 17, 2015, there were thirty three registered authorized dealing members of GFIM. The registered members categorized into their types include:
GFIM as a market has a well-established information technology infrastructure (in the form of Bloomberg E-Bond together with the Central Securities Depository Ghana Limited Clearing and Settlement and depository system and in Ghana Inter-bank Settlement (GIS) of Bank of Ghana) to support its operations, in addition to bespoke market rules and alert market surveillance.
It may be possible in future to trade fixed income securities on the bond platform of the GSE Capizar Automated Trading System (ATS). The market opens at 9.00 hours GMT to 1600 hours GMT every business day or as may be determined by the GFIM in a press release.
Trading of the securities on the market is through over-the-counter arrangement but through a standardised platform on the E-Bond system. Trading could be executed through:
Request for quotes are made on benchmarked securities in standard amount of GH¢500,000 or multiples of the standard amount. Firm orders on the other hand may be in any amount other than the standard amount but in multiples of GH¢ 10.00. In trading, primary dealers shall have to provide a two-way quotes for all agreed benchmarked securities while all other dealers may have to provide indicative quotes for the benchmarked securities.
The securities are traded on the maximum spreads of 50 basis points. GFIM may vary the maximum spreads on the listed securities from time to time.
Since going live on August 17, 2015 activities on the secondary market have been very encouraging. The tables and graphs show the results of the activities on the market.
|ACTIVITY TITLE||AUG’ 2015||SEPT’ 2015||OCT’ 2015||NOV’ 2015||DEC’ 2015|
|No. of Trades||4,897||4,372||3,638||3,736||5,303|
|Value of Trades||632,460.39||940,110.38||1,659,255.90||814,296.98||1,199,981.87|