Developing a Deep and Liquid Bond Market - Experience of Sri Lanka

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Developing a Deep and Liquid Bond Market -
Experience of Sri Lanka

• Presentation by
• K.G.D.D.Dheerasinghe
• Assistant to the Governor
• Central Bank of Sri Lanka

2
Development of the Bond MarketEvents of
Significance

• 1923 - Issue of loans commenced under the
  Colonial Treasury Bill Ordinance by Crown Agents
  in U.K.
• 1937 - Issue of Rupee Loans commenced under RSSO
  No.7 of 1937
• 1941 - Issue of Treasury Bills commenced under
  LTBO (Chapter 287)
• 1950 - Public debt management was vested with the
  Central Bank under the Monetary Law Act.
• 1981 - A secondary market window was opened for
  Treasury Bills by the Central Bank.
• 1986 - Weekly Treasury Bill auctions commenced
• 1992 - Primary Dealers were appointed.

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Development of the Bond Market contd...

• 1993 - Repo window for Treasury Bills was
  introduced by the CBSL.
• 1994 - Primary Dealer system was recognised.
• 1995 - Non-competitive bidding at primary
  auctions was phased out.
• 1995 - Reverse Repo window was introduced by the
  CBSL.
• RSSO, LTBO and MLA were amended to enable
  scripless issue of Treasury Bills and Treasury
  Bonds.
• 1997 - Issue of Treasury Bonds commenced.
• 2000 - Dedicated Primary Dealers were appointed
• 2000 - Primary Dealer supervision commenced.

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Development of the Bond Market contd...

• 2001 - US Dollar denominated Sri Lanka
  Development Bonds were issued.
• 2002 - Fiscal Management Responsibility Act was
  enacted.
• 2003 - Issue of 10,15 20 year Treasury Bonds
  commenced.
• 2003 - Bloomberg Bond Trading System for Primary
  Dealers was introduced.
• 2004 - RSSO,LTBO MLA were amended to enable the
  trading of scripless securities.
• Scripless Securities Settlement System (SSSS) and
  Central Depository System (CDS) commenced
  operations.

5
Legal Framework

• (a) Appropriation Act
• - Authority for annual borrowing limit
• (b) Local Treasury Bills Ordinance
• - Issuence of T-Bills
• (c ) Registered Stock Securities Ordinance
• - Issuence of T-Bonds Rupee Loans
• (d) Foreign Loans Act
• - Borrowing from foreign sources
• (e) Monetary Law Act
• - Debt management as a function of Central
  
• Bank
• (f) Fiscal Management Responsibility Act
• - Guidelines and debt sustainability

6
Organizational Framework

• PARLIAMENT
• - authority to borrow and accountable to the
  public
• MINISTER OF FINANACE
• - delegates authority to Central Bank
• MINISTRY OF FINANCE / TREASURY-Principal
• - authority accountability
• - Contracting non-commercial foreign
  borrowing
• CENTRAL BANK - Agent
• - Iisuence and debt service
• PRIMARY DEALERS
• - market making
• BANKS, PENSION/PROVIDENT/INSURANCE FUNDS
• - Investors and Secondary Market Dealers

7
Implementation of the Government Securities
Programme

• Preparation of the borrowing calendar
• Release of information to the market
• Regular meeting of the Debt Management Committee
  ( weekly)
• Regular meeting with Primary Dealers (weekly)
• Issuance of domestic debt e.g. Auction, Tap,
  Placements

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Organization of Public Debt Department

• Front Office - market/public relations, primary
  issuance,
• market information,
  investor awareness
• Middle Office - research inputs, risk analysis,
  issuance
• techniques,
  product development,
• database
• Back Office - payment and settlement,
  servicing of
• concessional
  foreign debt, CS-DRMS
• Support Services- human resources, training, IT
  support,
• maintenance.

9
Budget Deficit and Borrowing Requirement (as a
of GDP)

• 1997
  2000 2003
• Total Revenue 18.5 16.6 15.7
• Total Expenditure 26.4 26.7
  23.7
• Overall Deficit - 7.9 - 9.9
  - 8.0
• Finanacing 7.9
  9.9 8.0
• Foreign
  1.9 0.4 2.9
• Domestic
  3.4 9.4 4.5
• Other/Privatization 2.5
  0.1 0.6

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Secondary Market -

• - Participants
• - Ownership Structure
• - Taxation Policy
• - Yield Curve

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Bond Market Infrastructure

• Online Electronic Bidding System
• Real Time Gross Settlement System
• Scripless Securities Settlement System
• Bloomberg Bond Trading System
• Colombo Stock Exchange - DEX System

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Transaction Numbers and Volumes of the SSS System
Period Number of Transactions Volume (Rs. Mil)
February 2004 5,696 481,719.01
March 2004 14,037 503,271.56
April 2004 11,500 523,349.47
May 2004 11,833 598,636.56
Total 43,066 2,106,976.60
SourceCDS,PDD, Central Bank of Sri Lanka
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Growth of Depository Accounts of CDS
Period NoOf Accounts
February 2004 10,893
March 2004 12,483
April 2004 13,781
May 2004 13,846
Source CDS,PDD,Central Bank of Sri Lanka
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Regulatory Framework

• Licencing of Primary Dealers
• Primary Dealer Supervision
• - On Site Examination
• - Off Site Surveilance
• Regulations, Directions and Guidelines

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The End

• Thank You !