WORKSHOP ONDEVELOPING GOVERNMENT BOND MARKETS

IN SUB-SAHARAN AFRICA________________________________

17 – 19 JUNE 2003

JOHANNESBURG

________________________________

“DEVELOPING EFFICIENT SECONDARY MARKETS”

Tom Lawless CEO – BOND EXCHANGE OF SOUTH AFRICA

www.besa.za.com

DEVELOPING EFFICIENT SECONDARY MARKETS

SOUTH AFRICAN EXPERIENCE

• Background• Market Structure• Market Infrastructure• Market Participants

– Role of primary dealers

– Role of inter dealer brokers

• Market Information

BACKGROUND

• PRE 1996– OTC market – regulated by Bond Market Association (BMA)– Trading – on floor and telephone / screens– Electronic net settlement from 1995

• MAY 1996– BMA licenced as a financial exchange, in terms of Financial Markets

Control Act (1989) – Acts as a self-regulatory organisation (SRO) for listed bonds

• NOVEMBER 1997– T + 3 settlement

• NOVEMBER 2002– Restructuring proposal accepted at AGM

MARKET STRUCTURE

• Primary dealer banks - 10 (Six local & 4 foreign)

• Other banks - 2• Issuers - 6• Investors - 4• Inter-dealer brokers - 5

(Matched principal & name give up)

• Securities houses (brokers) - 30• SARB - 1

TOTAL = 58

MARKET STRUCTURE

• Trading – telephones and inter-dealer brokers screens (IDBs)• All trades electronically reported to BESA

– ATS implemented in 2000 – requested but not used

– Matched and confirmed by UNEXcor – clearing house

– Settlement positions sent to settlement banks and members

• Electronic net settlement on T+3 – Delivery vs payment achieved

– Through four custodial / settlement banks

– Central Depository for the underlying

– Central bank for the funds

• Risk Management– Bi-lateral Counterparty limits set by participants

MARKET PARTICIPANTS

PRIMARY DEALERS– Introduced in April 1998 for benchmark government bonds

– Sole rights to bid at weekly auctions

– Obligated to make a market in these bonds

• Comprise some 50 – 65 % of all turnover – spot and repos

• Other Market makers – not PDs – also present in repo markets add considerably to liquidity

MARKET PARTICIPANTS

INTER DEALER BROKERS (IDBs) • Five entities

– Garban; Tullet & Tokyo – matched principal

– FCB Harlow Butler; SA Capital and Money Brokers;

Prebon Yamane – name give up

• “Exchange within an exchange”– Major focal point of liquidity

– Some 30% of all spot trades – (member / member and member / client)

– Some 45% of all spot trades – member / member

MARKET INFORMATION IN SELECTED GOVERNMENT BONDS

0

50000

100000

150000

200000

250000

300000

350000

1998 1999 2000 2001 2002 2003

R(m

illio

n)

05000100001500020000250003000035000400004500050000

R(m

illio

n)

Nominal Outstanding Spot Daily Turnover

Repos Daily Turnover IDB Daily Turnover

PD Daily Turnover

(RSA150, RSA153, RSA157, RSA162, RSA177, RSA184, RSA186, RSA194)

Nominal Outstanding by major issuergroupings - May 2003

8%

4%

7%3% 3%

1%

1%

73%

CENTRAL GOVERNMENT MUNICIPAL PUBLIC ENTERPRISEWATER AUTHORITIES BANKS SECURITISATION

OTHER CORPORATES DUAL LISTINGS COMMERCIAL PAPER

Total Bond Market Turnover Breakdown by Major Issuers (Nominal Traded)

0%

20%

40%

60%

80%

100%

1989 1991 1993 1995 1997 1999 2001 2003

RSA ESKOM TELKOM TRANSNET OTHER

Bond Market Turnover (Total Nominal Traded)1989-2003

186 239 255 551 746

19032326

3405

4627

9510 9514

1079811658 11671

4096

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Ran

d (

Bill

ion

)

Turnover Velocity1998 - 2003

0

5

10

15

20

25

30

35

1998 1999 2000 2001 2002 2003

Ve

loc

ity

(Tim

es

)

* AnnualisedVelocity = Annual traded turnover / nominal outstanding at Year end

Thank you for your attention.

___________________

Tom Lawlesstomlawless@besa.za.com

www.besa.za.com

______________________

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