Developing Secondary Domestic Government Debt Markets in the SADC Region

13 August 2013

Abstract

With increased integration of the global financial markets, liquid and efficient secondary markets for domestic debt are an important avenue through which risks to the economy can be managed. Although SADC member countries have recognised the importance of developing these markets and implemented policies to make them work efficiently, only a few have managed to score significant success in this area. Thus efforts to enhance the development of these markets in the region should be supported. However, it is important to note that the implementation of measures to develop the markets should take into account the different stages of debt market development among member countries.

Prepared for SADC Financial Markets Subcommittee1

1 The Policy Paper prepared by Alex Chakufyali, Bank of Zambia.

The views expressed are those of the author(s) and do not necessarily represent those of the members of the Committee of Central Bank Governors (CCBG) in the Southern African Development Community (SADC). While every precaution is taken to ensure the accuracy of information, the CCBG shall not be liable to any person for inaccurate information or opinions contained herein. Any queries should be directed to: Alex Chakufyali (ACHAKUFY@boz.zm).

Table of Contents

Executive Summary ..................................................................................................................... 1

1.0 Introduction ....................................................................................................................... 3

2.0 Why Promote Debt Markets? ............................................................................................ 3

3.0 Essential Elements for Developing Debt Markets: Selected Country Experiences .......... 5

4.0 A framework for Developing Secondary Markets in the SADC region ......................... 13

5.0 Recommendations ........................................................................................................... 15

6.0 Conclusion ....................................................................................................................... 16

References .................................................................................................................................. 17

Appendix I .................................................................................................................................. 18

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Executive Summary Liquid and efficient secondary debt markets are important because they facilitate efficient utilization of financial resources in an economy. Thus with increased globalisation of the financial markets well-developed debt markets are expected to provide an avenue through which external financial shocks can be mitigated. In addition, they facilitate non-inflationary fiscal deficit financing and provide an avenue through which banks can manage and diversify their risks in the financial system. Furthermore, a well - developed debt market facilitates the conduct of market based monetary policy, sterilize capital inflows and provides a range of long term assets for institutional investors such as pension funds and insurance companies (Reddy. 2002). In view of this, it is in the interest of member countries in the Southern African Development Community (SADC) region to implement policies that are supportive of developing these markets. Some of the measures that should be undertaken include, but are not limited, to the following:

i. Enhancing Money Market and Monetary Operations: Implement policies that encourage financial innovation and efficient ultilisation of financial resources. In this regard, the use of market-based financial instruments of monetary policy such as Open Market Operations should be encouraged or strengthened.

ii. Enhancing efficiency in primary market operations: Implement transparent

strategies in the issuance of government securities. Adopting and enhancing auction based issuances of government securities should form the basis of pricing in the primary market. Issuers should also strive to disseminate timely pre-trade and post- trade information to all market participants equally.

iii. Create a Benchmark Yield Curve: Reduce government bond fragmentation by

consolidating bonds into a few popular issues. This should be sequenced to follow the maturity of the primary market.

. iv. Broaden Investor Base: Consideration should be made to introduce Primary

Dealership system open to other financial institutions other than commercial banks. Allowing foreign investor participation on domestic debt markets may also broaden the investor base and add stability to the demand for government securities. Improving information flow to the general public through financial literacy programmes on government securities as an investment should also be encouraged.

v. Trading and Settlement Infrastructure: Modernise trading and settlement platforms

in order to reduce operational and settlement risk. This would broadly entail achieving

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Delivery- versus Payment (DvP), the dematerialisation of securities and interfacing of the Central Securities Depository to the National Securities Depository System.

vi. Legal and Regulatory Framework: Enhancing market rules and practices, such as

the adoption of Global Master Repurchase Agreement with legal enforceability closures and the establishment of market self-regulating institutions (Professional Associations) should seriously be considered. In addition, depending on the financial architecture member countries may choose to implement Exchange based trading platform or OTC trading platform where transactions are settled through an Exchange.

vii. Create an enabling Tax Environment: The reduction of transaction costs such as the

removal of taxes on government securities transactions should be considered. The removal of taxes is expected to simplify secondary market pricing of government securities and all other things being equal spur secondary market trading.

On a cautionary note, it is important to note that as countries pursue efforts to develop debt markets by creating sufficient stocks in the primary market for secondary market to thrive, issues of domestic debt sustainability ought to be taken on board as well. In addition, the successful implementation of this whole process will depend to a large extent on the involvement of all key stakeholders in the market and how well the reform process is structured and sequenced. Recommendations: Cognisant of the fact that secondary markets are at different stages of development, member countries are encouraged to undertake market surveys or hold stakeholders forum with the view to identify the major impediments to secondary market development and come up with national action plans for secondary market development. At the regional level, member countries are implored to work towards harmonizing trading practices in government securities market. Measures aimed at harmonizing tax regimes, trading platforms, regulatory listing requirements and information technologies should be supported. In addition, countries should also be encouraged to consolidate and integrate electronic trading and settlement platforms in the region.

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1.0 Introduction Over the years, central banks in almost all countries in Africa and the Southern African Development Community (SADC) region in particular have implemented policies aimed at developing debt markets. The importance of developing these markets is well documented (Árvai Zsófia and Geoffrey Heenan, 2008; World Bank, 2007; Arif, 2007; Reddy, 2002). In simple terms debt markets provide a link between savings and investments in the economy. With increased integration of the global financial markets, where capital flows have intensified the search for return, developing these markets is important, because they are considered as avenues through which risks can be managed. Thus deep and liquid domestic debt markets are likely to help in mitigating adverse external financial shocks. In addition, well-functioning debt markets provide a non-inflationary option to deficit financing (Reddy, 2002). Although member countries have recognised the importance of these markets and implemented policies to make them work efficiently only a few have managed to score significant success in this area. Notable among them is South Africa2. Given the benefits that are associated with well - developed and liquid debt markets, it is in the interest of member countries to devote their energies and harness their potential by implementing policies that are seen to be supportive of developing these markets. The paper attempts to address some of the issues that SADC member countries have been grappling with in an effort to develop debt markets. In Section 2, the main rationale and objectives for developing deep and liquid markets as well as methodological issues are outlined. Section 3, offers what are considered to be the main elements that ought to be put in place to initiate secondary debt market development and discusses country experiences. A framework to deepen secondary markets for domestic government debt in the SADC region is laid out in section 4. Recommendations are drawn out in Section 5 and Section 6 concludes the paper. 2.0 Why Promote Debt Markets? Countries are motivated by different reasons to develop their debt markets. These include but not limited to the following (Reddy, 2002). Economic factors: In this respect developing debt markets is often considered as part of the larger economic reform process of transitioning from a planned to a market economic system as well as a mechanism of dealing with experiences of high inflation and financial markets development. Financial factors: Under this theme, debt market development is often seen within the context of facilitating government deficit financing, creating a more complete financial market, and as an 2 “The World Federation of Exchanges ranked the Johannesburg Stock Exchange (JSE), third by market turnover (South African bond market in comparison with other International Markets) in 2011 contributing US$2.9 trillion or 9 percent to total global turnover of US$33 trillion”, Republic of South Africa, National Treasury, “Debt Management Report 2011/12”.

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avenue through which banks can manage and diversify their risks in the financial system. A well-developed debt market also facilitates the conduct of market based monetary policy, sterilizing capital inflows and provides a range of long term assets for institutional investors such as pension funds and insurance companies. The term structure of government securities also facilitates the development of the benchmark yield curve and thus helps in the price discovery process of other private debt instruments. Furthermore, according to the World Bank (2007), “well-functioning secondary markets promote efficient price discovery, facilitates liquidity and risk management. They do so by providing a cost-efficient environment in which market participants can trade government securities in a fair and transparent manner. Active secondary markets improve the valuation and pricing of government securities, especially medium- and long-term bonds that are by definition, issued less frequently than short-term bills. They provide a mechanism for investors in medium- and long-term securities, while permitting governments to issue longer-term debt to better manage exposure to interest rate and rollover risk”. It is therefore fair to say that despite the SADC member countries having different economic development experiences, by and large, their efforts to develop debt markets have mainly been driven by one or several factors listed above. For example, in Zambia, the need to create a market oriented economy; addressing high inflation and averting the monetization deficit are some of the reasons advanced for developing debt markets. Thus, given the above likely benefits that come with well - developed debt markets, it is important that monetary authourities in the SADC region work towards deepening these markets. 2.1 Rationale of the Study As observed earlier, while most SADC members countries have made serious attempts to reform their government securities markets in order to spur secondary market activity not many have managed to achieve this objective, with South Africa being the only exception. Among the reasons cited for this, include the existence of inefficient primary markets; generally associated with a narrow investor base, high transaction costs, fragmented security issues and inadequate regulatory frameworks. In addition, the trading and settlement infrastructure have largely been manual and not integrated. This development is a source of concern in the region, considering the fact that only one country out of 15 has a well-developed secondary market (AECOM International Development. 2009). This situation is magnified further, given the importance of debt markets in facilitating the efficient utilization of financial resources in an economy as well as being avenues through which external financial shocks can be mitigated. Therefore, there is need to undertake a study that attempts to address some of the issues affecting the development of vibrant and liquid government securities market.

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2.2 Objectives of the Study The study seeks to contribute towards achieving some of the stated aspirations of the SADC cooperation on the financial markets namely, “develop strategies to strengthen and deepen financial markets in the region and ensure a coordinated approach to financial sector development” and “assess the structures and obstacles that hinder the development of the regional financial markets and formulate appropriate strategies to overcome such obstacle”. It is thus envisaged that a study of this nature will assist member countries to identify and systematically sequence the reform process in government debt market development. Ultimately, this will make it a lot easier for SADC countries to harmonize the government debt market at a regional level. In order to achieve the above highlighted objectives, the study specifically seeks to:

(i) Identify the preconditions required for liquid and deep government debt market to thrive in the SADC region;

(ii) Identify and assess some of the factors impeding secondary market development in the region; and

(iii) Propose a framework that will guide SADC member countries in the design of their respective action plans for secondary market development in government securities.

2.3 Method of Study A survey was undertaken to obtain a situation analysis with respect to the countries position or status on the preconditions required for development of secondary markets. By and large the study is descriptive and analytical in nature. 3.0 Essential Elements for Developing Debt Markets: Selected Country Experiences Although there is ‘no one size fits all model’, there are general features that are necessary to create a fertile environment that facilitates flourishing secondary debt markets. The vast amount of literature on the subject, (AECOM International Development. 2009, Árvai and Heenan. 2008, World Bank. 2007, Arif.2007, and Reddy.2002), identify in broad terms what are considered to be key elements to initiate the development of debt markets. These include but are not limited to the following: 3.1 The Policy Environment: Money Markets and Monetary Operations Money markets have to be reformed so that they are consistent with market based monetary operations. Market based money markets also facilitate the implementation of indirect instruments of monetary policy and provides a link between the short term and long term yield curves This is for the simple reason that liquid and well-functioning money markets are important

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sources of funds for long dated debt instruments. It is also an important avenue through which investors with varying needs manage their liquidity risks and thus contribute significantly to the efficient utilisation of financial resources within the economy. Coordination between fiscal and monetary policies is also necessary so that these instruments complement rather than conflict each other. Thus, by and large as noted by (Árvai and Heenan, 2008) a stable macro-economic environment is important for debt markets to thrive as this affects investment decisions. While most countries in the SADC region have done well in terms of creating a good policy environment for the development of primary debt markets a lot still remains to be done in terms of deepening these markets further. Generally most countries in the region issue government securities for the purposes of financing deficits, liquidity management and financial market development. Other countries such as Malawi also issue the securities for debt restructuring purposes. This development is good for the region as noted by Reddy (2002) that domestic financing from the market is likely to be less inflationary as automatic monetization of government deficit is avoided. On the policy front, all SADC member countries employ both indirect and direct instruments of monetary policy. Reserve requirement ratios are a common monetary policy tool but vary from country to country. Cash reserve and liquid asset requirements range from as high as 15.5 percent in Malawi to as low as 2.5 percent in South Africa. Also noteworthy is that all countries use market-based open market operations as instruments of monetary policy management. However, there is need for countries to progressively lower these ratios taking into account each county’s level of money market development as direct instruments of monetary policy by their nature are captive and thus tend to be generally distortionary. 3.2 Primary Market Operations of Government Securities As noted earlier, a primary market with sufficient debt instruments and a transparent price discovery process is critical to the development of a secondary market. Thus, in order to promote price discovery there is need to have in place a strategy that ensures that there is transparency in the issuance of the instruments and market access. Supportive of such a structure is a well-articulated debt management framework where the government should be willing to publish the debt profile and its financing needs. Although a sizeable amount of securities in the primary market is fundamental to secondary market development, it is difficult to come up with a threshold of what would constitute an appropriate level of domestic securities. Thus, as countries issue debt, it is also important that issues regarding debt sustainability are taken on board. As a percent of GDP, the total outstanding stock of government securities varies from as low as 0.8 percent in DRC (The Democratic Republic of Congo) to as high as 31.9 percent in Seychelles. Using South Africa with a relatively well developed secondary market as a benchmark of what would constitutes an appropriate level of domestic securities in the primary market as a percentage of GDP, most countries in the region

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can be said to have thresholds below 28.8 percent apart from Seychelles with 31.9 percent (see Table 1). Hence, there is need for each country to examine its position and assess whether they have sufficient securities to facilitate meaningful secondary market activity. Table 1: Total Outstanding Stock of Government Securities (Percent of GDP)

Country 2007 2008 2009 2010 2011 Period Average Angola 8.6 16.5 18.7 16.4 12.2 14.5

Botswana 2.6 3.4 5.7 5.3 6.1 4.6

DRC 0.6 0.7 0.6 1.1 0.8 0.8

Lesotho 5.0 4.1 4.0 4.9 6.0 4.7

Malawi 16.5 22.1 23.9 20.4 24.2 22.7

Madagascar - - - - - -

Mauritius 43.2 39.4 43.0 42.3 41.3 41.8

Namibia 14.43 13.00 13.55 12.42 17.69 14.22

Mozambique 12.6 14.2 15.4 10.1 - 13.3

South Africa 26.3 19.6 24.8 32.9 37.8 28.8

Seychelles 57.8 44.4 32.9 26.6 23.6 31.9

Swaziland 2.4 1.8 1.5 1.7 3.4 2.2

Tanzania 15.0 10.8 8.3 10.3 9.1 10.7

Zambia 13.4 11.8 12.1 10.8 12.8 12.2

Zimbabwe 0.13 0.004 0.0 0.0 0.0 0.03

Source : Various Central Banks Ideally, long term debt is more suitable for secondary market trading than short term debt because the latter is already liquid and hence the incentive to trade for liquidity purposes is very minimal (World Bank. 2007). As a percentage of the total outstanding government securities, Angola, Botswana, Lesotho, South Africa and Tanzania hold more long term debt than short term debt while the opposite is true for DRC, Malawi, Mozambique, Seychelles and Zambia (see Chart 1).

Source : Various Central Banks

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Thus, as noted by the World Bank (2007), countries whose debt is tilted towards the shorter end relative to the longer end of the yield curve should consider restructuring their debt if they have to create a fertile ground for secondary market trading to flourish. Without doubt, one of the pillars supportive of an efficient primary market is to have in place a price discovery process that is market oriented. Such an arrangement ensures that there is transparency and competition in the price discovery process. In this respect, almost all countries in the region have multiple pricing auction based systems of government securities issuances with the exception of Angola, South Africa, Zambia and Zimbabwe who employ uniform pricing system for bonds. Zambia introduced uniform/single pricing auctions for both treasury bills and bonds in May 2012. With regard to other features necessary for an efficient primary market to thrive, such as issuance calendar and auctions all the countries in the region have with the exception of Mozambique. Similarly, there no uniformity among member countries with regard to published information such as the issuance calendar, maturity profile, settlement dates and financing needs. In view of this, it will be very appropriate to come up with a blue print consistent with international best practice that would guide SADC member countries with respect to what type of information should be published or availed to the public on government debt issuances. This should serve as a convergence benchmark towards which all member countries can strive to move to by a certain date (See Appendix I). On the tenors, all member countries appear to have similar profiles for both the short dated and long dated government securities. For Treasury bills the tenors range from 91-to 364 days while for bonds or Treasury notes it is between 2 to 15 years. Similarly the frequency of issuance for Treasury bills in most countries is weekly while for bonds it varies from weekly, fortnightly, monthly and quarterly in countries like as Zambia. In Swaziland bonds are issued bi-quarterly. In Mozambique, bond issuances are irregular. In the region there are only four countries that have a Primary Dealership (PD), namely South Africa (for bonds only) Swaziland, Botswana and Mauritius. However, it is also important to note that obligations and incentive structures of PDs differ in these countries. The rest rely on the central bank as the main distribution channel of government securities. With regard to its performance in facilitating secondary market development the results are mixed. While in South Africa, the system appeared to have worked quite well, Swaziland and Mauritius results have not been satisfactory. Hence, efforts are being made in these countries to review the primary dealership. The need to learn from South Africa on how the system has been able to deliver is very important. A lesson to learn from South Africa is that its institutional structure is well - articulated in terms of the obligations and incentives. The reforms were also implemented over time.

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Although the primary dealership may be a necessary arrangement to stimulating secondary market activities it is not a panacea to resolving all issues impeding secondary market development in the region. Other reasons that have been identified as impediments to the development of deep and liquid secondary markets in most developing countries include but not limited to the following:

• Narrow investor base, affects the stability of demand for debt instrument;

• The absence of benchmark bonds (benchmark yield curve) as a result of fragmented security issues makes it difficult to price securities in the secondary market;

• Inadequate modern integrated trading and settlement infrastructure;

• The existence of inadequate legal and regulatory framework as evidenced by the existence of unorganized secondary market structures. The absence of well-defined market structure to facilitate secondary market trading (primary dealership, Over-the-Counter (OTC) or Exchange Traded). Inadequate PD rules, absence of regulatory framework for OTC- e.g. International Swaps Derivatives Association (ISDA);

• Unfavorable tax environment: withholding tax on income and other fees imposed on government securities usually complicates pricing and hence trading in the secondary market;

• High statutory reserve requirements, internal credit, trading and risk management policies of individual financial institutions, such as commercial banks, pension funds and insurance companies have also been cited as some of the factors impeding the development of secondary market in frontier and emerging markets; and

Other factors such as the strategy of buy-and-hold by most investors, particularly institutional investors, insufficient knowledge of secondary market pricing mechanism for the government securities; and generally the lack of information to the public on the benefits of secondary trading in government securities have all contributed to the unsatisfactory performance of secondary markets in the region (Aril Muhammad. 2007, World Bank. 2007, AECOM International Development. 2009, Bank of Zambia. 2009, “Secondary Market Development Workshop Proceedings”.

Therefore, there is need to look at a whole range of issues such as those outlined above to develop a vibrant secondary market for debt instruments. Given that countries in the SADC region are at different stages of market development, it may be appropriate that each member country undertakes a survey or holds a key stakeholders’ workshop in order to ascertain the main factors affecting the growth of these markets. The findings should serve as inputs into the design and development of strategic and specific action plans for deepening secondary markets.

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3.3 Investor Base As highlighted by the World Bank (2007) the market for the government securities should be open to both domestic and foreign investors and should cut across the different types of market players, such as retail investors, institutional investors and commercial banks. Ideally, a wider investor base should add stability to the demand for debt instruments. This is on the assumption that different categories of investors will also have different preferences in terms of their investment requirements. The other advantage of having a diversified investor base is that it assists in the price discovery process as it encourages competition. However, it should be noted that the participation of foreign investors on the domestic market is by and large dependent on having an open capital account and a favorable macroeconomic environment. In most member countries, foreign investor participation in the domestic market is allowed apart from Tanzania (Appendix I, Schedule 3). There is therefore need to encourage countries to open up their economies in order to broaden their investor base and take advantage of the envisaged benefits. With respect to institutional arrangements for primary markets in the region, these differ across countries. In most countries central banks are the main distribution channels and access to the primary market is largely open to all domestic investors with the exception of Botswana, Mauritius, South Africa and Swaziland where they have PDs in place (Appendix I). However, because of their limited distribution network, central banks in other countries have allowed investors to buy government securities on the primary market through commercial banks. For instance, in Zambia, the off-tender window is available to cater for small investors with investable amounts ranging between K1,000.00 (US$200.00) and K29,000.00 (US$5,800.00). These investors buy through specifically appointed commercial banks (agents). The appointed agents retain a 2% agency fees on income earned on government securities. However, using commercial banks as distributions channels has also challenges one of them being that government securities are considered as an alternative to bank deposits. This may discourage commercial banks to market these instruments and thus adversely affect the objective of using this methodology to reach out to a wider spectrum of investors. Statistics for the SADC region in Table 3, paint a picture of a skewed investor base. In most member countries central banks, commercial banks and pension funds hold the largest proportion accounting for over 80 percent of the total government securities while non-financial corporations and House Holds holdings ranged between 1.4 percent and 20 percent.

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Table 2: Government Securities by Holder as a percentage of Total Stock (End December 2011) Country Central Bank Commercial

Banks Public /State Owned

Companies Institutional

Investors Other

Angola 2.3 97.7 - - -

Botswana 0.3 11.3 - - 88.4

DRC - - - - -

Lesotho 0.1 73.4 2.2 8.0 16.3

Madagascar - - - - -

Malawi 66.8 24.0 0.1 9.1 0.1

Mauritius 7.0 37.9 40.1 14.8 0.2

Mozambique - - - 100.0 -

Namibia - 27.4 - - -

South Africa 0.9 18.7 16.0 62.1 2.3

Seychelles 34.1 45.8 - 0.0 20.1

Swaziland 3.5 60.4 - 32.2 3.9

Tanzania 0.6 36.5 - 61.5 1.4

Zambia 15.8 53.0 - 28.4 2.8

Zimbabwe 0.0 0.0 0.0 0.0 0.0

Source: Various Central Banks Institutional Investors : Discount Houses, Insurance Companies, Pension Funds, Foreign Portfolio Others : Non - financial corporations, House Holds and others

In order to catch a wider array of participants such as non-financial corporations and households, consideration should be given to use the PD system that includes not only commercial banks but other financial institution such as savings associations and fund managers that meet prescribed criteria. 3.4 Benchmark Issues

Developing benchmark issues in government paper is important because it facilitates secondary market developments and serves as a reference yield curve from which other non-government paper such as corporate bonds can be priced. Building a benchmark yield curve involves among other things consolidating issuances into a few popular securities or benchmark bonds, with the view to re-opening the same issues thereafter in order to increase their stock. The country statistics depict a mixed picture (Appendix I). There are only a few countries that issue benchmark bonds, namely, Angola, Botswana, Mauritius, South Africa, Swaziland and Zambia. This represents 40 percent of the total SADC member countries. 3.5 Trading and Settlement Infrastructure The need to have secure trading and settlement systems is vital in order to eliminate the risk of financial loss and thus preserve the credibility and confidence in the market. This risk can be mitigated by progressively reducing the settlement time. Achieving Delivery versus Payment (DvP, T+0) is the most ideal objective in this respect. The settlement period for government securities transactions, in the region is between T+ 0 and T+4, with most countries having a

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settlement period of T+3. The most used trading and settlement systems are the IMF Book Entry System and the Real Time Gross Settlement System (RTGS). Only Botswana, Namibia and South Africa reported that they use Bloomberg for auctions in government securities. Incidentally, even with these systems in place they are not always optimally used as most countries also rely on manual interventions as they are by and large not integrated. Efforts should therefore be made to integrate trading and funds transfer systems in order to facilitate Straight-Through- Processing (STP) and improve operational efficiency. It is important to note that the SADC Bankers Association and Payment System Subcommittees have been working closely to facilitate the modernisation of the payment systems in the region. 3.6 Legal and Regulatory Framework This may be considered at two levels: First, the government should have well-articulated legislation with regard its authority to borrow. To ensure fair trading practices the market participants may also consider putting in place a self-regulating code of conduct more especially when it comes to secondary market trading. As highlighted by Arif (2007), although market structures and regulation differ from country to country, the supervision and reporting systems depend largely on whether the market is dealer driven or modeled as an Exchange or Over- the- Counter (OTC). The institutional arrangement in most countries with regard to the authority to borrow rests with the Ministries of Finance. As there are no independent debt offices most countries rely on central banks as the issuing agencies of government securities. The relationship between the Ministries of Finance and the central banks are usually governed, by a Principal-Agent Agreement. With respect to secondary trading structures, most countries in the region have hybrid arrangements where government securities are traded on the Stock Exchanges as well as OTC with Stock Exchanges merely performing the settlement function. In countries like South Africa most of the secondary market trades are conducted OTC with the Stock Exchange being used as a settlement platform. In Zambia, while the government bonds can be traded on the Stock Exchange, most market players prefer to trade OTC as opposed to the former. The preference is mainly based on cost considerations (Bank of Zambia, “Secondary Market Development Workshop Proceedings”, 2009). 3.7 Tax Environment

Tax plays an important role in investment decisions. Endo (2002) notes that withholding tax on interest payments of government bonds complicates the calculation and adjustment of accrued interest between the seller and buyer of bonds and impedes trading. In the region it is only in South Africa, Swaziland and Zimbabwe that do not impose taxes on government securities. The rest of countries impose some taxes on government securities. In some countries withholding tax is as high as 20% (see Appendix I, Schedule 7). Countries should therefore put in place a tax regime that is perceived to be fair and understood by the market.

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3.8 Other Initiatives International financial institutions such as the African Development Bank (AfDB) in collaboration with the International Finance Corporation (IFC) have developed long-term currency financing initiatives as part of their strategy to support capital market development in the developing countries. Such initiatives involve issuing local currency denominated bonds in the domestic market for the purposes of providing long term finance to the private sector. Some of the envisaged benefits include the elimination of foreign currency risks associated with borrowing in foreign currency by local enterprises. Due to the high credit quality of the issuer, these financing initiatives help enhance the international visibility of local capital markets, thereby a broadening the investor base. A number of African countries have benefited from these arrangements; among them are Botswana, Ghana, Kenya, Namibia, Rwanda, South Africa and Zambia. It may be worthwhile for countries in the SADC region to consider these initiatives as a way of developing their capital markets (World Bank, 2013). However, such issuances may adversely affect the demand for Government issued securities since they are an attractive alternative investment. This may lead to auction failures on Government paper and the subsequent monetization of debt. Thus, it is important that such issues are part of a country’s overall debt management strategy. 4.0 A framework for Developing Secondary Markets in the SADC region It is clear from the above situation analysis that countries in the SADC region are at different stages of debt market development. This, therefore, calls for all member countries to develop and work within a common operational framework that will serve as a performance criterion for the promotion of deep and liquid secondary debt markets within SADC region (see Table 2). It is ultimately envisaged that with a common approach, regional convergence will be made much easier. It is also important to note that the success of markets reforms also depend on how the measures are sequenced. Table 2: Secondary Market Development Performance Indicator Objectives Measures Performance Indicators 1 Enhance money

markets and monetary operations

Encourage innovation and the use of market based financial instruments

Reduced reliance on direct instruments (e.g. Statutory Reserve Requirements) of monetary policy Increased reliance on market based instruments of monetary policy such as Open Market Operations

2 Enhance efficiency in primary market operations

Implement transparency strategies in the issuance of government securities

Adopt and enhance auction based issuances of government securities Publication of standardised government financing needs profile

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Objectives Measures Performance Indicators Publication of standardised government securities issuance calendars, maturity profile, auction results Standardized issuance frequency

3 Creating a benchmark yield curve

Reduce government bond fragmentation Create a platform for quoting two way prices on bonds trades Market should quote two way pricing on bond trades

Reduced number of bonds in circulation into a few popular standard maturities (Government bond consolidation in agreed issues) Introduce benchmark bonds in the agreed issues Modification to the auction systems to facilitate re-opening of bonds issues Re-open benchmark bonds to ensure liquidity of bonds traded Improve liquidity by increasing the stock of outstanding benchmark bond Benchmark yield curve Market makers quote 2-way pricing to allow price discovery Display real time trading prices on widely accessible platform

4 Broaden investor base

Introduce Primary Dealership (open to other financial institutions) Allow foreign investor participation on domestic debt markets Improving information flow to the general public through financial literacy programmes

Defined obligations and incentive structure Reduction in holdings concentration ratios by investor category Increased secondary market activity Increased number of investors

5 Trading and Settlement Infrastructure

Modernise trading and settlement platforms Implement Delivery-

Reduction in settlement time Use of paperless securities Integrated electronic bidding (e.g. Book Entry System) and funds transfer systems

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Objectives Measures Performance Indicators versus Payment (DvP)

(e.g. RTGS) (Straight Through Process (STP) Interface Central Securities Depository to the National Securities Depository System

6 Legal and Regulatory Framework

Adopt ISDA as a regulatory framework for OTC transactions Implement OTC trading platform and transactions settled through an exchange Implement Exchange based trading platform Adopt Global Master Repurchase Agreement with legal enforceability closures Encourage the establishment of market self-regulating institutions

Increased number of OTC trades settled through the exchange Increased number of secondary market trades Increased activity on REPO markets Secondary Market Rules and Practices Market Code of Conduct Professional Associations

7 Create an enabling tax Environment

Reduced transaction costs

Removal of taxes on government securities transactions Increased number of secondary market trades settled through the exchange

5.0 Recommendations

Given the vast benefits associated with well-developed debt markets, it is in the interest of SADC member countries to devote their energies and harness their potential to grow by implementing policies that are supportive of these markets. The suggested performance indicator framework should be incorporated in each member country’s central bank strategic plan on enhancing the development of secondary markets. The framework will act as a peer review mechanism. Alive to the fact that member countries are at different stages of secondary market development respective central banks should organise stakeholder’s workshops to assist in identifying the

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major impediments to secondary market development and prioritize thereof the sequencing of reforms in this area. In addition, efforts directed at broadening the investor base should be encouraged. These include improving information flow to the retail investors through financial literacy initiatives at both national and regional levels. Member countries should also facilitate foreign investor participation on the debt markets by removing exchange controls. However, such measures should take into account the specific financial systems and structures unique to each country. At regional level, one area in which member countries can work together is to harmonize and integrate government securities markets. Measures aimed at harmonizing tax regimes, trading platforms, regulatory listing requirements and information technologies should be supported. In addition, countries should also be encouraged to consolidate and integrate electronic trading and settlement platforms in the region. It must however, be noted that there are risks associated with integrating markets as there is a tendency of capital to flow to more advanced markets and thereby putting less developed markets at a disadvantage. 6.0 Conclusion The development of liquid and efficient debt markets is important because they facilitate efficient utilization of financial resources in an economy. In this respect, central banks should play an important role in ensuring that financial markets function efficiently. This is critical because the effectiveness of monetary and fiscal policies in stabilising the economy to a larger extent depends on how well-developed money and fixed income markets are. Moreover, well functioning debt markets entail efficient utilisation of financial resources in the economy. It is also worth noting that certain imbalances observed in financial markets such as high interest rates, wide interest rate spreads and excessive volatility in exchange rates are sometimes a reflection of the underdevelopment of these markets. Hence, there is need for the monetary authorities within the SADC region to closely work together and harmonise policies in order to promote secondary debt market development.

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References AECOM International Development. 2009. SADC – COMESA Bond Market Mapping Report to USAID/Southern Africa.

Árvai Zsófia and Geoffrey Heenan, 2008. A Framework for Developing Secondary Markets for Government Securities, IMF WP/08/174 Bank of Zambia. 2007-2011. Annual Reports. Bank of Zambia. 2009. Secondary Market Development in Zambia Workshop Report, Lusaka, Zambia. Chakufyali Alex. 2011. “Developing Debt Markets in Zambia”. Unpublished. Endo Tadashi.2002. “Developing Efficient Market Infrastructure and Secondary Market of Government Bonds”, 3rd Regional Workshop on Developing Government Bond Markets in Middle East and North Africa, June 17-18. Muhammad Aril. 2007. “Developing Bond Market in Pakistan,” SBP Research Bulletin, Volume 3, Number 1. Lusaka Stock Exchange, Year Statistics and Frequently Asked Questions Publications. SADC Committee of Central Bank Governors. 2001. “The Role of SADC Central Banks in the Development and Operations of Money Markets in the SADC Region”, Document 12. SADC – PROTOCOL ON FINANCE AND INVESTMENT: ANNEX ON “CO-OPERATION ON FINANCIAL MARKETS”. Reddy Y, V. 2002. “Developing Bond Markets in Emerging Economies: Issues and Indian Experience”. Asian Conference, hosted by FIMMDA, PDAI and Thai BDC, Bangkok. Republic of South Africa, National Treasury, “Debt Management Report 2011/12”. World Bank. 2007. “Developing the Domestic Government Debt Market: From Diagnostics to Reform Implementation. World Bank. “IFC Zambia Bonds Marks First International Issuance in Zambia’s Domestic Capital Markets”, Press Release, Lusaka/Washington, September, 19 2013.

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Appendix I

1. Money Markets and Monetary Operations Country Instruments of Monetary Policy Statutory Reserve

Requirement Ratios Purpose for Issuing Government Securities

Angola Cash Reserve Ratio (CRR) Liquid Asset Ratio (LAR) Open Market Operations, Permanent liquidity Facilities Repos level I and II

CRR - 15% of domestic currency liabilities LAR - 15% of foreign currency (US dollar)

Deficit financing

Botswana The Bank Rate (policy rate) Open Market Operations (OMO) Cash Reserve Ratio (CRR)

Liquid Asset Ratio - 10%

Financial markets developments Deficit financing

Democratic Republic of Congo (DRC)

Treasury bills issued by the central bank Liquidity facilities Cash Reserve Ratio (CRR)

CRR - 8% of demand deposits and 7 % of Term deposits

Monetary policy management (liquidity

Lesotho T-Bills NIR targeting

CRR - 3% LAR - 25%

Monetary policy management (liquidity)

Madagascar - - - Malawi Cash Reserve Ratio (CRR)

Liquid Asset Ratio (LAR) Open Market Operations

CRR - 15.5% of domestic currency liabilities LAR - 20.0%

Financial markets developments Deficit financing Debt restructuring

Mauritius Open Market Operations: Repos, Central bank bills CRR Special deposits

CRR: Rupee deposits - 8% Foreign currency deposits - 6%

Deficit financing

Mozambique Open Market Operations CRR

CRR - 8% Financial markets developments Deficit financing Monetary policy management (liquidity)

Namibia Central Bank Bill CRR

CRR - 0.5% LAR - 10%

Deficit financing

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Country Instruments of Monetary Policy Statutory Reserve Requirement Ratios

Purpose for Issuing Government Securities

LAR South Africa CRR

Open Market Operations Main Repurchase Transactions SARB debenture Auctions Foreign Exchange Swaps Government Deposits with the SARB Corporation for Public Deposits funds with SARB

CRR - 2.5% on total liabilities, one month compliance period based on reserve averaging LAR - not less than 5% of prescribed liabilities

Deficit financing Monetary policy management (liquidity)

Seychelles CRR Open Market Operations (Deposit Auctions and Repos) Occasional foreign exchange auctions

CRR - 13% LAR - 20% of total liabilities

Deficit financing Monetary policy management (liquidity)

Swaziland Cash Reserve Ratio (CRR) Liquid Asset Ratio (LAR) Open Market Operations

CRR - 6% LAR- 20%

Deficit financing Financial markets developments Monetary policy management (liquidity)

Tanzania Cash Reserve Ratio (CRR) Liquid Asset Ratio (LAR) Open Market Operations

Deficit financing Financial markets developments Monetary policy management (liquidity)

Zambia Cash Reserve Ratio (CRR) Liquid Asset Ratio (LAR) Open Market Operations

CRR - 8 % of domestic and foreign currency liabilities LAR - 6 % of liabilities

Deficit financing Financial markets developments

Zimbabwe Liquid Asset Ratio (LAR) LAR - 30% Financial markets developments 2 (a) Primary Market Operations of Government Securities Country Primary Dealership Auction Pricing

mechanism Issuance Strategy, Instruments, Tenors

Angola No Primary dealership Auction based system Single/Uniform and multiple pricing

Do not publish issuance calendar and maturity profile. Publishes government financing needs

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Country Primary Dealership Auction Pricing mechanism

Issuance Strategy, Instruments, Tenors

T-bills and Bonds issuances are done weekly Tenors: T-bills 91, 182,364 day Bonds 2,3,4,5 years

Botswana Primary dealership in place Auction based system Single/Uniform pricing

Do not publish issuance calendar and maturity profile. T-bills and Bonds issuances are done every three months Tenors: T-bills 3and 6 months Bonds 2 to 18 years

DRC No Primary dealership Auction based system Multiple pricing

Publishes issuance calendar and maturity profile Tenors: T-bills 7, 28 day

Lesotho No Primary dealership Auction based system Publishes issuance calendar and maturity profile

Madagascar - - - Malawi No Primary dealership Auction based system

Multiple pricing

Publishes the maturity profile and financing needs Do not publish issuance calendar Tenors: T-bills 91, 182, and 364 days Treasury Notes 2,3,4, and 5 years

Mauritius Primary dealership in place Auction based system Multiple pricing

Publishes the maturity profile and issuance calendar Do not publish financing needs T-bills issued weekly Bonds (Treasury Notes) once monthly, 5 year bonds - 7 times in a year, 10 and 15 year bonds - 3 times in a year Tenors: T-bills 91, 182 , 273 and 364 days Bonds:3, 5,10 and 15 years

Mozambique No Primary dealership Public and private underwriting

Do not publish issuance calendar, maturity profile and financing needs T-bills are issued weekly Bonds ; undefined/Randomly issued Tenors: T-bills 91, 182 and 364

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Country Primary Dealership Auction Pricing mechanism

Issuance Strategy, Instruments, Tenors days Bonds: 5, 10 years and Perpetual

Namibia No Primary dealership Auction based system Multiple pricing

Tenors: T-bills 91, 182 , 273 and 364 days Bonds:2, 4,5,8, 11,13, 14, 16,1 9 and 20 years

South Africa Primary dealership in place since 1998

Auction based system Bonds issued: single/Uniform cut off yield (Dutch style) Treasury bills : Multiple prices (American Style)

Publishes issuance calendar at the beginning of the fiscal year specifying auction and settlement dates Vanilla bonds, Inflation-linked bond and T-bills are issued weekly. Vanilla Bonds on issue and amounts on offer are announced a week before auction and are open to PDs only Inflation linked bonds only open to JSE members T-bill auctions are open to all market participants

Seychelles No Primary dealership

Auction based system Multiple pricing

Publishes issuance calendar, but not maturity profile and financing need T-bills are issued weekly Tenors: T-bills 91, 182,273,364 days Bonds: 2, 3 and 5 years

Swaziland Primary dealership Auction based system Multiple pricing

Do not publish issuance calendar (suspended mid – 2011), maturity profile and financing need under Ministry of Finance T-bills issued weekly Bonds issued bi-quarterly, but has been suspended temporarily Tenors: T-bills 91,182,273 and364 days Bonds 2,3,5 and 7 years

Tanzania No Primary dealership Auction based system Multiple pricing

Publishes issuance calendar, but not maturity profile and financing need Tenors: T-bills 91,182, and 364 days

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Country Primary Dealership Auction Pricing mechanism

Issuance Strategy, Instruments, Tenors Bonds 2,3,5, 7and 10 years

Zambia No Primary dealership Auction based system Uniform pricing

Publishes issuance calendar, but not maturity profile Do not publish financing need T-bills are issued fortnightly Bonds issued quarterly Tenors: T-bills 91, 182,273,364 days Bonds: 2, 3, 5, 7 , 10, and 15 years

Zimbabwe No Primary dealership

Auction based system Uniform pricing

Do not publish issuance calendar, maturity profile and financing need Tenors: T-bills 91, :Bonds 2,3, and 4 years

2(b) Primary Dealership Obligations and Incentives Country Obligations Incentives Angola Not Applicable Not Applicable Botswana Participate at auctions

Quote two-way prices Minimum bid at auction is BWP5 million increment of BWP1.0 million. Quote continuous two-way prices under all market conditions on eligible government securities. Provide feedback on market activity and developments and daily closing prices of eligible securities. Actively contribute to the development of domestic securities market Not to engage in anti-competitive or collusive practices to the detriment of the market

Exclusive right to submit on behalf of customers at auctions. Right to participate at auctions.

DRC Not Applicable Not Applicable Lesotho Not Applicable Not Applicable Madagascar Not Applicable Not Applicable Malawi Not Applicable Not Applicable Mauritius Participate actively at auctions of government

securities/Bank of Mauritius Bills and bid at Right to participate at government securities/Bank of Mauritius Bills

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Country Obligations Incentives market related yields on a competitive basis Quote continuous two-way prices under all market conditions on eligible government securities/Bank of Mauritius Bills - with one year residual maturity Minimum deal size is a nominal Rs100,000.00 and maximum spread 20 basis points Provide feedback on market activity and developments and daily closing prices of eligible securities to the Bank of Mauritius Actively contribute to the development of domestic securities market Not to engage in anti-competitive or collusive practices to the detriment of the market

Exclusive right to submit on behalf of third parties at auctions Right to submit bids on Reuters Dealing Screen

Mozambique Not Applicable Not Applicable Namibia Not Applicable Not Applicable South Africa Participate actively in all auctions and bid at

market related yields on a competitive basis Minimum bid requirement (1/number of PDs*100) +2%/100*amount on offer). A single PD may take up the full amount on each bond auction Prescribed bid amounts and multiple thereafter Must quote two-way prices for benchmark bonds for the market lot at stipulated time period ( 8:30 and 16:30) Submit tenders electronically via Bloomberg Auction System by 11:00 hours

Right to participate in bond auctions Right to participate in switch auctions Right to 30% of Individual PDs allocation amount on non - competitive basis, 48 hours after close of auction Right to access bonds from the Government on an overnight basis if market is short bond and therefore cannot settle. This is at a penalty rate of zero for the cash

Seychelles Swaziland Underwrite all Government issues

Two way quote bid - ask spread not to exceed 20 basis point PD must quote two way prices on the Reuters page, however, not required to quote on a continuous basis

Market makers in the secondary markets

Tanzania Not Applicable Not Applicable Zambia Not Applicable Not Applicable Zimbabwe Not Applicable Not Applicable

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3. Investor Base Country Foreign investor participation in the domestic government securities market

Angola Yes Botswana Yes DRC No Lesotho No Madagascar - Malawi Yes Mauritius Yes Mozambique No Namibia Yes South Africa Yes Seychelles Yes Swaziland Yes Tanzania No Zambia Yes Zimbabwe N/A 4. Benchmark Issue Country Benchmark Maturity Angola They are benchmark issues

No reference rates for other issuers (corporates) to pricing off their bonds

T-bills : 91, 182,364 days Bonds: 2,3,4, and 5 years

Botswana They are benchmark issues 2,5 10 and 15 years DRC No benchmark issues

Not Applicable

Lesotho No Benchmark issue but the market benchmarks with the 91 day Treasury bill for the interbank market

T-bills: 91,182, 273, 364 days T-bonds: 3,5,7,10 years

Madagascar Malawi No benchmark issues Mauritius There are benchmark issues 3 and 5 year bonds Mozambique No benchmark issues Namibia There benchmark issues

All bonds benchmarked to South African bonds

2, 3, 10, 15,and 20 years

South Africa They are benchmark issues Seychelles No benchmark issues Swaziland They are benchmark issues

No re-opening, may consider in future

3, 5, and 7 years

Tanzania No benchmark issues Zambia They are benchmark issues

Re-opening of benchmark bonds

3, 5 and 10 years

Zimbabwe No benchmark issues

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5. Trading and Settlement Infrastructure Country Trading Platform Settlement Platform Settlement Period Angola Real Time Payment System

(SPTR) T+0

Botswana Bloomberg Auction System Real Time Gross System (RTGS) and Globus

T+3

DRC Adjudication Transferability Treasury bills (ATB)

Integrated System (Isys) T+0

Lesotho RTGS T+0 Madagascar Malawi Banking System Mauritius Mauritius Automated

Clearing and Settlement System (MACSS) - RTGS

T+1

Mozambique (SAP ) In - house System T+3 Namibia Bloomberg System T+1 South Africa Bloomberg System Bonds: T+3 for bonds in the

primary and secondary markets T-bills : T+3 in primary market and T+0 in secondary market

Seychelles Swaziland Tanzania Government \securities

System T+2

Zambia IMF - Book Entry System RTGS Primary market: Bonds: T+3, T-bills: T+4 Secondary market: Bonds and T-bills T+0

Zimbabwe RTGS T+0 6. Legal and Regulatory Framework Country Debt Office Secondary Market Structure Angola Independent debt office

Government/Central bank (Principal-Agent Agreement) in place

Stock Exchange still in the process of constitution Government securities not listed on the stock exchange

Botswana

No independent debt office No Government/Central bank (Principal-Agent Agreement) in place but Central Bank administers auctions, custody and settlements on behalf of government

OTC based secondary market trading in securities

DRC No independent debt office Government/Central bank (Principal-Agent Agreement) in place

Lesotho Government Debt office Government/Central bank (Principal-Agent Agreement) in place

Madagascar Malawi No independent debt office

Government/Central bank (Principal-Agent

OTC based secondary market trading in securities

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Country Debt Office Secondary Market Structure Agreement) in draft form

Mauritius No independent debt office Government/Central bank (Principal-Agent Agreement) in place

OTC and Exchange based secondary market trading in securities

Mozambique No independent debt office Government/Central bank (Principal-Agent Agreement) in place

OTC and Exchange based secondary market trading in securities

Namibia No independent debt office Government/Central bank (Principal-Agent Agreement) in place

OTC and Exchange based secondary market trading in securities

South Africa No independent debt office Government/Central bank (Principal-Agent Agreement) in place

OTC and settled through the Stock Exchange

Seychelles No independent debt office Government/Central bank (Principal-Agent Agreement) in place

Swaziland No independent debt office Government/Central bank (Principal-Agent Agreement) in place

Tanzania No independent debt office Government/Central bank (Principal-Agent Agreement) in place

OTC and Exchange based secondary market trading in securities Display trading prices on the Bank of Tanzania Website

Zambia No independent debt office Government/Central bank (Principal-Agent Agreement) in place incorporated in legislation (Loans and Guarantees Authorization Act Chap 336

OTC and Exchange based secondary market trading in securities

Zimbabwe There is an independent debt office Government/Central bank (Principal-Agent Agreement) in place

OTC based secondary market trading in securities

7. Tax Environment Country Primary market Secondary market Angola Bonds with maturity period equal and above 3

years attract withholding tax 5%, on income and coupon 0.001% stamp tax

Botswana No fees Withholding tax on coupon: 7.5 percent on both Residents and Non-Residents

(DRC Vat - 16% Lesotho Madagascar Malawi Mauritius No Taxes are applied on Bonds Range of fees USD8.00 - USD11.00 Mozambique Bond: 10% on income and coupon

T-bills: 20% Public issuances done through the Stock Exchange attract 0.04% stock exchange fee and 0.2% brokerage fees

Namibia No Taxes

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Country Primary market Secondary market South Africa No Taxes are applied on Bonds No Taxes are applied on Bonds Seychelles Swaziland No taxes No taxes Tanzania No transaction fees

10 % Withholding Tax on income

No taxes

Zambia 2 % Handling/ transaction fees 15 % Withholding Tax on income 1% medical tax

Compulsory fees - 0.06% on US$1.0mn Brokerage fees - USD350.0

Zimbabwe 10 % Withholding Tax on income 8. Secondary Market Regulations Country Market Rules Angola The Code of Conduct to regulate secondary market trading is in place

No Association to regulate bond trading activities Existence of Standardized Master Repurchase Agreement with legal enforceability closures No Agreed Price Policy No two-way continuous price firm quotes There is no platform to display secondary market trading prices

Botswana There is a Code of Conduct to regulate secondary market trading is in place No Association to regulate bond trading activities Existence of Standardized Master Repurchase Agreement with legal enforceability closures Central bank supervises the market No Agreed Price Policy

DRC There is no Code of Conduct to regulate secondary market trading is in place No Association to regulate bond trading activities There is no Standardized Master Repurchase Agreement with legal enforceability closures No agreed pricing policy

Lesotho There is no Code of Conduct to regulate secondary market There is no association to regulate bond trading activities There is a Master Repurchase Agreement signed by all the Commercial Banks There is no policy on pricing secondary trades and there are no primary dealers hence participants are not required to quote two-way.

Madagascar Malawi Mauritius The Code of Conduct to regulate secondary market trading is in place

Existence of Standardized Master Repurchase Agreement with legal enforceability closures Agreed pricing policy: dirty price

Mozambique There is no Code of Conduct to regulate secondary market trading is in place No Association to regulate bond trading activities There is no Standardized Master Repurchase Agreement with legal enforceability closures The Stock Exchange defines operational rules of the market Central bank supervises the market Agreed pricing policy: clean price There is a platform to display secondary market trading prices on the stock exchange. And online on the Stock Exchange Bulletin No two-way continuous price firm quotes but uses the last quote in the latest trade call

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Country Market Rules Corporates use information on current prices of other issues plus risk profile, and liquidity conditions in the market

Namibia There is no Code of Conduct to regulate secondary market trading is in place No Association to regulate bond trading activities Secondary Market trading regulated by Stock Exchange There is no Master Repurchase Agreement (Vertical) in place No Agreed Price Policy No market makers No two-way price firm quotes

South Africa A code of Conduct exists: JSE Interest Rate and Currency Rules” Bond Traders Association (BTA); regulates Bond trading actives Master Repurchase Agreement (MRAs): Money market transactions Secondary Market trading of bonds to be reported to JSE for settlement

Seychelles No code of conduct to regulate secondary market activity No Bond Association to regulate bond trading activities Non- existence of Standardized Master Repurchase Agreement with legal enforceability closures No Agreed Price Policy No two-way price firm quotes No agreed market pricing mechanism No institutional arrangement to regulate secondary market activity

Swaziland Non- existence of Standardized Master Repurchase Agreement with legal enforceability closures Primary Dealership Agreement in place There is a Bond Associations in place Central bank and SSX regulates secondary market securities

Tanzania Existence of Standardized Master Repurchase Agreement with legal enforceability closures Code of Conduct in place There is a Bond Associations in place Bank of Tanzania regulates secondary market securities No agreed pricing policy

Zambia Existence of Standardized Master Repurchase Agreement with legal enforceability closures No PDs Global Master Repurchase Agreement for Zambia Secondary Market Rules and Practices of the Zambian Government Securities Market (ZGS) Code of Conduct for Zambian Government Securities (ZGS) Repos Transactions Bonds Associations of Zambia ACI - Zambia Central bank and Securities and Exchange Commission regulates secondary market for securities

Zimbabwe Securities Exchange of Zimbabwe (SECZ) regulates secondary market for government securities There is a Bond Associations in place Non- existence of Standardized Master Repurchase Agreement with legal enforceability closures No Agreed Price Policy