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

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. Development of the Bond Market Events of Significance.

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

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  1. 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.

  3. 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 wereappointed • 2000 - Primary Dealer supervision commenced.

  4. 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 - Guidelinesand 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

  8. 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) 19972000 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

  10. Secondary Market - - Participants - Ownership Structure - Taxation Policy - Yield Curve

  11. 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

  12. Transaction Numbers and Volumes of the SSS System Source:CDS,PDD, Central Bank of Sri Lanka

  13. Growth of Depository Accounts of CDS Source: CDS,PDD,Central Bank of Sri Lanka

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

  15. The End Thank You !

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