Players in the government securities market are set to deal with the new rules effective July 2, 2018.
According to the press release issued by the communications department of Bank of Uganda dated May 21, the method of pricing treasury bills and bonds in the primary auctions will change to one of a single price from the current multiple prices with effect from July 2, 2018.
According to the release, in the single price method, the respective securities in the primary auction will be sold at the same price to competitive and non-competitive bidders.
Competitive bidders are the investors with bid amounts that are above Shs200million, while non-competitive bidders are the investors with bid amounts that are between Shs100, 000 and Shs200million.
“The single price with respect to each specific security will be the highest interest rate from the accepted bids in the auction,” the release reads in part.
Previously, non-competitive bidders’ allocations of securities would be done at the weighted average price (or interest rate) of the successful competitive bids in an auction.
But under the new method, their allocations will be done at the highest interest rate from the successful bids.
Competitive bidders, whose allocations were done at the prices in their respective bids, previously will now receive allocations at the highest interest rate from the successful bids in the auction.
Therefore, both competitive and non-competitive bidders will receive allocations at the same interest rate under the new method, which will be the cut-off price of an auction.
According to BoU officials, the new method will encourage secondary market trading because selling may not disadvantage investors as all would have received the same price at the primary auction.
The single price auction will also simplify the computation of withholding tax on the interest that is earned from Government securities.
Credit: The Independent
