CB to introduce new system for bond auctions soon
Electronic trading and counterparty system also in the pipeline „New system will go online in 3 months, but full implementation in one year „CB Governor says proposed new system more robust and less easy to manipulate „Seeks technical assistance from IMF,
In a bid to close room for manipulation in the government securities market, the Central Bank is now gearing up to introduce a brandnew system for primary government securities auctions market, which is expected to go online in three months, according to the Central Bank Governor.
“We are working on a new auction system which will be more robust and less easy to manipulate,” said Dr. Indrajith Coomaraswamy.
To this end, the Central Bank is now seeking technical assistance to implement this system from the International Monetary Fund and the World Bank, as they have expertise in government securities markets with exposures to different countries.
A new system for the primary auctions market is being evaluated in the wake of Perpetual Treasuries Limited, a primary dealer connected to the former Central Bank Governor, Arjuna Mahendran, making super-normal profits through alleged auction rigging.
After Mahendran was appointed Governor last year, the method of offering bonds was changed from direct placements to a fully auctioned system, citing the need for higher transparency.
But Sri Lanka witnessed the biggest scandal in the history of the government securities market during Mahendran’s tenure when the Central Bank sold ten times the bonds it offered at higher rates where Perpetual Treasuries Limited bought most of the bonds.
The transaction is believed to have paid off very well, giving a windfall to Perpetual Treasuries as they were said to have dumped the bonds later.
However this year, the Central Bank took multiple measures to increase the level of transparency in the primary auctions market.
While the Central Bank doesn’t accept bids above the offered amount at auctions any more as had been the practice in the past, the Central Bank has also started to hold pre-bid meetings with all the primary dealers. Further, an auction calendar has also been introduced.
Meanwhile, the Central Bank is also planning to introduce an electronic trading platform and a counterparty system which will further increase the level of transparency and reduce room for manipulation in the government securities market.
This system, according to the Governor, will take at least one year to be fully implemented.
“There are no perfect systems anywhere. We are trying to reduce the risk of manipulation,” the Governor stressed.
Apart from the measures that have already been taken to increase the transparency in the primary auctions market, the Central Bank also took multiple measures in recent times to increase transparency in the secondary bond market.
While the Employees’ Provident Fund is no longer trading in the secondary market, all the banks and primary dealers were asked to join the Bloomberg electronic bond trading platform for government securities secondary market transactions.
With this development, all primary dealers and banks undertake trades among them on the said platform and report all over-the-counter outright deals with investors of Rs. 50 million and above within 30 minutes.