Deloitte suggests primary dealers for securities
KATHMANDU: Aug 12, 2013
A renowned international consulting agency has suggested that Nepal Rastra Bank (NRB), central monetary authority, allow financial intermediaries like commercial banks to sell government securities so as to build a stable source of demand for bonds and treasury bills, among others.
The recommendation was laid in a report titled ‘As Is Assessment and Recommendation Report on Public Debt Management, Capital Market and Infrastructure Capacity Support Project’ prepared for the Finance Ministry by Deloitte Touche Tohmatsu India and its associate Total Management Services.
“NRB should introduce primary dealership system to build a stable dependable source of demand for government securities and to develop the secondary market for government securities,” says the report prepared with grant assistance extended by the Asian Development Bank, which has been supporting Nepal to develop its capital market.
Under the primary dealership system, NRB will have to appoint financial intermediaries like banks to sell securities like treasury bills and bonds by giving them certain incentives. Once the responsibility is transferred, primary dealers of government securities should also shoulder the responsibility of developing new products in consultation with the central bank and marketing them.
NRB issues securities like treasury bills and bonds to raise money for the government which in turn is used for short- or long-term financing. Securities like treasury bills are sold through auctions, while bonds are auctioned at pre-determined rates of interest.
The report prepared by Deloitte has also suggested that NRB introduce online bidding system for issue of government securities and do away with existing manual bidding. Further, NRB should introduce dematerialised form of government securities, the report says. This means the central bank should ditch the practice of issuing government securities in paper and introduce electronic certificates or promissory notes.
The report also recommends that the present price-based auction system be replaced by yield-based auction system. “The interest on various types of certificates may be benchmarked to the cut-off yield on development bonds, while the government should lengthen the maturity of securities to develop the sovereign yield curve,” says the report.
These reform strategies have been laid to upgrade the existing debt management policies and processes in line with international best practices to promote government bond market and reduce the debt service costs of the government, as per the report, which, among others, has stressed on the need to establish a separate Public Debt Management Office to address an array of issues related to public debt management.
The Finance Ministry has already begun consultation with NRB, the Financial Comptroller General Office and other concerned authorities in this regard. Deloitte started conducting the survey in April.
A renowned international consulting agency has suggested that Nepal Rastra Bank (NRB), central monetary authority, allow financial intermediaries like commercial banks to sell government securities so as to build a stable source of demand for bonds and treasury bills, among others.
The recommendation was laid in a report titled ‘As Is Assessment and Recommendation Report on Public Debt Management, Capital Market and Infrastructure Capacity Support Project’ prepared for the Finance Ministry by Deloitte Touche Tohmatsu India and its associate Total Management Services.
“NRB should introduce primary dealership system to build a stable dependable source of demand for government securities and to develop the secondary market for government securities,” says the report prepared with grant assistance extended by the Asian Development Bank, which has been supporting Nepal to develop its capital market.
Under the primary dealership system, NRB will have to appoint financial intermediaries like banks to sell securities like treasury bills and bonds by giving them certain incentives. Once the responsibility is transferred, primary dealers of government securities should also shoulder the responsibility of developing new products in consultation with the central bank and marketing them.
NRB issues securities like treasury bills and bonds to raise money for the government which in turn is used for short- or long-term financing. Securities like treasury bills are sold through auctions, while bonds are auctioned at pre-determined rates of interest.
The report prepared by Deloitte has also suggested that NRB introduce online bidding system for issue of government securities and do away with existing manual bidding. Further, NRB should introduce dematerialised form of government securities, the report says. This means the central bank should ditch the practice of issuing government securities in paper and introduce electronic certificates or promissory notes.
The report also recommends that the present price-based auction system be replaced by yield-based auction system. “The interest on various types of certificates may be benchmarked to the cut-off yield on development bonds, while the government should lengthen the maturity of securities to develop the sovereign yield curve,” says the report.
These reform strategies have been laid to upgrade the existing debt management policies and processes in line with international best practices to promote government bond market and reduce the debt service costs of the government, as per the report, which, among others, has stressed on the need to establish a separate Public Debt Management Office to address an array of issues related to public debt management.
The Finance Ministry has already begun consultation with NRB, the Financial Comptroller General Office and other concerned authorities in this regard. Deloitte started conducting the survey in April.
Source: THT
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