Bond-Pricing Manual developed for stock market players

Accra, Sept. 15, GNA - A Bond-Pricing Manual that would make the pricing and trading in bonds, specifically Government's securities, easy, attractive and investor friendly for players in the stock market, has been developed.

The manual developed under the auspices of the Ghana Stock Exchange (GSE) is intended to serve as a concise document that would highlight the fundamentals of simple conventional bonds and their pricing. It is to equip Bank of Ghana (BoG) authorised primary dealers and Licensed Dealing Members (LDM) of the Ghana Stock Exchange (GSE) as well as custodians with the fundamentals of simple bond pricing and trading. Dealers including brokers and representatives from financial institutions, who would be the main players to transact Government's second listing of medium-term securities on GSE from September were on Thursday taken through the intricacies of bond-pricing and a review of a draft dealing guide.

Government's first listing instrument on the Exchange was a Three-Year Government of Ghana Index Linked Bonds in 2004.

This second listing of securities which are instruments that carry fixed interest rates such as a Two-Year and Three-Year Fixed Rate Note and Bond, respectively, are part of Government's effort to facilitate and deepen the capital market.

Explaining the rationale for the medium term securities, Mr Francis Kwabena Andoh, Head of Treasury, BoG, lauded the design of the pricing manual saying, 'it would largely help to solve most of the problems encountered during first listing such as differences in arriving at settlements figures'.

According to him, because of the absence of such a document to guide bond pricing and ensure coherence among parties in bond transactions, the first listing was not entirely successful in terms of its objectives.

'The ability to price instruments, and fairly too, easy procedure in acquiring or disposing of the securities on the secondary market and ease of settlement, will give the investing public some confidence in the money market,' he said.

Mr Andoh said the listing would support a market driven yield curve that would provide a benchmark for private sector borrowers, such as issuers of corporate bonds.

He said the Government expected to mop up about 2.5 trillion cedis from the issuing of the listed securities.

Mr Andoh said this second listing provided the investor the opportunity to walk into the offices of any of institutions that had registered to deal in Government Securities to purchase or sell the listed instruments.

Hitherto, Government instruments could only be obtained through a primary dealer, who had to submit a bid on behalf of the investor at the weekly primary auction of Government securities.

Current legislation forbids non-residents from trading in these money market securities.

Dr Sam Mensah of the Security Exchange Commission and Mr Michael Addo of National Trust Holding Company (NTHC), designers of the pricing manual, took participants through the overview of bond features, ways to determining pricing of bonds using formulae as well as how to incorporate accrued interest and partial periods.

Participants contributed to the review of a draft Dealing Guide for listing government of Ghana bonds, which would soon be ready for implementation.