Ghana Plans Market Makers to Boost Bonds With Live PricesMoses Mozart Dzawu
Ghanaian regulators are planning to introduce market making, set up live trading and start debt-education programs in a bid to boost bond-market activity in West Africa’s second-biggest economy.
Bond trading in Ghana remains thin compared with equities, because there is no electronic platform for debt, said Stephen Tetteh, chief executive officer of the Accra-based Central Securities Depository Ghana Ltd. Following last year’s merger of securities depositories by the central bank, the unified storehouse is working to integrate platforms and is asking the government to change laws to help boost trading, he said.
Ghana’s debt-market plans come as the government raises bond issuance this year to fund a budget deficit forecast by the finance ministry to narrow to 8.5 percent of gross domestic product from 10.2 percent in 2013. The world’s second-biggest cocoa producer will sell 35 percent more cedi debt this year and will offer a 10-year bond in June, the longest-maturity local-currency security.
“The Securities and Exchange Commission is working on market makers who go in just to bring liquidity onto the market,” Tetteh said in an interview on Jan. 29. “We have drawn programs to go out and do a lot of education to teach people what they can do with the bond market. Once we get that, then our market will bring that liquidity.”
Live trading may happen within a year, Tetteh said. The Securities & Exchange Commission may ask parliament this year to pass a law allowing market making, Director General Adu Anane Antwi said by phone Jan. 29. The SEC, which currently issues broker-dealer permits to traders, wants to license banks and brokers to operate as market makers, he said.
They will have the capital to buy securities in large amounts and sell when the market is in need, he said. The government is considering the proposal, a precursor to legislative approval.
“The move to introduce market making is very positive and eagerly awaited,” Angus Downie, London-based head of economic research at Ecobank Transnational Inc., said in e-mailed comments to Bloomberg today. “A deeper and more liquid market is an attractive prospect for all investors as it allows swifter entry/exit as well as robust price discovery.”
Ghana’s central bank last April threatened to cancel the licenses of primary dealers for not participating in government debt auctions. Linking the depositories, which happened on Dec. 24, will give stock brokers access to the bonds depository to check on ownership.
“This by itself is expected to increase bonds trading,” Tetteh said. Brokers currently can’t access the bonds because the depositories are separate and the merged entity has one year to complete its integration, he said.
The depository, the stock exchange, and the SEC will educate investors this year on bond trading, Tetteh said. The campaign will also see private bond issuers asked to keep ownership records in the depository, he said.
“It is critical for the authorities to move quickly to create the framework and processes to allow market makers to participate in the debt market,” Ecobank’s Downie said. “Foreign-investor interest in Ghana is strong, but competition from other frontier markets means that Ghana needs to show progress with capital-markets reform if it is to boost capital inflows.”
Government bonds with two-year terms and higher must be listed on the stock exchange, Tetteh said. Yields on seven-year notes, currently the longest-tenure cedi debt, rose 50 basis points, or 0.5 percentage point, to 18 percent at the last auction on Nov. 13. They were unchanged at 19 percent at 2:27 p.m. in Accra, according to data from Standard Chartered Plc.
Investors may be able to own shares in the depository, which had 556,837 accounts for bonds at the end of last year and 76,348 for stocks, in the “medium term,” Tetteh said. The Bank of Ghana owns 82 percent of the depository, while the stock exchange holds the remainder.
Ghana’s stock exchange has sub-Saharan Africa’s best- performing benchmark index this year, with a 5.2 percent increase. The composite measure rose a 13th day, adding 0.6 percent to 2,256.54 today, the highest since Bloomberg began compiling data in January 2011.
“That idea of making money on bonds, and even equity, hasn’t really gone down with Ghanaian investors,” he said. “What we need are people who go into the securities market to make money, somebody who buys in the morning and at two o’clock he wants to sell because the market has moved.”