East African Business Week

KAMPALA, UGANDA - The Bank of Uganda (BoU) has set November 2011 as the delivery date for an electronic trading platform for government securities.
The un-automated trading system which is in use today has its drawbacks and the proposed system is meant to bring efficiency to government trading of bonds and treasury bills.
"BoU is in the process of installing a state of the art electronic trading platform that will allow automation of all key processes and installation at primary dealer sites," Mr. Stephen Kaboyo, the director financial markets at the bank said. "Expected delivery date is November 2011."
In the recent years, many developed and developing markets have been working to automate and introduce a screen-based trading system (electronic) that will make the process faster and accessible to a lot more players.
Kaboyo was speaking at the BERI Forum organized by BoU and the Uganda Securities Exchange (USE) last week.
He explained that the new trading platform will provide among other functionalities; e-bidding in primary auctions, online registration and system access by participants.
The platform will also provide for automated vertical and horizontal repo transactions and secondary market trading at the primary dealer level.
Commercial banks today are the major players in the government debt market, holding 79.12% of both treasury bills and bonds.
Beside BoU, which holds 10.25%, the next big holder is government agencies, which hold 4.10%.
An electronic trading system is hoped to bring a lot more players including individuals and non-bank financial institutions in the mix.
Individuals currently hold 0.90% of treasury bills and bonds while non-bank institutions like insurance companies hold 0.99%.
Analysts point to the adoption of electronic trading systems as having transformed the economic landscape of trading venues and is proving a force for change in market architecture and consequential trading possibilities elsewhere. Electronic trading removes geographical constraints and enables handling of much higher trading volumes.
Until recently it would have been technically impossible and prohibitively expensive to install intelligent systems like the one that has been proposed.
"It is our expectation that the new trading platform will improve the turnaround time in our market operations and increase efficiency," Kaboyo said.
Kaboyo said there are still challenges facing the market including the absence of bonds on the stock exchange, diversification of investor base that is dominated by banks, the retail segment of the market is not fully developed.
He said there is a need to build local institutional investors such as pension funds, need to deepen markets further by strengthening market making, repo markets, volatility in the foreign exchange market, instability arising out of repatriation of funds and erratic liquidity.
Kaboyo said that the primary dealer system, which is part of financial markets development, is due to be reformed.
BoU plans to among others broaden the market to include non-bank financial institutions, support transformation to market-based pricing environment, to ensure there is support for BoU debt management function both at the primary and secondary market level.
Others are to achieve coverage of 100% both primary issues and repo, increase good amount to Ush500 m (US$192,307) and encourage stability of prices of government securities by encouraging narrowing of the spreads between bid and offer.
Government securities include treasury bills and treasury bonds.
They are considered to be the safest form of debt securities since they are backed by government.
Government usually borrows to fund its fiscal deficits.  Also, government securities give higher returns as compared to fixed deposits. BoU introduced the Primary Dealer model in 2003.