Uganda’s central bank to adopt single pricing to spur bond trading

Monday May 21 2018

A Bank of Uganda officer attends to clients at the BoU stand at the banking and insurance expo in Kampala.

A Bank of Uganda officer attends to clients at the BoU stand at the banking and insurance expo in Kampala. PHOTO FILE | NATION 

CHARLES M. MPAGI
By CHARLES M. MPAGI
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In a move to encourage more trading in the secondary market, the Bank of Uganda Monday announced it will sell treasury bills and bonds at the same rate to both competitive and non-competitive bidders.

This will take effect on July 2nd.

The move is a departure from the current method of multiple pricing.

In the single price method, securities in the primary auction will be sold at the same price.

“The single price to each specific security will be the highest interest rate from the accepted bids in the auction,” the central bank said.

Competitive bidders are investors with bids above Ush200 million (about $53,500), while the non-competitive bidders bid amounts between Ush100,000 and Ush200 million (about $30 - $53,500).

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Currently, competitive bidders are allocated securities at the prices in their respective bids, whereas the non-competitive bidders’ allocations are done at the weighted average price of the successful competitive bids in an auction.

But under the new method, both bidders will be allocated securities at the same rate and which will be the cut-off price of an auction.

“The new method will encourage secondary market trading because selling may not disadvantage investors as all would have received the same price at the primary auction,” BoU said.

The single price method is also expected to simplify computation of withholding tax on the interest earned from government securities.

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