A. Introduction:
B. Appointment Of Brokers:
C. Scope Of Operations:
D. Area Operations:
E. Procedure
For Bidding In The Primary Market:
F. Repayment Of Matured Bills:
G. Operation Of Accounts
With Cbn:
H. Commission:
I. Reporting Requirements:
J. Code Of Conduct And
Market Practices:
(a) Preservation
of Confidentiality by Brokers:
(b) Breach of Confidentiality
(c) Dealers
to Maintain Aggregate Customers' Account:
(d) Brokers
to Pay Redemption Proceeds to Beneficial Owners:
Introduction:
1. The following guidelines are set out to give effect to the decision
of CBN to involve selected firms of Stockbrokers registered with the Nigerian Stock
Exchange in the marketing and sale of Nigerian Treasury Bills to the general public.
2. The objective is to encourage wider participation by small scale
investors and individuals thereby increasing the awareness and popularity of treasury
bills, and in the long run to reduce the burden of CBN having to underwrite a large
proportion of the weekly issues.
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Appointment Of Brokers:
Brokers shall be appointed from the dealing members of the Stock
Exchange through nomination obtained from the Director-General of the Exchange from time
to time.
On appointment, brokers will be given the status of "Special
Authorised Dealers" in government securities. This status will enable them operate
current accounts at the CBN for the sole purpose of dealing in Treasury Bills.
The brokers shall submit the following documents to the CBN before
being permitted to commence operations.
- Memorandum and Articles of Association.
- Evidence of registration with the NSE.
- A Letter of Undertaking to abide by the rules and regulations
governing operations in the Treasury Bills market and the provisions of these guidelines.
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Scope Of Operations:
The brokers shall operate only at the NTB Primary Market in the
first instance. It is expected that their dealings in the secondary market will evolve
over time.
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Area Operations:
The operations of Brokers shall commence immediately at the Abuja
Head Office and the Lagos Office of the CBN. However, bids can be received in any of the
CBN Branches in other states of the Federation but the relevant account debits will be
made in Lagos on the issue date, in accordance with existing practice.
Procedure For Bidding In The Primary Market:
Brokers are expected to submit non-competitive bids in order to
ensure equity and transparency in the market. They will therefore be allotted bills at the
marginal or CBN take-up rate. This is designed to protect their clients who would be
mainly unsophisticated individual investors.
9. The minimum investment in Treasury Bills per Auction by any broker
shall be N100,000.
10. Investment in Treasury Bills under this scheme will be issued with
physical bids as evidence of their investment. Brokers are therefore required to submit,
with their bids, a list of the applicants together with their names and addresses and
amounts applied for.
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Repayment Of Matured Bills:
11. The broker shall submit to CBN a repayment schedule showing all
Treasury Bill holdings for repayment on each due date (Maturity Date). All matured
physical Treasury Bills duly endorsed to the CBN shall be attached to the schedule for the
purpose of repayment.
12. The CBN accounts of the brokers will be credited with the proceeds
of the matured bills in favour of their investors.
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Operation Of Accounts With CBN:
Account status at CBN is a special privilege which confers certain
responsibilities and obligations on the beneficiary in the operation and maintenance of
the accounts. Brokers are therefore expected to reciprocate by strictly abiding by the
following conditions regulating the operation of the accounts:
The accounts are to be operated for the sole purpose of conducting
Treasury Bills related transactions. No other business or transaction shall be permitted
to pass through the accounts.
The accounts must be properly maintained at all times. The account
must not be allowed to become overdrawn for any reason.
The accounts must be funded for any bids submitted by the broker
before the issue date (VALUE DATE) which is the Thursday of the week of issue.
In the case of cheques collected from investors and paid into the
accounts, it must be noted that only instruments for which value had been fully given will
be recognised for valid transactions. In other words, bids submitted upon uncleared
effects or credits in transit will not be valid for purpose of each auction.
Individual investors shall not be allowed to make payments directly
into the CBN accounts of the brokers.
On issue date, the CBN accounts of the brokers will be debited
with the total cost of the bids submitted, under advice.
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COMMISSION:
The CBN shall pay a commission of 0.5% flat (or N5,000
per N1 million) to Brokers on the total value of bids submitted.
To ensure that commission is paid only for effective sales,
commission earlier paid on any Treasury Bill discounted indiscriminately before maturity
may be duly recovered from the broker at the time of discounting.
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Reporting Requirements:
Brokers are required to submit in a prescribed form four copies of
the monthly returns on its activities (SALES AND PURCHASES) within the first seven days of
the following month. (See attached Schedule 1).
Brokers are required to submit in a prescribed form four copies of
the annual returns on its activities (SALES AND PURCHASES) within the first FIFTEEN days
of the first month of the following year. (See attached Schedule 1 )
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Code Of Conduct
And Market Practices:
In order to foster orderliness and discipline, there is need to
establish minimum standards of ethical practice for the brokers. All appointed brokers as
well as the dealers shall be required to provide an active retail market in Treasury Bills
which will encourage a large number of individuals to hold and trade in Government
Securities. As part of the efforts to promote the retail market and transparency, brokers
must accord equal treatment to both their individual customers and institutional clients.
At all times, dealers must endeavour to execute the order of their customers especially
small customers, before they fulfill their own orders.
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Preservation of Confidentiality by Brokers:
- Confidentiality and Integrity:
The preservation of confidentiality and the maintenance of
integrity at all times by brokers are essential for the proper conduct of business in the
NTB Primary Market.
- Breach of
Confidentiality
A broker shall not, in any circumstances commit any act that
constitutes a breach of confidentiality, such as disclosing the name, size of transaction
of a client to another broker or a third party.
- Dealers
to Maintain Aggregate Customers' Account:
Each broker has to maintain securities accounts with the CBN
for securities held in custody on behalf of its customers. Brokers shall act as agents for
their aggregate customers' account, and have no legal rights to the securities held in
their customers' accounts. They must also maintain in their own records a separate account
for each individual customer.
- Brokers to Pay Redemption
Proceeds to Beneficial Owners:
Any redemption proceeds received by a broker on the securities
held in the aggregate customers account belongs to the beneficial owners on whose behalf
the securities are being held. Brokers have no legal rights to such proceeds. Such
proceeds shall be paid to the beneficial owners as soon as it becomes payable by the Bank.
PUBLIC DEBT OFFICE
BANKING OPERATIONS DEPARTMENT,
CENTRAL BANK OF NIGERIA,
TINUBU SQUARE
LAGOS
MAY 11, 1998
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