Electronic bond trading from next year

Friday, December 18, 2009
By our correspondent

KARACHI: The State Bank of Pakistan (SBP) will introduce an electronic bond trading platform from next year that will initially be used for trading sovereign paper to help the government shift borrowing from banks to institutional investors.

Addressing a conference here, SBP Governor Salim Raza said it will provide investors real-time information about market yields, resulting in enhanced liquidity and better price discovery in the fixed-income market.

“In the initial stage, only sovereign paper will be traded on the platform, resulting in a liquid sovereign yield curve that will provide better representative benchmarks for issuance of corporate debt instruments,” he added.

He said the platform will help in shifting government debt from banks to other institutional investors, thus freeing up funds for private sector credit.

He said there is a room to accommodate more investor groups in the local currency government debt programme and one such group might consist of investors currently accessing the National Savings Schemes (NSS).

It will be more efficient for the government and the investors to rationalise the issuance process, he said.

“This will enable an improved pricing strategy, eliminating the need to give away embedded put options which are available to investors free of cost,” he said and added it will also provide higher liquidity to investors for their holding by making the debt fungible among all investors, residents and non-residents, corporate and individuals. The SBP feels that financial institutions have a significant role to play by taking on the role of financial advisers to the public in general. “This will include selecting an appropriate mix of asset classes (equity, debt, commodity and real estate), setting liquidity targets, tax planning services and provide their services of financial intermediation to enable them to invest and rebalance their retirement and investment portfolios periodically.”

He said Pakistan has essentially been a commodity-based economy with 65 per cent of its exports (rice and cotton-based) and 44pc of its imports driven by commodities like petroleum, edible oil and chemicals.

For the last few years, global markets have experienced quite a significant degree of price volatility that has put the individuals and the business at a disadvantage in their ability to manage commodity price inflation, he added.