The State Bank of Pakistan is all set to launch first-ever Electronic Bond Trading Platform (e-bond) in January 2010 to develop a secondary market for trading of the government securities. Sources in the banking sector told Business Recorder that arrangements for the formal launch of the e-bond are in final stages and it is likely to be launched in the first or second week of January next.
In line with the SBP policy of active involvement of market participants in any development initiative, a committee had been formed comprising representatives from commercial banks as well as the SBP tasked to develop a trading platform in line with the needs of the domestic fixed income market, they added. "The committee has almost finalised all the arrangements and after carefully evaluating the proposals of vendors, the committee has recommended that Bloomberg better suits the needs of domestic fixed income market," sources said.
In the first phase, three government securities including Government of Pakistan Ijara Sukuk, Market Treasury Bills and Pakistan Investment Bond would be traded at the platform through 10 primary dealers, they added. While, in the second and third phase non-primary dealers, Asset Management Companies, Insurance Companies and Provident Fund Management Companies, which required high rate of interest, would be encourage to trade in the e-bond market, sources added.
However, every person or company, who want to trade in the government securities would be required to open an ''Investors Portfolio Security Account'' in bank. "The primary reason for introducing an electronic trading platform in the fixed income market is to enhance efficiency, as unlike equity markets, there is no real-time information source for fixed income markets in Pakistan," said Ali Sultan, Director, Financial Market Strategy and Conduct Department (FMSCD).
He said the government securities launched in 1991 under the deregularisation and financial reforms aimed to create secondary market by selling these securities to the non-bank companies. However, since then the secondary market has yet developed and these government securities are being traded between limited institutions.
Sultan said currently, the country has equity markets (Karachi Stock Market, Islamabad Stock Market and Lahore Stock Market) for the trading of shares and National Commodity Exchange Limited (NCEL) for commodity related trading. There is no platform for the trading of government bonds, he said and added that keeping in view secondary market objectives, the SBP is going to launch the e-bond for the trading of government securities.
"The SBP would launch e-bond with the co-operation of the primary dealers and in the initial phase, the system will capture only outright buying and selling of government bonds, but going forward, the technology will be used for trading in other instruments such as repos and swaps," Sultan said. He said new platform would provide a wider investors base for the government securities, as presently general masses and companies have limited information about the government bonds.
"We have three primary objectives with the launching of e-bond through Bloomberg, including creation of secondary bond market, price efficiency of the government securities and to generate liquidity," he said and added that it would also help reduce the cost of borrowing of government, besides good return. In addition, the implementation of this system in Pakistan, which is also widely used in some 18-20 countries, will provide international investors with a new information avenue on domestic financial markets, Sultan said.
He said with zero percent risk, the government securities have high interest rate as compared to banks, however due to the lack of information investors base is still limited. "The platform would not just be a trading platform, it will serve as a central database for all fixed income activity in the country resulting in much improved pre-trade price discovery," Sultan added.
This will provide investors real-time information about market yields resulting in enhanced liquidity and better price discovery in the fixed-income market, he said and added that it will also help in shifting government debt from banks to other institutional investors thus freeing up funds for private sector credit hence facilitating the development of real economy. He said Pakistan''s government bond market has a size of Rs 1.5 trillion and offers massive opportunities for the investors.
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