BoU changes way of trading securities

Bank of Uganda Governor Emmanuel Tumusiime Mutebile.


KAMPALA, UGANDA – The method of pricing treasury bills and bonds in the primary auctions will change to one of a single price from the current multiple prices with effect from July 2, 2018 according to the Bank of Uganda.

In the single price method, the respective securities in the primary auction will be sold at the same price to competitive and non-competitive bidders.

Competitive bidders are the investors with bid amounts that are above UGX200 million, while non-competitive bidders are the investors with bid amounts that are between UGX100,000 and UGX200 million.

The single price, with respect to each specific security, will be the highest interest rate from the accepted bids in the auction.

“Previously, non-competitive bidders’ allocations of securities would be done at the weighted average price (or interest rate) of the successful competitive bids in an auction,” indicated a statement from Bank of Uganda.

Their allocations will be done at the highest interest rate from the successful bids under the new method.

Competitive bidders, whose allocations were done at the prices in their respective bids, previously; will now receive allocations at the highest interest rate from the successful bids in the auction.

Therefore, both competitive and non-competitive bidders will receive allocations at the same interest rate under the new method, which will be the cut-off price of an auction.

The new method according to Bank of Uganda will encourage secondary market trading because selling may not disadvantage investors as all would have received the same price at the primary auction.

“The single price auction will also simplify the computation of withholding tax on the interest that is earned from Government securities.”

The single price auction will be introduced at the beginning of Financial Year 2018/2019.