(source: The Guardian)

The Debt Management Office (DMO) in the Presidency has appointed 15 financial institutions to play the role of primary dealers and market makers in respect of the Federal Government of Nigeria's bonds.

The financial institutions selected comprised of 10 banks and five discount houses.

Bonds are securities issued by the Federal or state governments to raise long-term funds from the capital market for developmental projects.

The 10 banks appointed are First Bank of Nigeria Plc, Access Bank, Stanbic Bank, GT Bank, Citi-bank, Standard Chartered Bank, Fidelity Bank, First City Monument Bank, IBTC/Chartered Bank and UBA. The five discount houses selected are Associated Discount House Limited, Kakawa Discount House, Express Discount House, Consolidated Discount House and First Securities Discount House.

The approval came via a letter signed by DMO's Director-General, Mansur Muhtar, to one of the selected firms. The approval letter read in part: "Following your expression of interest to the Debt Management Office, to play the role of a Primary Dealer and Market Maker (PDMM) in FGN Bonds, and the rigorous selection process by a committee comprising representatives of the Central Bank of Nigeria (CBN), Securities and Exchange Commission, Nigeria Stock Exchange, the Bond Market Steering Committee (BMSC) and DMO, you have been granted approval in principle as one of the 15 pioneer PDMMs in FGN Bonds.

"It is expected that the formal inauguration/launch of the PDMM system will take place around the end of June 2006."

The new system, according to Muhtar, is expected to become operational starting with the July 2006, FGN Bond auction by DMO. The two-way price quote system, he explained, is also expected to begin with the bonds issued during the July 2006 auction but PDMMs may choose to make a two-way price quote on securities issued earlier.

However, the final approval for the selected financial institutions' PDMM status is expected to be given before the inauguration, subject to their satisfying the following conditions:

• be hooked unto Reuters;
• own functional Internet facilities with website dedicated information page, dedicated system (big screen);
• one-on-one dedicated lines to DMO, CBN and Central Securities Clearing System (CSCS) (three lines);
• five dedicated dealing direct telephone lines;

• voice recording machines attached to all the dedicated dealing direct telephone lines;
• real-time trading, settlement and risk management electronic system;
• price and other information electronic display board; and
• evidence of membership of CSCS.

Meanwhile, the authorities have also said that a physical inspection of the listed facilities would be carried out by the selection committee between June 19 and 23.

Other conditions include:

• satisfactory participation in any workshop as may be organised by DMO, in preparation for the start of the PDMM system; and
• execution of a Master Agreement on the PDMM system.
• It would be recalled that in April 2006, the demand for the third FGN bond, which was offered in 3 tranches, rose significantly at 296 per cent.
• The total amount on offer was N50 billion, while N72.78 billion was allotted.

Owing to the huge demand, the marginal rate for the three-year bond dropped to 12.50 per cent, from 15 per cent, while the five-year instrument was priced at 14.5 per cent. It is believed that the recent positive rating of Nigeria by international rating agencies, which led to unprecedented inflow of portfolio investment contributed to the demand upsurge. In offer today are three-year, five-year, six-year and seven-year tenored FGN bonds.