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THE OBJECTIVES AND FUNCTIONALITIES OF THE REGIONAL
GOVERNMENT SECURITIES MARKET (- RGSM
The basic objective for the Regional Government Securities
Market (RGSM) development initiative is the establishment
of a fully functional and efficient regional market to meet
the financing needs of the Member Governments of the Currency
Union as they pursue their development objectives.
Prior to the development of the Regional Government Securities
Markets, the markets for government securities in Member States
were characterised as rudimentary and segmented with little
or no cross-border participation. They were largely primary
markets, with limited opportunity for secondary trading beyond
the ECCB-operated secondary Treasury Bill Market, accessible
only to clearing banks. Because rates were fixed rather than
market determined, they did not reflect any elements of risk.
The RGSM was established to integrate these fragmented markets
into a single regional market, to facilitate cross-border
operations and secondary trading of government securities.
The removal of the existing impediments is expected to result
in a change in the holder base, which is currently comprised
mainly of institutional investors.
As the market develops the prices for government bills and
bonds should become more aligned to the concept of liquidity
risk, purchasing power, and the opportunity costs of funds.
This should eventually result in the provision of information
about various interest rates to allow for classification of
the varying types of investments, and determination of the
appropriate opportunity cost of funds in the region. Both
Government and corporate issuers will be able to use this
information to determine what types of investment to make
and what vehicles or instruments would be best suited to their
needs.
The ECCB acts as Fiscal Agent to the RGSM. As Fiscal Agent,
the ECCB advises governments participating in the RGSM on
the type, timing and terms and conditions for the issuance
of securities, within the context of sound debt management
policies. The ECCB also undertakes administrative duties associated
with the issuance of securities on the ECSE. However, each
Government is fully responsible for the securities that it
issues.
Providing oversight to the RGSM is the Regional Debt Coordinating
Committee (RDCC). The RDCC is comprised of the head of the
Ministry of Finance (Financial Secretaries/Directors of Finance)
from each of the eight countries. The RDCC is responsible
for formulating rules to direct the conduct of all Member
Governments operating in the RGSM. This oversight body has
been set up to ensure that the RGSM operates efficiently,
and within the context of harmonized policies and procedures.
The RDCC requires that before going to market for each primary
issue, Government must provide investors with relevant, timely,
accurate and adequate information about the securities that
are being issued to the public, as well as information about
the issuing Government. These disclosure requirements have
been put in place to ensure that prospective investors have
access to the information required for making informed investment
decisions.
The prospectus is the principal disclosure document. Each
Government must submit a prospectus, disclosing specific information
about its fiscal performance. This should include, but is
not limited to, the major sources of income and expenditure,
budget surpluses or deficits and the size and components of
the government’s debt.
Participating governments are also required to provide information
about their country’s economic performance - Factors
such as the rate of growth of the country’s Gross Domestic
Product; the Consumer Price Index; wages and salaries in the
main sectors and statistics on the Balance of Payment. Material
events such as a recent hurricane, default by an institution
of a loan guaranteed by Government, or any event, which could
affect the assessment of the security being offered, must
also be disclosed.
To ensure market integrity and cohesion and standardization
in the regulatory structure of the RGSM, an agreement has
been formalised between the RDCC and the Eastern Caribbean
Securities Commission. The parties have agreed to collaborate
on matters that affect both the licensed intermediaries and
government securities, and the agreement is intended to enhance
the effectiveness of execution of the respective roles of
the RDCC and the ECSRC.
General terms of the agreement include:
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oversight of the primary issuance of securities
on the Regional Government Securities Market; |
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cooperation in the regulation of licensed intermediaries
where government securities may be affected; and |
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ongoing supervision of the RGSM with particular regard
to informational exchange, compliance with established
rules and regulations and consultations prior to making
changes to legislation or rules that may affect government
securities. |
The RGSM leverages the ECSM infrastructure. The Eastern
Caribbean Securities Exchange (ECSE) and its subsidiaries
facilitate the issuance, clearance and settlement as well
as registration of the Governments’ securities. The
secondary trading of these securities is also facilitated
on the ECSE.
The Governments have undertaken to establish the necessary
institutional and operational mechanisms within the Ministries
of Finance. This includes the establishment of a Debt Unit
with appropriate institutional capacity to co-ordinate government’s
debt contraction process, to develop debt strategies, and
to provide timely and sound advice to the policy makers, and
timely and accurate information to the market.
A properly functioning RGSM will serve as the catalyst to
deepen the Currency Union’s financial markets and facilitate
their integration by removing national boundaries. The operations
of the RGSM are expected to result in improvements in the
flow of capital and liquidity across the Currency Union which
should lead to enhanced funding possibilities for Governments
at lower cost, and to increased savings and investment opportunities
for the private sector, to facilitate economic growth.
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The Regional Government Securities Market