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TRADING GOVERNMENT SECURITIES IN THE PRIMARY MARKET
Whenever we speak about newly issued securities, we are focusing
on the primary market. The word primary means first and so
it follows that when securities are sold for the first time,
these issues of securities take place in the primary market.
This differs from the secondary market where existing owners
sell already issued securities to another investor. For example,
if you purchase an EC$10,000 thirty-year bond which is being
issued by a particular Government, you have purchased this
bond on the primary market. If five (5) years later you decide
to sell the bond, the sale will take place in the secondary
market.
Announcements about upcoming issues of bonds and bills on
the RGSM are publicised in regional newspapers, and on radio
and television. Broker dealers and limited service brokers
also receive information about impending issues of government
securities, which is also posted on the website of the Eastern
Caribbean Securities Exchange Ltd at www.ecseonline.com
All persons wishing to invest in the RGSM must do so with
assistance from a licensed financial intermediary. The benefit
of this arrangement is that the financial intermediaries can
provide access to all of the government securities available
on the RGSM.
Before purchasing any security all investors should read
the related prospectus very carefully. They should take advantage
of the knowledge and investment analysis that broker dealers
can provide. The financial professionals employed by broker
dealers have the training and expertise to assist in understanding
the information written in the prospectus and in determining
which investments are best suited for individual needs. It
is important to note the difference between brokers and broker
dealers. Only broker dealers and not brokers are licensed
to provide investment advice. However both brokers
and broker dealers are licensed to purchase and sell securities
in the market on behalf of investors.
The minimum purchase amount for any government security issued
in the RGSM is EC$5,000 and incremental units of EC$1,000
thereafter. Investors place their orders to purchase the securities
at the offices of licensed intermediaries. Written purchase
instructions, known as bids placed with the intermediary are
submitted by them electronically to the market.
Before the broker dealer can submit the investor's bid to
the auction, however, the investor will have to provide the
broker dealer with funds matching the full value of the bid.
The broker dealer will also charge a nominal fee for the investment
services provided. The regulations specify that the fees cannot
exceed 5% of the overall value of the investment.
Auctions may run for a week or more. Once the auction is
closed no additional bids will be accepted. Following the
running of the auction, electronic communications identifying
the successful bids will be sent to the respective intermediaries.
Investors who were not successful will receive a refund from
the intermediary, in accordance with previously agreed instructions.
Successful investors will receive a confirmation notice from
the intermediary indicating the quantity and price at which
the securities were purchased.
On the day following the auction, the Eastern Caribbean Securities
Exchange Ltd will announce to the public the final price or
prices of each auction. Settlement, which is the point at
which the buyer receives the ownership of the security and
the seller receives the money for the securities sold, will
also take place on the day following the auction (T+1).
Once settlement occurs, the intermediary will arrange for
the registration of ownership of the securities purchased
by the investor. The investor will receive a statement of
ownership for the securities purchased.
In addition to the purchase and sale of securities on the
intermediary has an obligation to manage investors’
accounts and to provide periodic account statements. For purchases
of government bonds, the management of the account will include
the collection from the issuer of all interest payments related
to bonds as well as the principal payment when the bond matures.
In the case of treasury bills, the intermediary will collect
the principal payments upon maturity. Based on the instructions
of the investor, the funds will be transferred too a specified
cash account or reinvested, by the intermediary.
Investors holding securities purchased in the regional government
securities primary market can later resell the securities
in the secondary market, using a similar process.
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The Regional Government Securities Market