BSE strives to improve bond market
Isaac Pinielo | Friday August 12, 2016 16:41
Of late, the bourse stepped up its efforts to develop the local bond market to reduce reliance on bank loans and broaden investment opportunities.
According to the BSE market development manager, Thapelo Moribame the bond market plays a pivotal role in the development of the country’s economy.
She said bond markets bring lenders and borrowers together and that they allow lenders to invest in relatively low risk assets and borrowers to obtain funds in relatively liquid markets.
“Bond markets are important in determining the prices of other assets and the prices determined in the bond markets affect household decisions to save and the corporate sector’s investment decisions,” she said.
Moribame asserted that given the key role of the bond market in the overall economy, it (market) should be developed and nourished to operate efficiently.
This, she noted, means promoting infrastructural efficiencies, liquidity, information flow, transparency, price discovery and promoting trading activity.
She further explained that the BSE intends to achieve greater benefits for issuers as well as for investors to an extent that the Botswana bond market can sustainably underpin economic growth by supporting infrastructure funding and business investment, whilst creating sustainable returns for lender of funds.
However, Moribame expressed concern at the low level of awareness about the bond market by both individual Batswana and businesses, noting that it needs to be grown and nurtured.
“The need for growth of the market has been identified at the BSE and we are addressing it as a collective of participants in the bond market. Ideally, we want a situation where increased public interest and level of participation is supported or met by robustness and structural efficiencies in the bond market,” she said.
She revealed that there are a number of strategies that the BSE had developed and undertaken to increase awareness and educate the public about investing in the bond market and the associated benefits, as well as enhance the prevailing structural set up.
She said the BSE’s decision to set up the Botswana Bond Market Association was underpinned by the need to promote awareness and also to mobilise bond market participants to complement the efforts of the BSE.
Moribame however said it is not solely the BSE that should carry this role, other market participants and institutions in the capital market have to play a role in promoting awareness and educating the public about the bond market.
In 2010, the BSE convened market participants and solicited their inputs in order to develop the Botswana Bond Market Development Strategy. This initiative entailed identifying the structural constraints affecting the development of the bond market in Botswana and recommending solutions to those constraints.
Following the engagement, a bond market steering committee was formed to oversee the establishment of the Botswana Bond Market Association, which was formally established in September 2013 and comprises members from the market.
“As we speak, a number of initiatives in the strategy have already been implemented by the BSE,” she noted.
These initiatives, according to Moribame, include the formulation of standard bond pricing formulae and bond market conventions that were completed in 2012 and the development of benchmark bond indices comprising Government Bonds (GovI), Corporate Bonds (CorpI) and the Composite Bond Index (BBI) which were launched in 2013.
Other initiatives include the implementation of the Automated Trading System (ATS) in 2012 that is integrated with the Central Securities Depository (CSD) system. Moribame said the two systems could trade and settle debt instruments that are important for automating the bond market and also harnessing their capabilities by centralising the trading, clearing and settlement of bonds at the exchange.
Furthermore, she said the BSE has been conducting bond market courses since 2010 in order to build capacity on both softer and technical areas of the bond market. She added that the courses have been well attended by participants from different institutions within the capital market.
“We continue to step up the publicity and awareness of the bond market through its research and presentations in several forums in Botswana and across the continent,” said Moribame.
She said the BSE conference that will be held in October this year, is an important forum for reflecting, discussing and coming up with resolutions on several practical issues that can take this market forward.
“We hope that the conference will bring out tangible outcomes that everyone can commit to implementing and supporting in order to unlock value in the bond market,” she said.
A bond is a financial instrument that is similar to a loan agreement between a borrower and a lender.
The arrangement is such that the borrower promises to pay the lender some interest after a certain period of time at varied dates in the future and also promises to repay the lender the initial or principal amount of money at the end of the loan period.
The lender is known as a bondholder while the borrower is known as an issuer of the bond. An issuer can be an entity such as government, private company, or a parastatal.