Since the National Treasury is now dealing with bonds that are relatively liquid, it has been decide that the 30 day switch auction pre-announcement be changed to 14 days.
Paragraph 1.15 will thus read : " 14 days before auction: the National Treasury will preannounce the auction date and settlement date(s) of the switch auction(s) including the bonds involved."
1.1 Methodology: A cash-neutral switch method will be used based on a dirty pricing method. However, bids will be submitted in terms of yield.
1.2 Participation: Exchanges are effected on a voluntary basis.
1.11 Switch auctions will be conducted on a multiple-yield basis, where successful bidders will switch at the yield they bid. There will not be a non-competitive bidding facility.
1.12 The bidding format would be that the market participants, following the publication by the National Treasury of an indicative yield of the existing source bond (at 10.30am), will bid a quantity of the source bond, in minimum units of R10 million nominal and multiples of 5 thereafter, and a yield for the new destination bond (3 Decimal places), which will be assessed against the undisclosed fair market value that would have been determined in advance by the National Treasury.
14 days before auction: the Naitonal Treasury will preannounce the auction date and settlement date(s) of the switch auction(s) including the bonds involved.
At 10.30am, the National Treasury will publish an indicative yield for the source bond involved in the switch auction.
Between 10.30am and 11.00am, the market participants will be allowed to offer their bids to switch a nominal quantity of the source bond into the destination bond at a yield of the destination bond (given the indicated 10.30am yield of the source bond).
By 11.30am the Reserve Bank will aim to publish the results of the switch auction. These would include the highest, lowest and average yields of the destination bond(s) which were successful; the nominal amount of the source bond that will be switched; and the nominal amount of the destination bond that will be created as a result.
The conversion of the source bond to the destination bond will usually have the implication of the nominal of the destination bond being an odd amount. The National Treasury is prepared to round off any odd amounts to the nearest R1 000 000,00 (one million rand). It has been decided that the auction process on the day of the tender should not be interrupted or delayed due to the rounding off of the nominal amount in respect to the destination bond. An option is now available to tenders to sell any odd amounts up to R1 000 000,00 to the National Treasury. These odd amounts that have been allocated during the auction process will be bought back at the same price that they have been tendered for. This option will only be available up to 11h00 the next working day following the auction.
Phone : (012) 315 5486 e-mail : phakamani.hadebe@treasury.gov.