On 3 February 1998 the Department of Finance announced that it recommended that the following institutions be appointed to a panel of primary dealers for the marketing of government's domestic capital market debt instruments as from 1 April 1998, subject to these institutions being able to fully conform to a set of qualifying criteria.
All the recommended institutions have conformed to the qualifying criteria and have been appointed as primary dealers in government bonds from 1 April 1998. All the abovementioned institutions have been subjected to an independent special audit by the Registrar of Banks. The audit revealed that no bank's primary dealer operation will result in any prudential or systemic risk to the financial markets.
In those instances where primary dealers do not conform to the requirement in respect of the minimum capital requirement of R1 billion, the controlling shareholder must provide a letter of comfort i.r.o.
Primary dealers are required to continuously quote firm bid and offer yields in selected bench-mark government bonds and to participate meaningfully in regular auctions in government bonds.
On 1 April 1998 the Department of Finance will formally switch from the current tap system of marketing its capital market debt instruments to an auction system. From 1 April 1998 primary dealers will enjoy exclusive dealing rights with the issuer in respect of all domestic government bond issues. It is therefore an obligation of primary dealers to participate actively in the auctions by bidding market related yields on a competitive basis.
the auction-system is in the process of being automated through a Bloombergs system in order to achieve an accurate and quick allocation. (planned date of automation is 1 June 1998). As an interim solution, bids are to be submitted by telephone, fax and or e-mail; and the day after the auction, mostly on Wednesdays, the details of amounts and bonds that will be offered at the next auction, will be announced.
An auction calendar for the 1998/99 financial year is attached.
A set of rules which provide the framework of obligations to which primary dealers, the Department of Finance and the South African Reserve Bank will have to adhere, has been drawn up. These rules which will establish a formal relationship between all parties, are attached.
In addition to a primary dealer's responsibility to ensure a minimum level of demand in the primary market, it also has a responsibility to ensure liquidity in the secondary market.
The secondary market principles and procedures are defined in a document called Code of Conduct of which a copy is attached.
All primary dealers are obliged to quote a two-way price in the R162, R175, R150, R184, R153, R157 and R186 government bonds between 08:30 and 16:30 during normal market conditions, subject to counterparty credit considerations. The minimum bid size is R10 million and the maximum bid-offer spread is 2 basis points in the more liquid bonds and 3 basis points in the less liquid bonds.