Instruction on Treasury Securities Auctions

Conakry, November 17, 2017

REPUBLIC OF GUINEA

CENTRAL BANK

November 17, 2017

INSTRUCTION N° 075/DGCC/DPMC/17 of 2017

REGARDING TREASURY SECURITIES AUCTIONS IN THE REPUBLIC OF GUINEA

The Governor of the Central Bank,

Given Law L/2014/016/AN of July 2, 2014, on the Statute of the Central Bank of the Republic of Guinea and Law L/2017/017/AN of June 8, 2017, amending this Statute;

Given Law L/2017/017/AN of June 8, 2017, repealing Law L/2016/064/AN of November 9, 2011, itself amending Law L/2014/016/2014 of July 2, 2016, on the Statute of the BCRG;

Given Law L/2013/D60/AN of August 12, 2013, on the regulation of credit institutions in the Republic of Guinea;

Given Instruction n°015/DGEEM/DPMC/2009 on Treasury Bill auctions in the Republic of Guinea;

Given Decree n°D/2010/PRG/SGG of December 27, 2010, appointing the Governor of the Central Bank

DECIDES

TITLE I - CHARACTERISTICS OF TREASURY SECURITIES

Article 1: The purpose of this Instruction is to set out the procedures for organizing auctions of Treasury bills and bonds on the money market with the assistance of the Central Bank of the Republic of Guinea.

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Article 2: Treasury securities are negotiable public securities issued on behalf of the State under the responsibility of the Minister of Finance. They include Treasury bills and bonds. The repayment of Treasury bills and bonds is guaranteed by the Central Bank.

Article 3: Treasury bills and bonds are dematerialized and held in current accounts in the books of the Central Bank of the Republic of Guinea.

Article 4: Treasury bills are short-term securities. Their maturity is less than or equal to one year. Generally, Treasury bills are issued for maturities of 28, 91, 182, or 364 days.

At maturity, Treasury bills are repaid at their nominal value. Payments due on a non-working day are made on the next working day without additional interest.

Article 5: Upon issuance, Treasury bills carry a remuneration discounted from the subscribed value of the Treasury bills.

The amount of interest payable on Treasury bills is calculated on the basis of a 365-day year according to the formula indicated in the annex.

Article 6: Treasury bonds are issued for maturities greater than or equal to two (02) years. Generally, the maturities issued are two (02) years, three (03) years, five (05) years, seven (07) years, and ten (10) years.

Repayment of Treasury bonds is generally made by a single payment at maturity. It can also be made in installments (repayment by amortization).

Payments due on a non-working day are made on the next working day without additional interest. The nominal value of Treasury bonds is specified in the call for tenders.

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Article 7: The annual interest rate (coupon) applicable to each bond is set by the Minister of Finance. It is indicated in the call for tenders.

Article 8: Treasury bonds yield an annual fixed-rate remuneration on the nominal amount.

When interest is payable for a period of less than one (01) year, it is calculated on the basis of a 365-day year according to the formula indicated in the annex.

Article 9: Treasury bills and bonds are fungible; meaning that the same line of Treasury bill or bond can be subject to successive issues retaining the same characteristics (maturity date, repayment terms, and interest rate).

TITLE II - CONDITIONS AND PROCEDURES FOR SUBSCRIBING TO TREASURY SECURITIES

Article 10: The Central Bank ensures the material organization of auctions on behalf of the State. To this end, it communicates by notice the characteristics of the issue, namely the auction date, the maturity of the Treasury bills or bonds, the issue amount, the interest rate (coupon) of the bond, the deadline for receiving submissions, and the settlement date for accepted subscriptions.

Article 11: Direct subscription to Treasury bills and bonds is reserved for primary banks and entities holding a settlement account or current account with the Central Bank. These banks and entities are called direct subscribers.

All other investors (indirect subscribers), whether legal or natural persons, regardless of their place of residence, may also subscribe to Treasury bills and bonds on the primary market through a direct subscriber.

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Direct investors who use the services of the Central Bank to subscribe to Treasury securities auctions are liable for a commission of 0.25% calculated on the amount of interest received.

Article 12: When a direct subscriber submits bids both for its own account and for that of a client, the bids submitted on behalf of the latter must be indicated separately from those the subscriber submits for its own account.

Article 13: Submissions are made via the central securities depository platform. If submissions cannot be presented by direct subscribers via the central securities depository platform due to a technical failure, they may, provided prior permission has been obtained from the Central Bank, be deposited with the Central Bank in a sealed envelope according to the model attached in the annex.

A bidder may submit several offers for the same maturity and may make proposals for several maturities.

Article 14: Each submission irrevocably binds the subscriber.

Article 15: Treasury bill submissions are formulated in terms of yield to maturity with three (03) decimal places. For each maturity, offers must be presented in lots of 250 million GNF.

The submission ceiling for each proposed rate is set at 20 billion GNF.

The rates proposed for the same maturity must differ by at least 0.125%.

Article 16: Treasury bond submissions are formulated in terms of the proposed price, net of accrued interest where applicable, for the acquisition of a bond of the concerned maturity.

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The price(s) is (are) expressed as a percentage of a unit nominal value of 100,000 GNF, with three decimal places.

The price of a Treasury bond is equal to the sum of the present value of the coupons and the present value of its nominal value. It is calculated according to the formula indicated in the annex.

For each maturity, offers must be presented in multiples of one hundred thousand (100,000) GNF.

Article 17: The auction takes place at the requested rate or price. Accepted orders are served at the prices or interest rates proposed by the bidders within the limit of the maximum interest rate or minimum price accepted by the Minister of Finance.

When several maturities are offered at an auction session, submissions are classified by maturity, and for each maturity, offers with the lowest rates (for Treasury bills) or highest prices (for Treasury bonds) are served first; those of a higher level (lower level for prices) are then served up to the maximum rate or minimum price retained by the Minister of Finance for the maturity in question. For the same maturity and for submissions expressed at identical rates or prices, the marginal tranche is distributed among bidders proportionally to the amount of submissions.

Article 18: Auction results are transmitted on the day of the auction via the central securities depository platform and by issuing auction statements.

Bidders are notified via the central securities depository platform of the acceptance or rejection, in whole or in part, of the submissions presented.

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Article 19: At the end of each auction session, the Central Bank publishes the main auction results on its website or by any other means of communication.

The Central Bank communicates at least the following information for each maturity:

• the announced issue amount;
• the amount retained;
• the minimum rate and marginal rate for Treasury bills or the maximum price and minimum price accepted for Treasury bonds;
• the weighted average rate or price;
• the average yield rate;
• the percentage accepted at the marginal rate or price;
• the auction coverage ratio;
• the absorption rate.

TITLE III - SETTLEMENT OF TREASURY BILLS AND BONDS

Article 20: Treasury bills are settled for their net values after deduction from the nominal value of the interest amount established in Article 4. Treasury bonds are settled from the proceeds of accepted subscriptions. In the event of a reopening of a Treasury bond line, the settlement amount is increased by the amount of accrued coupon interest on the settlement date.

Article 21: Direct subscribers are responsible for settling, on the date indicated in the call for tenders, any accepted offer they have submitted for their own account or a client's account.

Article 22: The settlement of purchases of Treasury bills and bonds by primary subscribers is made by debiting their ordinary account or settlement account with the Central Bank, on the value date of the issuance of these

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Treasury bills or bonds. If the settlement date falls on a public holiday, it is postponed to the next working day. Direct subscribers must take all necessary measures to ensure that their accounts are sufficiently funded to cover the settlement of Treasury bills or bonds allocated to them for their own account or for their clients' accounts.

Article 23: Securities for which the amount has not been settled on the issue's value date may be cancelled without prior notice by a simple decision of the Minister of Finance, without prejudice to the State's right to obtain compensation for damages suffered.

Article 24: Any subscriber who does not have sufficient funds on the settlement date to cover their accepted submissions is liable to a penalty of 2.5% of the subscribed amount. The subscriber's Treasury bills and bonds account is not credited until the funds in their current account or settlement account are sufficient to ensure the full delivery of the Treasury securities. When the funds become sufficient and available, the Central Bank proceeds with the settlement of the securities and debits the penalty from the subscriber's current account or settlement account. It transfers the penalty amount to the Treasury's current account and, if necessary, the amount of accrued interest on the settlement date.

Article 25: The Central Bank must be informed within 48 hours of the terms of transfer of Treasury securities between subscribers (date of operation, rate retained, characteristics of the securities concerned).

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TITLE IV - MISCELLANEOUS PROVISIONS

Article 26: The Minister of Finance reserves the right to proceed at any time, without price or quantity limitation, to the early amortization of Treasury bills or bonds, either by directly acquiring them on the secondary market, or through public purchase or exchange offers.

Article 27: Treasury bills and bonds held by banks may be taken as collateral by the Central Bank for durations and under conditions as provided in the texts in force relating to these operations.

Article 28: Treasury bills and bonds may be acquired by any resident or non-resident person, subject to aspects related to exchange regulations.

Article 29: This instruction, which cancels all previous contrary provisions, takes effect from its date of signature and will be published wherever necessary.

Done in Conakry, November 17, 2017

The Governor

(Signature and seal)

Dr. Louncény NABE

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Annex 1. Formulas for calculating the amount of interest and the price of Treasury bills and bonds:

Interest on Treasury bills The amount of interest payable on Treasury bills is calculated on the basis of a 365-day year according to the following formula.

$$I = \frac{C \times T \times N}{36500 + T \times N}$$

Where I, the amount of interest; C, the nominal amount of Treasury bills awarded to the investor; T, the interest rate served; N, the exact number of days from the issue date to the maturity date, one of these two dates being included in the count.

Interest on Treasury bonds The amount of interest when interest is payable for a period equal to one (01) year.

$$I = \frac{C \times T}{100}$$

Where I, the amount of interest; C, the nominal value of the bond; T, the coupon interest rate

Amount of interest when interest is payable for a period of less than one (01) year.

$$I = \frac{C \times T \times N}{36500}$$

Where I, the amount of interest; C, the nominal value of the bond; T, the coupon interest rate; N, the exact number of days from the issue date (or the last coupon payment date) to the interest payment date, one of these two dates being included

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Formula for calculating the price of a Treasury bond The price of a bond is equal to the sum of the present value of the coupons and the present value of its nominal value. On the issue date, the price is calculated as follows:

$$P = \frac{I}{(1+r)^1} + \frac{I}{(1+r)^2} + \frac{I}{(1+r)^3} + \dots + \frac{I}{(1+r)^n} + \frac{C}{(1+r)^n}$$

Where P, the price of the bond; I, the amount of annual interest; C, the nominal value of the bond; r, the yield to maturity (in percentage points) expected by the investor; n, the number of years or the maturity of the bond.

If the bond is reopened between two coupon payment dates, the bond price calculated on the date the bond was reopened must be increased by the accrued interest on the settlement date.

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Annex 2. Description of statistics to be provided in the auction results communiqué

Coverage Ratio $$Taux \ de \ couverture = \frac{Montant \ des \ offres \ soumises}{Montant \ annoncé \ de \ l'adjudication}$$

Absorption Rate (AR) $$Taux \ d'absorption = \frac{Montant \ effectivement \ émis}{Montant \ des \ offres \ soumises}$$

Marginal Rate (MR) $$TM = taux \ le \ plus \ élevé \ accepté \ par \ l'émetteur}$$

Marginal Price (MP) $$PM = prix \ le \ plus \ bas \ accepté \ par \ l'émetteur}$$

Weighted Average Rate (WAR) $$TMP = niveau \ moyen \ des \ taux \ acceptés \ pondérés \ par \ le \ montant \ des \ soumissions \ retenues \ à \ chaque \ niveau \ de \ taux}$$

Weighted Average Price (WAP) $$PMP = niveau \ moyen \ des \ prix \ acceptés \ pondérés \ par \ le \ montant \ des \ soumissions \ retenues \ à \ chaque \ niveau \ de \ prix}$$

Percentage of Offers Accepted at Marginal Rate (POAMR) $$POATM = \frac{Montant \ des \ offres \ acceptées \ au \ taux \ marginal}{Montant \ total \ des \ offres \ soumises \ au \ taux \ marginal}$$

Percentage of Offers Accepted at Marginal Price (POAMP) $$POAPM = \frac{Montant \ des \ offres \ acceptées \ au \ prix \ marginal}{Montant \ total \ des \ offres \ soumises \ au \ prix \ marginal}$$

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Annex 3. Model submission letter for Treasury securities in case of technical failure.

Treasury Bills/Treasury Bonds

Bank Logo

Date

To Mr. Director of Monetary Policy and Credit

Subject: Subscription to Treasury Bill and/or Treasury Bond Auctions

Dear Sir,

We have the honor to transmit our subscription offer for Treasury Bill and/or Treasury Bond auctions of 01/01/2018 for a total amount of GNF 61,500,000,000.00 distributed according to the characteristics indicated below:

A- Treasury Bills

Order No.	Number of lots	Amount in GNF	Interest Rate	Duration in days
1	1	250 000 000	8,000%	91
2	80	20 000 000 000	8,125%	91
...	...	...	...	...
Total	81	20 250 000 000

Order No.	Number of lots	Amount in GNF	Interest Rate	Duration in days
1	1	250 000 000	8,000%	182
2	80	20 000 000 000	8,125%	182
...	...	...	...	...
Total	81	20 250 000 000

Order No.	Number of lots	Amount in GNF	Interest Rate	Duration in days
1	1	250 000 000	8,000%	364
2	80	20 000 000 000	8,125%	364
...	...	...	...	...
Total	81	20 250 000 000

B- Treasury Bonds

Order No.	Number of lots	Amount in GNF	Price	Duration in years
1	10 000	1 000 000 000	98,200	2
2	150 000	150 000 000 000	97,150	3
...	...	...	...	...
Total	160 000	151 000 000 000

Please accept, Sir, the expression of my respectful greetings.

The General Manager (or the person authorized to commit the institution)

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