Regulatory Alerts2012-06-22 | BPS/DIR/GEN/CIR/01/010Exposure Draft Guidelines on Securities Settlement in Nigeria
Government securities refer to financial instruments issued by the government, such as treasury bills (T-bills), treasury bonds, and treasury certificates. These securities serve as a means for the federal government to raise funds and manage public debt. The primary responsibility for issuing these securities lies with the Central Bank of Nigeria, which acts on behalf of the Federal Government. The most common types of government securities in Nigeria are: 1. Nigerian Treasury Bills (NTB) - These are short-term debt instruments issued by the CBN and are repaid at their face value at maturity. They are sold through a system called Wholesale Dutch Auction System (WDAS). NTBs are considered liquid assets for banks, which means they can be readily converted into cash without affecting their market price. 2. FGN Bonds - These are long-term debt instruments issued by the CBN and are traded on the secondary market through Primary Dealers Market Makers (PDMMs). They pay out interest semi-annually and are callable, meaning they can be redeemed before their maturity date. 3. FGN Treasury Bonds - These bonds are also long-term debt instruments but are issued by converting FRN Development Stocks. They are not traded on the secondary market and have a fixed annual interest payment. 4. FRN Development Stocks (FNS) - Issued through stock brokers and banks, these are long-term debt instruments with a tenor range of 7 to 25 years. They pay out interest semi-annually and can be traded on the Nigerian Stock Exchange. In terms of management, government securities follow a primary market auction system where investors submit bids at their desired price for a given issue. There are two types of auction systems in Nigeria: the Dutch auction system used for T-bills, NTCS, and zero-coupon bonds; and the common price auction system used for FGN Bonds and FRN Development Stocks. The secondary market is where previously issued securities are traded. The most common trading platforms for government securities in Nigeria are the CBN's T24 securities module and the Central Securities Clearing System (CSCS). Settlement takes place within two days after the primary auction, with funds being transferred between banks through the CBN and recorded by CSCS.