Primary and Secondary Markets of Government Securities

Republic of Kosovo – Ministry of Finance – Central Bank of the Republic of Kosova

Pursuant to Article 39 of the Law on Public Debt (03/L-175), Article 35, paragraph 1.1. of the Law No. 03/L-209 for the Central Bank of Kosova, Article 8 sub-paragraph 1.4 of the Regulation No. 02/2011 for the areas of administrative responsibilities of the Prime-Minister’s Office and Ministers, as well as Article 38, paragraph 6 of the Government’s Work Regulation No. 09/2011, The Minister of Finance and the Governor of the Central Bank, hereby issue this:

REGULATION MoF-CBK NO. 01/2014 FOR THE PRIMARY AND SECONDARY MARKET OF GOVERNMENT SECURITIES

Article 1
Purpose
This Regulation regulates the functioning of the Primary and Secondary markets of securities issued by the Government of the Republic of Kosova.

Article 2
Scope
This Regulation defines the scope of the Treasury, CBK, primary dealers, primary participants, and investors in relation to the functioning of the primary and secondary market of securities.

CHAPTER I
Definitions and General Conditions

Article 3
Definitions

1. In this regulation the following definitions will apply:
   1.1. Auction - a bidding process by which the MoF sells Government securities to the public using the Primary Dealer System set forth in Chapter II of this regulation.
   1.2. Accrued Interest – Refers to securities that pay periodic interest and are bought and sold in the secondary market. Interest calculations will be based on actual days of accrued interest and actual number of days in the period coupon interest is due.
   1.3. Auction Re-opening - the auction of an additional amount of an outstanding security.
   1.4. Bank - a joint stock company conducting banking business and licensed under the Banking Laws and regulations of the Republic of Kosovo and the Central Bank.
   1.5. Basis Point - 1/100 of one percent.
   1.6. BES - the book entry system that enable the wholly electronic issuance, recording, sale and transfer of Government Securities.
   1.7. Business Day - any day in which the Central Bank of Kosovo is open for business.
   1.8. CBK - the Central Bank of the Republic of Kosovo.
   1.9. Competitive Bid - a discount rate or nominal price or yield and an amount of government securities submitted by a participant in an auction.
   1.10. Discount - the difference between the face value and the principal amount of a Treasury Bill or Treasury Bond.
   1.11. Discount Amount or DA - the discount rate multiplied by the number of days to maturity, multiplied by the face value and divided by 360 days. This can be expressed as the following formula: Discount Rate x number of days to maturity x Face Value / 360.
   1.12. Discount Rate - the simple interest rate used to establish the nominal price on Treasury Bills.
   1.13. DVP - Delivery vs. Payment so that the registration of new ownership of Government Securities and payment for those Government Securities are accomplished simultaneously.
   1.14. Exchange of Securities - A primary market or secondary market operation whereby the MOF agrees to issue one security while simultaneously re-purchasing another security based upon terms and conditions it has detailed in an official announcement.
   1.15. Face Value - the value of a discounted Treasury Bill and the value of a Government Bond at maturity.
   1.16. Government Securities - Treasury Bills and Government Bonds issued by the MoF on behalf of the Government of Kosovo under the Public Debt Law.
   1.17. Issue Date - that date on which the Government Security is issued and from which date interest begins to accrue.
   1.18. Liquidity Committee - the Committee established by MoF and CBK consisting of the Treasurer, the Governor and the designated staff of the MoF and CBK that approves investment of government funds and issuances of domestic debt.
   1.19. Principal Amount - for Treasury Bills means the Face Value minus the Discount Amount. This may be expressed as the following formula: Face Value – DA = Principal. Principal Amount for Government Bonds means the Face Value multiplied by the market price, which is expressed as a percentage.
   1.20. Maturity Date - the date specified on which a Government Security becomes due and payable and ceases to earn interest.
   1.21. Minimum Bid Amount - the smallest amount of a Government Security that will be issued to a bidder as set forth in these rules.
   1.22. Multiple Price Auction - an auction in which a successful competitive bidder pays the nominal price derived from the yield or the discount rate that was bid.
   1.23. Nominal Price - for Treasury Bills means the Discount Rate x number of days to maturity / 360. Nominal Price for Government Bonds is the present value of all cash flows of a bond from settlement date to maturity date based on its yield or yield to maturity.
   1.24. Non-Competitive Bid - for a single price cut-off auction means a bid to purchase government securities at the same discount rate or yield awarded to the competitive bidders. Non-Competitive Bid for a single price weighted average auction means a bid to purchase Government Securities at the weighted average yield or discount rate of awards to competitive bidders. For a multiple price auction, non-competitive bid means a bid to purchase securities at the weighted average yield, or discount rate of awards to competitive bidders.
   1.25. OTC market - the over-the-counter market created when Primary Dealers, investors, and non-primary dealers submit bids and offers for trading of Government Securities to each other.
   1.26. Investor or Client - any individual or legal person who participates in the purchase or sale of Government Securities who is not a Primary Dealer.
   1.27. Par - equal to 100, or the nominal or Face Value of a Government Bond.
   1.28. Par Amount - the Face Value of a Government Bond at original issue.
   1.29. Premium - the difference between par and the price of the security when the price is greater than par.
   1.30. Reverse Auction – The MoF purchase of a security from primary dealers in the secondary market, whereby primary dealers offer the specified security at amounts and yields competitively. The MoF determines the amount it wishes to re-purchase, based on the prices it receives, from lowest price to highest price accepted.
   1.31. Primary Dealers - are those banks authorized to submit bids in the auction and are authorized to enter bids and offers in the BES.
   1.32. Primary Participants - are those institutional investors that maintain cash accounts at the CBK and have been authorized by the Ministry of Finance and CBK to participate in an auction by directly submitting bids in the BES system for its own account only. An approved Primary Participant may also enter bids and offers for the secondary market only for its own account.
   1.33. Single-Price Cut-Off Auction - an auction in which all the successful bidders pay the lowest nominal price of accepted bids regardless of the yields or the discount rates they each bid.
   1.34. Single-Price Weighted Average Auction - an auction in which all the successful bidders pay the average nominal price of accepted bids regardless of the yields or the discount rates they each bid.