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The role of the Central Bank of Malta as Market-Maker
in the Malta Government Securities Secondary Market
The Central Bank of Malta has been acting as market-maker for Malta Government securities since the inception of the Bank in 1968. This function is undertaken by the Bank because, to date, there are no private market-makers or primary dealers in Malta who are prepared to take on this role due to the small size of the market. Through this function, the Bank has been significantly contributing to the development of the domestic money and capital markets and has enhanced the liquidity of Malta Government securities.
The Bank’s market-making role is solely limited to secondary market dealing with absolutely no involvement in the primary market. Indeed, the Bank is statutorily precluded from participating in the primary market for all types of public sector debt instruments. The Bank’s market-making function is performed through the Government Securities Office which publishes daily prices and yields for Malta Government securities, namely Malta Government Stocks and Malta Government Treasury bills. This section also contains Reports on the Money Market and the Legal Opinions on Enforceability of Master Agreements.
Malta Government Stocks
Until 1991, the Central Bank of Malta’s market-making role was conducted on an over-the-counter basis. In January 1992 when the Malta Stock Exchange commenced operations, the Bank appointed its stockbroker to deal on the Exchange in Government Stocks in terms of section 3(1) of the Malta Stock Exchange Statute. The Central Bank of Malta, through Government Securities Office carries out its duties by virtue of article 155 (3) of the Financial Markets Act (Cap 345) and Section 3 (sub-clauses 3.00.06 – 3.00.08) of the Malta Stock Exchange Bye-laws.
The Government Securities Office publishes daily prices and yields for each outstanding bond issued by the Malta Government. The maturity of these bonds (on date of issue) ranges from 5 years to 20 years. Until July 2003, the Bank published both bid and offer prices. As from August 2003, the Bank started to publish only bid prices and stopped publishing offer prices, given that the Bank at that stage did not have adequate trading balances to enable it to operate effectively as market-maker on the selling side. Investors in Malta Government securities traditionally have tended to prefer to hold these securities to maturity and, in the event that any securities are offered for sale by the public, the Bank’s policy is to allow sufficient time for the market to take up such securities before intervening. If the Bank acquires significant amounts of any given Stock in the secondary market, the Bank would be prepared to quote indicative offer prices for such Stocks only.
In the morning, the Government Securities Office publishes indicative bid prices at which the Bank is prepared to buy for reasonable quantities. In the afternoon, after the close of business on the Malta Stock Exchange, the Government Securities Office publishes the closing bid prices at which the Bank actually traded on that day or the price at which it was prepared to buy reasonable quantities. These indicative prices are applicable to quantities up to EUR250,000 in Stocks with an issue amount of EUR70 million or over and up to EUR100,000 for Stocks with an issue amount below EUR70 million. For amounts exceeding these levels, the Bank reserves the right to review the bid price in the light of prevailing market conditions. The prices quoted daily by the Bank are reviewed regularly in response to changes in prices dealt in by other private brokers and also take into account the underlying trends in market sentiment. The Bank reserves the right to review prices during the course of the trading session in the light of changing market conditions. Besides the indicative bid price for each outstanding Malta Government Stock, the Government Securities Office also publishes the corresponding Current Yield (equivalent to the coupon interest rate divided by the bid price) and the Yield-to-Maturity. Up to 2003, yields were computed according to the Actual/365 day convention. Since then, yields started to be computed on an Actual/Actual basis. As the coupon rate on Malta Government Stock is paid on a six-monthly basis, the Yield-to-Maturity is not strictly comparable with that of other bonds whose coupon rate is paid annually. Accordingly, the Government Securities Office also publishes the corresponding ISMA Redemption Yield which represents an annualisation of the Yield-to-Maturity so that the yield on Malta Government bonds becomes comparable with that of bonds which pay interest on an annual basis.
The daily prices and yields are published on the Bank’s website, Reuters, Bloomberg and the local newspapers.
Malta Treasury Bills
The Central Bank of Malta, through the Government Securities Office, also acts as market-maker for Malta Government Treasury bills in the domestic secondary market. Daily Bid, Offer prices and yields are published for all outstanding Treasury bills on a same day value (T+0) basis, in respect of deals traded On-Exchange with settlement conducted through TBClear of the Malta Stock Exchange, and on a one day value (T+1) basis, for deals effected Off-Exchange operated by the Malta Stock Exchange. Such deals are reported on the Off-Exchange Trade Validation and Reporting System, operated by the Exchange within its trading infrastructure. The maturity of these bills (on date of issue) includes one month, three months, six months, nine months and one year. The Bank reserves the right to review its bid price for amounts which are considered to be in excess of normal levels. The Bank does not deal in Treasury Bills with less than five working days to maturity.
The daily prices and yields are published on the Bank’s website, Reuters, Bloomberg and the local newspapers.
Prior to 1 April 2007, the Malta Government Treasury bills were still in certificate form and were traded over-the-counter. As from 1 April 2007 the Malta Government Treasury bills were dematerialised and were admitted to listing and trading on the Malta Stock Exchange. Prior to the dematerialisation date, Treasury bill yields were computed on Actual/365 day basis. As from 1 April 2007 such yields started to be computed on an Actual/360 day basis.
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