Financial Markets in Uganda

2. Domestic Financial markets

The Domestic Financial Markets have the following markets; a. The Securities MarketIn this market government securities are traded. They include Treasury bills and Treasury Bonds. These make the following markets: 1. The Treasury Bill Primary Market 2. The Treasury Bill Secondary Market 3. The Treasury Bond Primary Market 4. The Treasury Bond Secondary Market

Functions of Securities markets

They support monetary policy implementation by providing an instrument of liquidity management. b. The Repurchase Agreements (Repo) Market Repos were introduced to manage intra-auction liquidity variations. The vertical repo market reflects repo transactions between primary dealer commercial banks and the central bank. This market was introduced in 2002 by the Bank of Uganda as a mechanism to deal with managing liquidity in the banking system in the interval between auctions of treasury bills. These REPOs are auctioned in a Repo Market. c. The Capital marketsThis is where financial instruments for raising capital are traded. It involves long term banking. Instruments like stocks are bonds are traded in this market.

The development of capital markets in Uganda

In 1994 Bank of Uganda chaired the Capital Markets Development Committee (CMDC), which was comprised of stakeholders of capital market interests from financial markets, industry and government. The CMDC oversaw the introduction of the Capital Markets Statute 1996 which introduced the Capital Markets Authority (CMA) and made provision for the licensing of the Uganda Securities Exchange. THE CMDC works with Government to adopt a strategy of privatizing parastatals by listing the m on the Stock Exchange. Currently there are over 7 companies listed on the Uganda Securities Exchange.

Types of Treasury bills used in Uganda

1. The Bearer Treasury Bills Certificates

Were used in the market earlier. They did not activate secondary market trading because of their security risk.

2. The book-entry Central Depository System (CDS)

To counteract the safety concerns regarding the bearer treasury bill certificates in 1999 the Bank introduced the electronic registry of investors in government securities called the book-entry Central Depository System or CDS. The CDS solved the problems of transferring ownership of the securities but introduced a new problem that the laws of Uganda were written so that a security had to be in paper form and the Courts did not recognize electronic securities.. To solve the problem, the

Financial Accountability Act of 2003

gave the Minister of Finance and Economic Development and Planning powers to issue securities both in paper and electronic form. Paper treasury bills were discontinued. Treasury Bills securities can be for 91 days, 182 days and 364 days in the primary market.

Secondary market in Treasury bills

The treasury bills auctions were held weekly to start with. To stimulate the development of secondary market trading, the Bank of Uganda changed the auction from being weekly to being fortnightly. This strategy aimed at extending the interval between auctions as a way of providing a greater incentive for investors to source the supply of treasury bills in the secondary market.

Primary Dealer ranking system

It was introduced in 2005 by the Bank of Uganda. It is an incentive to enhance primary dealer performance. The winner of this prestigious award is announced every month. It is a catalyst for stimulating secondary market trading of government securities.

The Treasury Bond market

Auctions for Treasury Bonds were introduced in January 2005. Treasury Bonds are auctioned every 28 days. The bonds support monetary policy implementation by improving liquidity management and promoting market development. These securities also assist in providing a framework for pricing of securities in the secondary market. Bonds have also provided an additional saving instrument and have deepened the capital market.

Bond Tenure

Treasury bonds have the following tenures: 2 years, 3 years, 5 years, 10 years and 15 years

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About Bank of Uganda

The Bank of Uganda (BoU) is the Central Bank of the Republic of Uganda. It was opened on the 15th  August 1966. It is 100% owned by the Government of Uganda but it is not a government Department

The Bank of Uganda conducts all its activities with the aim of fulfing its Mission.  These activities are carried out under the mandate of the Bank of Uganda Act, 2000 and other legislature.

According to Article 161 of the Constitution of the Republic of Uganda, the authority of the Bank of Uganda shall vest in a Board which shall consist of a Governor, a Deputy Governor and not more than five other mem