Frequently Asked Questions
|How can the securities be realized on maturity?|
The face value of the short-term securities is automatically repaid to the account of the investor by the CBN through an Authorized Dealer.
The process for the redemption of stocks on maturity is as follows:
An advertisement notifying investors of particulars of stock to be redeemed is placed in national dailies in advance of the redemption.
Letters are written to investors along with a redemption instruction form requesting customers as to the method of payment preferred (i.e. by direct debit through warrants or a specified banker)
Completed redemption form and the original certificate are submitted to the Issues Office of CBN for necessary action.
|In which market are the Government Securities traded?|
There are two markets for dealing in government securities: Primary Market and Secondary Market.
|Must the securities be held to maturity?|
Securities purchased by an investor may be disposed in either of the following ways before maturity.
Outright sale of the securities to another investor in the secondary market without incurring any capital loss. Delivery of the securities and proceeds are guaranteed by CBN.
Entering into a Repurchase transactions, which allows the investor to sell the securities to raise needed fund and simultaneously undertaking to buy the securities back at an agreed future date. This arrangement enables the investor to raise funds by temporarily parting with ownership of the securities in time of need but with an assurance of repossession at a later date.
Outright rediscounting of the instrument for cash at CBN before maturity can be routed through an Authorised Dealer.
|What are Federal Government of Nigeria Bonds|
These are also long term interest bearing debt instruments issued by the government to enthrone a more rational management of its fiscal operations, ensuring wider maturity spectrum for its financing through the balanced use of the Money and Capital Market and in particular, longer term financing for its capital expenditure programme. They have a tenor ranging from two to ten years.
|What are Federal Republic of Nigeria Development Stocks, FRNDS?|
These are long-term interest bearing debt instruments issued by the government to finance its development projects. The stocks have tenors ranging from two to twenty five years.
|What are Government Securities?|
These are securities issued by the Central Bank of Nigeria on behalf of the Federal Government of Nigeria. They comprise Nigerian Treasury Bills (NTB), Nigerian Treasury Certificates, Federal Government Development Stocks (FRN DS) and FGN Bonds.
|What are Nigerian Treasury Bills (NTB) ?|
These are short-term securities issued at a discount for a tenor ranging from 91 to 364 days, such that the income received is the difference between the purchase price and the amount received at maturity or prior to the sale.
|What are Nigerian Treasury Certificates (NTC)?|
These are similar in all respects to NTBs except that they have maturities of either one or two years. They are no longer being issued.
|What are the attributes of Government Securities?|
The short-term securities can easily be converted into cash because facilities exist in the market for enhancing the liquidity of the instruments.
The securities can be traded without unduly affecting their market price while transfer is by simple delivery.
In view of the capability and willingness of the issuer to meet principal and interest payments as and when due, the securities are considered to be the safest in the market.
Most of the securities are eligible for classification as liquid assets of banks in the computation of their liquidity ratio.
|What are the benefits that an investor can get by investing in the Government Securities?|
Benefits of short term securities (i.e. Nigerian Treasury Bills)are:
Yield / Income on investment is realizable upfront and can be automatically reinvested for a higher income.
Yield / Income on investment is competitive with returns on other money market instruments of similar maturities.
The securities have zero-default risk.
Yield/Income on investment is tax-free.
The securities can be used as collateral for short-term borrowing from banks.
They are bearer securities and negotiable.
Benefits of long-term securities are:
Could serve as collateral for borrowing,
Interest is paid half-yearly,
It can be traded on the stock exchange and
Investment has a zero-default risk.
|What is Primary Market?|
This is a market where new issues of securities are available for sale. The market for new issues in all government securities is the Issues Office, Central Bank of Nigeria.
|What is Secondary Market?|
This is the market for the trading of previously issued securities. Hence, tenors of the securities traded are shorter than the original tenors. In the case of treasury bills and treasury certificates which are money market instruments, the market is within and outside the Central Bank of Nigeria. The market in the CBN is located at the Securities Dealing Office and Settlement and Control Office, while the outside markets include Banks, Discount Houses, and Stock - Brokers.
Transactions in development stocks in the secondary market are undertaken in Internal Funds Office, Banking Operations Department of the Central Bank of Nigeria through an appointed licensed stock - broker on the Nigerian Stock Exchange. While transactions in the FGN Bonds in the secondary market are to be undertaken on the floor of The Nigerian Stock Exchange through licensed Stock Brokers while Issue Office of Monetary Policy Implementation Divison of CBN serves as the Registrar to the issue.
|What is the procedure for investing in the government securities?|
The applicable procedures for investment vary from one market to the other and from one security to the other.
Procedure for investing in treasury bills and treasury certificates:
All investments are by auction
Subscriptions at this market are for 91,182, 365and 730 days for treasury bills and treasury certificates respectively.
An advertisement, inviting bids for the securities is placed in selected national dailies in advance of the auction.
The amount of securities being applied for must have a minimum value of N10,000 and in multiples of N1,000 thereafter.
Interested investors should obtain and complete application forms through authorized dealers (Banks and Discount Houses and Stock brokers).
Interested Authorized dealers may submit tender on their own account or on behalf of their customers. Therefore, subscription is open to banks, discount houses, corporate bodies, institutions and individuals.
Tenders for the Bills or Certificates are submitted on Mondays, Tuesdays and Wednesdays before 1.30p.m on the prescribed printed forms and in sealed envelope marked "TENDER FOR BILLS OR CERTIFICATES".
Pricing and Allotment:
Successful subscribers at the auction are allotted applying the Dutch, Multiple price auction system. Under the system, successful applicants pay for their allotment at the price quoted by them.
Result of tender of and allotment
The result of the tender is announced before the close of business on Wednesdays. Allotment letters are issued to successful tenders on Thursday while payment in full for the amount of the successful tender must be made to the CBN not later than 1.30 p.m on the issue date – Thursdays. The accounts of the authorized dealers which must be funded are debited with the cost.
Procedure for investing in FRN Development Stocks
An advertisement, inviting bids for the offer securities is placed in the national dailies.
Interested investors usually obtain and complete application forms though authorized dealers (Banks and Stock-Brokers) and CBN branches nationwide.
Allotment is made partly or in full depending on the level of subscription.
Allotment letters and Certificates are issued to successful bidders.
Procedure for investing in NTBs through Open Market Operation.(OMO)
All investments are through auctions
Notice, inviting bids for securities is forwarded to licensed Discount houses and banks a day preceding the auction.
Subscriptions are open to the general public i.e. banks/discount houses, government agencies, corporate bodies institutions and individuals. All applications must however be routed through licensed discount houses.
The amount of securities being purchased must have a minimum value of N10,000 and in multiples of N1,000 thereafter.
Each applicant must state the discount rate and the amount of securities being applied for.
Pricing and Allotment under OMO Auction.
Successful applicants at the OMO auctions are allotted using the Dutch, multiple pricing system. Under this system, securities are allotted to applicants at the rate quoted by them. The accounts of the successful applicants are debited with the cost through the discount houses.
Notification of Results
Results of the OMO auction are announced through the discount houses and banks; and on the following day through the media.
Procedure for investing in securities at Settlement and Control office of CBN Authorised Dealer Banks and Discount Houses and other institutions that maintain accounts with the CBN have direct access to the CBN and they can also give mandate for automatic investment of idle funds on their accounts. Other investors would communicate their intention through the authorized dealers.
Trading can be undertaken any day of the week during approved banking hours. Rates at this market are administratively fixed and as such are lower than rates obtained through auctions.
Procedure for investing in Government Development Stocks. All transactions must be undertaken by application through an authorized Stock- broker. The transactions are carried out in three forms – ‘Cum Div’, "Ex Div’, and ‘at Par". These terms are explained below:
- ‘Cum Div’ - the market value plus the accrued interest i.e. from the last interest payment date to the transaction date.
- ‘Ex Div’ – market value less interest for the number of days to the interest payment date (that is for transactions executed after closure of Stock Register i.e. 21 days to the next interest payment date.
- ‘At Par’ – same as the nominal value. Transactions are at par when they take place on interest payment dates.
Procedure for investing in the 1st Federal Government of Nigerian Bonds –
All transactions in the Bond must be undertaken by application through a Government Stock broker.
|Who can invest in these Government Securities / Instruments?|
Any member of the public can invest in Government Securities: individuals, Corporate Bodies (Private and Public), Institutions (Private and Public), Banks, Discount Houses and Brokers.
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