The financial market is where the process of demand and supply of capital occurs. The issuer, in demand for capital, issues securities. In return, investors supply the capital by purchasing the securities.
Precisely, the financial market is where people, private companies and public institutions negotiate financial securities at prices or rates that reflect the aforementioned process of supply and demand. This marketplace is majorly made up of two (2) components: the stock market and the bond market. Seeing that the WAEMU Government Securities Market is based on the latter, this component will be the focus.
Understanding the Government Securities Market
An inclusive sovereign bond market, called the WAEMU Government Securities Market, has been established to organize all issuances of public securities by WAEMU member states.
On the WAEMU Government Securities Market, capital is issued in the form of Treasury bonds and Treasury bills by the issuers, who are the 8 member states. This capital can then be exchanged amongst the various market players including primary dealers, market intermediaries and other investors.
The structure of the WAEMU Government Securities Market
The WAEMU Government Securities Market itself is divided into two segments: the primary and the secondary market.
The primary market refers to the marketplace where newly created securities are issued and subscribed to. The market is used by states and/or local authorities to raise capital to fulfil the fiscal demands of their economic development projects. Thus, the primary market is said to be “new”.
The secondary market refers to the marketplace where securities initially issued on the primary market are renegotiated. It is called the “second-hand” market. Here, market players who hold securities have the opportunity to sell them in exchange for liquid assets. The secondary market plays an important role by ensuring liquidity for stakeholders and thus, maintaining the quality of the primary market.
The issuing methods of the WAEMU Government Securities Market
In general, government securities can be issued via two methods: syndication and tendering. On the WAEMU Government Securities Market, the latter is used. Tendering is a technique that enables the acquisition of investment needs through an auction system of Treasury bonds and bills. As a guarantee of a transparent and efficient market, it helps to cut the costs of borrowing, promoting a higher-level volume of transactions and a healthy range of maturities. Within the WAEMU Government Securities Market tendering method, it uses two tendering channels: open tendering and targeted tendering.
Regularly, a single issuance per day is carried out, however there may be instances where several issuances by the same issuer occur on the same day. This is called a simultaneous issuance.
To learn more about the WAEMU Government Securities Market and its trends, download the WAEMU Government Securities Market eBook here.
