1. WORKSHOP ON DEVELOPING GOVERNMENT BOND MARKETS IN SUB-SAHARAN AFRICA ________________________________ 17 – 19 JUNE 2003 JOHANNESBURG ________________________________ “DEVELOPING EFFICIENT SECONDARY MARKETS” Tom Lawless CEO – BOND EXCHANGE OF SOUTH AFRICA www.besa.za.com

2. DEVELOPING EFFICIENT SECONDARY MARKETS SOUTH AFRICAN EXPERIENCE Background Market Structure Market Infrastructure Market Participants –Role of primary dealers –Role of inter dealer brokers Market Information

3. BACKGROUND PRE 1996 –OTC market – regulated by Bond Market Association (BMA) –Trading – on floor and telephone / screens –Electronic net settlement from 1995 MAY 1996 –BMA licenced as a financial exchange, in terms of Financial Markets Control Act (1989) –Acts as a self-regulatory organisation (SRO) for listed bonds NOVEMBER 1997 –T + 3 settlement NOVEMBER 2002 –Restructuring proposal accepted at AGM

4. MARKET STRUCTURE Primary dealer banks-10 (Six local & 4 foreign) Other banks- 2 Issuers- 6 Investors- 4 Inter-dealer brokers- 5 (Matched principal & name give up) Securities houses (brokers)-30 SARB- 1 TOTAL=58

5. MARKET STRUCTURE Trading – telephones and inter-dealer brokers screens (IDBs) All trades electronically reported to BESA –ATS implemented in 2000 – requested but not used –Matched and confirmed by UNEXcor – clearing house –Settlement positions sent to settlement banks and members Electronic net settlement on T+3 –Delivery vs payment achieved –Through four custodial / settlement banks –Central Depository for the underlying –Central bank for the funds Risk Management –Bi-lateral Counterparty limits set by participants

6. MARKET PARTICIPANTS PRIMARY DEALERS –Introduced in April 1998 for benchmark government bonds –Sole rights to bid at weekly auctions –Obligated to make a market in these bonds Comprise some 50 – 65 % of all turnover – spot and repos Other Market makers – not PDs – also present in repo markets add considerably to liquidity

7. MARKET PARTICIPANTS INTER DEALER BROKERS (IDBs) Five entities –Garban; Tullet & Tokyo – matched principal –FCB Harlow Butler; SA Capital and Money Brokers; Prebon Yamane – name give up “Exchange within an exchange” –Major focal point of liquidity –Some 30% of all spot trades – (member / member and member / client) –Some 45% of all spot trades – member / member

8. MARKET INFORMATION IN SELECTED GOVERNMENT BONDS

9. Nominal Outstanding by major issuer groupings - May 2003

10. Total Bond Market Turnover Breakdown by Major Issuers (Nominal Traded)

11. Bond Market Turnover (Total Nominal Traded) 1989-2003

12. Turnover Velocity 1998 - 2003 Velocity = Annual traded turnover / nominal outstanding at Year end

13. Thank you for your attention. ___________________ Tom Lawless tomlawless@besa.za.com www.besa.za.com ______________________ (13)