The Bank of Ghana is currently embarking on a number of institutional reforms to support the growth and the development of the capital market in that country, including capital market reforms and the introduction of a new Central Securities Depository System (CSDS).

According to the Deputy Governor of the Bank, Lionel Lare Dosoo, the change in the macro-economic environment in Ghana has necessitated these farreaching institutional reforms to ensure the security of financial transactions of investors and to encourage a strong and competitive financial system. The deputy governor adds that the changes will broaden the market for the government securities as well as making it easier for investors to buy and sell securities.

One of the major reforms being introduced by the central bank is the new Central Securities Depository System (CSDS), an electronically-based record system which aims to eliminate the use of physical certificates. In other words, it is a computerised data recording system that records individual security holdings at a central area. With the implementation of the CSDS, there will be a gradual phasing out of physical certificates for securities.

"It is one important step in developing a secondary market for securities," says the deputy governor.

Dosoo is also optimistic about the contributions that these reforms will bring to the Ghana's capital market. He believes that these changes will broaden the market for government of Ghana securities at the best price, allow investors to buy and sell securities at best price and make the records of ownership of securities more secure. The transition from physical certificates to records held in an electronic format comes with several advantages.

According to officials of the central bank, money transactions like the sale of newly-issued securities can now be completed within a day. In addition, market trading between investors on already issued securities will also be completed the same day. Clearly, the new system will be faster and more accurate, and it will be easier to open an account at the CSDS through a primary dealer or licensed broker. Above all, though, the system ensures greater security and confidentiality. Records of ownership of individual securities will be maintained centrally as well as at the respective primary dealers to reduce the possibility of harm to investors as a result of poor recordkeeping and dealer malfeasance.

Under the system, investors are also permitted to transfer securities to dealers who are willing to purchase them at a higher price in an attempt to create a secondary market for securities.

Though the Central Securities depository system is the brainchild of the Bank of Ghana, the Securities and Exchange Commission, the regulator of the capital market in Ghana, will be in charge of regulating it. Ultimately, however, the Central Bank intends to ultimately hand over ownership of the CSDS to investors under a separate company.

To give the system legal backing, a bill has been placed before parliament which is likely to be passed into law this year. At the moment, however, existing laws allow the CSDS to handle the holdings and transactions of government securities before the actual law giving it legal backing is passed.

However, the CSDS will not be able to handle equity transactions until the bill covering it is passed into law. In addition, portions of Ghana's Companies Code would have to be amended to enable the new system to handle equity transactions.

But when all these legal requirements are fulfilled, trading in equities listed on Ghana Stock Exchange will receive a boost, since equity investors wishing to actively trade their portfolios could do so with relative ease. Indeed, within three days an investor can accomplish clearing and settlement on their trades, meeting the international standards for stock markets.

In consultation with the Ministry of Finance and Economic Planning, the Bank of Ghana has also introduced a range of short-term securities ranging from 28 days to 56 days and threeyear treasury notes and bonds with a view to deepening options available to government treasuries and investors. The new bills will be sold at weekly auctions, and are tailor-made for Ghanaian investors who normally invest in the 182-day treasury bills. These new instruments will thus satisfy the demands of two types of investors: those who usually invest in treasury bills and those who invest long term.

Another advantage of the new securities is the two-year floating rate security, whose interest rate will change every 91 days as the weighted average interest rate on the 91-day treasury bills changes.

Next is a three-year floating rate security tied to the 182-day treasury bill interest rate, and also two- and three year securities that would carry a fixed rate on interest throughout their lives. With all these reforms, the Government of Ghana Index-linked Bond (GGLIBs) will be phased out.