BOC bid on behalf of other primary dealers -former Chief Dealer

Presidential Commission inquiring into the Treasury bond issue:

Several primary dealers have bid at higher rates than usual at the auction held on February 27 2015, similarly to Perpetual Treasuries, it was revealed at the Presidential Commission inquiring into the Treasury bond issue, yesterday.

While the Perpetual Treasuries Limited has bid for rates 12.50, 12.75 and 13, several other primary dealers have put bids at similar rates, President’s Counsel Nihal Fernando pointed out. “These rates include 10.08, 10.98, 11.25, 11.75 and 12.5. The primary dealers include Entrust, Natwealth, Wealth Trust, Employee’s Provident Fund, Seylan Bank and Pan Asia have bid at these rates as well.” Fernando PC said, reading out from a sheet including the bidding details of the auction held on February 27, 2015.

Fernando PC led evidence of the former Bank of Ceylon Chief Dealer J.D.K. Dharmapala. Fernando PC also suggested that the decision made at the Market Operations Committee on the same day, had reached the Treasury bond market before the said decision was officially released. Dharmapala said, according to several telephone calls he received that day from money brokers, it may have been the case.

Counsel Chanaka de Silva asked Dharmapala if the Bank of Ceylon has exclusive information regarding government requirements.

Dharmapala said, it is possible to deduct conclusions from observing the Deputy Secretary for the Treasury Account (DST account), which is maintained in the BOC.

He said the higher managerial level is kept informed about the status of the DST account on a daily basis. Asked as to who else is privileged for this information, Dharmapala said the Treasury Management Department does. Counsel Chanaka de Silva also questioned Dharmapala on his decision making process regarding the Treasury bond auction which took place on February 27,2015. De Silva suggested to Dharmapala that the Bank of Ceylon has taken a ‘conservative’ stance regarding the questioned auction.

Dharmapala said, a state bank cannot operate like a private dealer in the market, and that as a state bank it has its priorities. “So in that view, it is possible to say the BOC acted rather conservatively regarding this auction. BOC was not interested in investing in this 30 year bond. We were only bidding on behalf of other primary dealers.” Dharmapala said. Asked if he read the market wrong that day, Dharmapala disagreed with the suggestion.

Dharmapala said, on the questioned auction date there was a high liquidity available in the market, and there was no way that rates would have gone very high.

He also said, of all the ‘history’ of Treasury bonds issuances in Sri Lanka, he has never seen an occasion where rates have gone very high, as at the questioned Treasury bond auction on February 27, 2015.

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