Latvian government debt securities are auctioned on the Nasdaq Riga trading platform Genium INET.

 

Types of auctions

  • Competitive multi-price auctions

At competitive multi-price auctions, bidders may enter one or several bids, specifying the yield in each order. The Treasury, which is the organizer of the auction, sets the maximum yield for which the submitted orders will be executed.

  • Non-competitive or fixed-rate auctions 

When organizing a non-competitive auction, the Treasury sets the yield and the issue of debt securities is distributed in proportion to the bids entered by auction participants.

  • Tap issues 

The organizer of the auction, the Treasury, approves bids by auction participants based on the order in which they were entered. 

 

Who is eligible to participate? 

Starting February 11, 2013, only those financial institutions which have signed a primary dealer agreement with the Treasury are admitted to government debt securities auctions. Thus the introduction of a primary dealer system brought important changes for the primary placement of debt securities:

  • Fewer market participants are eligible to participate in the primary placement and repurchase transactions of government debt securities.
  • Bids for regular auctions are accepted only via the intermediation of primary dealers.

The Treasury introduced the primary dealer system to promote development of the market for government debt securities and bring more activity to the primary and secondary market as well as to the Latvian financial market in general. This would reduce risks associated with government debt servicing. 

 

What is a primary dealer system? 

A primary dealer system is a form of cooperation form between an issuer and financial institutions to implement a joint strategy for strengthening the primary and secondary securities market. In the dialogue with investors, primary dealers have the role of intermediary and market expert. They purchase securities on investors’ behalf in primary placement auctions. 

Primary dealer functions also include secondary market making and organization.

 

What are the obligations of a primary dealer? 

To keep the system running smoothly, primary dealers have certain obligations in the primary and secondary market:

  • To act as an intermediary between the issuer and the investor by distributing securities they have bought and thus facilitating expansion of the investor base
  • To provide liquidity to the secondary market by promoting trading and efficient pricing of securities 

 

What rights do primary dealers have?

Primary dealers have the following rights:

  • They are eligible to participate in primary placement auctions of government domestic debt securities and other domestic borrowing transactions.
  • They are granted the status of primary dealer of government securities and are better informed about planned government borrowing transactions.

 

List of primary dealers

The current group of primary dealers includes: 


1)   Citadele Banka (primary and secondary market organization)
2)   Luminor Bank AS (primary and secondary market organization)
3)   SEB Bankas (primary and secondary market organization)
4)   Swedbank (primary and secondary market organization)

 

How to apply for primary dealer status

Other market participants may also apply for primary dealer status by submitting an application to the Treasury. The Treasury assesses on a regular basis the activities of each primary dealer and other market participants, guided by the following criteria:

  • compliance criteria: each candidate should be a credit institution and a member of Nasdaq Riga that complies with all requirements stipulated in the relevant legal acts
  • quality criteria: assessed with regard to activity in the domestic government debt market, involvement in financial transactions with the Treasury related to government debt management and asset management, as well as other matters.

 

For more information, please visit the webpage of the Treasury.