The Central Bank of Bosnia and Herzegovina MARKET OF GOVERNMENT SECURITIES IN BIH Presentation by: Ljubiša Vladušić Vice Governor of the Central Bank of BiH Regional Investment Forum 2005 Sarajevo, 9 November 2005

Participants in the market: Commissions for Securities, stock exchanges (Sarajevo and Banja Luka); registries of securities, brokerage houses and commercial banks B&H Capital Market Council – the body coordinated by the CBB&H which unites all the market participants: the CBB&H, Ministry of Finance and Treasury of B&H, Entity Ministries of Finance, Commissions for Securities of both Entities, commercial banks and the stock exchanges. Capital Market in BiH: 2

Capital Market and Stock Exchanges in B&H (1) 3

Capital Market and Stock Exchanges in B&H (2) SASE 65% BLSE 35% The total turnover on stock exchanges in B&H in 2004 € ,31 Sarajevo stock exchangeBanja Luka stock exchange € ,57 € ,73 4

The Law on Debt Issuance, Debt and Guarantees of Bosnia and Herzegovina  Agreement with the Ministry of Finance and Treasury of B&H on performing fiscal agent tasks for securities  Entity Laws on Debt Issuance, Debt and Guarantees Contracts with Registry of Securities in FBiH and Central Registry of Securities of RS Contracts with Sarajevo and Banja Luka stock exchanges Contracts with commercial banks Operative rules for trading in government securities Legal Framework of the CBBH Engagement in Operations with Government Securities 5

Hardware Hardware Software Software Network Infrastructure Network Infrastructure Technical Pre-conditions for Operations with Government Securities Hardware and software – donation of the USA Government, through agency US Treasury Hardware and software – donation of the USA Government, through agency US Treasury 6

Auction Participants in the Market of Government Securities in Auctions (1) Ministry of Finance and Treasury of BiH Registries Central Bank of BiH Banks 7

Participants in the Market of Government Securities in Continuous Trading (2) Ministry of Finance and Treasury of BiH Registries Central Bank of BiH Bank of BiH Banks Continuous Trading Stock Exchanges 8

SASE Process of Trading in Securities (1) BLSE Bank B - buyer Bank A - seller Trading platform CBBH payment system The Central Bank of BiH BiH Ministry of Finance and Treasury Registry in F BiH Registry in RS 1. Bank A sells bonds to bank B through the trading platform of the CBBH or through the stock exchange. The trade starts by entering data on offer for purchase and sale by the seller and the buyer. In order to effect the trade, the entered data on sale and offer have to match. 9

Process of Trading in Securities (2) Bank B - buyer Bank A - seller Trading platform CBBH payment system The Central Bank of BiH BiH Ministry of Finance and Treasury Registry in F BiH Registry in RS 2. After the parties agree on trade, the transaction is “locked” until the end of the day. The information on trade will be sent to the registry and at the same time, the payment order will be issued. The ownership of bonds in the registries will not be changed until the payment is fully effected. SASE BLSE 10

Process of Trading in Securities (3) Bank B - buyer Bank A - seller Trading platform CBBH payment system Central Bank of BiH BiH Ministry of Finance and Treasury Registry in F BiH Registry in RS 3. After the registry (registries) receives the data on trade, these data are entered in the system of the registry, without changing the ownership status. The transaction then has the unresolved status until it is confirmed that the payment has been performed. SASE BLSE 11

Process of Trading in Securities (4) Bank B - buyer Bank A - seller Trading platform CBBH payment system Central Bank of BiH BiH Ministry of Finance and Treasury Registry in F BiH Registry in RS 4. After the registries receive confirmation on the effected payments, they perform the final registration of ownership of government securities for a new owner. SASE BLSE 12

The participant in trade is registered in one registry, NOT IN BOTH OF THEM! Direct participants in trade (banks) have to have accounts in the CBBH for payment and settlement. Other participants in trade (trading through Sarajevo and Banja Luka Exchanges) have to perform payment and settlement through direct participants (banks). There can be no change of ownership before the payment is completed. Important Rules of the Trading Process Itself 13

14 Take-over of liabilities based on old foreign exchange savings Take-over of liabilities based on war debt Impact on banks’ interest rate policies Providing funds for budget users in periods of unequal inflow of funds from taxes Mobilization of domestic savings and investing in public projects of various levels of authorities Which are the Most Important Objectives in Establishing Market of Government Securities ?

Completing the preparation of legal and regulatory framework for the market of government securities Market of government securities as a new instrument of capital market for local and foreign investors Market of government securities as a means of mobilizing and engaging local savings for capital investments Conclusions 15

Contact: The Central Bank of Bosnia and Herzegovina Ljubiša Vladušić Vice Governor 25 Maršala Tita St., Sarajevo, Bosnia and Herzegovina 25 Maršala Tita St., Sarajevo, Bosnia and Herzegovina tel.: , fax: Thank You for Your Attention! 16