.: FAQs

What is a Treasury Bill?
What is a discount house?
What do we mean by the money market?
What is the primary market ?
What is the secondary market ?   
What instruments are actively traded by CDH?
How do I invest in Treasury Bills?

What is a Treasury Bill?

A Treasury bill is a short-term financial instrument issued by the Malawi Government through the Reserve Bank of Malawi (RBM) to borrow funds from the general public to finance Government expenditure. Treasury Bills are low risk and highly liquid instruments as they are re-discountable by authorised dealers such as CDH. If for any reason the investor needs to liquidate his investment prior to maturity, he can do so by selling the bills to CDH at the prevailing rate for the tenor of the bills to maturity.

What is a discount house?

A discount house is a financial institution licensed to trading in short term financial instruments such as Treasury Bills in the secondary market.

What do we mean by the money market?

Money market is a wholesale market for low risk, highly liquid, short-term financial instruments (usually of tenors of less than one year). 

What is the primary market ?

The primary market is where financial instruments such as government securities (Treasury Bills, bonds) or corporate securities (commercial paper, shares etc) are issued for the first time to investors.

What is the secondary market ?         
                                     
The secondary market is where previously issued financial instruments are traded. An investor in these securities can buy or sell through authorised dealers such as CDH in case of money market instruments or a licensed stock broker in case of capital market instruments such as shares..

What instruments are actively traded by CDH?

CDH's main instruments of trade are Treasury Bills, Open Market Operations Investment, Bankers Acceptances, Call Money and Negotiable Certificates of Deposit.

How do I invest in Treasury Bills?

Bidding Procedures:
Treasury bill auctions are conducted on Friday at weekly auctions carried out by the Reserve Bank of Malawi. Invitations to bid in TBS auctions are announced in the daily newspapers on Mondays and Tuesdays. Each announcement will among other things include:

• The amount to be offered and maturity dates of bills for which bids will be invited.
• The date and closing time for bids
• The settlement date of bills

Participation in the TBS Auctions (Application to Bid)
Tenders for Treasury Bills are made by completing Treasury Bills Application Forms available at the Reserve Bank of Malawi, in Lilongwe or Blantyre. The forms are in different maturities; 91 days,182 days and 273 days.
The following information is required on the bid form:

• Name and address of bidder;
• Amount offered;
• Bid price;
• Bidder’s bankers and settlement account.

Bids
Each bid for TB’s must be of a minimum amount of K10,000 (principal) and in multiples of K1,000 (principal) thereafter. Separate bid forms should be completed for each tenor, 91,182 and 273 days. A maximum of ten bids of the same tenor but different prices can be completed on one form.

Competitive Bids
Each competitive bid must state the bid price. The bid price corrected to 4 decimal places is worked out from any interest rate using the following formula:

Bid Price = 100-(interest rate* No of days to maturity)/365
Non- Competitive Bids (NOCOBS)

An applicant may submit one bid of a maximum of K500,000 per tenor without quoting the bid price. The word NOCOB must be indicated on the space provided for the bid price on the application form. Non – competitive bids will be allotted at a price equivalent to the weighted discount rate for successful bids. The Reserve Bank of Malawi is obliged to accept all bids in the non-competitive category.

Submission of Bids
Bid application forms are obtainable at the Reserve Bank of Malawi Offices in Lilongwe and Blantyre, and in all offices of Authorized Government Securities Dealers, like CDH. Treasury Bill bids may be submitted by fax or hand delivered to Reserve Bank of Malawi Head Office in Lilongwe, by the date and closing time announced in the Auction Notice.

Announcement of Auction Results
A summary of results of the Treasury Bill auction is published in the Daily Newspapers on Monday. Successful applicants as well as their local bankers are notified of the results immediately they are out by fax or telephone as per the numbers indicated on their bid form.

Redemption
On maturity, proceeds will be paid by crediting the nominal values of the bills to the security holder’s settlement account Reserve Bank of Malawi however requires that Treasury Bill Certificates be returned to their Head Office at least seven days before maturity date.

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