State Debt

According to the Primary Dealer agreement for Czech Government securities which came into the force on 1st October 2011 Primary Dealer has the exclusive right to carry the title of „Primary Dealer in Czech Government Securities“ (PD), to participate in the Treasury operations on MTS Czech Republic such as Buy-backs, Tap sales, Repo operations or Lending facilities and to be a counterparty in syndicated Czech Government Bond offerings on foreign markets or Private placements. The Primary Dealer also has the exclusive right to advise and discuss with Debt and Financial Assets Management Department of the Ministry of Finance estimates of the Czech Republic borrowing needs and issuance planning, introduction of new financial instruments and operating rules.

The Primary Dealer is obliged to purchase not less than 3 % of the total face value of Czech Government Bonds sold in Czech Government bonds auctions, including Non-competitive Auctions parts within four consecutive evaluation periods (quarters) commencing on 1 October provided that the Primary Dealer acts as Primary Dealer during all four consectuive evaluation periods. For the period starting on 1st October 2011 lasting until 31st December 2013 MTS Czech Republic (Mercato Telematico Secondario) has been selected as DETS.

Based on the implementation of MTS Czech Republic and signature of  the Primary Dealer Agreement a new evaluation method must be built up in order to achieve an overall and objective evaluation using three categories mentioned below. The application of scales for groups A and B takes into consideration the strengthening of the importance of the secondary market, which enables the evaluation of active market-makers in relation to their performance in primary auctions of government bonds. The maximum evaluation of each primary dealer can reach 100 points, and this score is calculated on a relative basis. The activities of primary dealers is therefore evaluated quarterly for last four consecutive quarters.

Criteria for evaluation of Primary Dealers valid by 1st October 2011:

As part of the evaluation of the activities on the primary market, the share of the particular Primary Dealer on the primary market of government bonds, meaning the share of accepted bids in auctions of government bonds for the evaluated period, is monitored. Using the ratio of the accepted bids to total bids, the Ministry monitors the willingness of investors to hold Czech government bonds. The important aspects of the evaluation of participation on the primary market include the auction price strategy, where the Ministry evaluates the willingness of primary dealers to pay the highest volume-weighted price in an auction of government bonds. In another sub-category, the primary dealer is evaluated with more points if that dealer is a regular participant in auctions, regardless of the evaluation period. The maximum number of points in sub-category A.5 is received by the primary dealer who subscribes the largest share of T-bills sold by the Ministry during the particular period. The quantitative criteria of group B, which is based particularly on available statistics and monitored tools of the MTS Czech Republic platform, which was selected as the DETS, is focused on quotation activity, its quality, traded volumes and transactions with the Ministry. The qualitative criteria are focused on derivative operations, marketing and consulting.

In accordance with the strategic goal for 2011, the market rules of the national electronic platform MTS Czech Republic for the secondary market of CZK denominated government bonds have become valid as of 1st July 2011 (MTS MARKET RULES). The pilot operation of this platform was launched on 11th July 2011 for the period lasting until 30th September 2011, and as of the fourth quarter of 2011, hot operation was launched amounting to the fulfillment of the quotation requirements related to the signing of the Agreement.

The objective of the trading platform MTS (MTS  GROUP)  which is used by all major global and European financial institutions is to create and manage an effective and transparent secondary market. The MTS platform also enables clear monitoring of the behavior of market participants and compliance with the set rules in real time as a basis for the subsequent evaluation of their performance and point awarding.

The participation in the MTS Czech Republic system and the active generation of the secondary market based on defined rules is now one of the main conditions for inclusion in the group of primary dealers.