Financial Markets

Financial Markets in Uganda

Bank of Uganda issued a 5 year Financial Markets Development Plan 2008-2012.

1. The Forex market

At present the forex market has the following participants: 1. The Bank of Uganda 2. The inter-bank market (where commercial banks trade with each other). 3. The Forex Bureaux (that act as money shops) 4. Retail customers or end users of forex

Foreign exchange policies in Uganda over the years:

Prior to 1993 Uganda had a controlled foreign exchange regime and a wide variety of foreign exchange policies under this period. They were as follows:


A par value of 0.124414gram of gold per Uganda shilling was maintained.


The Uganda shilling was pegged to the dollar at a rate of Shs. 7.14286


The shilling was pegged to the SDR at Shs. 9.66 due to volatility of the dollar.


The shilling was floated. This saw the rate drop to Uganda shillings 76.97 to a dollar form Shs.8.1453


A dual exchange rate regime was introduced and foreign exchange was auctioned through a system known as Window 1 and Window 2. Window 1 was for financing priority imports and the rate was determined daily taking into account the value of the dollar against other currencies and the economic conditions in the country. Window 2 was for financing non-priority imports


The auction system was replaced by allocation based on a rate of Shs.1470 to a dollar. That same year the dual exchange rate was re-introduced at a fixed rate of Shs. 1400 to a dollar.


In May 1987 the shilling was devalued by 66% from shs. 14 to 60. This was after the currency reform.


Forex Bureaus were introduced.

2. Domestic Financial markets

The Domestic Financial Markets have the following markets; The Securities MarketIn this market government securities are traded. They include Treasury bills and Treasury Bonds. These make the following markets: 1. The Treasury Bill Primary Market 2. The Treasury Bill Secondary Market 3. The Treasury Bond Primary Market 4. The Treasury Bond Secondary Market

Functions of Securities markets

They support monetary policy implementation by providing an instrument of liquidity management. The Repurchase Agreements (Repo) Market Repos were introduced to manage intra-auction liquidity variations. The vertical repo market reflects repo transactions between primary dealer commercial banks and the central bank. This market was introduced in 2002 by the Bank of Uganda as a mechanism to deal with managing liquidity in the banking system in the interval between auctions of treasury bills. These REPOs are auctioned in a Repo Market. The Capital marketsThis is where financial instruments for raising capital are traded. It involves long term banking. Instruments like stocks are bonds are traded in this market.

The development of capital markets in Uganda

In 1994 Bank of Uganda chaired the Capital Markets Development Committee (CMDC), which was comprised of stakeholders of capital market interests from financial markets, industry and government. The CMDC oversaw the introduction of the Capital Markets Statute 1996 which introduced the Capital Markets Authority (CMA) and made provision for the licensing of the Uganda Securities Exchange. THE CMDC works with Government to adopt a strategy of privatizing parastatals by listing the m on the Stock Exchange. Currently there are over 7 companies listed on the Uganda Securities Exchange.

Types of Treasury bills used in Uganda

1. The Bearer Treasury Bills Certificates

Were used in the market earlier. They did not activate secondary market trading because of their security risk.

2. The book-entry Central Depository System (CDS)

To counteract the safety concerns regarding the bearer treasury bill certificates in 1999 the Bank introduced the electronic registry of investors in government securities called the book-entry Central Depository System or CDS. The CDS solved the problems of transferring ownership of the securities but introduced a new problem that the laws of Uganda were written so that a security had to be in paper form and the Courts did not recognize electronic securities.. To solve the problem, the

Financial Accountability Act of 2003

gave the Minister of Finance and Economic Development and Planning powers to issue securities both in paper and electronic form. Paper treasury bills were discontinued. Treasury Bills securities can be for 91 days, 182 days and 364 days in the primary market.

Secondary market in Treasury bills

The treasury bills auctions were held weekly to start with. To stimulate the development of secondary market trading, the Bank of Uganda changed the auction from being weekly to being fortnightly. This strategy aimed at extending the interval between auctions as a way of providing a greater incentive for investors to source the supply of treasury bills in the secondary market.

Primary Dealer ranking system

It was introduced in 2005 by the Bank of Uganda. It is an incentive to enhance primary dealer performance. The winner of this prestigious award is announced every month. It is a catalyst for stimulating secondary market trading of government securities.

The Treasury Bond market

Auctions for Treasury Bonds were introduced in January 2005. Treasury Bonds are auctioned every 28 days. The bonds support monetary policy implementation by improving liquidity management and promoting market development. These securities also assist in providing a framework for pricing of securities in the secondary market. Bonds have also provided an additional saving instrument and have deepened the capital market.

Bond Tenure

Treasury bonds have the following tenures: 2 years, 3 years, 5 years, 10 years and 15 years.