Governmental securities (G-securities) play a central role in the Albanian market because they represent Albanian governmental debt. At the same time G-securities are the only type of securities publicly marketed in Albania. In the emerging Albanian securities market, where the only existing stock exchange the Tirana Stock Exchange (TSE) is inoperative, and where private instruments are not publicly traded, the trading of G-securities is an example of the functioning of securities public trading. In the secondary G-securities market the Albanian regulator has produced other options to stock exchange trading. It has also liberalised access to the primary market of G-securities to allow individual investors to invest directly.
There is dual regulation and supervision of G-securities in Albania. It is allocated according to the banking and securities laws and exercised by the Central Bank of Albania (the BoA) and the Financial Supervisory Authority (the FSA). Apart from the general laws that regulate the banking and securities market, including the role of the BoA and the FSA, the following acts represent the pillars of trading in G-securities:
- Law 9695, on state loans, debt, and warranties in the Republic of Albania, dated December 18 2006;
- The agreement between the Government of Albania and the BoA on the issuing of governmental bonds in the form of registration, dated September 28 2007 (the G-Bonds Agreement);
- The agreement between the Government of Albania and the BoA on the issuing of the treasury bills in the form of registration and maintenance of the registration, dated September 5 2006 (the T-Bills Agreement);
- The BoA regulation on the intra-banking secondary market of governmental securities, law 86 of November 16 2005;
- The FSA regulation on the retail market of governmental securities, law 12, dated January 29 2007.
Several definitions of G-securities exist, which slightly extend or narrow the concept, but which in substance describe the following:
- Instruments of the state debt, issued through coupons, at a discount (zero-coupon) or a combination of the two, under terms and conditions determined by the Minister of Finance;
- Loans, bonds and other instruments that create or endorse the debt issued by or on behalf of the Albanian government.
Albanian law does not provide for a distinct categorisation of G-securities, but typical traded G-securities are G-bonds and T-bills. G-bonds are G-securities whose maturity varies from one year to several years from their issuing date, and are issued as fixed or variable coupons. Until December 2007 the Albanian government issued G-bonds in book-entry form with a maturity of one, two, three or five years; in December 2007 the government began to issue seven-year G-bonds. T-bills are defined as G-securities that have a maturity not exceeding one year, but longer than three months. They are issued at a discount. So far the Albanian government has issued T-bills in electronic form with a maturity of three, six or 12 months.
The Government of Albania may denominate the G-securities in domestic or foreign currency. But up to now G-securities have been issued only in domestic currency the Albanian lek.
G-securities are acquired and sold in the G-securities primary market (GSPM) and the G-securities secondary market. The Ministry of Finance, acting as representative of the Albanian government, enters into agreement with the BoA for the issuing of G-securities in the GSPM, such as the G-Bonds Agreement and the T-Bills Agreement. On the basis of such agreements, and the banking laws, the Bank of Albania organises and supervises the GSPM, which takes the form of an auction.
Two types of secondary markets operate at a parallel level, but they have different roles and accessibility: the intra-banking secondary market, and the retail market.
The G-securities intra-banking secondary market (GSIBSM) is conducted over-the-counter between the banks (this term includes branches of foreign banks), under the banking licence and supervised by the Bank of Albania. This market is restricted to banks licensed to operate in Albania. The principal aim of the GSIBSM is to serve the uses of G-securities by banks, for the purpose of guaranteeing the execution of intra-banking operations. A non-bank subject does not have access to this market.
The G-securities retail market (GSRM) is operated by the banks and securities intermediaries on the basis of their FSA licence, and supervised by the FSA. Several banks in Albania have been granted an FSA licence for trading in securities. Any investor or juridical person, resident or non-resident, is allowed access to the GSRM market. Basically this market assumes the role of a typical stock exchange, which at the moment is inoperative. In the GSRM the investor may:
- Directly purchase or sell G-securities in the portfolio of the banks/intermediaries, the later ones acting as dealers;
- Use the bank/intermediaries as brokers for the purchase of G-securities in the primary market;
- Redeem from the bank/intermediary the G-security at the date of maturity;
- Obtain from banks/intermediaries the G-securities as collateral.