Three classes of Structured Securities have been approved for ALTX. These include Asset Backed Securities, Depository Receipts(DRs) and Exchange Traded Funds(ETFs).
i. Asset Backed Securities or “ABS” are debt securities:
(a) that are issued as part of a securitization transaction in which assets are transferred to a third party that issues the securities; and
(b) that are primarily serviced, with respect to both return on investment and return on investment, by cash flow from assets in the securitization transaction in (a) above and for the purposes of this definition, cash flow may include revenues derived from the sale or liquidation of property which secures the assets where the sale of that property is incidental to the credit transaction by which the asset was created.
ii. Depository Receipts or “DR” are instruments, issued by the depository, representing an issuer’s securities, where the instrument confers rights in respect of such securities; Depository Receipts may be issued in a sponsored or in an unsponsored program in accordance with a Deposit Agreement between ALTX Clearing Ltd. and either the issuer or the depositor. DRs may be issued in denominations of fractions or multiples of the issuer’s security.
BILDRs and BOLDRs
The Capital Markets Authority of Uganda has approved the issuance of depository receipts backed by treasury securities on ALTX East Africa. The depository receipts are designed to enable retail investors to access the treasury market at a fraction of the cost charged in the underlying market and permitting minimum bids and offers of UGX 10,000.
Depository Receipts issued in this market and backed by Treasury Bonds shall be code named BOLDRs. Bonds have a tenure of 12 months and longer and are serviced regularly with interest by the issuer. BOLDRs shall have the same attributes at the underlying instruments.
Depository Receipts backed by Treasury Bills shall be called BILDRs. Bills are discount instruments that are issued for periods of 12 months and less. Bills are not serviced periodically but are redeemable in the discount market provided by ALTX or paid off with accrued interest at maturity. BILDRs shall also have the same attributes as the underlying bills issued in the treasury market.
iii. Exchange Traded Fund or “ETF” is an investment vehicle traded on a stock exchange, much like shares.
Most ETFs are passively managed index funds which normally track an index, with their main objective being to participate in the economic growth of an industry sector or commodity, such as platinum or gold.
ETFs generally provide the attraction of the returns of a traditional tracker fund (like unit trusts) with the liquidity of a listed security. ETFs are traded at prevailing market prices, which are approximately the same price as the net asset value of their underlying assets over the course of the trading day. Profits (or losses) are made from the difference between the buying and selling price of the ETF.