TREASURY DIRECT – A COMPARISON BETWEEN THE PROGRAM …

[Pages:6]THE INSTITUTE OF BRAZILIAN BUSINESS & PUBLIC MANAGEMENT ISSUES - IBI

TREASURY DIRECT ? A COMPARISON BETWEEN THE PROGRAM FOR SALE OF PUBLIC SECURITIES TO INDIVIDUALS THROUGH THE INTERNET, IN BRAZIL AND THE UNITED STATES.

LUCIANA MARIA ROCHA MOREIRA TRIGUEIRO Advisor: Prof. William Handorf

Minerva Program Fall 2008

CONTENTS

1. INTRODUCTION ......................................................................................................... 5 1.1 HOW THE TREASURY DIRECT WORKS IN BRAZIL ........................................ 6 1.2 HOW THE TREASURY DIRECT WORKS IN THE UNITED STATES............. 7 1.3 BRAZIL - ADVANTAGES OF PURCHASE PUBLIC BONDS THROUGH THE INTERNET......................................................................................................................... 8 1.3.1 MAIN OBJECTIVES TO REDUCE RISKS OF INVESTING IN PUBLIC BONDS .............................................................................................................................. 9 1.4 UNITED STATES ? ADVANTAGES OF PURCHASE PUBLIC SECURITIES THROUGH THE INTERNET ........................................................................................11 2 BONDS AVAILABLE FOR PURCHASE IN BRAZIL AND THEIR CHARACTERISTICS ..................................................................................................... 12 2.2 NATIONAL TREASURY NOTES ? F series ? NTN-F........................................12 2.2.1 Formulae used for calculating NTN-F prices and quotations:.......................13 2.3 TREASURY FINANCIAL BILLS ? LFT.................................................................13 2.3.1 Formulae used for calculating LFT prices and quotations:............................13 2.4 NATIONAL TREASURY NOTES ? B series NTN-B ..........................................14 2.4.1 Formulae used for calculating NTN-B price and quotation:...........................14 2.5 NATIONAL TREASURY NOTES ? C Series ? NTN-C .....................................15

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2.5.1 Formulae for calculating NTN-C price and quotation:...................................16 3 SECURITIES AVAILABLE FOR PURCHASE IN UNITED STATES AND THEIR CHARACTERISTICS........................................................................................17 3.1 TREASURY BILLS ..................................................................................................17 3.2 TREASURY NOTES ...............................................................................................17 3.3 TREASURY INFLATION-PROTECTED SECURITIES ? TIPS........................18 3.4 TREASURY BONDS...............................................................................................19 3.4.1 EE/E Bonds ...........................................................................................................19 3.4.2 I SAVINGS BONDS ............................................................................................20 4. BRAZIL - THE ADVANCES OF TREASURY DIRECT PROGRAM................. 22 5. UNITED STATES - THE ADVANCES OF TREASURY DIRECT PROGRAM.25 6. MAIN DIFFERENCES BETWEEN THE TREASURY DIRECT PROGRAM IN BRAZIL AND IN UNITED STATES .............................................................................27 7. CONCLUSION ...........................................................................................................29 8. REFERENCES...........................................................................................................31

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I would like to thank all individuals that helped me to participate in the Minerva Program. First of all I would like to thank my parents who gave me the opportunity to learn English. I would like to thank my husband for his support and encouragement. I would like to thank the Brazilian National Treasury team for giving me the permission to do this course, and my friend Frederico that gave kind references. And especially I would like to thank to Professor Ferrer and Kevin for their attention and professionalism.

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1. INTRODUCTION

The Treasury Direct is a program implemented by the Department of the Treasury, that allows individuals to purchase public bonds through the internet. There are only three countries that have implemented this kind of purchasing of public bonds Brazil: Spain and United States.

The program aims at democratizing investments in federal bonds, giving more liquid ity to the secondary market, stimulating long-term savings, and providing information regarding the management, structure and the transparency of the federal public debt.

This paper will focus in the advantages of purchasing public bonds through the internet, how it makes the access of the public easier, how the countries that have this kind of program become more efficient in control their public debt and the different characteristics of the public bonds issued through the internet. And also it will show the enormous advantages that a country has when they don`t need to issue paper bonds, and how the governments can draw the public debt choosing what kind of public bonds they will issue, as linked inflation bonds, fixed rate bonds or savings bonds.

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1.1 HOW THE TREASURY DIRECT WORKS IN BRAZIL

The National Treasury of Brazil, with the support of the Brazilian Custody and Settlement Company ? CBLC, implemented the Treasury Direct program in January of 2002.

The program allows any individual with at least R$ 200.00 ( two hundred reais) and an account in a financial institution to purchase bonds. The Treasury Direct is a kind of program ensured by the National Treasury, with high profitability and competitive cost allowing the investor to manage your own public bonds portfolio instead of being dependent on investments funds.

The Treasury Direct system is secure and easy to operate, what permits the investor to finish all their transactions in any time of the day through the internet. In order to provide liquidity to the bonds purchased through the system, the National Treasury performs weekly repurchases. There is no time limit regarding the resale of bonds back to the Treasury Direct, nor is there a limit to the repurchased value. The bonds are repurchased at the market price quoted on the date of the transaction.

The maximum limit per investor is R$ 400,000.00 per month, but there are no limits to public bonds holdings, the investor can purchase R$ 400,000.00 of public bonds every month. Those months the interest is paid and the bonds are purchased through the Treasury Direct, the value redeemed or paid in interest is added to the monthly limit.

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The purchase and sale of bonds through the Treasury Direct system may be made twenty hours a day on working days and twenty four hours a day on weekends and holidays. Between five and nine am on working days, activity on the Treasury Direct is suspended for system updating and maintenance. Balance and limit statements may be issued twenty four hours a day. However, the National Treasury may suspend the activities of the Treasury Direct at any time, as deemed necessary.

The public bond sale portal has two types of access: public and restricted. The general public may access information regarding registration, sales, purchases, public debt indicators, legislation, system security, as well as other types of information. Access is restricted once the username and password have been entered, allowing the investor to perform purchase and sale operations, as well as monitor account activity.

1.2 HOW THE TREASURY DIRECT WORKS IN THE UNITED STATES

The TreasuryDirect of United States started in October of 2002, it allows individuals to purchase the full range of Treasury consumer securities in one convenient online account. If the individual has a TreasuryDirect account, he can purchase and hold Bills, Notes, Bonds, Treasury Inflation-Protected Securities (TIPS), and savings bonds. Treasury Direct is the primary retail system for selling public securities. In United States the investor can purchase securities twenty

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four hours a day, every day, through the Treasury Direct service and also there is a phone number that the investor can call any time.

The investor has to open an account in the U.S. Treasury, by filling a form that is available in the Internet and send it to one of the four agencies of the TreasuryDirect. After the account is confirmed, the system enables the investor to do business with the U.S. Treasury electronically using the Internet and conduct transactions without personal assistance from the Treasury.

The minimum that a individual can purchase is US$ 100.00 and the maximum is US$ 5 million for noncompetitive biddings. All the investments have to be multiples of US$ 100.00. The investor can purchase electronic bonds through a Treasury Direct account, but he cannot purchase paper bonds online.

1.3 BRAZIL - ADVANTAGES OF PURCHASE PUBLIC BONDS THROUGH THE INTERNET

There are many advantages of allowing individuals to purchase public bonds through the internet. It facilitates easier access of the population to the public bonds, it is a new and safe way of saving money, the investor can manage his own portfolio, it is a competitive investment, it is very easy to operate and the liquidity of the bonds is warranted by National Treasury. When an individual is able to buy public bonds through the internet , the secondary market is demystified, everyone can access subjects that were only for specialists of the financial market, and it helps the National Treasury to reduce his cost once that

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