FREQUENTLY
ASKED QUESTIONS
What is a discount house?
A
discount house is defined by the Central Bank of Nigeria
as any financial institution whose main business consists
of trading in and holding of treasury bills, commercial
bills and other financial securities.
The principal duties of a discount house are:
- To
promote rapid growth and efficiency of the money market
in Nigeria;
- To
accept short-term deposits;
- To
act as an intermediary between the Central Bank of
Nigeria and the licensed banks
- To
facilitate the issue and sale of short-term government
securities by tender; and
- To
provide discount/re-discount facilities for treasury
bills, government securities and other eligible financial
instruments acquired by banks.
The
main antecedent to the establishment of discount houses
is the debt management handled by the CBN. The aversion
of banks to the holding of treasury securities had compelled
the CBN to be major supplier of credit to Government.
The introduction of discount houses was therefore conceived
to assist in relieving CBN of its excessive holding
of Treasury Bills through the development of an active
secondary market in these securities.
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Discount
Houses are
specialized financial institutions whose main task is
to provide safe, secured and profitable outlet for the
short-term funds of the banking system which ordinarily
would have been idle at the CBN. The funds so invested
with a discount house are in turn utilized by the house
to acquire a range of risk-free, short-term, negotiable
securities. The quality and nature of these securities
are such that the discount house is in a position at
any moment to liquidate them to meet its obligations
instantly if the need arose.
By virtue of its capital base and special relationship
with the CBN, a discount house has substantial borrowing
capacity from the banking system which enables it to
maintain a sizable portfolio in financial securities
especially Government Treasury Instruments. Discount
houses not only act as principals by acquiring financial
assets for their books, they also trade these assets
actively in the market. In other words, their holdings
of financial assets are not permanent but are constantly
being converted to cash and re-invested. By being always
willing to buy or sell these securities, a discount
house promotes an active secondary market in these financial
assets thereby providing the banks and investment managers
immense opportunities for portfolio preferences. Their
expertise is in judging the trend of short-term interest
rates and assessing the demand for liquidity by banks,
treasurers and fund managers.
Apart from its market making role, a discount house
assists the monetary authorities in the regulation of
liquidity in the banking system through the conduct
of open market operations. Moreover, since discount
houses report their asset and liability positions to
the Central Bank on a daily basis, they provide the
Monetary Authorities with an up-to-date feel of the
changes in the monetary market conditions.
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How
secure are investments with a discount house?
Investments with discount houses are probably the most
secure in the money market.
Presently, only local banks, financial institutions
and insurance companies with or without the participation
of international finance institutions acceptable to
the CBN, can own shares in a discount house. Individuals
are for now not allowed to invest in the equity of a
discount house.
The minimum capital base is 200 million Naira, while
its operations are subject to very tight regulations.
For
instance,
-
A discount house is required to submit daily, weekly
and monthly returns to the CBN.
-
At least 60 per cent of its total deposit liabilities
must be invested in treasury bills.
-
It is prohibited from engaging in foreign exchange
activities.
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How does a discount house differ
from a bank or finance house?
Like its banking counter-part, every corporate treasurer
or portfolio manager has at least three basic objectives
to satisfy in making investment decisions namely:
-
SAFETY
That
invested funds are secured
-
LIQUIDITY
That
invested funds are readily available to meet any contingent
need?
-
YIELD
That
invested funds earn reasonable return
In addition, it is not unlikely that a specific financial
instrument may be required (e.g. Treasury Bills) to
fulfil some statutory requirements or other purpose.
The
developments in the Nigerian money market have underscored
the need by every fund manager to exercise utmost caution
in his investment decision by not just seeking to simply
maximize returns but ensuring that his investments are
safe and liquid.
The only specialized institution that can best serve
this purpose is a discount house. This is because, funds
deposited with a discount house are:
Secured - usually backed by Treasury
instruments or any other securities recognized by the
CBN as "eligible". This provides a very strong
"fall back" for the client and eliminates
the possibilities of default.
Liquid - since discount houses invest
the funds in marketable securities that are readily
re-discountable with the Central Bank or with a bank.
The additional benefit of dealing with a discount house
is derived from the following facts:
-
The minimum capital requirement of 200 million Naira
and size of its operation which can reach a statutory
maximum of 50 times the paid up capital is a measure
of considerable financial strength.
- The
discount houses have sizable support from the CBN
especially the lender of last resort facility.
-
The discount houses are able to offer highly attractive
pricing on Treasury Bills and other risk-free government
debt instruments because of the significant concessions
available to them from the CBN.
-
Because the discount houses are tightly regulated,
any danger signals (if any) are easily detectable.
-
Being specialist institutions, the houses are proactive
in managing money market trends
and to the advantage of their clients.
-
Unlike other deposit taking institutions, the financial
assets acquired by the houses are of the finest quality
with little or no credit risk.
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What
products do you offer at Express Discount Limited?
EXPRESS
VALUE ACCOUNT- EVA
EVA stands for Express Value Account and is hinged on
the financial economic concept of Economic Value Added
for wealth creation.
Features
Minimum investment - 100,000.00 Naira in multiples of
50,000.00 Naira thereafter
Minimum tenor - 90 days.
Rate - Very competitive, in line with the money market.
Also enhanced by the fact that it does not attract withholding
tax.
Benefits
Safety - The investment will be backed
by a combination of treasury bills and commercial instruments
from AAA rated blue chip companies and usually with
an underlying bank guarantee.
Collateral - Your investment may be
used as Security for loans.
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SPECIAL
TIMING FUND ACCOUNT – (STF)
Features
This product, Special Timing Fund Account, is a funds
management scheme designed to assist our clients in
managing their cash flows more efficiently. The product
will enable you to make your idle funds work for you,
rather than being "idle" in a current account
with a Commercial or Merchant bank. Idle funds are those
monies for which you have no immediate need within the
next 7 days or more which can be more profitably invested.
The invested funds can be recalled at any time you so
desire by giving a 24-hour notice. Thus, the special
attraction of this scheme is the flexible tenor it offers
at very competitive rate.
-
Minimum amount is 1 million Naira
Benefits
You or your organization can optimize the earnings on
such funds depending on the amount invested and tenor,
while maintaining your liquidity because of the flexibility
of the scheme.
Hence, STF account guarantees you safety, liquidity
and high yield on the monies you place in the
scheme. Withdrawal is made easy by simply instructing
us in writing to make full or partial payment to you
directly or a specified beneficiary. We can transfer
funds to your banker via NIBSS (Nigerian interbank settlement
system) third party transfer(at NIBSS’ fees).
This gives you almost immediate credit without having
to wait for the usual 4 days cheque clearing. The
current NIBSS charges apply for this facility.
Our efficient delivery and superior service will ensure
that your withdrawals are effected promptly without
compromising the security of your funds.
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CALL DEPOSIT
Funds can be placed on Call Deposit with EDL at competitive
rates. Our rates vary in line with prevailing market
conditions at the point of placing funds, but shall
remain highly competitive. Funds can be recalled by
giving a 24-hour notice on any working day.
FIXED
DEPOSIT
Funds can be placed with EDL at competitive rates for
a fixed period of 30 days, 60 days, or 90 days.
What
is the minimum amount I can invest?
One hundred thousand Naira for call deposits, fixed
deposits and EVA.
Can
I buy shares of quoted companies through you?
Yes. EDL has got a functional asset management unit
which manages investment portfolios on behalf of customers.
We operate our clients’ portfolios either on a
discretionary or advisory basis.
Discretionary
services clients hand over the management of their portfolios
to us with guaranteed minimum annual returns. On the
other hand, advisory asset management services clients
are profiled and issued with arrays of investment opportunities
available in the stock market.
For
these services, we charge a token portfolio management
fee.
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For
how long can I invest my money?
Money can be invested for minimum of 7 days on call
and maximum of 90 days for fixed deposits
Would I be penalized if I terminate
my investment before it matures?
Yes, there is a 2% surcharge for pre – termination
of deposits before maturity.
Do
I have to come to your office to conduct business with
you?
Not necessarily, but most times we find that there is
a need for close contact between account managers and
their clients for that added personal touch to the relationship.
Can
I send money to you from abroad?
Yes, money can be sent to us through international funds
transfer services or through a reliable source from
abroad.
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What
makes Express Discount Limited distinct from other discount
houses?
Our people, products and our values set us apart from
others. Exceeding customers’ expectations is our
priority.
Can
I access my account on-line?
Yes, you definitely can, you need to inform us of your
interest and you’ll be given the relevant access
codes and passwords to enable you do this quickly and
easily through our Express Interactive service.
What
is a Treasury Bill?
A Treasury Bill is a Federal Government short-term debt
instrument, usually issued for up to 91 days. It is
a discountable instrument which means you earn interest
up-front. These are presently the most secure instruments
in the market as they are rediscountable with the CBN,
at any point in time through any authorized dealer (banks
and discount houses). Thus, liquidity is guaranteed
with minimum risk to the purchaser, if he chooses to
sell.
What
are Commercial Papers?
Commercial Papers (CPs) consist of short-term, unsecured
debt obligations in form of promissory notes issued
by well-known companies that are financially strong
and carry high credit ratings. These notes are usually
tenured between 90 and 270 days and the funds raised
are normally used to purchase inventories, pay taxes,
meet payrolls and cover other short term obligations.
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What
are Bankers Acceptances?
A Bankers’ Acceptance (BA) is a commercial bill
of exchange drawn on a bank by a well-known company
usually to finance commercial trade. It is a draft against
a bank ordering the bank to pay some specified amount
at a future date.
What
are Repos?
Repurchase Agreements (Repos) arise when one party sells
a security (money market instrument such as Treasury
Bills) to another party with an agreement to buy it
back at specified time and at a specified price. The
difference between the sale and repurchase price defines
the interest rate.
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How
can I take advantage of opportunities offered by investing
in Treasury Bills?
EDL, due to its relationship with the CBN as a discount
house, offers the following opportunities in Treasury
Bills at highly attractive rates.
Outright
Purchase
These are purchases made with no underlying agreement
to sell back the bills at a future date. Ownership rights
pass on immediately to you. Bills under this investment
could be either from the Primary Market or the Secondary
Market. Physical Bills are obtainable if the purchase
is made via the Primary Market (and bills issued are
for a tenor of 91 days). With the Secondary Market,
you are able to get Short-dated Bills ranging from 1
- 90 days. Bills would be held by EDL in safe-custody
for you under the control of CBN, but a Transfer of
Ownership Letter will be issued by EDL as proof of your
investment.
Possible
Scenarios
-
If you normally have funds which you previously invested
in BA's or CP's for periods ranging from say 30 -
90 days, these funds could now be more securely invested
in Treasury Bills at reasonable rates with EDL.
-
Funds, earmarked for specific projects could be temporarily
invested in short-dated Treasury Bills prior to disbursement.
- Statutory
Requirements
If
your company has a privately managed pension funds scheme,
usually there is a statutory requirement (for year-end
purposes), to hold a certain percentage of its total
investments portfolio in Treasury Bills. EDL is well
positioned to sell these Treasury Bills to you for this
purpose, at highly competitive rates for any period
you may require. Furthermore, we could enter into a
repurchase agreement with you to buy-back such Bills
after your year-end.
Outright
Sale
EDL is in a position to buy Treasury Bills of various
maturities from you at highly attractive rates.
Possible
Scenarios:
-
If you require urgent liquidity and have Treasury
Bill holdings, these could be converted to cash by
selling same to us outright. EDL would also advise
you on which paper to sell (and when) to maximise
your income.
-
You may wish to switch a Treasury Bill currently in
your possession with another bill having a shorter
or longer maturity; in which case EDL buys from you
the Treasury Bill no longer required and sells you
a bill of your desired maturity.
Fixed Repurchase Agreement
These are Bills sold to you with an agreement to repurchase
the bills at a pre-determined future date. This situation
usually arises where you have funds to invest for
a specific period of time. You could also enter into
a fixed buy-back agreement for your statutory requirement.
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How
can Express Discount Limited help me monitor developments
in the financial industry?
Through Express On-Line
( http://www.expresson-line.com
), a service of Express Discount Limited providing information
on Nigeria’s Financial Markets.
Information
on money market rates, CBN auction notices and results,
daily stock market activities and closing prices among
others are made available via the internet.
You
may also subscribe to our mailing lists though which
we send regularly out these information. Click http://www.expdisc.com/listserv.htm
for information on how to subscribe.
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