S.L. 575.4 Art. 13Switch auctions, reverse auctions and conversions.

(1) In terms of articles 33 and 34 of the Act, on the

Minister’s authorisation, the Accountant General shall make such arrangements as may be necessary to buyback existing stock or create and issue such amount of Malta Government Stock(s) issued under these regulations in exchange for an existing stock(s) for the purpose of:

(a) conducting buyback operations; or

(b) redeeming Malta Government Stock(s) earlier than the established maturity date in full or in part by exchanging an existing stock(s) subject to any contrary provisions in the respective prospectus.

(2) To this effect, the Accountant General may at his discretion use forms of auctions such as switch auctions and reverse auctions and conversions on fixed price terms. Plans to use these debt management tools are likely to be set out in, or in conjunction with, the annual issuance plans or its updates and are carried out under the provisions of article 32 of the Act.

(3) Switch auctions are designed to allow the exchange (switching) at market prices of a proportion of one or more Malta Government Stock(s) (source Stock) normally near maturity for another new or fungible Stock(s) engaging a process whereby an amount of the source Stock(s) is retired and cancelled and an additional amount of the destination Stock(s) is created. Under this operation the Accountant General makes an offer to exchange a pre-announced amount of one or more Stocks with one or more Malta Government Stock(s).

(4) Switch auctions and conversions may be employed to pursue a wide variety of objectives, including:

(a) to enable decreasing the refinancing and interest rate risk;

(b) to allow the Treasury to smooth the Malta Government Stock redemption profile;

(c) to maintain a supply of benchmark Malta Government Stock in a low issuance environment;

(d) to enhance liquidity; and

(e) to offer an opportunity to investors to restructure their portfolio in an efficient manner.

(5) The bidding mechanics of a switch auction are similar to those of regular auctions, inter alia in terms of issuance announcements, bid denominations and publication of results.

(6) The Treasury shall fix the clean price of the source Stock in close proximity of the bidding deadline. The bidders shall submit their bids in terms of the nominal amount of the source Malta Government Stock which they are willing to exchange and the clean price at which they are willing to buy the destination Malta Government Stock.

(7) Switch auctions are cash neutral operations, hence successful bidders shall be allocated nominal amounts of the destination stock calculated as the ratio of the dirty prices of the two Malta Government Stocks (source and destination), as stipulated in the offering circular.

(8) Before accepting any bids, the Accountant General shall take into account the fair value in the market and shall reserve the right to reject any bids which he judges to be at an excessive discount. The Accountant General reserves the right to exchange less than the amount on issue of Malta Government Stock offered for exchange in any auction as well as disallow any application or part thereof for any reason whatsoever.

(9) The published results of a switch auction shall include, where applicable:

(a) details of the highest, average and lowest accepted prices of the destination stock and the dirty price ratios relating to these prices;

(b) the nominal amounts of the source stock offered and that accepted;

(c) the nominal quantity of the destination stock newly created;

(d) the new amounts outstanding of the source and destination stock following the allocation and the ratio of bids received to the amount on offer (the ‘cover ratio’).

(10) Reverse auction is designed to allow the Accountant General to buy-in rather than sell Malta Government Stocks. Under this operation the Accountant General shall make an offer to buy back pre-announced amounts of one or more Malta Government Stocks which are then subsequently cancelled.

(11) The mechanics of a reverse auction are similar to those of regular auctions, in terms of, inter alia, announcements of the issuance, denominations of the bids and results. Reverse auctions are held and offered on a competitive multiple price basis where bidders submit offers to sell a Malta Government Stock to the Treasury. The competitive offers are accepted in ascending order in terms of price and the stocks will be purchased from bidders whose bids are at or below the highest price accepted at which the Accountant General decides that any competitive bid should be accepted. As with regular auctions, before accepting any offers, the Accountant General shall be mindful of fair value in the market, and shall reserve the right to reject any offers which he judges to be at an excessive premium.

(12) Occasionally, the Accountant General may announce a conversion offer at fixed price terms targeted at retail investors. Conversion offers are designed to allow the exchange (conversion) of a proportion or the full amount of Malta Government Stock (source Stock) normally on maturity or near maturity for another new or fungible Stock engaging a process whereby an amount or the full amount of the source Stock is retired and cancelled, and an additional amount of the destination stock is created. Under this operation, the Accountant General makes an offer to exchange a pre-announced amount of one Stock with another Malta Government Stock(s) at a pre-announced fixed price. Existing holders have until the pre-announced prescribed time on the closing date to notify the Accountant General of their intention to assent to the conversion. Notice of assent once given is irrevocable after the closing date and time.