PRIMARY DEALER

Presented by, Siju P

Oommen Syed

Faheem

PRIMARY DEALER

A primary dealer is a firm that buys government

securities directly from a government.

The intention is to resell the securities to others.

Act as a market maker of government securities.

The government may regulate the behavior and

numbers of its primary dealers and impose

conditions of entry.

Continued…Some governments sell their securities only

to primary dealers.

Governments that use primary dealers

include Canada, France, Italy, Spain, the

United Kingdom, and the United States

History

The current system of primary dealers was set up in

1960 with 18 dealers.

The number of primary dealers grew to 46 in 1988,

declined to 21 by 2007 and stands at 21 in October

2011.

The most recent additions to the list of primary dealers

were Bank of Nova Scotia, New York Agency and BMO

Capital Markets Corp., both named on October 4, 2011.

List of Primary Dealers in Government Securities Market (As on December 10, 2013)

STANDALONE PRIMARY DEALERS

Deutsche Securities (India) Pvt. Ltd

ICICI Securities Primary Dealership Nomura Fixed

Income Securities Pvt. Ltd.

PNB Gilts Ltd.

SBI DFHI Ltd

Limited Morgan Stanley India Primary Dealer Pvt.

Ltd.

STCI Primary Dealer Limited.

List of Primary Dealers in Government Securities Market (As on December 10, 2013)

BANK PRIMARY DEALERS

Bank of AmericaBank Of BarodaCanara BankCitibank N.ACorporation BankHDFC Bank Ltd.Hongkong and Shanghai Banking Corpn. Ltd.(HSBC)J P Morgan Chase Bank N.A, Mumbai BranchStandard Chartered BankAxis Bank Ltd.IDBI Bank LimitedKotak Mahindra Bank Ltd.

Primary Dealership SystemIn 1995, the Reserve Bank of India (RBI) introduced the

system of Primary Dealers (PDs) in the Government Securities Market which comprised independent entities undertaking Primary Dealer activity.

In order to broad base the Primary Dealership system, banks were permitted to undertake Primary Dealership business departmentally in 2006-07.

Further, the standalone PDs were permitted to diversify into business activities, other than the core PD business, in 2006-07, subject to certain conditions. 

As on June 30, 2009, there are six standalone PDs and eleven banks authorized to undertake PD business departmentally.

The objectives of Primary Dealer SystemTo strengthen the infrastructure in the government

securities market in order to make it vibrant, liquid and broad based.

To ensure development of underwriting and market making capabilities for government securities outside the RBI so that the latter will gradually shed these functions.

To improve secondary market trading system, which would contribute to price discovery, enhance liquidity and turnover and encourage voluntary holding of government securities amongst a wider investor base.

To make PDs an effective conduit for conducting open market operations (OMO).

Roles and Obligations of PDsPDs are required to support the primary

markets like support auctions for issue of Government dated securities and Treasury Bills as per the minimum norms for underwriting commitment, bidding commitment and success ratio as prescribed by RBI from time to time.

PDs should offer two-way prices in Government securities, through the Negotiated Dealing System-Order Matching (NDS-OM), over-the-counter market and recognized Stock Exchanges in India and take principal positions in the secondary market for Government securities.

Continued…PDs should maintain adequate physical

infrastructure and skilled manpower for efficient

participation in primary issues, trading in the

secondary market, and to advise and educate

investors.

A Primary Dealer shall have an efficient internal

control system for fair conduct of business,

settlement of trades and maintenance of accounts.

Continued…A Primary Dealer will provide access to RBI to

all records, books, information and documents

as and when required.

PDs’ investment in Government Securities and

Treasury Bills on a daily basis should be at least

equal to its net call/notice/repo (including CBLO)

borrowing plus net RBI borrowing (through LAF/

Intra-Day Liquidity/ Liquidity Support) plus the

minimum prescribed NOF.

Continued…PDs should annually achieve a minimum turnover

ratio of 5 times for Government dated securities and 10 times for Treasury Bills of the average month-end stocks. The turnover ratio in respect of outright transactions should not be less than 3 times in government dated securities and 6 times in Treasury Bills (Turnover ratio is computed as the ratio of total purchase and sales during the year in the secondary market to average month-end stocks).

A PD should submit periodic returns as prescribed by RBI from time to time.

PDs’ operations are subject to prudential and regulatory guidelines issued by RBI from time to time.

Facilities from RBI to Primary Dealers

The Reserve Bank currently extends the following

facilities to PDs to enable them to effectively fulfill

their obligations:

Access to Current Account facility with RBI.

Access to Subsidiary General Ledger (SGL) Account

facility (for Government securities) with RBI.

Permission to borrow and lend in the money market

including call money market and to trade in all money

market instruments.

Continued…Memberships of electronic dealing, trading and

settlement systems (NDS

platforms/INFINET/RTGS/CCIL).

Access to the Liquidity Adjustment Facility (LAF) of

RBI.

Access to liquidity support from RBI under a scheme

separately notified for standalone PDs.

Favoured access to open market operations by

Reserve Bank of India.

THANK YOU