Role of primary dealers, Financial Management

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Role of Primary Dealers

To promote the investment activity in the Government Securities market, several countries have adopted licensed Primary Dealers (PDs) as important intermediaries in the market. The typical responsibilities of PDs are:

  • Meeting the minimum bidding requirements,
  • Giving two-way quotes, and
  • Providing information of the market activity to the central bank etc.

In some instances PDs have special rights to different activities in the money market like primary auctions, or some special facilities in market operations, open market operations, underwriting commission etc. PDs have an important role to play in the development of the secondary market for government securities. The prices of PDs account for all the available information, they trade in the market, and also provide the central bank with the latest market information, and design new instruments, etc. The vital role of PDs in the market requires some regulatory control and the central banks periodically review the performance of PDs and make their operations performance-based. Rating of PDs as established in Poland is a laudable feature.

The RBI designed the system of Satellite Dealers (SDs) from 1996 as a second player in the Government Securities market after the PDs. The specific objective of SDs is to promote retail investments. However, the system could not prove as useful as expected and was eliminated.

 


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