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| Sunday, 10 February 2002 |
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| News Business Features Editorial
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Commercial banks permitted to act as primary dealers The Central Bank has permitted Licensed Commercial Banks to deal in government securities from February 1, thereby allowing them to act as primary dealers. According to a release issued by the Central Bank, licensed commercial banks appointed as primary dealers are required to create and maintain a special reserve known as the Primary Dealer Special Reserve (PDSR). The minimum amount of the PDSR stipulated by the Central Bank is Rs 150 million and will be used to meet obligations arising from primary dealer operations. Licensed commercial banks are required to conduct their primary dealer business in a separate unit and maintain separate books of accounts in respect of such activities. The operations will be monitored and supervised by the Central Bank, subject to prudential requirements relating to primary dealers. Under the new system, licensed commercial banks and independent primary dealers will have exclusive access to bid at the primary auctions for Treasury Bills and Treasury Bonds conducted by the Central Bank and trade in these securities in their own account and on behalf of customers. The release further says that all primary dealers are required to develop an efficient secondary market in government securities by being "market makers." This is done by quoting firm buying and selling prices for government securities and by trading in all market conditions, thereby providing market liquidity. |
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