We are aware that the Reserve Bank of India issues Government securities on behalf of the Government. Primary Dealers are the licensed dealers who deal in buying and selling these Government securities. There are two types of primary dealers, viz. Standalone Primary Dealers and Bank Primary Dealers.
Standalone Primary Dealers: Most of these PDs are subsidiaries of scheduled commercial banks established as NBFCs. The other standalone PDs are subsidiaries/joint venture entities incorporated abroad or companies incorporated in India. These PDs are registered as NBFCs and got a license from RBI to deal in government securities. Operations of the PDs are subject to prudential and regulatory guidelines issued by RBI from time to time.
Bank Primary Dealers: In addition to standalone PDs, banks that do not have a partly or wholly owned subsidiary may also departmentally undertake PD business with the RBI license. Licenses are issued to banks to departmentally undertake PD business subject to prudential and regulatory guidelines issued by RBI. This type of departmentally undertaken PD business by the banks is known as bank PDs.
Business activities of PDs: As a core business, the Primary Dealers (PDs) deal with the primary issues of dated securities of the Central Government and State Government and Treasury Bills of the Central Government. In addition to their existing business of Government securities, the Stand-alone Primary Dealers (PDs) are permitted to diversify their activities, as considered appropriate. The following activities by standalone PDs are permitted by RBI.
Facilities available to PDs: Furthermore, to enable PDs to effectively fulfill their obligations, the Reserve Bank has currently extended the following facilities to them:
The nonstop growth in deposits by scheduled commercial banks and statutory requirements by institutions like PFs, Trusts, etc. to invest in g-secs envision a definite role to be played by PDs in giving marketability to government securities. Their participation in the secondary market trading system has boosted the element of price discovery, enhanced liquidity, and also encouraged the voluntary holding of government securities amongst a wider investor base. To know more, read ROLE OF PRIMARY DEALERS (PDS) IN INDIA
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