Who are Primary Dealers (PDs)?

We are aware that 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 ventures entities incorporated abroad or the companies incorporated in India. These PDs are registered as NBFCs and got 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 which 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 Central Government and State Government and Treasury Bills of 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.

• Dealing and underwriting in Government securities
• Dealing in Interest Rate Derivatives
• Providing broking services in Government securities
• Dealing and underwriting in Corporate / PSU / FI bonds/ debentures
• Lending in Call/ Notice/ Term/ Repo/ CBLO market
• Investment in Commercial Papers
• Investment in Certificates of Deposit,
• Investment in Security Receipts issued by Securitization Companies/ Reconstruction companies, Asset Backed Securities (ABS), Mortgage Backed Securities (MBS),
• Investment in debt mutual funds where entire corpus is invested in debt securities
• Investment / trading in equity and equity derivatives market
• Investment in units of equity oriented mutual funds
• Underwriting public issues of equity
• Professional Clearing Services,
• Portfolio Management Services,
• Issue Management Services
• Merger & Acquisition Advisory Services
• Private Equity Management Services
• Project Appraisal Services
• Loan Syndication Services
• Debt restructuring services
• Consultancy Services
• Distribution of mutual fund unit
• Distribution of insurance products

Facilities available to PDs: Furthermore, to enable PDs to effectively fulfill their obligations, Reserve Bank has currently extended following facilities to them:

• Access to Current Account facility with RBI.
• Access to Subsidiary General Ledger (SGL) Account facility (for Government securities) with the RBI.
• Permission to borrow and lend in the money market including call money market and to trade in all money market instruments.
• Membership 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.

The nonstop growth in deposits by scheduled commercial banks and statutory requirement 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 secondary market trading system has boosted the element of price discovery, enhanced liquidity and also encouraged voluntary holding of government securities amongst a wider investor base.