A Primary Dealer (PD) is an entity authorized by the Reserve Bank of India (RBI) to participate in the Government Securities (G-Sec) market. Subject to fulfillment of the stipulated eligibility criteria, subsidiaries of All-India Financial Institutions (AIFI) & scheduled commercial banks, joint ventures and/or subsidiaries established in India by foreign bodies, companies incorporated under the Companies Act, 1956 and applicant banks (not having a subsidiary that is a PD) desiring to carry out the activities of a PD can approach RBI for registration as PD.
Expectations from Primary Dealer
- To bid for the notified minimum of dated securities of Government of India and specified percentage in treasury bill (T-bill) auctions;
- Achieve a strike rate of not less than 40% of its bids for dated securities and T-bills;
- Mandatorily underwrite its allotted share of dated G-Secs. Additional bids for underwriting must be equivalent to at least its share of mandatory underwriting but should not exceed 30% of the notified additional amount to be underwritten;
- Every year, every PD must agree to bid for a fixed percentage of T-bills at each T-bill auction. The fixed percentage is the minimum commitment and the PD may bid for higher amounts;
- Deal in the secondary markets for G-Secs by offering two-way quotes
What is a Goverment Securities market? A primary dealer is just an entity or an institution? What are treasury bill auctions? What exactly is the work of P.D.? What is he responsible for? A very new term and too technical for my understanding.
The state government is issuing financial instruments such as treasury bills in order to overcome some financial budget insufficiencies and appointed primary dealers are obliged to bid for them and afterwards, introduce them to the secondary market. Hopefully, I understood correctly. Basically, the primary dealers have a lot to do with gaining some financial assets for the state?