KARACHI, July 3: The State Bank of Pakistan (SBP) has changed the selection criteria for primary dealers (PDs) and placed new conditions of marketing for the development of debt market in Pakistan.
The State Bank announced on Tuesday it has amended certain rules governing the primary dealers system to streamline and further strengthen this system.
According to the amendments, all banks and DFIs interested in primary dealer status would have to ensure that their charges on Investor Portfolio Securities (IPS) accounts are reasonable and in line with SBP’s objective to broader the investor base of government securities.
The primary dealers have been instructed to provide efficient IPS account related services to customers.
The primary dealers will be eligible to claim commission at the rate of 10 paisa per Rs100 for all accepted Non-Com-petitive Bids (NCBs) of individuals, employee provident, pension funds and corporate except Asset Management Companies (AMCs), Mutual Funds, Insurance, Mudarba, Leasing companies in Market Treasury Bill (MTB) and Pakistan Investment Bond (PIB) auctions.
“A maximum limit of Rs250 million is placed for submitting NCB by any one investor in any one tenor of PIB or MTB auction,” said the SBP.
As a measure of financial stability, the banks or DFIs applying for primary dealership must have met the minimum paid-up capital requirement of State Bank as of last financial year end.
All other applicants should have minimum equity (net of provisions and capitalised losses if any) of Rs1000 million, said the SBP.
Each new applicant would be evaluated in the light of the selection criteria. However, performance of existing primary dealers would be measured against performance benchmarks defined in these rules.
The SBP said that primary dealers are required to actively participate in the primary market by bidding in the auctions of government securities as conducted by State Bank from time to time; distribute government securities to non-PD banks and other retail or institutional clients, said the SBP.
It further asked the primary dealers to play an active role in secondary market development to enhance liquidity and turnover, and to widen the investor base of government securities by creating awareness among investors.
It asked them to act as a market maker in government securities by quoting two-way prices in the market.
The SBP said each primary dealer’s turnover in secondary market should be minimum five per cent of overall market turnover (for PIBs and MTBs separately during the year).
And they should be required to ensure compliance of minimum underwriting target of 3.5 per cent to be applied on the pre-auction target or the issued amount, whichever is lower, for respective tenors of PIBs (July-June).
Each primary dealer should short-sell a minimum of 1 per cent of auction target of long term paper during a year and they should bring a minimum of five per cent of the NCB target of MTBs and PIBs during a fiscal year, the SBP said.