Primary Dealer

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Definition: Primary Dealer

A Primary Dealer is a firm/financial institution that buys Government Securities from the government directly and resells them to others. Thus, it acts as a “MARKET MAKER” of government securities. The Primary Dealers are regulated by the Government.

Primary Dealers have an active role in the Government Securities Market’s primary and secondary segments. Primary Dealers are required to collect authorization letter from RBI to function as Primary Dealers.RBI also has the right to cancel the Primary Dealership,

Following are the roles performed:

• Auction T-Bills for specified percentage and commits to aggregative bid for the Government dated securities on an annual basis of a threshold amount.

• Achieve a success ratio of minimum 40% for dated securities and 40% for T-Bills.

• Underwrite Dated Government Securities.

• Maintain a constant certain capital standard.

• Achieve a sizeable portfolio in Government Securities in the first year.

• Shall have efficient internal control system for fair conduct of business and maintenance of accounts.

• Provide access to the central bank to all records, books, information and documents as required.

• Submit Periodic returns as prescribed by the central bank and follow regulatory guidelines issued by the central bank.

Example: ICICI Securities Primary Dealership, Nomura Fixed Income Securities are the standalone primary dealers, whereas Bank of America is an example of a bank primary dealer.

Hence, this concludes the definition of Primary Dealer along with its overview.

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