PDs facing liquidity problem for complying with rules on dev

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Siddique Islam
Primary dealers (PDs) are facing liquidity problem for complying with the existing rules on devolvement relating to government-approved securities.
If the non-PD banks and non-banking financial institutions (NBFIs) do not participate in the auctions of the government securities, then the PDs have to devolve the total amount in line with the existing guidelines.
Under the guidelines, each of the bank and non-bank PD will underwrite a minimum of 12 per cent and 4.0 per cent of the auction amount respectively for fiscal year 2007-08 until further notice.
A total of Tk 2.06 billion was devolved by each bank PD from July 2 to July 18 last for different government approved securities to comply with the guidelines, market operator sources said.
Currently, the non-PD banks and NBFIs prefer participating in the auctions for the Bangladesh Bank Bills for the reason of higher interest rates on such bills compared to the government approved securities.
The interest rate on 28-day Treasury bill is offered at 7.33 per cent while the 30-day Bangladesh Bank Bill is quoted at 7.40 per cent, the sources confirmed.
Currently, four treasury bills (T-bills) are being transacted through auctions to adjust the government borrowing from the banking system.
The T-bills have 28-day, 91-day, 182-day and 364-day maturity periods.
Besides, two categories of the Bangladesh Bank Bills are being used as tools to implement its monetary policy.
The weighted average yield on 30-day Bangladesh Bank Bill increased marginally to 7.39 per cent in June last compared to 7.38 per cent in May, 2007.
However, the weighted average yield on 91-day Bangladesh Bank Bill remained at 7.60 per cent in June, 2007, unchanged from the level in May, according to the central bank statistics.
The Bangladesh Bank (BB) earlier selected nine PDs - eight banks and one non-banking financial institution (NBFI) - to handle government-approved securities.
All PDs recently met at a state-owned commercial bank to review the overall situation and took a decision to form an association of their own for negotiation on some crucial issues with the central bank, the sources added.
The meeting decided that the chief executives of the PDs will take up some issues, including devolvement, with the BB for resolution.
"Of the total devolved amount 50 per cent should be borne by the central bank for our survival," a PD, who attended the meeting, told the FE Saturday.
He also said the 91-day and 28-day treasury bills underwriting obligation and subsequent devolvement is high, which is needed to be reduced.
The central bank has already amended the guidelines for PDs allowing commission and liquidity support to activate the country's secondary bonds market.
The PDs will subscribe and underwrite primary issues and make secondary trading deals with two-way price quotations.
A PD will not short-sell any particular issue and will not hold a short position in secondary dealings. The PDs will not act as inter-bank or inter-dealer brokers as specified in the guideline.