Primary dealers of secondary bonds to get commission, liquidity support

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FE Report
The Bangladesh Bank (BB) has amended the guidelines for primary dealers (PDs) allowing commission and liquidity support to activate the country's secondary bonds market, official sources said.
Under the amended guidelines, each of the bank and non-bank PDs 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.
"PDs will be paid underwriting commission at a rate as may be determined by the government from time to time," the central bank said in its amended guidelines, issued recently.
Besides, the PDs will be eligible to avail themselves of normal liquidity support from the central bank in the form of repurchased agreements (repos). Only the marketable government approved securities will be the eligible collateral for this purpose.
"A PD can avail itself of assured normal liquidity support for an amount not exceeding the amount of treasury bills and Bangladesh government treasury bonds (BGTBs) devolved on the PD in primary auctions after adjustment of the devolved amount for the shortfall in statutory liquidity requirement (SLR) and minimum stock, if any, for a period not exceeding one month at a stretch," the guidelines added.
The rate of interest will be either Tk 2.00 (200 basis points) over the reverse repo rate or prevailing repo rate whichever is lower, it noted.
"We have amended the guidelines with the objective of activating the country's secondary bond market through strengthening function of the PDs," a BB senior official told the FE Wednesday.
He also said the central bank has informed the PDs of their obligations and privileges involving the trading in government approved securities through amending the guidelines.
The PDs, however, urged the central bank to review the guidelines with extension the period of liquidity support for more than one month to ensure investment in long-term securities.
"We want extension the period of liquidity support with Tk 1.00 (100 basis points) over the reverse repo rate," a PD told the FE Wednesday.
He also said the authorities concerned should take measures to attract long-term investments like pension and provident funds to bring dynamism in the bond market.
Earlier, the central bank selected nine PDs - eight banks and a non-banking financial institution (NBFI) - to handle government-approved securities in the secondary bond market and issued a guideline for them.
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.