BB amends liquidity support guidelines for PDs
FE Report | Sunday, 29 June 2008
The central bank has recently amended its guidelines relating to the liquidity support facility provided to primary dealers (PDs).
Under the amended guidelines, the PDs will be provided liquidity support facility against devolved treasury bills and bonds for a maximum period of one month from the date of issue of such securities.
The PDs can avail themselves of the support facility only once in a month, the amendment said.
"We have amended the guidelines to provide liquidity support facility to the PDs aiming to bring dynamism by creating competition amongst them," a senior official of the Bangladesh Bank (BB) told the FE.
The PDs, however, expressed concerned over the amended guidelines, saying that the latest move may create fresh pressures on liquidity position in the banking system.
"We will able to sell such securities within the stipulated timeframe only if there is any demand in the market," a senior treasury official of a PD bank told the FE.
He also said they will have to face liquidity shortfall if the securities remain unsold during the stipulated timeframe.
The central bank has issued a circular in this connection and asked the chief executives of all PDs banks and non-banking financial institutions (NBFIs) to follow the amended guidelines for liquidity support.
Three top performing PDs will be selected on the basis of their success ratio and turnover and they will be entitled to get such facility for a maximum period of two months, according to the amended guidelines.
The amended guidelines have already come into effect," another BB official said, adding that the latest move may help bring dynamism in the country's secondary securities market.
The PDs earlier were allowed to get such support for a period not exceeding one month at a stretch.
"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 BB said in its earlier guideline.
The newly formed Primary Dealers Association of Bangladesh (PDAB) has meantime submitted a letter urging the central bank to provide liquidity support on both success bids and devolved amount of the securities.
The PDAB also requested the BB not to allow the non-PD banks and financial institutions to participate in the primary auction of the government securities.
"The non-PDs will have to buy the securities from the PDs to meet their SLR if they are not allowed to participate in such auctions," the official added.
Earlier, the central bank selected nine PDs - eight banks and a non-banking financial institutions (NBFIs) - 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.
Under the amended guidelines, the PDs will be provided liquidity support facility against devolved treasury bills and bonds for a maximum period of one month from the date of issue of such securities.
The PDs can avail themselves of the support facility only once in a month, the amendment said.
"We have amended the guidelines to provide liquidity support facility to the PDs aiming to bring dynamism by creating competition amongst them," a senior official of the Bangladesh Bank (BB) told the FE.
The PDs, however, expressed concerned over the amended guidelines, saying that the latest move may create fresh pressures on liquidity position in the banking system.
"We will able to sell such securities within the stipulated timeframe only if there is any demand in the market," a senior treasury official of a PD bank told the FE.
He also said they will have to face liquidity shortfall if the securities remain unsold during the stipulated timeframe.
The central bank has issued a circular in this connection and asked the chief executives of all PDs banks and non-banking financial institutions (NBFIs) to follow the amended guidelines for liquidity support.
Three top performing PDs will be selected on the basis of their success ratio and turnover and they will be entitled to get such facility for a maximum period of two months, according to the amended guidelines.
The amended guidelines have already come into effect," another BB official said, adding that the latest move may help bring dynamism in the country's secondary securities market.
The PDs earlier were allowed to get such support for a period not exceeding one month at a stretch.
"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 BB said in its earlier guideline.
The newly formed Primary Dealers Association of Bangladesh (PDAB) has meantime submitted a letter urging the central bank to provide liquidity support on both success bids and devolved amount of the securities.
The PDAB also requested the BB not to allow the non-PD banks and financial institutions to participate in the primary auction of the government securities.
"The non-PDs will have to buy the securities from the PDs to meet their SLR if they are not allowed to participate in such auctions," the official added.
Earlier, the central bank selected nine PDs - eight banks and a non-banking financial institutions (NBFIs) - 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.