BB plans to give liquidity support to primary dealer banks, NBFI
FE Report | Friday, 1 August 2008
The central bank is planning to provide liquidity support to the primary dealer (PD) banks and a non-banking financial institution (NBFI) against their successful bids alongside the existing devolved securities, officials said.
The Bangladesh Bank (BB) has taken the move primarily to provide adequate liquidity support to the PDs in line with their requirements.
"We're now working on the matter and examining the practices of South Asian countries including India and Sri Lankan on providing such liquidity facilities," a BB senior official told the FE Thursday.
The newly formed Primary Dealers Association of Bangladesh (PDAB) earlier recommended for such a support to meet their liquidity requirements, he added.
Treasury official of the PD banks welcomed the BB's latest move, saying that such liquidity support will help to bring dynamism in the country's secondary securities market.
"We are expecting that the number of successful bids for government-approved securities in the primary auction would increase if the BB provides such liquidity facilities to the PDs," a member of the PDAB told the FE.
Currently, the PDs are receiving liquidity support facility against devolved treasury bills and bonds for a maximum period of one month from the date of issue of such securities from the central bank.
Besides, three top performing PDs out of nine 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, they added.
On the other hand, the central bank increased the acceptance of repo auction bids to 100 per cent Thursday from 75 per cent Wednesday of the four participating PDs to help them maintain their cash reserve requirement (CRR) with BB.
Besides, the central bank provided liquidity support to the PDs on Thursday through 'assured liquidity support' and normal repo auction to meet their liquidity demand against devolved treasury bills and bonds.
"The BB accepted our 100 per cent repo auction bids from earlier 75 per cent that would save us from the penalty of the central bank," a senior treasury official of a PD bank told the FE.
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.
Earlier, the central bank selected nine PDs - eight banks and a non-banking financial institution (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.
The Bangladesh Bank (BB) has taken the move primarily to provide adequate liquidity support to the PDs in line with their requirements.
"We're now working on the matter and examining the practices of South Asian countries including India and Sri Lankan on providing such liquidity facilities," a BB senior official told the FE Thursday.
The newly formed Primary Dealers Association of Bangladesh (PDAB) earlier recommended for such a support to meet their liquidity requirements, he added.
Treasury official of the PD banks welcomed the BB's latest move, saying that such liquidity support will help to bring dynamism in the country's secondary securities market.
"We are expecting that the number of successful bids for government-approved securities in the primary auction would increase if the BB provides such liquidity facilities to the PDs," a member of the PDAB told the FE.
Currently, the PDs are receiving liquidity support facility against devolved treasury bills and bonds for a maximum period of one month from the date of issue of such securities from the central bank.
Besides, three top performing PDs out of nine 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, they added.
On the other hand, the central bank increased the acceptance of repo auction bids to 100 per cent Thursday from 75 per cent Wednesday of the four participating PDs to help them maintain their cash reserve requirement (CRR) with BB.
Besides, the central bank provided liquidity support to the PDs on Thursday through 'assured liquidity support' and normal repo auction to meet their liquidity demand against devolved treasury bills and bonds.
"The BB accepted our 100 per cent repo auction bids from earlier 75 per cent that would save us from the penalty of the central bank," a senior treasury official of a PD bank told the FE.
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.
Earlier, the central bank selected nine PDs - eight banks and a non-banking financial institution (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.