The State Bank of Pakistan (SBP) has invited applications from eligible institutions for appointment of Primary Dealers for investment bond and market treasury bills.
In this regard ,they have decided to introduce two additional categories of dealers, in addition to the full-fledge Primary Dealers, under the Primary Dealers System of marketable Government Securities. There shall be three categories of Primary Dealership, namely:
- Primary Dealers (“PDs”)
- Preliminary Primary Dealers (“PPDs”)
- Special Purpose Primary Dealers (“SPDs”)
The procedure is to select PDs for Pakistan Investment Bonds and Market Treasury Bills, for the fiscal year 2021-22, under the terms of rule C-1 of Rules Governing Primary Dealer System.
A circular issued by the SBP detailed the selection criteria, process thereof, privileges, obligations, and performance criteria for each category of the dealership, along with main PD rules.
According to the central bank, a business plan, approved by the Asset-Liability Committees (ALCOs), is also required in the case of banks and DFIs, and a plan approved by the Board of Directors (BoD), in case of all other eligible institutions.
Applicants are also required to submit the latest audited annual financial report or statement and the latest schedule of business charges relevant to dealership activity.
Applicants other than banks and DFIs will also share the detail of the processes, mechanisms, and systems in place for the timely and seamless processing, clearing, and settlement of transactions related to the Dealers activity, including primary auctions.
Each new applicant will be evaluated in the light of the selection criteria. However, performance of existing Dealers shall be measured against performance benchmarks and the performance against the targets set by the respective Dealer in their business plans of the preceding year.
At the time of scrutinizing the application for PD/PPD/SPD status, SBP may require on-site inspection/audit teams to assess compliance of requirements mentioned in the selection criteria.
Applicants selected as per the criteria shall be informed by SBP, through a letter for its appointment as a PD/PPD/SPD for a period of one fiscal year. However, SBP may also grant an applicant provisional/conditional status of a PD/PPD/SPD subject to periodic performance review. Further, the PD/PPD/SPD selected for a given fiscal year shall continue to serve as such until the new list of Dealers is issued by the SBP for the subsequent fiscal year.
SBP shall also inform the market about the appointment of PDs/PPDs/SPDs for the next fiscal year prior to their formal functioning as a PD/PPD/SPD. Appointment of a Dealer would be the sole discretion of SBP.
Non-compliance or circumvention of the Rules governing Primary Dealers system may lead to cancellation of PD/PPD/SPD status, rejection of PD/PPD/SPD application for subsequent years, withdrawal of any of the privileges offered to PDs/PPDs/SPDs, and/or demotion into a lower category of Dealership according to the SBP rules and regulations.
Each new applicant will be evaluated in the light of the selection criteria. However, performance of existing Dealers shall be measured against performance benchmarks and the performance against the targets set by the respective Dealer in their business plans of the preceding year.
The performances of PDs, PPDs and SPDs shall be evaluated by SBP in accordance with their respective Performance Evaluation Criteria.
Depending upon their Dealership status, PDs, PPDs and SPDs shall comply with certain obligations to ensure adequate performance of their respective roles. These obligations include mandatory participation in each auction, minimum underwriting commitment, quoting two-way prices as per the defined maximum bid-ask spreads and lot-sizes, among others.
In this regard, SBP shall announce top performing PDs and PPDs vide a Circular on annual basis. SBP may also communicate relative performances of each PD, PPD and SPD on individual performance benchmarks to the respective Dealer.
Detail of Investor Portfolio of Securities (IPS) Accounts as of 21-May-2021 will also be required along with the application.
