|
Para |
Original |
Modified |
|
Preamble |
|
With
a view to streamline trading in the Government securities
and in order to encourage the development of secondary
market, the State Bank considers it expedient and essential
to put in place a Primary Dealer System that commands
the confidence of all the players of financial market.
For this purpose the State Bank has developed criteria,
to be complied with by the financial institutions duly
incorporated in Pakistan under the relevant laws, including
foreign banks authorised to commence /carry on banking
business in Pakistan under Section 27 of BCO 1962, who
are qualified to be appointed as Primary Dealer.
The salient features of the Criteria, obligations and
privileges of the Primary Dealers, and other details
are as under: -
|
With
a view to streamline trading in the Government securities
and in order to encourage the development of secondary
market, the State Bank considers it expedient and essential
to put in place a Primary Dealer System that commands
the confidence of all the players of financial market.
For this purpose the State Bank has developed criteria,
to be complied with by the financial institutions duly
incorporated in Pakistan under the relevant laws, including
foreign banks authorised to commence/carry on banking
business in Pakistan under Section 27 of BCO 1962, as
also companies having Investment Advisory License under
Investment Companies and Investment Advisers Rules 1971,
to qualify for appointment as Primary Dealer. The salient
features of the Criteria, obligations and privileges
of the Primary Dealers, and other details are as under:
-
|
A
1. |
The
applicant for the status of Primary Dealer (PD) must
be a financial institution duly incorporated under the
relevant law including foreign banks authorised
to commence/carry on banking business in Pakistan under
Section 27 of BCO 1962 |
The
applicant for the status of Primary Dealer (PD) must
be a financial institution duly incorporated under the
relevant law including foreign banks authorised to commence/carry
on banking business in Pakistan under Section 27 of
BCO 1962. Companies having Investment Advisory License
under Investment Companies and Investment Advisers Rules
1971 are also eligible to apply.
|
A
2. |
As
a measure of financial stability, the institution applying
for membership must have a minimum paid up capital of
PKR 500 million to be raised to PKR 1000 million by
the end of 2 years from the date of appointment of the
PD. Thus after two years of introduction of Primary
Dealer system, every new applicant shall be required
to have a minimum paid up capital of PKR 1000 million
to become eligible for appointment as PD. |
As
a measure of financial stability, the institution applying
for membership must have a minimum equity (net of provisions
and capitalised losses if any) of PKR 500 million to
be raised to PKR 1000 million by the end of 2 years
from the date of appointment of the PD. Thus after two
years of introduction of Primary Dealer system, every
new applicant shall be required to have a minimum equity
(net of provisions and capitalised losses if any) of
PKR 1000 million to become eligible for appointment
as PD.
|
B
2. |
No
Primary Dealer shall act as interbank broker. |
No
Primary Dealer shall act as interbank broker. The applicant
who are neither commercial banks nor NBFIs, and intends
to seek status of a Primary Dealer, shall have to establish
an independent subsidiary having legal entity with firewalls
to ensure separation of activities of their company
acting as PD and as interbank broker. Further such entity
shall be subject to periodic, special inspection by
State Bank besides being liable to submit reports as
required by SBP from time to time for surveillance
of its PD activities. It is clarified explicitly that
such a company shall have to meet the criteria prescribed
by us for considering its request for appointment as
PD. |
D.1 |
P.Ds
would actively participate in all the auctions of tradable
Government Securities initially confined only to TBs
and Federal Government Bonds with floor and ceiling
of their bids ranging between 10% to 30% respectively
(for T.Bills) of the target amount. The minimum underwriting
target of 10% of each P.D may exceed depending upon
the DTL of the respective P.D. The State Bank would
separately announce an estimated amount to be raised
by Government through auction through T.Bills and Long
Term Paper.
|
P.Ds
would actively participate in all the auctions of tradable
Government Securities initially confined only to TBs
and Long Term Bonds. The State Bank would separately
announce an estimated amount to be raised by Government
through Long Term Paper. |
D.2 |
An
important responsibility of the PD will be to underwrite
the auctions of Government Securities offered by the
State Bank. To avoid any out of market quotes, the bid
price both for T.Bills and long term paper would be
confined to a range of +/- 50 paisa from the one prevailing
on the last working day.
|
An
important responsibility of the PD will be to underwrite
the auctions of Long Term paper offered by the State
Bank. To avoid any out of market quotes, the bid price
both for T.Bills and long term paper would be confined
to a range of +/- 50 paisa from the one prevailing on
the last working day. |
D.6 |
If
a P.D fails to meet his underwriting commitment in respect
of long term paper, fully or partially during the prescribed
period he shall be liable to pay fine of 25 paisa for
Rs 100 of face value for the quantum of delinquency.
His delinquency on this count shall be determined immediately
after the settlement date of the last auction of the
respective fiscal year. The rate of penalty shall be
reviewed after evaluating behaviour of market participants.
The frequent non-compliance for underwriting requirements
by P D may affect renewal of its primary dealership
for next tenure. |
If
a P.D fails to meet its underwriting commitment in respect
of long term paper, fully or partially during the prescribed
period it shall be liable to pay fee of 25 paisa for
Rs 100 of face value for the quantum of delinquency.
Its delinquency on this count shall be determined immediately
after the settlement date of the last auction of the
respective fiscal year. The rate of fee shall be reviewed
after evaluating behaviour of market participants. The
frequent non-compliance for underwriting requirements
by PD may affect renewal of its primary dealership for
next tenure. |
D.11 |
The
P.D will not be allowed to short sell in a particular
issue more than 5% of the total issue amount, even during
the when issued period. |
The
P.D will not be allowed to short sell in a particular
issue more than 5% of the total issue amount, even during
the when issued period. However, short selling
will be allowed only up to announcement date of cut
off results in case of Long Term paper as well as in
M.T.Bills. |