Primary Dealers (PDs) have pitched with the Reserve Bank of India (RBI) to allow them exclusive access to the primary auction of treasury bills (T-bills).
The PDs have taken this stand as collectively all the 18 players are now in a position to put in bids exceeding the notified amount at all the T-bill auctions.
The PDs are seeking exclusive right to bid at all T-bill auctions in lieu of the obligation they are subject to by way of having to put in bids for a percentage of the notified amount at every auction (of either T-bill or dated government securities, and for providing continuous two-way prices (market-making) under all market conditions on the gilts).
The quantum of notified amount at the auctions -- Rs 250 crore at the weekly auction of the 91-day T-bill and Rs 750 crore at the fortnightly auction -- can be easily be subscribed to by a single PD, which can later retail the securities in the secondary market.
Buttressing their argument further, they pointed out that being traders, the PDs' trading position in the gilts market is governed only by their outlook on interest rates but when it comes to banks they additionally have to factor in their statutory liquidity ratio investments and this clouds the latter's outlook.
In the context of the complete phasing-out of PDs from the call money market, exclusive access to the T-bill auctions will come in handy as they (PDs) can place these instruments instead of gilts as collateral for borrowing funds in a repo transaction.
The gilts, unlike T-bills, are subject to good price volatility and if they are placed as collateral in a repo transaction then the PDs will be unable to capitalise on any upswing in prices as the securities are locked up.
According to R V Joshi, chairman of the Primary Dealers Association of India, T-bills worth Rs 30,000 crore will be auctioned this financial year and the 18 PDs with a collective net worth of close to Rs 3,000 crore have the wherewithal to solely subscribe to the T-bills.
In the advanced financial markets, the PDs, which exclusively bid at primary auctions, are the sole intermediaries between the central bank and the investors.
Market information and analysis provided by the PDs help in the formulation and implementation of monetary policy by the central bank.
