Master Direction – Operational Guidelines for Primary Dealers (Updated as on November 22, 2018)
UR
- Applies toAll regulated entities
- StatusIn force
- IssuedJul 01, 2016
- Amendmentsnone tracked
- Length47 points in 3 sections · 5 min read
The four dates on this rule
- PublishedJul 01, 2016The day RBI put this document out. This is the same day as the Issued date on this rule.
- Starts to applyNot statedNot stated separately in this document. Read the rule itself before you assume a start date.
- Time to get readyNot statedCannot be worked out until the day it starts to apply is known.
- Last date to actNot statedNo date to act by was found in this document. Other dates may sit inside single paragraphs.
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45 of the 47 points name no product and bind every product. All products.
Numbers to remember
| Rs.150 crore | Applying as a standalone PD needs Rs.150 crore of its own funds for core work, Rs.250 crore for wider work. RBI Para 1 |
| 15 per cent | A firm applying to be a PD must show G-Sec business worth 15 per cent of its total turnover. RBI Para 1 |
| Rs. 1,000 crore | A bank must hold at least Rs. 1,000 crore of its own funds to run PD business itself. RBI Para 1 |
| 9 per cent | A bank's capital ratio must be at least 9 per cent before it can apply. RBI Para 1 |
| 3 per cent | A bank's bad loans must stay under 3 per cent, with three years of profit. RBI Para 1 |
| three years | A PD must renew its written agreement and authorisation with RBI every three years. RBI Para 1 |
| 50 percent | PDs must jointly guarantee at least 50 percent of each government bond sale. RBI Para 2 |
| 30 per cent | One PD cannot bid for more than 30 per cent of a central government bond auction. RBI Para 2 |
| 4 per cent | Winning 4 per cent or more of an auction earns a PD a higher commission rate. RBI Para 2 |
| 100 per cent | RBI can accept up to 100 per cent of underwriting bids, or reject every bid, without giving a reason. RBI Para 2 |
| 40 percent | A PD must win at least 40 percent of its T-Bill bidding commitment. RBI Para 2 |
| 90 days | A PD must repay RBI's liquidity support within 90 days. RBI Para 4 |
| 5 percent | Repaying late costs a PD the Bank rate plus 5 percentage points extra. RBI Para 4 |
| Rs.100 crore | A bank-PD must always set aside at least Rs.100 crore of bonds for its PD business. RBI Section II Para 4 |
What it says
How firm is each point
Stated by RBI — RBI’s own paragraph says this. We have only made it plainer.
Our reading — BankPulse read RBI’s paragraph and shortened it. The paragraph is the authority, not this line.
Needs judgement — RBI leaves this to the bank to settle, so nobody can give you a fixed number here.
Can be read two ways
A point marked this way sits on an RBI paragraph that can honestly be read two ways. Our own sentence takes one of the two. BankPulse does not choose for you: read RBI’s own paragraph, at the number printed on the point, before you act on it.
Two ways — both, or either one. RBI’s paragraph joins two things in the and-or form. One reading: Both of them apply, together. The other: Either one of them, on its own, is enough.
Must know
1. Standalone PD Minimum Funds
Applying as a standalone PD needs Rs.150 crore of its own funds for core work, Rs.250 crore for wider work.
2. One Year Turnover Test
A firm applying to be a PD must show G-Sec business worth 15 per cent of its total turnover.
3. Bank Doing PD Needs More
A bank must hold at least Rs. 1,000 crore of its own funds to run PD business itself.
4. Bank CRAR Must Be 9pc
A bank's capital ratio must be at least 9 per cent before it can apply.
5. Bank Bad Loans Below 3pc
A bank's bad loans must stay under 3 per cent, with three years of profit.
6. No Recent Legal Trouble
An applicant is refused if it faced litigation or a regulator's action in the last year.
7. No Side Subsidiaries
A PD cannot set up a subsidiary of its own subsidiary.
8. Three-Year RBI Agreement
A PD must renew its written agreement and authorisation with RBI every three years.
9. RBI Can Inspect PDs
RBI can inspect a PD's books, records and accounts at any time.
10. Half The Issue Guaranteed
PDs must jointly guarantee at least 50 percent of each government bond sale.
11. Bid Cap Thirty Percent
One PD cannot bid for more than 30 per cent of a central government bond auction.
12. Winning Auction Share Earns More
Winning 4 per cent or more of an auction earns a PD a higher commission rate.
13. Full-Amount Rejection Power
RBI can accept up to 100 per cent of underwriting bids, or reject every bid, without giving a reason.
14. State Bond Bid Cap
For a state government bond sale, one PD can underwrite up to 30 per cent of it.
15. Forty Percent Success Ratio
A PD must win at least 40 percent of its T-Bill bidding commitment.
16. Turnover Ratio Five Times
Each year a PD must trade at least 5 times its bond holdings and 10 times its T-Bill holdings.
17. Ninety-Day Loan Repayment
A PD must repay RBI's liquidity support within 90 days.
18. Late Repayment Penalty
Repaying late costs a PD the Bank rate plus 5 percentage points extra.
19. Half Of Money In Bonds
A standalone PD must always keep at least 50 per cent of its money in government bonds.
20. No Swapping The Counterparty
Once a bond deal is done, a broker cannot swap in a different counterparty.
21. Hundred Percent Audit Coverage
Every PD trade must be audited, and the results shown to its CEO every month.
22. SGL Form Cannot Bounce
A PD's own transfer form must never bounce for lack of balance in its account.
23. No Bank Receipts
A PD cannot issue or accept a bank receipt for any government bond deal.
24. No Trading With Client Funds
A PD cannot use a client's own money or assets to trade for itself.
25. Violations Bring Penal Action
Breaking these rules can cost a PD its liquidity support or its authorisation to trade.
26. Penalties Made Public
RBI publishes every penalty it gives to a PD.
27. RBI Can End A PD
RBI can suspend or end a PD's authorisation for good cause.
28. Exit Announced Publicly
RBI announces any PD suspension or shutdown through a press release.
29. No Separate Liquidity Line
A bank-PD does not get RBI's separate liquidity support line that a standalone PD gets.
30. Minimum Rs.100 Crore Ring-Fenced
A bank-PD must always set aside at least Rs.100 crore of bonds for its PD business.
31. RBI Can Change Rules Anytime
RBI can amend or change these guidelines whenever it thinks this is necessary.
Do it
1. PDs Must File Returns
A PD must send RBI the returns it requires, on the set schedule.
2. Give RBI Full Access
A PD must give RBI's officers full access and help whenever asked.
3. Report Big Complaints Fast
A PD must tell RBI at once about any big complaint or regulator action against it.
4. Join PD Trade Bodies
A PD should join PDAI and FIMMDA and follow the code of conduct they set.
5. Fund Auctions By 3pm
A PD must have enough funds in its RBI account by 3 pm on settlement day.
6. Hold Bonds Through SGL
A PD must hold its government bonds through RBI's own SGL account system.
7. HTM Transfers Once A Quarter
A PD can move bonds in or out of its HTM book only once a quarter.
8. Board Audit Panel Quarterly
A PD's Board audit committee must meet at least once every three months.
9. Monthly Balance Check
A PD must match its bond records against RBI's own records at least every month.
10. Report SGL Failures At Once
A PD must report any failed bond settlement to RBI's debt office right away.
11. RBI Hears PD First
Before sanctioning a PD, RBI must let it give its own side first.
12. Full Audit Of Bank-PD Trades
A bank-PD must put all of its PD trades and returns through concurrent audit.
13. Quarterly Auditor Certificate
A bank-PD's auditor must send this balance certificate to RBI every quarter.
14. Bank-PDs Must Report Promptly
A bank-PD must send RBI its required periodic returns promptly.
Background
1. Two Kinds Of PD
A Primary Dealer is either its own standalone firm or a bank doing the work itself.
2. Same Rules, Different Route
A bank doing PD business itself follows the same rules as a standalone PD, unless stated otherwise.