The State Bank of Pakistan (SBP) has announced a new set of criteria including a benchmark paid-up capital of Rs500 million (Approx US$100 million) for the banks desiring to act as primary dealers of the SBP.

The newly-created Exchange and Debt Management Department of the SBP said in its first ever circular that Primary Dealers (PD) would need to raise their paid-up capital to one billion rupees by end of two years after their selection. The department has invited applications for PDs within 30 days.

An SBP circular (EDMD no. 1) issued to all banks and non-bank financial institutions said that local banks and financial institutions as well as foreign banks operating in Pakistan could apply for primary dealership of the SBP.

The circular said the new set of criteria for PDs is being put into place for streamlining trading in the government securities and development of secondary market.

The following constitute new selection criteria for primary dealers or PDs.

(i) Treasury operations of PDs have to be fully computerized and run by qualified professionals with a minimum of five-year experience.

(ii) Primary dealers would actively contribute in keeping the market liquid by their commitment to both primary and secondary markets. To win the status of PD the applicant has to be a price maker quoting two-way prices reflective of market sentiment and keeping trading window open throughout the day. This should be coupled with active trading in all major money market products.

(iii) While considering applications for primary dealers the SBP would initially give due consideration to the applicant's level of participation in the auctions for last six months. Afterwards participation in secondary market would also become a criterion.The SBP circular says PD licences would be issued for one year renewable every financial year. It says no primary dealer shall act as inter-bank broker. The circular says the SBP will serve a PD with a show cause notice if it is found involved in activities not worthy of PD status. In case the explanation offered by the PD is found unsatisfactory his dealership shall be cancelled with a 30-day notice.

The circular says only PDs would be eligible to participate in the auctions of government securities.

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