RBI expands scope of standalone PDs, allows them to offer more FX facilities

BL Mumbai Bureau | | Updated on: Aug 06, 2022


The move will help strengthen role of standalone PDs, bring them on par with banks

The Reserve Bank of India, on Friday, expanded the scope of activities of primary dealers, allowing them to participate in more foreign exchange-related business activities.

Standalone primary dealers will now be able to offer all foreign exchange market-making facilities that only category-I authorised dealers are permitted to undertake.

The move will help strengthen the role of standalone primary dealers as market makers, and bring them on par with banks operating primary dealer business, according to the RBI’s ‘Statement on Developmental and Regulatory Policies’, released alongside the monetary policy statement today.

It will also give foreign exchange customers a broader spectrum of market-makers in managing their currency risk, thereby adding breadth to the forex market in India.

“Wider market presence would improve the ability of SPDs to provide support to the primary issuance and secondary market activities in government securities, which would continue to be the major focus of primary dealer activities,” RBI said.

At present, there are seven standalone and 14 bank primary dealers in India.

Offshore Foreign Currency Settled Overnight Indexed Swap Market

The central bank today also permitted standalone primary dealers to undertake foreign currency settled overnight indexed swap (FCS-OIS) transactions, directly with non-residents and other market-makers.

The RBI had, in February, allowed banks to undertake transactions in the offshore Foreign Currency Settled Overnight Indexed Swap (FCS-OIS) market with the aim of removing the segmentation between onshore and offshore OIS markets, and improving the efficiency of price discovery.

The permission has now been extended to standalone primary dealers as they are market-makers in the onshore OIS market, like banks, the RBI said.

The central bank will “shortly” issue necessary and final regulations with respect to both the announcement separately, it added.

Published on August 05, 2022
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