RBI Window for Primary Dealers

January 5, 2022

The Reserve Bank of India recently provided a new special window for bond houses called “Primary Dealers”. The window allows to exchange illiquid securities. Illiquid securities are those securities that cannot be sold easily or directly. That is, the investors buying the securities can sell them only in limited instances.

What is the new window?

The primary dealers are those dealers who buy securities directly from the government. They then resell the security to the others. Thus, their main role is to assist the government in selling bonds or securities. They earn some fees for selling these securities. The Bond house is the security firm that creates and distributes bonds. Now, these primary dealers have a separate section or window to buy securities from the government. The government securities are debt issuances.

What is the plan?

A special window is to be opened every month for the primary dealers. Though the window, the dealers can switch the illiquid securities obtained through Request for Quotes with liquid securities obtained from RBI.

What are the benefits of the window?

The move encourages the investors to invest in sovereign bonds. And also makes the primary dealers the key players in retail investments. Sovereign Bonds are debt obligations issued by government. It is issued seeking support in government spending. That is, if more number of people are buying a sovereign bond of a project, it means more people have confidence in the success of the project. This increases the share value of the government company executing the project.

Why are Government Securities important?

It gives resources to the government. It is useful in implementing the fiscal policies. Also, the government security provides a collateral. It secures the capital. It provides a fixed income to the investor. The most popular government securities in India are rural development bonds, national defence bonds and gold bonds.

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