2010年-世界发展银行全球_Primary_Dealer_Systems___Draft_Background_Note_48页_1mb

Gemloc Advisory Services: Primary Dealer Systems Background Note Summary

Core Content

This document outlines the design, implementation, and management of primary dealer (PD) systems as part of the Gemloc Advisory Services Program, which aims to support the development of liquid local currency bond markets. It provides guidance on how to create a PD system that aligns with market development needs and the expectations of all involved parties, including the Debt Management Office (DMO), PDs, and central banks.

Main Topics Covered

• Purpose of the Handbook: To guide the design of PD systems that support government securities market development.
• Background on PD Systems: Includes definition, historical context, expected benefits, risks, and prerequisites for establishing a PD system.
• Appointment of PDs: Covers the authority responsible for appointment, selection criteria, number of PDs, effective appointment date, duration, and procedures.
• Duties of PDs: Defines the roles and responsibilities of PDs, including bidding at auctions, market-making, advisory functions, and reporting.
• Privileges of PDs: Details the rights and incentives provided to PDs by the Ministry of Finance (MoF) and the Central Bank (CB).
• Balancing Obligations and Privileges: Emphasizes the importance of aligning PD duties with appropriate privileges to enhance market making efficiency.
• Management of Relationships with PDs: Discusses communication, motivation through incentives, monitoring via activity reports, and appraisal procedures.
• Supervision of PDs: Highlights the need for transparency, investor protection, and systemic risk reduction.
• Current Issues and Trends: Addresses evolving roles of PDs, their incentives, and interactions with electronic trading platforms.

Key Benefits of a PD System

• Support for Auctions: PDs help create stable demand by bidding at auctions and broadening the DMO’s customer base.
• Enhanced Liquidity: PDs contribute to secondary market liquidity through continuous price quoting and market-making.
• Advisory Role: PDs assist the DMO in developing debt strategies and improving market infrastructure.
• Improved DMO Knowledge: PDs provide insights into market dynamics and investor behavior.
• Product Innovation and Investor Access: PDs help in introducing new financial products and facilitating access to end investors.

Risks Associated with PD Systems

• Reduced Competition: A small number of PDs may lead to collusive behavior.
• Moral Hazard: PDs may take excessive risks due to perceived government support.
• Operational Risks: PDs may suffer losses due to misjudged market conditions or pricing errors.

Prerequisites for a PD System

• Market Conditions: A stable and predictable issuance policy, a diversified investor base, and sufficient market size.
• Legal and Regulatory Framework: Existence of legal systems and supervisory mechanisms.
• Payment Systems: Adequate infrastructure for transactions.
• Interest Rate Liberalization: Commitment to market-based interest rate mechanisms.
• Outstanding Debt: Sufficient debt volume to create liquid issues.
• DMO Commitment: The DMO must be dedicated to market development.

Selection Criteria for PDs

• Financial Strength: Minimum net worth and credit rating to ensure stability and risk absorption.
• Market Participation: Active involvement in the government securities market.
• Management and Technology: Capable management and suitable technological infrastructure.
• Long-term Commitment: Willingness to support market development over time.
• Business Plan Submission: A clear strategy and goals for the market.
• Reputation and Standing: Good standing and reputation in the financial sector.

Appointment Process

• Appointing Authority: Can be the DMO, MoF, CB, or a joint decision between them.
• Number of PDs: Typically ranges from 5 to 25, with 5 as the minimum to ensure competition.
• Effective Date: Usually aligned with the renewal date of existing PDs.
• Appointment Length: Usually 1 to 2 years, with some countries reviewing every 6 months or 3 years.
• Procedure: Involves confirming the appointment and defining the duties and privileges, which can be done through flexible agreements like MoUs or through more rigid legal contracts.

PDs' Duties

• Bid at Auctions: Help the DMO achieve its funding goals.
• Place Securities with Final Investors: Expand the investor base.
• Enhance Secondary Market Liquidity: By quoting firm bid and offer prices.
• Advisory Role: Support the DMO in debt strategy and market development.
• Market-Making: Act as counterparties in debt management operations.
• Reporting: Submit regular activity reports to the DMO.
• Other Obligations: May include participation in electronic trading platforms and non-competitive subscriptions.

Privileges of PDs

• General Privileges: Include access to market data and certain regulatory benefits.
• Primary Market Privileges: Such as non-competitive subscription allocations and access to primary market information.
• Secondary Market Privileges: Including price dissemination and access to call markets.
• CB-Related Privileges: Such as exclusive access to open market operations and borrowing privileges.

Balancing Obligations and Privileges

• The optimal mix of duties and privileges should be tailored to the country's specific market conditions.
• Incentives should be designed to encourage PDs to perform effectively without encouraging collusive behavior.
• A well-designed PD system can enhance market efficiency and transparency.

Management of PD Relationships

• Communication: Regular PD meetings and clear dialogue with the DMO.
• Motivation: Allocation of incentives based on performance.
• Monitoring: Use of activity reports and electronic platform data.
• Appraisal: Evaluation of PD performance using quantitative and qualitative criteria, with disclosure of results and possible sanctions for poor performance.

Supervision of PDs

• Focus on transparency, investor protection, and systemic risk reduction.
• Regulatory frameworks must ensure that PDs operate responsibly and in line with market rules.

Current Issues and Trends

• Shifting Incentives and Obligations: Evolving expectations for PDs in terms of responsibilities and rewards.
• Role in Electronic Trading Platforms: Increasing importance of electronic platforms in PD operations and market-making.
• Need for Flexibility: The document advocates for flexible procedures, especially in rapidly evolving markets.

Conclusion

A well-designed PD system is crucial for the development of government securities markets, but its success depends on careful consideration of market conditions, legal frameworks, and the balance between obligations and privileges. The document highlights the importance of flexibility, transparency, and strategic alignment in PD system design and management.