This presentation is on RBI Primary Dealers. It covers history, eligibility, Roles and Obligations; Facilities offered by RBI and Regulatory returns to submitted by PD to RBI. It also covers in detail Underwriting process, MUC (Minimum Underwriting Commission) & ACU (Additional Competitive Underwriting). It also touches few key concepts like Short sale and When Issued. www.abhijeetdeshmukh.com

1. Primary Dealers
ABHIJEET DESHMUKH
WWW.ABHIJEETDESHMUKH.COM

2.  In 1995, the Reserve Bank of India (RBI) introduced the system of Primary Dealers
(PDs) in the Government Securities (G-Sec) Market.
 The objectives of the PD system are
 to strengthen the infrastructure in G-Sec market,
 development of underwriting and market making capabilities for G-Sec,
 improve secondary market trading system and
 to make PDs an effective conduit for open market operations (OMO).
 As on July 13, 2015, there are Seven Standalone PDs and Fourteen Banks
authorized to undertake PD business departmentally.

3. Eligibility Conditions – Standalone PD
Subsidiary of scheduled Commercial bank/s and All India Financial Institutions (AIFI) & Company
incorporated under the Companies Act, 1956
 Should be registered as an NBFC under RBI Act, 1934 for at least ONE year prior to the
submission of application.
 Should have minimum Net Owned Funds (NOF) of Rs.150 crore for undertaking Core activities
and Rs.250 crore for undertaking Diversified activities
 Should have Exposure in the securities business and in particular to the G-Sec market for at
least one year prior to the submission of application. Exposure for this purpose would be as
under:
 Applicant’s Turnover in the G-Sec business during preceding year should be at least equal to 15
per cent of its total turnover.
 Its Assets in G-Sec during the year preceding the year of application should be at least equal to
15 per cent of its total assets
Subsidiaries/Joint ventures set up in India by entities incorporated abroad,
 The applicant should have approval of Foreign Investment Promotion Board.
 The parent foreign company directly or through its subsidiaries should have been in PD
business for three years or more in active markets.
 Such entity should suitably ring fence its system from its parent and associates

4. Eligibility Conditions – Bank PD
 Minimum net owned funds (NOF) of Rs. 1,000 crore.
 Minimum Capital to Risk Weighted Assets Ratio (CRAR) of 9 per cent.
 Net non-performing assets (NPA) of less than 3 per cent and
 a profit making record for last three years.
Additional Conditions
 The applicant bank should have approval of Department of Banking Regulation, Central
Office, Reserve Bank of India, Mumbai.
 Applicant bank should submit an annual target along with plan of action for turnover to
be achieved on behalf of mid-segment and retail investors at the time of submission as
applicable to existing PDs.
 The annual target for July 2014-June 2015 should not be less than 150 per cent of
minimum NOF for standalone PDs and 100 per cent of minimum NOF for bank PDs. The
target will be reviewed annually.

5. Role and obligations of the PDs
 PDs are expected to play an active role in the G-Sec market, both in its primary and
secondary market segments through various obligations like
 participating in Primary auction,
 market making in G-Secs,
 predominance of investment in G-Secs,
 achieving minimum secondary market turnover ratio,
 maintaining efficient internal control system for fair conduct of business etc.
 A PD is required to have a standing arrangement with RBI based on the execution of an
undertaking and the authorization letter issued by RBI every three years. Undertaking will
be based on passing of a fresh Board resolution by the PD every three years.

6. Facilities from RBI
 access to Current Account facility with RBI;
 access to Subsidiary General Ledger (SGL) Account facility with RBI;
 access to e-Kuber (Core Banking system of RBI)facility for primary auction;
 permission to borrow and lend in the money market including call money market and to
trade in all money market instruments;
 memberships of electronic dealing, trading and settlement systems (NDS
platforms/INFINET/RTGS/CCIL);
 access to the Liquidity Adjustment Facility (LAF) of RBI;
 access to liquidity support from RBI under a scheme separately notified for standalone
PDs; and
 access to OMO by RBI.

7. Returns
Statements / Returns required to be submitted by PDs to IDMD / Non IDMD
Sr. No. Return/Report Periodicity Last date for submission
1 PDR-I* (Sources and application of funds maintained on
daily basis)
Fortnightly Next working day of the reporting fortnight.
2 PDR-II* (Securities market turnover on monthly basis) Monthly 10th of the following month.
3 PDR-III* (Statement on capital adequacy) Quarterly 15th of the month following the reporting quarter
4 PDR IV* (Financial and balance sheet indicators) Quarterly 15th of the month following the reporting quarter.
5 Return on FRAs / IRS* Monthly 10th of the following month.
6 Annual Report & Annual Audited A/cs Annual As soon as annual accounts are audited and finalized.
7 Auditor's Certificate on Net Owned Funds Yearly 30th June.
8 Details of dividend declared during the accounting year Yearly Within a fortnight from the payment of dividend.
9 Return on FRAs / IRS Fortnightly MPD
10 Statement showing balances of Govt. Securities held on
behalf of each Gilt A/c holder
Half-Yearly PDO
11 Return on Call Money transactions with Commercial Banks Fortnightly DEPR
12 Information for Issue of Commercial Paper On each issue of
CP
MPD

8. Underwriting Commitment - MUC
The underwriting commitment on dated securities of Central Government will be divided into two parts –
 a) Minimum Underwriting Commitment (MUC), and
 b) Additional Competitive Underwriting (ACU).
 The MUC of each PD will be computed to ensure that at least 50 percent of the notified amount of
each issue is mandatorily underwritten equally by all the PDs and will be communicated by RBI for
each auction.
 For example, with the current number of PDs at 21, each PD will be deemed to underwrite about 2.38
per cent of the notified amount of each auction as MUC.
 The MUC will be uniform for all PDs, irrespective of their capital or balance sheet size.
Underwriting Commission on MUC
 Those PDs who succeed in the ACU for 4 per cent and above of the notified amount of the issue, will
be paid commission on the MUC at the weighted average of all the accepted bids in the ACU.
 Others will get commission on the MUC at the weighted average rate of the three lowest accepted
bids in the ACU.

9. Underwriting Commitment - AUC
 In the ACU auction, each PD would be required to bid for an amount at least equal to its
share of MUC.
 A PD cannot bid for more than 30 per cent of the notified amount in the ACU auction.
 Bids will be tendered by the PDs within the stipulated time, indicating both the amount of
the underwriting commitment and underwriting commission rates.
 All successful bidders in the ACU auction will be paid underwriting commission on the ACU
segment as per the auction rules.
 Underwriting commission will be paid on the amount accepted for underwriting by the RBI
by credit to the current account of the respective PDs

10. Instrument Name XXXXXXXX
Auction Type Multiple
Notified amount (NA) 4200
Total No. of PDs (n) 21
Minimum Underwriting Commitment (MUC) 2100
Per PD MUC (MUC/n) 100
Total PD commitment under MUC collectively (Adjusted MUC) 2100
Additional Competitive Underwriting (ACU) ACU = (NA - Adjusted MUC) 2100
Minimum bidding by each PD in ACU
(equal to per PD MUC)
100
Total underwriting commitment for each PD under MUC and ACU 200
Total Underwriting ( 212 *19) 4200
Minimum allotment to a PD to be eligible for higher commission on MUC i.e. min
4% of Notified Amoun
168
Illustration showing the underwriting amount, cut-off of fee quoted
and commission payable to PDs

11. Sr No PDs
participate
d
Amount of
bid in ACU
(Rs. Cr)
Cumulative
Amount (Rs.
Cr)
Underwriting
fee (in paise /
Rs.100)
Amount of bid
* U/w fee
Remarks Weighted Average
underwriting fee
(paise / Rs.100)
1 A ! 150.00 1.52 228.00 1.52
2 B 155.00 305.00 2.56 396.80 2.05
3 A 60.00 365.00 3.50 210.00
Three lowest
bids
2.29
4 C 95.00 460.00 3.70 351.50 2.58
5 B 200.00 660.00 3.94 788.00 2.99
6 B 25.00 685.00 4.00 100.00 3.03
7 D 120.00 805.00 4.00 480.00 3.17
8 E 95.00 900.00 4.49 426.55 3.31
9 F 70.00 970.00 4.50 315.00 3.40
10 G 50.00 1020.00 4.75 237.50 3.46
11 E 115.00 1135.00 4.90 563.50 3.61
12 C 90.00 1225.00 4.94 444.60 3.71
13 F 220.00 1445.00 4.95 1089.00 3.90
14 G 200.00 1645.00 5.00 1000.00 4.03
15 H 120.00 1765.00 5.00 600.00 4.10
16 I 120.00 1885.00 5.00 600.00 4.15
17 I 109.00 1994.00 5.00 545.00 CUT-OFF 4.20
Bids submitted under Additional Competitive Underwriting Auction

12. Sr No PDs
participate
d
Amount of
bid in ACU
(Rs. Cr)
Cumulative
Amount (Rs.
Cr)
Underwriting
fee (in paise /
Rs.100)
Amount of bid
* U/w fee
Remarks Weighted Average
underwriting fee (paise
/ Rs.100)
18 I 25.00 2019.00 5.50 137.50 4.22
19 J 120.00 2139.00 5.94 712.80 4.31
20 K 120.00 2259.00 6.00 720.00 4.40
21 L 120.00 2379.00 6.00 720.00 4.48
22 M 55.00 2434.00 6.50 357.50 4.53
23 N 120.00 2554.00 6.94 832.80 4.64
24 O 120.00 2674.00 7.00 840.00 4.75
25 P 120.00 2794.00 7.00 840.00 4.84
26 Q 120.00 2914.00 7.00 840.00 4.93
27 R 106.00 3020.00 8.00 848.00 5.04
28 S 106.00 3126.00 8.50 901.00 5.16
29 M 80.00 3206.00 9.00 720.00 5.25
30 K 100.00 3306.00 9.25 925.00 5.38
Rate of commission payable to PDs on MUC for those who have
been allotted an amount >= 4% of ACU amount
4.20
(weighted average of all allotted bids)
Rate of commission payable to other PDs on MUC
2.29
(weighted average of three lowest bids)

13. PD Wise eligible commission on ACU and ACU Allotment
[a] [b] [c] [d]={[b]*10000000*[c]/10
0}/100
Successful
PDs
Successful
bids in
ACU (Rs.
Cr)
Underwriting
fee bid
(in paise /
Rs.100)
Bid wise commission
payable on ACU (In Rs.)
A 150 1.52 228,000.00
A 60 3.50 210,000.00
A Total 210 438,000.00
B 155 2.56 396,800.00
B 200 3.94 788,000.00
B 25 4.00 100,000.00
B Total 380 1,284,800.00
C 95 3.70 351,500.00
C 90 4.94 444,600.00
C Total 185 796,100.00
D 120 4.00 480,000.00
D Total 120 480,000.00
E 95 4.49 426,550.00
E 115 4.90 563,500.00
E Total 210 990,050.00
F 70 4.50 315,000.00
F 220 4.95 1,089,000.00
F Total 290 1,404,000.00
G 50 4.75 237,500.00
G 200 5.00 1,000,000.00
G Total 250 1,237,500.00
H 120 5.00 600,000.00
H Total 120 600,000.00
I 120 5.00 600,000.00
I 101 5.00 505,000.00
I Total 221 1,105,000.00

14. PD
MUC
amount
accepted
ACU
amount
accepted
Amount
Accepted
AUC >=
4%
MUC
Fee
Commnon
MUC
Commn
on ACU
Total
Commission
A 106 210 316 YES 4.20 445,200 438,000 883,200
B 106 380 486 YES 4.20 445,200 1,284,800 1,730,000
C 106 185 291 YES 4.20 445,200 796,100 1,241,300
D 106 120 226 NO 2.29 242,740 480,000 722,740
E 106 210 316 YES 4.20 445,200 990,050 1,435,250
F 106 290 396 YES 4.20 445,200 1,404,000 1,849,200
G 106 250 356 YES 4.20 445,200 1,237,500 1,682,700
H 106 120 226 NO 2.29 242,740 600,000 842,740
I 106 221 327 YES 4.20 445,200 1,105,000 1,550,200
Underwriting Commission on MUC & AUC

15. J 106 0 106 NO 2.29 242,740 0 242,740
K 106 0 106 NO 2.29 242,740 0 242,740
L 106 0 106 NO 2.29 242,740 0 242,740
M 106 0 106 NO 2.29 242,740 0 242,740
N 106 0 106 NO 2.29 242,740 0 242,740
O 106 0 106 NO 2.29 242,740 0 242,740
P 106 0 106 NO 2.29 242,740 0 242,740
Q 106 0 106 NO 2.29 242,740 0 242,740
R 106 0 106 NO 2.29 242,740 0 242,740
S 106 0 106 NO 2.29 242,740 0 242,740
TOTAL 2014 1986 4000 6,029,280 8,335,450 14,364,730
PD MUC
amount
accepted
ACU
amount
accepted
Amount
Accepted
AUC >=
4%
MUC
Fee
Commnon
MUC
Commn
on ACU
Total
Commission

16. Secondary Market activities
 Market making in G-Sec: PDs should offer two-way prices in G-Sec through the
Negotiated Dealing System-Order Matching (NDS-OM), over-the-counter (OTC) market
and recognized Stock Exchanges in India and take principal positions in the secondary
market for G-Sec.
 Turnover ratio:
Turnover ratio is the ratio of total purchase and sales during the year in the secondary
market to average month-end stocks).
 A PD should annually achieve a minimum Turnover Ratio of 5 times for Government
dated securities and 10 times for T-Bills/CMBs of the average month-end stocks.
 The turnover ratio in respect of outright transactions should not be less than 3 times
in Government dated securities and 6 times in T-Bills/CMBs

17. RBI Annual Report 2014-15
 Reserve Bank paid total underwriting commission of Rs 33 cr to PDs during 2014-15 as compared to
481 cr during 2013-14.
 Underwriting commission was on the lower side as compared to last year due to
 softening of yields during the year (10 year benchmark yield decreased by around 86 bps)
 on account of various reasons like RBI rate cut by 75 bps,
 softening of crude prices;
 fall in CPI and WPI etc.
 As the market conditions were gentle and kind. and risk of devolvement reduced, PDs demanded
less underwriting commission as compared to last year when market conditions turned volatile
after taper tantrum by US Fed in May 2013
 With relatively comfortable liquidity and stable market conditions during 2014-15, there was lower
devolvement of Rs 5,300 Cr on primary dealers (PDs) on three occasions as compared with 26
instances amounting to Rs 17,500 Cr in 2013-14.

18. When Issued (WI) transactions in GSec
‘When, as and if issued’ (commonly known as ‘when-issued’ (WI)) security refers to a security that has been
authorized for issuance but not yet actually issued.
‘WI’ trading takes place between the time a new issue is announced and the time it is actually issued.
All 'when issued' transactions are on an 'if' basis, to be settled if and when the actual security is issued.
Transactions in a security on a ‘When Issued’ basis shall be undertaken in the following
manner.
 ‘WI’ transactions can be undertaken in the case of securities that are being reissued as well as newly
issued, on a selective basis.
 ‘WI’ transactions would commence on the issue notification date and it would cease on the working
day immediately preceding the date of issue.
 All ‘WI’ transactions for all trade dates will be contracted for settlement on the date of issue.
 At the time of settlement on the date of issue, trades in the ‘WI’ security will be netted off with trades
in the existing security, in the case of reissued securities.

19. When Issued (WI) transactions in GSec
 ‘WI’ transactions may be undertaken only on NDS-OM.
 Only PDs can take a short position in the ‘WI’ market. In other words, non-PD entities can sell the ‘WI’
security to any counterparty only if they have a preceding purchase contract for equivalent or higher
amount.
 Open Positions in the ‘WI’ market are subject to the following limits:
 In case a PD is unable to deliver securities to the buyer after the auction on the settlement (or issue)
date, the transaction will be settled as per the default settlement mechanism of CCIL.
 In the event of cancellation of the auction for whatever reason, all ‘WI’ trades will be deemed null.
Category Reissued security Newly issued security
Non-PDs
Long Position, not exceeding 5 per cent of the
notified amount.
Long Position, not exceeding 5 per cent of the
notified amount.
PDs
Long or Short Position, not exceeding 10 per
cent of the notified amount
Short Position not exceeding 6 per cent and Long
Position not exceeding 10 per cent of the notified
amount.

20. Short Sale in GSec
 PD are allowed to execute the sale leg of short sale transactions in the OTC
market, in addition to the NDS-OM platform;
 PD can undertake short position (face value) in any security subject to the
following limits:
 Liquid securities: 0.75% of the total outstanding stock issued of each security or Rs.
600 crore, whichever is lower.
 Illiquid securities: 0.25% of the total outstanding stock issued of each security.
 In case a liquid security becomes illiquid during the period of short sale
resulting in a lower short sale limit, a bank/PD can continue to hold the already
executed short position till it is closed out
 The short sale position executed in the OTC market should be reported on the
NDS-OM platform within 15 minutes of the execution of the trade
 Banks / PDs should submit a report of the daily security-wise short sale
position

21. Annexure 12/5/2015 Reserve Bank of India - About Us
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ABOUT US
List of Primary Dealers in Government Securities Market (As on July 13, 2015)
STANDALONE PRIMARY DEALERS BANK PRIMARY DEALERS
ICICI Securities Primary Dealership Limited
ICICI Centre
H.T.Parekh Marg
Churchgate
Mumbai­ 400 020
Phone: (022) 22882460/70, 66377421
Bank of America
Treasury Operations
Gr.Floor, Express Towers
Nariman Point, Mumbai­ 400 021
Phone: (022) 66323000 extn.3150
Morgan Stanley India Primary Dealer Pvt. Ltd.
18F / 19F One Indiabulls Centre
Tower 2, Jupiter Mills Compound
Elphinstone Road
Mumbai ­ 400013
Phone : (022) 61181000
Fax : (022) 61181011
Bank Of Baroda
Specialised Integrated Treasury
4th & 5th Floor, Baroda Sun Tower,
C­34, G­Block, Bandra Kurla Complex
Bandra East, Mumbai­400 051
Phone:(022) 66363636 / 67592705
Nomura Fixed Income Securities Pvt. Ltd.
Ceejay House, 11th Level
Plot F, Shivsagar Estate
Dr.Annie Besant Road
Worli
Mumbai ­ 400 018
Phone : (022) 40374037
Fax : (022) 40374111
Canara Bank
Domestic Back Office
Integrated Treasury Wing
VI Floor, Canara Bank Building
C­14, G Block, Bandra Kurla Complex
Bandra East
Mumbai­ 400 051
Phone: (022) 26725126, 123
PNB Gilts Ltd.
5, Sansad Marg
New Delhi­ 110 001
Phone: Mumbai ­ (022) 22693315/17
New Delhi ­ (011) 23325751, 22693315/17
Citibank N.A
FIFC, 12th floor,
C­54 and 55,
G block, Bandra Kurla Complex,
Mumbai – 400 051.
Phone:(022) 6175 7187
SBI DFHI Ltd
3rd Floor, Voltas House, 23, J.N.Heredia Marg,
Ballard Estate, Mumbai­ 400 001
Phone:(022) 22625970/73, 22610490 ,66364696
Corporation Bank
Investment & International Banking Division
15, Mittal Chambers, Nariman Point
Mumbai­400 021
Phone:(022) 22833238/22023304,
22832429/22022796/22871054
STCI Primary Dealer Limited
Marathon Innova, Marathon Nextgen Compound,
Off Ganpatrao Kadam Marg, Lower Parel(W),
Mumbai­ 400 013
Phone:(022) 30031100, 66202261 /2200
HDFC Bank Ltd.
Treasury Mid Office,
1st Floor,HDFC Bank House
Senapati Bapat Marg, Lower Parel
Mumbai­ 400 013
Phone:(022) 24904702/4935/
3899,66521372/9892975232
Goldman Sachs (India) Capital Markets Pvt. Ltd.
951­A, Rational House, Appasaheb Marathe Marg,
Prabhadevi, Mumbai 400 025
Phone : (022) 66169000
Hongkong and Shanghai Banking Corpn. Ltd.(HSBC)
Treasury Services
52/60,Mahatma Gandhi Road
Mumbai­ 400 001
Phone:(022) 22681031/34/33,
22623329/22681031/34/38
J P Morgan Chase Bank N.A, Mumbai Branch
J.P. Morgan Tower
Off C.S.T. Road, Kalina
Santacruz (East)
Mumbai ­ 400 098
Phone ­61573000
Fax­ 61573990 & 61573916
Kotak Mahindra Bank Ltd.
27BKC, 5th Floor
Plot No. C­27, G­Block
Bandra Kurla Complex
Bandra East
Mumbai 400 051.
Phone:(022) 6659 6022/6454, 66596235/6454

22. Thank You