Primary dealer
Also called: PD · Topic: Financial Markets, Instruments, Insurance and Pensions · NCERT: Beyond NCERT
Meaning
A primary dealer (PD) is a firm authorised by the RBI to help the government sell its bonds. PDs underwrite government securities (G-secs) auctions, which means they promise to buy any part of an issue that other bidders leave unsold. They also make markets: they keep quoting prices to buy and to sell G-secs, so other investors can always trade. Because of this, government borrowing does not fail at auction, and the G-sec market stays liquid.
Example
PDs were introduced in India in 1995-96. They are either standalone PDs or banks that run a PD business. Suppose the RBI auctions a 10-year G-sec for the Centre and bids from other investors fall short. The PDs must buy the part they underwrote.
Don't confuse with
- Depository participant (DP): a broker or bank that opens and runs your demat account. A DP holds and transfers securities for investors. It has no duty to underwrite government auctions.
Related concepts
- Government securities
- Dated securities
- State Development Loans
- Inflation-indexed bond
- Oil bonds
- Sovereign Gold Bond
- Fully Accessible Route
- Global bond index inclusion