Mumbai The RBI on Friday proposed to allow all standalone primary dealers (SPDs) to offer a full range of market-making facilities for the foreign exchange market, which are currently permitted only to authorized dealers. The move will help RBI registered SPDs, who have the license to buy and sell government securities, to provide more services in the interest rate market.
“The idea is to develop standalone primary dealers as market makers in the financial market. They are active in the interest rate market and access as market makers will help them in providing full-market making products to the customers. For users, it is always better to have a wider choice of market markers in terms of pricing,” said B. Rabi Shankar, Deputy Governor, RBI.
The central bank will also allow SPDs, including non-residents, to transact in the offshore rupee OIS market. RBI said the move will bridge the divide between onshore and offshore OIS markets and improve price discovery. “The inclusion of SPDs as market makers in the foreign exchange and foreign interest rate markets can improve the breadth and depth of markets and increase the fee income of SPDs. Whereas most SPDs have bonds and interest rate derivatives. There will be a need to increase manpower skills in the foreign exchange markets to exploit the new business opportunities. If, in future, there is a foreign lending program by the government, access to the markets will allow the SPD to increase its interest rate and in foreign markets. This will enable it to hedge foreign exchange risks arising from the lending market of the Government of India,” said Anil Gupta, Vice President and Sector Head, Financial Sector Ratings, ICRA.
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