1. Primary Dealer means a Non-Banking Financial Company that holds a letter of authorisation issued by the Reserve Bank to act as a Primary Dealer, in terms of the "Guidelines for Primary Dealer in Government Securities Market" dated March 29, 1995, as amended from time to time. 2. Standalone Primary Dealers (SPDs) ^2 1. Standalone Primary Dealer (SPD) means a company registered as NBFC under Section 45-IA of the RBI Act, 1934 and authorized by RBI to undertake Primary Dealer (PD) activity. 2. SPDs are thus [NBFCs](NBFCs.md) which have been granted authorisation to undertake the Primary Dealer activities in Government Securities. SPDs may undertake a set of core and non-core activities which are clearly defined. 3. SPDs support G- Sec market, (both primary and secondary) through various obligations like participating in primary auctions, market making in G- Secs, predominance of investment in G-Secs, achieving minimum secondary market turnover ratio, etc 3. Primary Dealer (PDs) System was initiated in 1995 in the Government Securities (G-Sec) Market. 1. Primary Market in G-Secs: 1. They underwrite G-secs primary auction (by participating in the [underwriting auction](https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=60442) on e-kuber, 2. Thus they are an important stakeholders in the smooth (non-disruptive) conduct of the government borrowing programme. 2. Secondary Market: 1. They make market, that is buy as well as sell (offer two-way prices) G-Secs in secondary market on NDS-OM, over-the-counter (OTC) market and recognized Stock Exchanges in India. 2. Market making efforts of PDs can get limited to few liquid bonds if the HTM limit is kept high, as higher HTM limits reduce portfolio churn, particularly among public sector banks. 3. PDs are expected to _place/distribute_ government securities onward to mid-segment and retail investors (and hence PDs must actively source clients) and service a diversified investor base, rather than just merely trading among big institutions or holding them. [^1] 4. They act as an effective conduit for Open Market Operations (OMOs) conducted by the RBI. 3. In other words, 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 liquidity and trading systems and enable efficient transmission of RBI’s Open Market Operations (OMOs) (that is to make PDs an effective conduit for OMOs. 1. [Box IX.1 Primary Dealer System - A Cross-country Experience](RBI_Annual%20Report_2004.pdf#page=148&selection=3,0,4,50) in RBI's Annual Report 2004 4. So RBI also monitors how much they bid and finally subscribe. 5. ==PDs have subscribed to nearly half of the notified amount in the primary auctions of GoI dated securities during the two years from 2013 to 2015.== [^1] 6. The share of PDs subscription in T-Bills auctions during last two years (2013 to 15) is impressive as they picked up nearly three fourths of the issuances. 7. Share of Standalone PDs in secondary market volume in 2013-14 was around 15%. 8. They are allowed to participate in: 1. money markets (call, notice, term), 2. avail liquidity assistance from RBI through LAF and if required through [[Money Market Operations (MMO)|SLF]]. 3. TREPS 4. repo borrowing, corporate bond repo borrowing 9. Primary Auction 1. Dated securities of Central Government 1. Commitment - 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). 2. Bidding - In the GOI securities auction, a PD should bid for an amount not less than its total underwriting obligation. If two or more issues are floated on the same day, the minimum bid amount will be applied to each issue separately. 3. Devolvement gets shared across PDs on pro-rata basis, that is, [(MCU+ACU accepted)−(successful auction bids by the PD)]/[total remaining underwriting commitment)] 2. T-Bills/CMBs 1. PD would be required to achieve a minimum success ratio of 40 percent of bidding commitment in T-Bills/CMBs auction. Here Success Ratio in T-Bills/CMBs is the ratio of bids accepted to the bidding commitment. 3. Success ratios for dated G-Sec Auctions’ to encourage responsible and tight bidding in auctions or a negative incentive for curbing wayward bidding and aiding in better price discovery, has not been implemented yet. 10. Secondary Market: 1. Turnover ratio is the ratio of total purchase and sales during the year in the secondary market to average month-end stocks (PD's own holdings). So $\text{Turnover Ratio}=\dfrac{\sum_{t=1}^{\text{year}}(\text{Purchases}_t+\text{Sales}_t)}{\frac{1}{12}\sum_{m=1}^{12}\text{Month-end stock}_m}$ 2. A PD should annually achieve a minimum turnover ratio in repos([[Repos and Tri-Party Repo|Market Repos and TREPS]]) of 5 times for Government dated securities and 10 times for T-Bills/CMBs of the average month-end stocks (held by them). 3. 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. 11. An underwriting auction happens a day before every [[G-Secs-Primary Market#^776079|GoI securities auction]]. 1. In this auction, PDs bid with the amount they wish to underwrite and quote their fees. 12. For each Primary Dealer, the following gets decided 1. Minimum Underwriting Commitment (MUC) - This amount is equal for each PD and fixed at \(50% of the notified amount\)/number of PDs, and announced in the notification for the auction. 2. Additional Competitive Underwriting (ACU) - This is for the remaining 50% of the notified amount. It is competitive, underwriting fees are quoted along with amount, multiple bids allowed and the total must be equal to at least its MUC bid amount (called the Minimum bidding commitment per PD under ACU auction) but not more than 30% of the notified amount (called the Maximum bidding commitment per PD under ACU auction). 3. So MUC and minimum bidding amount in ACU auction is announced by the RBI before the underwriting auction like [this](https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=60442) 4. PDs submit their bids for ACU auction electronically through Core Banking Solution (E-Kuber) System between 09:00 A.M. and 09:30 A.M. (as on Jan-2026) on the day of underwriting auction. 5. As the underwriting auction is conducted through multiple price-based, RBI sorts the bids submitted in ACU auction based on the fee quoted in the ascending order (lowest to highest) and arrives at cut-off for the ACU auction where the cumulative total is equal to the remaining 50% of the notified amount. 6. Here, RBI calculates the weighed average underwriting fee for: 1. the 3 lowest bids (top 3 bids), and 2. all the bids accepted (til the cut-off) in the underwriting auction. 13. Commission amount: 1. The PDs earn underwriting commission on the amount accepted for underwriting by the RBI, irrespective of the actual amount of devolvement. So they all earn commission. 2. In other words, the underwriting commission is not determined by devolvement but **PDs’ expectation of demand** for G-Secs and the resulting fee quoted. If the demand is expected to be strong, the PDs quote lower underwriting fee with allowed maximum amount in the ACU auction. If the they expect lower demand (higher chances of devolvement) from the market for G-Secs, then PDs quote higher U/W fee in the bidding. 3. The underwriting fee earned can be calculated as: 1. If ACU auction allotment >=4% of notified amount then:$\displaystyle \text{(Successful bids in ACU auction} \times \text{Underwriting fee bid)} + \text{(MUC amount accepted} \times \text{weighted average fee of all allotted bids in the ACU underwriting auction)}$ 2. If ACU auction allotment < 4% of notified amount then: $\displaystyle \text{(Successful bids in ACU auction} \times \text{Underwriting fee bid)} + \text{(MUC amount accepted} \times \text{weighted average of three lowest bids in the ACU underwriting auction)}$ 3. The underwriting commission gets credited to the current account of the respective PDs with RBI on the day of issue of securities. 14. Devolvement: 1. If the full notified amount is not sold , it is called devolvement 2. If only a partial amount of the notified amount gets sold in the auction, RBI devolves the unsold amount across PDs on pro-rata basis, depending upon the amount of underwriting obligation of each PD after after adjusting for any successful bids by that PD in the auction. 3. Each PD’s allocation is calculated as: $\displaystyle \frac{(MUC + ACU) - (\text{successful bids by that PD})}{\text{Total underwriting commitment across all PDs} - \text{successful bids in the auction}}$ **No Devolvement** 1. If RBI is liberal, and the cut-off is a lower price, the auction gets fully subscribed and devolvement may not happen. 2. If demand is high for G-Secs, most of the bonds in these auctions get sold at prices (as investors compromise on yields) equal to or higher than RBI’s expectations and thus no devolvement occurs, let alone cancellations. In 2023–24, there was no devolvement and no cancellation for the first time after 2005-06. 15. Cancellation of GoI securities auction: 1. If prices quoted in the G-Secs auctions are too low, that is yields quoted by the buyers are higher than RBI's comfort level, it leads to cancellation of G-Secs auction. RBI usually does not devolve 100% of the notified amount on PDs. 16. Main G-Sec auction (price/yield auction) 1. Here the participants are Banks, FPIs, insurers and PDs 2. PDs have to bid for an amount not less than its total underwriting obligation. In a G-Sec auction, RBI allots only bids at or above the cut-off price. So even if PDs have to bid (like everyone else) with their price offers, those below the cut-off price gets rejected. 17. The above scheme of underwriting commitment was notified on November 14, 2007. 18. [List](https://www.rbi.org.in/SCRIPTs/AboutUsDisplay.aspx?pg=PrimaryDealer.htm) of Primary Dealers ( Banks that undertake PD business departmentally and Stand-alone) 19. They also have to be members of _Primary Dealers Association of India (PDAI_) and FIMMDA ## Central Bank Liquidity for Standalone Primary Dealers 1. [Standing Liquidity Facility (SLF)](Money%20Market%20Operations%20(MMO).md#D.%20Standing%20Liquidity%20Facility%20(SLF)) 2. LAF 1. LAF-Repos 1. [March 26, 2025](RBI_Press%20Release_20250326_Participation%20of%20Standalone%20Primary%20Dealers%20in%20Variable%20Rate%20Repo%20operations.pdf) - RBI allowed SPDs to participate in repos of all tenors under the LAF (except MSF). 2. Before this they could participate in only overnight liquidity management operations (repos, reverse repos, SDF, except MSF) 3. With all members of call money are allowed to avail funds under the LAF, but all members ( like SPDs) of LAF are not allowed to participate MSF. 4. Aug, 2025 - According to the [Internal Working Group to Review the Liquidity Management Framework (Aug, 2025)](RBI_Group-Committee_20250805_Report%20of%20the%20Internal%20Working%20Group%20to%20Review%20the%20Liquidity%20Management%20Framework_Chairman-Dr.%20Poonam%20Gupta.pdf#page=48&selection=4,0,6,26) there is also no unforeseen liquidity requirements for SPDs after the close of market, as unlike banks, they have neither reserve requirements nor unforeseen payment obligations beyond market hours. Further, any emergency liquidity needs can be met by SPDs in the now extended call market timings with effect from [July 01, 2025](Call,%20Notice%20and%20Term%20Money.md#^00ecc9). Hence, the Group also did not recommend extending MSF or provide another similar overnight emergency funding facility to SPDs. 2. [Marginal Standing Facility (MSF), 2011](Marginal%20Standing%20Facility%20(MSF),%202011.md) - ==SPDs are not allowed to avail MSF== 3. [Standing Deposit Facility (SDF), 2018](Standing%20Deposit%20Facility%20(SDF),%202018.md) - SPDs are allowed to park their surplus funds under SDF. 3. **Reserve Money** 1. Liquidity availed by standalone primary dealers increases [reserve money](Reserve%20Money.md) as "RBI credit to the Commercial Sector" increases along with "Other Deposits with RBI". 2. When the balance moves to the banks, "Other Deposits with RBI" falls and "Excess Reserve of Banks/Bankers' Deposits with RBI" increases, and thus it adds liquidity to the banking system. 3. So it is a "liquidity management" driver of systemic liquidity ([IWG, Sept 2019](https://rbi.org.in/scripts/PublicationReportDetails.aspx?ID=944)). It is one of the liqudity facility to manage transient liquidity. However, the list of liquidity facilities in revised liquidity management framework ([Feb, 2020](RBI_Press%20Release_20200206_Liquidity%20facilities%20under%20revised%20Liquidity%20Management%20Framework.pdf)) has not listed it. ## Markets 1. They are allowed in Call money, RBI LAF (including SDF, but not MSF) 2. [September 22, 2025](RBI_Press%20Release_20250922_Participation%20of%20Standalone%20Primary%20Dealers%20in%20Non-deliverable%20Rupee%20Derivative%20Markets.pdf) - SPDs authorised as Authorised Dealer Category–III (AD Cat-III) were allowed to buy/sell non-deliverable Rupee derivatives ## Data Releases 1. Monthly 1. RBI Bulletin - RBI's Standing Facilities (as on 2 last reporting nights, and 5 such dates for previous year, and as on the end of previous financial year). Here is the [Mar 23, 2026 edition](https://rbi.org.in/Scripts/BS_ViewBulletin.aspx?Id=24049) 2. Annual 1. RBI Annual Report 2. Handbook of Statistics on the Indian Economy 3. [Report on Trend and Progress of Banking in India](https://rbi.org.in/Scripts/AnnualPublications.aspx?head=Trend%20and%20Progress%20of%20Banking%20in%20India) 1. Select Financial Indicators of Primary Dealers 2. Table on Financial Performance of Standalone Primary Dealers 3. [Database on Indian Economy](https://data.rbi.org.in/) 4. By CCIL 1. Rakshitra - Monthly Publication 2. Quarterly Market Analytics ## Master Directions 1. [Reserve Bank of India (Standalone Primary Dealers) Directions, 2025](https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=12938) 2. [Operational Guidelines for Primary Dealers (Updated as on November 22, 2018)](https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=10476) ## References 1. RBI. (2012, August 13). *Report of the Working Group on Enhancing Liquidity in the Government Securities and Interest Rate Derivatives Markets* 2. RBI. (2015, January 19). _Changing Contours of Debt Management_. Address by Shri G Padmanabhan, Executive Director at the Annual Meet of Primary Dealers Association of India on January 17, 2015. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=936) 3. RBI (2025, May 15). Underwriting Auction for sale of Government Securities for ₹25,000 crore on May 16, 2025 \[Press Release\]. [Link](https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=60442) [^1]: Retail category of investors are generally defined as Individuals, Hindu Undivided Family (HUF), Charitable Institutions registered under section 25 of the Indian Companies Act and Universities incorporated by Central, State or Provincial Act or declared to be a university under section 3 of the University Grants Commission Act, 1956 (3 of 1956). Mid-segment category of investors are generally defined as firms, companies, corporate bodies, institutions, provident funds, trusts, RRBs, co-operative banks and any other entity as may be specified by RBI.