Eligibility Conditions for Primary Dealers

The eligibility conditions for primary dealers vary from country to country. However, there are some common requirements that apply to most primary dealer systems.

Financial requirements

Primary dealers are typically required to meet certain financial requirements, such as having a minimum net worth or capital adequacy ratio. This is to ensure that primary dealers have the financial resources to withstand market shocks and to meet their obligations.

Operational requirements

Primary dealers are also typically required to meet certain operational requirements, such as having a minimum number of staff with experience in the government securities market. This is to ensure that primary dealers have the expertise and infrastructure to carry out their duties effectively.

Other requirements

In addition to financial and operational requirements, some countries may also impose other requirements on primary dealers, such as a requirement to be a member of a stock exchange or to have a certain market share in the government securities market.

Eligibility conditions in India

The following are the eligibility conditions for primary dealers in India, as prescribed by the Reserve Bank of India (RBI):

  • Financial requirements:
    • Minimum net owned funds (NOF) of Rs. 1,000 crore.
    • Minimum Capital to Risk Weighted Assets Ratio (CRAR) of 9%.
    • Net non-performing assets of less than 3% and a profit making record for the last three years.
  • Operational requirements:
    • Should be registered as an NBFC under Section 45-IA of the RBI Act, 1934 for at least one year prior to the submission of application.
    • 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.

MCQs and answers

  1. Which of the following is NOT a typical eligibility condition for primary dealers? (a) Minimum net worth requirement (b) Minimum capital adequacy ratio requirement (c) Minimum number of staff with experience in the government securities market requirement (d) Requirement to be a member of a stock exchange
  2. Which of the following is a financial requirement for primary dealers in India? (a) Minimum net owned funds (NOF) of Rs. 1,000 crore (b) Minimum Capital to Risk Weighted Assets Ratio (CRAR) of 9% (c) Net non-performing assets of less than 3% (d) All of the above
  3. Which of the following is an operational requirement for primary dealers in India? (a) Should be registered as an NBFC under Section 45-IA of the RBI Act, 1934 for at least one year prior to the submission of application. (b) 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. (c) Both (a) and (b) (d) None of the above

Answers:

  1. (d)
  2. (d)
  3. (c)