BAFL, HBL, NBP Declared As Top Three Performing Primary Dealers For 2022

Karachi July 12 2022: Bank Al Falah, Habib Bank Limited and National Bank of Pakistan declared as top three performing Primary Dealers during FY 2021-22, by State Bank of Pakistan.

State Bank of Pakistan selected 12 banks and DFIs based upon evaluation of all applicants under the criteria laid down in the by the Central Bank. The list includes, Bank Al-Falah Limited, Habib Bank Limited, National Bank of Pakistan, United Bank Limited, MCB Bank Limited, JS Bank Limited, Standard Chartered Bank (Pakistan) Limited, Pak Oman Investment Company Limited, The Bank of Punjab, Citi Bank N.A-Pakistan Operations, Industrial and Commercial Bank Of China-Pakistan Operations and Habib Metropolitan Bank Limited.

Since the inception of PD system in June 2000, the marketable Government securities market has grown in terms of size, number and diversity of participants and infrastructure. Accordingly, over the years, State Bank of Pakistan (SBP) has been making changes to the rules governing the PD system in Pakistan in line with changing market conditions. SBP is now further strengthening the Rules governing the PD system as a major step towards widening the investor base of government securities, enhance liquidity, transparency and market development. These revisions are being made after a comprehensive review of international best practices and experiences of other countries, and detailed consultations with financial market stakeholders.

The applicants for the status of PDs, PPDs and SPDs shall have to meet minimum criteria for selection in the respective category of Primary Dealership. Depending upon the Dealership category, the selection criteria include the eligible list of institutions, financial soundness and capital requirements, submission of a Business Plan, professional experience and technical infrastructure requirements, adequate risk management systems, among others.

Selection criteria for the eligible participants for the status of PD, PPD and SPD are specified at Annexure A.

Selection Process:

1. Selection process shall begin with invitation of applications from eligible participants for appointment of PDs, PPDs and SPDs by SBP each year vide a circular. All eligible applicants shall submit an application, signed by the CEO/COO/Treasurer, along with the following documents: (i) Business Plan approved by the ALCO in case of banks and DFIs, and by the Board of Directors (BoD) in case of all other eligible institutions; (ii) Latest Audited Annual report; (iii) Latest Schedule of Business Charges relevant to Dealership activity. Further, it shall be binding for each applicant to furnish to the SBP any such information as the SBP may consider necessary for the purpose of assessing the suitability of the applicant to be appointed as a PD/PPD/SPD.
   
2. Each new applicant shall be evaluated in the light of the selection criteria. However, performance of existing Dealers shall be measured against performance benchmarks defined in this Circular and the performance against the targets set by the respective Dealer in their business plans of the preceding year.
   
3. At the time of scrutinizing the application for PD/PPD/SPD status, SBP may require on-site inspection/audit teams to assess compliance of requirements mentioned in the selection criteria.
   
4. Applicants selected as per the criteria shall be informed by SBP, through a letter for its appointment as a PD/PPD/SPD for a period of one fiscal year.  However, SBP may also grant an applicant provisional/conditional status of a PD/PPD/SPD subject to periodic performance review. Further, the PD/PPD/SPD selected for a given fiscal year shall continue to serve as such until the new list of Dealers is issued by the SBP for the subsequent fiscal year.
   
5. SBP shall also inform the market about the appointment of PDs/PPDs/SPDs for the next fiscal year prior to their formal functioning as a PD/PPD/SPD. Appointment of a Dealer would be the sole discretion of SBP.

Role of Dealers:

1. All the Dealers shall be required to perform the following key roles with a view to improve participation in primary auctions, enhance distribution, diversify investor-base and develop market for government securities:
   
   1. Actively participate in the primary market by bidding in the auctions of Government securities as conducted by SBP from time to time.
      
   2. Distribute Government securities to non-PD banks and other retail/institutional clients.
      
   3. Play an active role in Government securities market development to enhance liquidity and turnover and widen the investor base of Government securities by creating awareness among investors and taking other meaningful initiatives. For this purpose, the PDs, PPDs and SPDs must also continuously upgrade their infrastructure in terms of both physical equipment and skilled manpower.
      
   4. Provide efficient custody services to its customers (Investor’s Portfolio of Securities Accounts) for Government securities holding, collection and, payment of profits & maturity proceeds.
      
2. Additionally, PDs and PPDs shall also act as market makers in Government securities by quoting two-way prices in the secondary market.

Dealers’ Privileges

Depending upon their Dealership status, PDs, PPDs and SPDs shall be offered privileges in order to incentivize performance of their roles and obligations. These privileges include direct access to primary auctions and buyback auctions, right to submit pass-through bids and Non-Competitive Bids (NCBs), claim commission on underwriting and mobilizing NCBs in the primary auctions, option to purchase additional securities for their own account through Non-Competitive Subscriptions (NCS), among others.

Accordingly, PDs, PPDs and SPDs shall be entitled to privileges as applicable to their respective category as specified at Annexure B.

Dealers’ Obligations
Depending upon their Dealership status, PDs, PPDs and SPDs shall comply with certain obligations to ensure adequate performance of their respective roles. These obligations include mandatory participation in each auction, minimum underwriting commitment, quoting two-way prices as per the defined maximum bid-ask spreads and lot-sizes, among others.  
Accordingly, PDs, PPDs, and SPDs shall be subject to obligations as specified at Annexure C.

Performance Criteria

The performances of PDs, PPDs and SPDs shall be evaluated by SBP in accordance with their respective Performance Evaluation Criteria. In this regard, SBP shall announce top performing PDs and PPDs vide a Circular on annual basis. SBP may also communicate relative performances of each PD, PPD and SPD on individual performance benchmarks to the respective Dealer.  Accordingly, the respective Performance Evaluation Criteria for PDs, PPDs and SPDs are provided at Annexure D.