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Primary dealers to offer forex services

MUMBAI : The RBI on Friday proposed to allow all standalone primary dealers (SPDs) to offer the full range of market-making facilities for the foreign exchange market, which are currently permitted for only authorised dealers. The move will help RBI registered SPDs, having licences to buy and sell government securities, to offer more services in the interest rate market.

“The idea is to develop standalone primary dealers as market makers in financial market. They are active in the interest rate market and access as market makers will help them provide full-market making products to clients. For users, having a wider choice of market markers is always better in terms of pricing,” said B. Rabi Sankar, deputy governor, RBI.

The central bank will also allow SPDs to undertake transactions in the offshore Rupee OIS market, including for non-residents. The move will remove the segmentation between onshore and offshore OIS markets and improve price discovery, RBI said. “The inclusion of SPDs as market makers in foreign currency and overseas interest rate markets may improve the breadth and depth of the markets and add to the fee income of SPDs. While most of the SPDs have expertise in bonds and interest rate derivatives, tapping new business opportunities will require increasing manpower skills in forex markets. If, in the future, there is an overseas borrowing programme by the government, access to the markets will enable SPDs to hedge their interest rate and forex risks arising out of market making of GoI’s borrowings in overseas markets,” Anil Gupta, vice president and sector head, financial sector ratings, ICRA, said.

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