primary dealership and audit of primary dealershipiiabombaychapter.com/resources/audit of...
TRANSCRIPT
![Page 1: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/1.jpg)
PRIMARY DEALERSHIP AND PRIMARY DEALERSHIP AND AUDIT OF PRIMARY AUDIT OF PRIMARY DEALERSHIPDEALERSHIP
![Page 2: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/2.jpg)
MEANINGMEANING
A primary dealer is a firm which buys
government securities directly from a
government, with the intention of
reselling them to others, thus acting as a
market maker of government securities.
![Page 3: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/3.jpg)
THE BEGINNING……………THE BEGINNING……………
1995 by the RBI in G-Sec Markets
2006-07, banks (departmentally) were
included in order to broaden the scope
and system of operation
Standalone PD’s were permitted
diversification into other business activities-
subject to conditions
As on June 2012- 8 standalone PD’s
13 banks (departmentally)
![Page 4: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/4.jpg)
OBJECTIVESOBJECTIVES
Strengthen the infrastructure in G-Sec market in order to make it vibrant, liquid and broad based;
Ensure development of underwriting and market making capabilities for G-Sec outside the RBI;
Improve secondary market trading system, which would contribute to price discovery, enhance liquidity and turnover and encourage voluntary holding of G-Sec amongst a wider investor base; and
Make PDs an effective conduit for open market operations (OMO).
![Page 5: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/5.jpg)
Diversification of activities by Diversification of activities by standalone PDsstandalone PDs
May bifurcate their operations into
core and non-core activities
![Page 6: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/6.jpg)
CORE ACTIVITIESCORE ACTIVITIES
Dealing in:
Government of India Securities (G-SEC)
State Government Securities (SG)
Treasury Bills (T-Bills)
Call Money Market
Interest rate swaps (IRS).
Collateralised Borrowing & Lending
Options (CBLO)
![Page 7: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/7.jpg)
CORE ACTIVITIES……CORE ACTIVITIES……
Investment in Security Receipts issued by Securitization Companies/ Reconstruction Companies, Asset Backed Securities (ABS), Mortgage Backed Securities (MBS),
Investment in debt mutual funds where entire corpus is invested in debt securities,
Investments in NCDs, and
Dealing in Credit Default Swaps for corporate bonds, subject to guidelines.
![Page 8: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/8.jpg)
OTHER NONOTHER NON--PD ACTIVITIESPD ACTIVITIES
Dealing in Bonds, Commercial Paper
(CP), Debentures, Certificate of
Deposits (CD) and Discounted
Instruments.
Debt Capital Market (DCM) Activity: fee
based and consists of arranging,
underwriting and handling other
modalities of debt instrument issues on
behalf of corporate clients.
![Page 9: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/9.jpg)
NONNON--CORE ACTIVITIESCORE ACTIVITIES Activities which are expected to
consume capital
Services which do not consume capital or
require insignificant capital outlay
distribution of insurance products
NOT allowed to undertake broking in
equity, trading / broking in commodities,
gold and foreign exchange.
The exposure to non-core activities shall
be subject to the guidelines on regulatory
and Prudential norms for diversification of
activities by standalone PDs
![Page 10: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/10.jpg)
ELIGIBILTYELIGIBILTY INSTITUTIONS:
a. Subsidiary of scheduled commercial
bank/s and all India Financial institutions
b. Subsidiaries/ joint ventures set up in India
by entities incorporated abroad.
c. Company incorporated under the
Companies Act, 1956 and do not fall
under (a) and (b)
d. Banks which do not have a partly or
wholly owned subsidiary undertaking PD
business and intend to undertake PD
business departmentally
![Page 11: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/11.jpg)
Role and Role and obligationsobligations of the of the PD’sPD’s
Support to Primary Market
Market making in G-Sec
Maintain adequate physical infrastructure
and skilled manpower
Efficient internal control system
Allow RBI to access all records, books,
information and documents
Satisfy the minimum criteria of PD’s
investment on a daily basis in G-Sec,
including T-Bills and CMBs
![Page 12: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/12.jpg)
Role and Role and obligationsobligations of the of the PD’s….PD’s….
Maintain the annual turnover criteria
Submission of periodic returns, as
prescribed by the RBI
Operations of the PDs are subject to
prudential and regulatory guidelines
issued by the RBI
![Page 13: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/13.jpg)
Facilities from Facilities from RBI, RBI, subject to review, subject to review,
depending upon the market conditions anddepending upon the market conditions andrequirementsrequirements
access to Current Account facility with
RBI
access to Subsidiary General Ledger
(SGL) Account facility with RBI
permission to borrow and lend in the
money market
memberships of electronic dealing,
trading and settlement systems (NDS
platforms/ INFINET/ RTGS/ CCIL);
![Page 14: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/14.jpg)
Facilities from RBI……Facilities from RBI……
access to the Liquidity Adjustment
Facility (LAF) of RBI;
access to liquidity support from RBI
under a scheme separately notified for
standalone PDs
access to OMO by RBI.
![Page 15: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/15.jpg)
Regulations and CompliancesRegulations and Compliances
Requirement to meet registration and other
requirements as stipulated by (SEBI), if they
undertake any activity regulated by SEBI.
Join Primary Dealers Association of India
(PDAI) and Fixed Income Money Market
and Derivatives Association (FIMMDA) and
abide by their code of conduct and such
other actions as initiated by them in the
interest of the securities markets.
![Page 16: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/16.jpg)
Regulations and Regulations and Compliances… Compliances…
In respect of transactions in G-Sec, have
a separate desk and maintain separate
accounts in respect of its own position
and customer transactions and subject
them to external audit
Any change in the shareholding pattern
/ capital structure needs prior approval
of RBI. Report any other material
changes such as business profile,
organization, etc. affecting the
conditions of licensing as a PD to RBI
immediately
![Page 17: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/17.jpg)
Regulations and Compliances… Regulations and Compliances…
RBI reserves the right to cancel the Primary Dealership if, in its view, the concerned institution has failed to adhere to the terms of authorization or any other guidelines
Should bring to the attention of RBI any major complaint against it or action initiated/taken against it by authorities such as the Stock Exchanges, SEBI, CBI, Enforcement Directorate, Income Tax Department, etc.
![Page 18: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/18.jpg)
Supervision by RBISupervision by RBI
Off-site supervision
On-site inspection
![Page 19: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/19.jpg)
Role of PDs in the Primary Role of PDs in the Primary MarketMarket
Underwriting of Dated G-Sec
o Dated securities of Central
Government
o Dated securities of State
Governments
Bidding in Primary auctions of T-
Bills/CMBs
‘When-Issued’ transactions in Central G-
Sec
![Page 20: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/20.jpg)
Role of PDs in the Primary Role of PDs in the Primary Market…….Market…….
Submission of non-competitive bids
Sale of securities allotted in primary
issues on the same day
Submission of client bids in the primary
auctions
Settlement of primary auctions
Secondary Market Transactions - Short-
selling
![Page 21: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/21.jpg)
PDs’ operations PDs’ operations -- Sources and Sources and Application of fundsApplication of funds
Permitted to borrow funds from
call/notice/term money market and
repo
Eligible for liquidity support from RBI
Limits on borrowing and lending are
subject to periodic review by RBI
Liquidity Support from RBI
Inter-Corporate Deposits (ICDs)
PDs are prohibited from placing funds in
ICD market
FCNR (B) loans
![Page 22: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/22.jpg)
PDs’ operations PDs’ operations -- Sources and Sources and Application of Application of funds…..funds…..
Not permitted to raise funds through
External Commercial Borrowings
Issuance of Non-Convertible
Debentures (NCDs)
Reporting Requirements
![Page 23: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/23.jpg)
Investment GuidelinesInvestment Guidelines
Frame and implement, a Board approved, investment policy and operational guidelines on securities transactions
Hold their investments in G-Sec portfolio in SGL with RBI
Hold all other investments such as CPs, bonds and debentures (privately placed or otherwise) and equity instruments, only in demat form.
All problem exposures, not backed by any security or backed by security of doubtful value, should be fully provided for.
![Page 24: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/24.jpg)
Investment Investment Guidelines……….Guidelines……….
The profit and loss account should
reflect the problem exposures
Should formulate, within the above
parameters, their own internal
guidelines on security transactions in
both primary and secondary markets,
with the approval of their Board of
Directors
HTM Portfolio
Guidelines on investments in non-G-Sec
Exposure Norms
![Page 25: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/25.jpg)
Prudential Systems/ControlsPrudential Systems/Controls Internal Control System in respect of
securities transactions
Purchase/Sale of securities through SGL
transfer forms
Bank Receipt or similar receipt in respect
of transactions in G-Sec
Accounting Standards for securities
transactions
Reconciliation of holdings of G-Sec
Transactions on behalf of Constituents
Failure to complete delivery of
security/funds in an SGL transaction
![Page 26: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/26.jpg)
OTHER GUIDELINESOTHER GUIDELINES
Interest Rate Derivatives
Declaration of dividend
Corporate Governance
Prevention of Money Laundering Act,
2002 - Obligations of NBFCs
Violation/Circumvention of Instructions
Disclosure of Penal Actions
Exit / Termination procedure
![Page 27: PRIMARY DEALERSHIP AND AUDIT OF PRIMARY DEALERSHIPiiabombaychapter.com/resources/Audit of Primary... · · 2016-09-21undertake any activity regulated by SEBI. Join Primary Dealers](https://reader030.vdocuments.us/reader030/viewer/2022020214/5ad583bf7f8b9a075a8cfdd6/html5/thumbnails/27.jpg)
THANK YOU