Front Matter

Front Matter

Marco Arnone, and Piero Ugolini
Published Date:
February 2005
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©2005 International Monetary Fund

Production: IMF Multimedia Services Division

Cover Design: Massoud Etemadi

Typesetting: Alicia Etchebarne-Bourdin

Cover Photo: Getty Images

Cataloging-in-Publication Data

Primary dealers in government securities / Marco Arnone and Piero Ugolini—Washington, D.C. : International Monetary Fund, [2004].

p. cm.

Includes bibliographical references.

ISBN 9781589063792

1. Government securities. I. Arnone, Marco. II. Ugolini, Piero, 1946 –

HG4715.P75 2004

Disclaimer: The views expressed in this work are those of the authors and do not necessarily represent those of the IMF or IMF policy. The IMF has not edited this publication. Some documents cited in this work may be not available publicly.

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In the last 10 years there have been a growing number of countries that have established or are in the process of establishing a primary dealer system. This paper discusses theoretical and operational issues related to the establishment of a primary dealer system for countries that may be considering taking this step. Drawing on a survey of country practices conducted in 2001, the first part of the paper discusses the rationale, costs and benefits, and key prerequisites, while selection criteria, obligations, and privileges, among other issues, are discussed in the second part. The paper also tries to address whether a primary dealer system fits into the overall strategy for financial market development in the country. In this context, under appropriate circumstances, primary dealers can support the primary market for government securities by helping to provide a consistent, dependable source of demand. At the same time, they can foster development of the secondary market by providing two-way quotes for selected issues of government securities and by servicing the retail market. Under a primary dealer system, the debt manager and the group of primary dealers pursue a common strategy in support of the effective functioning and development of primary and secondary markets for government securities. Among the countries surveyed, there was broad agreement among authorities that a primary dealer system is to be highly recommended.

The authors would like to thank the Director of the Monetary and Financial Systems Department, Stefan Ingves; the Deputy Directors, Tomás Baliño, Charles Enoch, and Hervé Ferhani; and Peter Dattels, Jennifer Elliott, Mats Filipsson, George Iden, Robert Price, Christine Sampic, Andrea Schaechter, Mark Stone, V. Sundararajan, Mark Swinburne, and Mark Zelmer for their helpful comments. A special thanks goes to Patricia Mendoza-Ibarguen for her impeccable editorial assistance, to Sandra Marcelino for her excellent research assistance, and to Archana Kumar of the External Relations Department for coordinating the production of the publication. The authors would also like to express their gratitude to the national authorities that participated in the survey.

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