CBE considers amending primary dealers system to encourage secondary debt market

Proposals include activating bonds market maker, allocating share of dealers to secondary trade, share for brokering companies

Official sources have revealed that there is a series of meetings currently held by Central Bank of Egypt (CBE) with all concerned parties including, the Ministry of Finance, the Egyptian Exchange, and banks to look into ways of to encourage secondary market trading of debt through amending the primary dealers system.
Daily News Egypt learned that the discussions included several scenarios under study, including primary dealers playing the role of makers of the bonds market to activate the secondary bonds market through providing liquidity in primary and secondary bond markets, as well as preserving a stock of government bonds which enables it to sell and buy all the time in order to ensure liquidity continues in the market.
The scenarios also included allowing companies licensed by the Financial Regulatory Authority (FRA) to be among the main dealers through providing a work licensing.
The sources added that this came among the proposals to allocate part of the share of the main dealers to brokering companies which would help expand the base of dealers in the secondary market, especially with screens that contain selling and buying prices. Brokerage companies are also the closest to individual customers, hence, will have a positive impact on the individuals' reaching the bonds and encourage them to invest their money in them.
Some of the suggestions were limited to only allocating a percentage of the shares of the primary dealers of secondary trades at a minimum limit discussed with the identification of the role of the market maker of bonds, without the need to involve different parties in the system of primary dealers.
The meetings also referred to the need for continuous repricing of bonds, as the price of the bond changes even with the stability of interest in the market, so the bond holder needs constant pricing, which hinders the activity of the secondary market.
The sources expected that the plan to encourage the secondary market for debt instruments will be implemented during the fourth quarter (Q4) of this year, especially with the possibility of the FRA allowing new debt instruments such as sukuk, green bonds, and commercial papers.
The Egyptian Ministry of Finance decided to start working with the system of primary dealers in Q2 of fiscal year 2003/04.
The sources pointed out that before applying the system of primary dealers in 2003, the secondary bond trade market was active. It was easy at the time to sell or buy bonds. The sources demanded eliminating the system of primary dealers and returning to the system of brokering companies alone.