Informist, Friday, May 24, 2024
By Aaryan Khanna
NEW DELHI – Foreign-owned standalone primary dealerships have managed to navigate a regulatory speed bump and are now on track to roll out foreign exchange operations, sources familiar with the matter said. Having in-house currency desks would make it easier for the market makers to service foreign clients at a time when the inclusion of India in global bond indices is expected to pull hundreds of new investors into the country's debt market.
Earlier attempts by standalone primary dealers to seek expanded authorised dealer licences had been stymied by disagreements with the Reserve Bank of India regarding regulatory scrutiny. Both the frequency and nature of disclosures has been a contentious issue for the three primary dealers with foreign parent institutions – Nomura Fixed Income Securities Pvt Ltd, Morgan Stanley India Primary Dealership Ltd, and Goldman Sachs (India) Capital Markets Pvt Ltd, sources said.
Representatives from these organisations have held meetings with RBI officials since at least January to iron out the modalities of the products they can offer, people familiar with the discussions said. While initial rounds of the dialogue were unfavourable for primary dealers, the RBI's latest stance on the proposal has spurred activity on forex operations among these institutions.
"The RBI has allowed enough vagueness to allow the primary dealers to decide internally what products to offer," one of the people said. "So it has been a win for them (primary dealers), and people have fast-tracked the development. But internal processes and approvals from global heads could still take time."
In October 2022, RBI had allowed standalone primary dealers to offer all foreign exchange market-making facilities and issued norms for the same. The central bank also said that all financial transactions involving the rupee undertaken globally by related entities of the standalone primary dealers should be reported to Clearing Corp of India's trade repository before 1200 IST of the business day following the date of transaction from Jan 1, 2023.
Goldman Sachs and Morgan Stanley are leading investment banks in the US, while Nomura is the largest investment bank in Japan. The race among their Indian offshoots is heating up before India's fully accessible route bonds are added to JP Morgan's Government Bond Index – Emerging Markets starting Jun 28. Bloomberg's local currency emerging market index will also include Indian gilts starting Jan 31. By offering market-making services on the forex side, these entities may be able to pick up a sizeable share of offshore investors into India's debt markets by leveraging their relationships in home markets.
Primary dealers are non-banking financial companies and have Authorised Dealer Category-III licences from the RBI. They are market-makers in the fixed income market, for both government securities and corporate bonds. Their main activity is gaining interest income on held securities and capital gains from trading fixed income and money market instruments, along with some fee income for underwriting auctions of government paper. In India, there are seven standalone primary dealers, along with 14 integrated primary dealers.
After the latest round of talks with the RBI, two of the foreign primary dealerships have begun hiring currency traders and are in the race to be the first to market by June, getting the central bank's authorisation. One of the US-based entities has taken a step back and is not pursuing its forex operations aggressively, the people said.
"It has been a stressful time, between the RBI here and then getting clearances from head offices (offshore)," another person aware of the development said. "And while there is no deadline to get it done before Jun 28, it would be nice to capture that market as soon as possible."
DOMESTIC PLAYERS
Currently, none of the standalone primary dealers in India offers the expanded suite of forex operations. Domestic players were initially ready to pip their foreign counterparts in offering the services, having secured RBI authorisation last year. Moreover, domestic standalone primary dealers have also made efforts to attract foreign investors to onshore markets, including roadshows on India's debt in countries like Singapore.
The only listed standalone primary dealer in India, PNB Gilts, had said in an exchange filing in July 2023 that it had received the RBI's authorisation to offer forex services on par with Authorised Dealer Category-I entities. Managing Director and Chief Executive Officer Vikas Goel had said that the primary dealership would aim for a launch of these operations by the end of 2023-24 (Apr-Mar).
On May 16, quoting Goel, Informist had exclusively reported that PNB Gilts aims to launch its expanded forex services on Jul 1, after issues with settlement infrastructure delayed the rollout. The business will largely be proprietary in nature at launch, he had said.
Another domestic primary dealership is also facing delays with implementing full-fledged forex operations, and has pushed back plans of launching this month, the people aware said. The two other domestic primary dealers are not actively looking to launch foreign exchange operations at the moment, and are likely to take cues from the launch of the larger players in the segment.
"The RBI has thrown open the door for primary dealers to remain significant," the first person quoted above said. "But banks are entrenched players and have already poached many of the big investors coming in. Since nobody has been first to market yet, and (bond index) inclusion is only a month away, this foreign exchange play could take a couple of years to mature." End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Informist Media Tel +91 (11) 4220-1000
Send comments to feedback@informistmedia.com
© Informist Media Pvt. Ltd. 2024. All rights reserved.