Primary Dealers Can Borrow State Securities
Thursday, 18 January, 2007 | 16:37 WIB

TEMPO Interactive, Jakarta: The government will lend state securities to primary dealers if the state bonds demand in the secondary market is booming.

On the other hand, primary dealers can have loans from Bank Indonesia if bonds market is fluctuating because many market players sell the bonds.

This facility for primary dealers is included in Finance Minister Regulation No. 144/PMK.08/2006 on Primary Dealer System.

The implementation procedure was issued by Finance Minister Sri Mulyani on December 26 last year.

A Finance Department official said that the facility was provided because every day primary dealers perform many buys and sales of bonds.

Based on the provision, he said, primary dealers—general banks or securities companies—can borrow State Bonds (SUNs) by submitting a guarantee worth 1.2 times of the state bonds' amount to be borrowed.

The government will impose weighted average interest of one day plus two percent, and when the term falls due, the primary dealer must return the SUNs.

By the time market players sell state bonds altogether, he said, primary dealers must still buy the bonds in cash.

If short of money, primary dealers can obtain loans from the central bank by puttingup the bonds as a guarantee.

“By the time the terms falls due, primary dealers must repay cash to BI and then BI return the guaranteed bonds.”

Primary dealers are related to the government's plan to develop the secondary market of long- and short-term State Bonds.

The existence of primary dealers is important so that there are benchmark yield curves on the secondary market.

The benchmark will be the basis for market players to sell or buy State Bonds.

Budiriza