Primary Dealer System in Ghana??

Having served for primary dealer organisations in India, it is always interesting to know about PD systems in other countries as well. PDs serve a very important function in managing the government borrowing program around the world.

I was surprised to know Ghana has a PD system as well. Kwesi Bekoe Amissah-Arthur, Governor of the Bank of Ghana via this speech explains the current PD system and proposed reforms.

Primary Dealers are financial intermediaries who promote investment in issued securities. In the developed securities market a Primary Dealer is licensed only after a long period as a demonstrated participant. However, the Ghanaian wholesale market was started on a different note. In addition to a few licensed brokerage firms, all the Banks and Discount Houses existing at the time were made automatic primary distributors. It was envisaged that with their wide coverage, the Banks could promote the retail distribution of Government Securities.

In March 1996, in consultation with dealers in the market, the Bank of Ghana stopped the retail market of Treasury Bills. It was envisaged at the inception of the wholesale auction that the primary market would be stimulated and broadened through increased competition for the evolution of a more efficient and dynamic secondary market.

Despite the interventions, the market is yet to exhibit the dynamism that characterizes financial markets in the advanced economies. A number of weaknesses account for the inability of our Primary Dealer system to produce the desired objectives.

The reasons why market has not developed:

• lack of commitment of the Primary Dealers to undertake Government securities transactions as a line of business
• the weak financial strength of licensed brokerage firms that do not have the required wide net work to reach the non-bank public
• over 80% of Government securities are taken up and held by Banks. These are seen more as investments rather than as trading stock, and have therefore tended to hold stocks of securities to maturity
• Government securities are seen by some Banks and other institutions as competing with their products that are offered by them to the same clients.

Number of initiatives have been introduced to facilitate securities trading among Primary Dealers:

• the Central Securities Depository which provides custodial services to investors in Government Securities. This brought to an end the issuing of certificates for Government securities
• the electronic bidding system for the auction of Government securities on the primary market which replace the manual system for the submission of bids
• the Ghana Inter-bank Settlement System (GIS) which has facilitated the settlement of Government securities.

Much like reforms in Indian PD system.