explain importance of principle Dealership to the growth of bond futures markets in Malaysia.?

Expert Solution

A principle dealer system was introduced in January 1989 to address the issues relating to the size and liquidity in government bond markets. The system was installed aiming at improving government bond market. Selected banking institutions were appointed as principal dealers for the purpose of enhancing primary market participation and secondary market liquidity of government bonds.

For issuance of government and BNM papers, bids are submitted to BNM from all interbank players via principle dealers. Bids are transmitted electronically via our fully automated system for tendering

The introduction of dealer system resulted in increase in government bonds trading volume and turnover ratio. The system has helped in the growth of bond market by:

1. Providing a dependable and stable funding source of government securities.

2. Providing efficient distribution mechanism for government securities to investors.

3. Assisting government in debt management strategy and keeping informed of market developments.

4. Enhancing the liquidity in secondary market through continuous two way prices.

Thus the idea behind the dealer system was to overcome issues relating to liquidity in primary bond market and improve the trading schemes.

jeff jeffy answered 2 years ago

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