Primary Dealer Market Makers (PDMMs) are banks or other financial institutions that are appointed by the Debt Management Office (DMO) to act as authorized dealers in selling bonds of the Federal Government of Nigeria (FGN bonds).
Understanding PDMMs in Nigeria
PDMMs is a system put in place by DMO whereby some financial institutions are given an exclusive right to purchase/underwrite all government securities issued for their own holding and or for resale.
In Nigeria, primary dealers are the only entities that can make a bid for newly issued FGN securities.
PDMMs also act as market makers for the Central Bank of Nigeria (CBN) in selling securities on behalf of the government.
The PDMMs are obligated to provide a two-way quote for FGN Bonds. This means that you can buy or sell your FGN Bonds whenever the need arises.
The Debt Management Office (DMO) is the regulator of the PDMMs regarding their rights and obligations vis-à-vis the DMO.
The introduction of a PDMM system is intended to enhance the ability of the DMO to achieve efficient funding of the debt of the Federal Government of Nigeria through the development of strong primary and secondary markets.
As such, primary dealers also provide a valuable flow of information to the apex bank about the state of domestic and global markets.
Their Functions
The core functions of the PDMMS are:
- to take up FGN bonds,
- to market them, and
- to distribute the Primary Issues of FGN Bonds.
List of Primary Dealer Market Makers in Nigeria
There are strict requirements and guidelines for Primary Dealer Market Makers which is why there are only 13 of them approved by the DMO.
Importantly, most of these Primary Dealers are popular and reputable financial institutions, Broker-Dealers, and Discount Houses (such as Kakawa Discount House NOW FBNQuest Merchant Bank Ltd) that keep to the guidelines set by the CBN and DMO.
The Primary Dealer Market Makers licensed by the DMO to sell FGN savings bonds are:
- Kakawa Discount House NOW FBNQuest Merchant Bank Ltd
- Access Bank Plc
- First Bank of Nigeria Ltd
- First City Monument Bank Plc
- FSDH Merchant Bank Ltd
- Guaranty Trust Bank Plc
- Citibank Nigeria Ltd
- Coronation Merchant Bank Ltd
- Ecobank Nigeria Ltd
- Stanbic IBTC Bank Plc
- Zenith Bank Plc
- Standard Chartered Bank Nigeria Ltd
- United Bank for Africa Plc
Requirements/Guidelines For Primary Dealers
1) PDMM banks and discount houses shall comply with the requirements set by the CBN while broker-dealers comply with the requirements of Nigeria’s Securities and Exchange Commission (SEC) and the Nigerian Exchange Group (NGX) to be licensed as PDMM by the DMO.
2) Primary government securities dealers must meet specific liquidity and quality requirements, guidelines are:
3) The minimum capital requirement for PDMMs is N2.0 billion in Shareholders Fund, which is subject to DMO review.
4) The Shareholders Fund must exclude revaluation surplus, as at the last financial year-end before the date of application.
5) An applicant shall be registered with the Corporate Affairs Commission (CAC).
6) An applicant shall be registered with the Securities and Exchange Commission (SEC).
7) Primary dealers shall not refuse to bid on behalf of or offer money market instruments to a qualified investor.
8) Primary dealers shall not disclose any information relating to any third party, with the exception of filing appropriate reporting requirements, and to Government agencies as required by law.
9) A primary dealer shall be appointed from licensed Deposit Money Banks (DMBs) and Discount Houses (DHs).
10) Primary dealers shall maintain accounting and other records of their activities in the primary and secondary markets as specified by the regulatory authorities.
11) Primary dealers shall submit their bids with a list of investors along with their names, addresses and amounts applied for.
12) All non-primary dealers shall submit their bids through primary dealers.
13) A primary dealer shall operate a current account with the CBN for the purpose of dealing in money market instruments.
14) A primary dealer shall submit a letter of undertaking to abide by the above guidelines, rules and regulations on primary dealership.
Other Countries That Use a Primary Dealer System
In addition to Nigeria, there are several countries around the world, including European Unions that depend on primary dealers to handle the issuance of government securities, they include:
- The United States,
- United Kingdom
- Japan,
- Austria,
- Belgium,
- Canada,
- Czech Republic,
- Bulgaria,
- Denmark,
- France,
- India,
- Germany,
- Greece,
- Finland,
- Hungary,
- Ireland,
- Italy,
- Poland,
- Portugal,
- The Netherlands,
- Slovakia,
- Slovenia,
- Hong Kong,
- Spain,
- Sweden,
- Thailand,
- China,
- Israel,
- Singapore
How PDMMs in Nigeria Make Money
Primary Dealer Market Makers buy FGN bonds directly from the Federal Government of Nigeria and then resell them to clients and investors at a slight mark-up. This small difference in price is how PDMMs earn a profit.