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In the secondary market for government securities, open market sales served the purpose of absorbing surplus liquidity on an enduring basis, stabilising the prices of government securities and off-loading the securities privately placed with the Reserve Bank earlier in the year. The Reserve Bank conducted a series of open market purchases aggregating Rs.5,084 crore during September 18-October 10, 2001 to support the gilt market in the face of the steep fall in the government security prices due to adverse external developments after September 11, 2001. The Reserve Bank has been encouraging holding of government securities in dematerialised form. Trading in government securities through the subsidiary general ledger accounts (SGL) with the Reserve Bank, wherein the DVP system ensures simultaneous transfer of securities against funds, accounts for 99 per cent of total transactions in securities. In view of recent irregularities in the government securities market, the Reserve Bank banned, with effect from May 20, 2002, any transactions by any of its regulated entities in physical form with any broker and made it mandatory to hold gilt investments in either SGL or constituent subsidiary general ledger (CSGL), Stock Holding Corporation of India Ltd. (SHCIL) and National Securities Clearing Corporation Limited (NSCCL) or in a dematerialised account with depositories. PDs are selected on the basis of financial soundness, adequate managerial capacity and active presence in the market and the continuation of the license of a PD is dependent on their performance in treasury auctions, open market operations and in the secondary market. The system works on a quid pro quo basis with the PDs having a set of obligations in return for which they have certain privileges. While PDs are obliged to absorb a minimum auction share in the USA, Italy, UK and France, they are committed towards a minimum bidding amount in India, Poland and Hungary. Secondary market commitments are also practiced in many countries, such as, Belgium and South Africa. In many countries, PDs underwrite the auction of government securities. In the secondary market, the PDs ensure liquidity by continuous presence in the market and by quoting two-way prices on specific types of securities. PDs may enjoy a wide range of privileges which ranges from funding by the central bank to exclusivity in auction process. One major privilege given to PDs is exclusive participation in the auction process (USA and Canada), exclusivity to open market operations (USA and UK) and exclusive participation in non-competitive bidding. In addition to these explicit privileges, PDs enjoy indirect advantages such as the prestige of their special status in the government securities market or direct access to information about the extent and context of the government�s borrowing needs. Strategies You might ask whether it is worth your time to do hardheaded analysis of business or whether you would be better off letting other people do the work and then free riding on their effort. Economists illustrate this free rider strategy by positing a country that taxes its citizens in order to build a good military. Everyone agrees that this is desirable to defend against foreign enemies. A tax dodger free rides on the public good of a strong military while not contributing to it.
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