The Debt Office has contracts with several banks to act as authorised primary dealers of Danish government securities and Treasury bills. The primary dealers provide the most important channel to reach a wide circle of investors and achieve an effective government security market.
What role does the primay dealer play?
Primary dealer banks act as counterparties in the central government's issuance and buyback transactions and get access to the securities lending facility.
The key obligations of the primary dealers are to act as counterparties at auctions of government securities and to support liquidity by quoting prices in the secondary market on an ongoing basis.
Primary dealers in Danish government securities
For government bonds, Government Debt Management has entered into primary dealer contracts with 8 banks, and for treasury bills 4 contracts have been concluded. Besides the primary dealers, 6 banks participate in the market for government securities as market takers.
List of primary dealers
|Government bonds||Treasury bills||ECP||USCP|
|BNP Paribas||Danske Bank||Bank of America Merill Lynch Int.||Bank of America Merill Lynch Int.|
|Danske Bank||Nordea||Barclays Bank PLC||BNY Mellon Capital Market|
|HSBC||Nykredit Bank||Citigroup Global Markets||Barclays Capital Inc.|
|J.P. Morgan||SEB||Coöperatieve Rabobank U.A.||Citigroup Markets Inc.|
|Morgan Stanley||Credit Suisse Securities||Goldman Sachs & Co.|
|Nordea||ING Bank N.V.||J.P. Morgan Securities|
|Nykredit Bank||UBS Europe SE|
Danish government securities are primarily issued at auctions supplemented with tap sale. Government bond auctions are held regularly, usually every other wednesday. T-bill auctions, on the other hand, are usually held twice a month, one of them being on the second last trading day of each month. New securities are usually opened via auctions.
In addition, the government has a switch facility that gives market participants the opportunity to exchange off-the-run government securities to new on-the-run securities at market price. Generally, two switch auctions will be held each month. The central government also buys back securities directly from the market. Buybacks from the market can be conducted in all domestic and foreign papers, although on-the-run issues are excepted as a general rule.
Secondary trading and market making
Danish government securities are traded on a number of electronic interdealer and dealer-to-customer trading platforms as well as over-the-counter. In most of these transactions, primary dealers are one party to the transaction.
One of the primary dealers' most important tasks is to ensure efficient market making in Danish government securities. This implies that primary dealers have committed to quote current bid-ask prices on one or more platforms within the framework agreed upon in cooperation between Government Debt Management and the primary dealer group.
Ongoing price quotation on electronic trading platforms enables market participants to monitor market developments and conduct transactions at prices and volumes known in advance. This pre-trade information fosters transparency and supports efficient price formation in the market for government securities. It increases investor interest in government securities and provides the basis for reduction of the central government's financing costs.
Before a trading platform can be approved for market making, it has to meet some minimum requirements. The primary dealers are able to perform their market making obligations on MTS Denmark.
Securities lending facility
Primary dealers in government bonds and treasury bills have access to the central government's lending facility. The facility applies to all government securities. Securities lending takes place against collateral in other Danish government securities.
- Primary dealers in government bonds can borrow bonds for a period of up to 5 trading days.
- Similarly, primary dealers in T-bills can borrow T-bills for a period of up to 5 trading days.
- The fee is 0.2 per cent per year for both government bonds and T-bills with settlement the following day. In case of same day settlement, the fee is 0.3 per cent per year.
- The lending facility is available as buy-/sell-back transactions. Participants borrow in one buy-/sell-back transaction and lend (provide collateral) in another buy-/sell-back transaction.
- A haircut of 2.5 per cent is applied to each buy-/sell-back transaction.