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Romania Seeks to Change Prime Dealers Rules

Romania seeks to boost trading of its state treasuries on a secondary market by setting new rules for primary dealers at bonds and bills auctions from next year.

The Finance Ministry and the National Bank will set new criteria for reviewing the primary dealing licenses of commercial banks depending mainly on their trading the treasuries on a secondary market, according to a draft document published on the Bucharest-based central bank’s website today and set for public debate.

The dealers can get a maximum of 50 points out of 100 for their “activity on the secondary market,” 40 points for “the activity on the primary market” and 10 points for meeting some qualitative criteria, policy makers said in the document. “The main purpose of the changes is to develop the state treasuries market, increase its efficiency, liquidity, transparency and its predictability.”

Romania plans to increase the competition between the 41 banks operating in its market, out of which only 12 are primary dealers for state treasuries, as it seeks to secure the funding of its budget deficit and maturing debt, while it starts paying-back a 20 billion-euro ($25 billion) bailout to the International Monetary Fund and the European Union from this year.

Loss of License

The banks with the two lowest rankings may lose their primary dealer license and be replaced with other lenders, while the best performers will be rewarded, following an annual review, according to the document.

Commercial banks, 90 percent of which are owned by international lenders, can use the bills and bonds as collateral for the financing operations conducted by the central bank at a time when their western parents provide less money amid the sovereign-debt crisis and new capital rules imposed by the European Banking Authority.

The Banca Nationala a Romaniei increased the weekly amount of liquidity it provides to lenders through a repurchase operation in the past month. It lent the biggest amount in almost three years on June 5 of 12 billion lei ($3.4 billion) to 13 banks, at the operation used until May 21 by only four banks, data published on Bloomberg show.

Twelve banks borrowed today 11.5 billion lei from the central bank during the weekly repurchase operation.

Central Bank Governor Mugur Isarescu said on May 8 the regulator plans to “stimulate” the secondary market for state treasuries as the IMF advised policy makers not to cut the minimum reserve requirements to provide more liquidity to the lenders and use the money as a buffer against the debt crisis.

Romania sold about 35 billion lei in leu-denominated debt so far this year and also borrowed $2.25 billion from the U.S. market in February.

Austrian lenders control about 39 percent of the market, followed by Greek banks with 15.5 percent and French lenders with more than 10 percent, according to the central bank. Erste Group Bank AG’s Banca Comerciala Romana SA is the country’s largest lender by assets, followed by BRD-Groupe Societe Generale SA.

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