This study explores the impact of primary dealer system implementation on counterparty connections, prices, liquidity, and concentration risk in the Indonesian Money market. Using transaction data of interbank money market instruments, we find that the implementation of the primary dealer system increases the degree of centrality (number of counterparty connections) in the Indonesian Repo and time deposit markets. The implementation of primary dealers also leads to an increase in nominal transactions of Bank Indonesia Rupiah Securities (SRBI). The simulation results of primary dealer selection by clients show that the greater the demand of banks participating in monetary operations with limited primary dealer liquidity, the faster the orders are concentrated on primary dealers with large liquidity. Vice versa, the smaller the demand of banks participating in monetary operations with large liquidity, the orders tend to be scattered. The larger the order size of banks participating in monetary operations, the faster orders are concentrated in primary dealers with large liquidity. Vice versa, the smaller the order size of banks participating in monetary operations, the orders tend to be scattered.

Keywords: Primary dealer, concentration risk, liquidity, interest rate, counterparty connection