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A primary dealer is a firm that buys government securities directly from a government, with the intention of reselling them to others, thus acting as a
market maker A market maker or liquidity provider is a company or an individual that quotes both a buy and a sell price in a tradable asset held in inventory, hoping to make a profit on the ''bid–ask spread'', or ''turn.'' The function of a market maker is t ...
of government securities. The government may regulate the behaviour and number of its primary dealers and impose conditions of entry. Some governments sell their securities only to primary dealers; some sell them to others as well. Governments that use primary dealers include Australia, Belgium, Brazil, Canada, China, France, Hong Kong, India, Italy, Japan, Singapore, Spain, the United Kingdom, and the United States.


Primary dealers in the United States

In the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country in . It consists of 50 , a , five major , 326 , and some . At , it is the world's . The United States shares significan ...

United States
, a primary dealer is a
bank A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital ma ...

bank
or securities
broker-dealerIn financial services Financial services are the economic services provided by the finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation a ...
that is permitted to trade directly with the
Federal Reserve System The Federal Reserve System (also known as the Federal Reserve or simply the Fed) is the central bank A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a State (polity ...
("the Fed").Federal Reserve Bank of New York: Primary Dealers
Retrieved April 27, 2007
Such firms are required to make bids or offers when the Fed conducts
open market operations In macroeconomics Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics dealing with performance, structure, behavior, and decision-making of an economy as a whole. For example, using interest ...
, provide information to the Fed's open market trading desk, and to participate actively in U.S. Treasury securities auctions.Federal Reserve Bank of New York:Primary Dealer Policies
Retrieved March 12, 2008
They consult with both the U.S. Treasury and the Fed about funding the
budget deficit Deficit spending is the amount by which spending exceeds revenue over a particular period of time, also called simply deficit, or budget deficit; the opposite of budget surplus. The term may be applied to the budget of a government, private company ...
and implementing
monetary policy Monetary policy is the policy adopted by the monetary authority In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of ...

monetary policy
. Many former employees of primary dealers work at the Treasury because of their expertise in the government debt markets, though the Fed avoids a similar
revolving door A revolving door typically consists of three or four doors that hang on a central shaft and rotate around a vertical axis within a cylindrical enclosure. Revolving doors are energy efficient as they (acting as an airlock An airlock is a device ...
policy. The relationship between the Fed and the primary dealers is governed by the Primary Dealers Act of 1988 and the Fed's operating policy "Administration of Relationships with Primary Dealers." Primary dealers purchase the vast majority of the U.S. Treasury securities (T-bills, T-notes, and T-bonds) sold at auction, and resell them to the public. Their activities extend well beyond the Treasury market. For example, according to the ''Wall Street Journal Europe'' (2/9/06 p. 20), all of the top ten dealers in the foreign exchange market are also primary dealers, and between them account for almost 73% of foreign exchange trading volume. Arguably, this group's members are the most influential and powerful non-governmental institutions in global financial markets. Group membership changes slowly, with the current list available from the New York Fed. The primary dealers form a worldwide network that distributes new U.S. government debt. For example, Daiwa Securities and Mizuho Securities distribute the debt to Japanese buyers. BNP Paribas, Barclays, Deutsche Bank and NatWest Group distribute the debt to European buyers. Goldman Sachs, and Citigroup account for many American buyers. Nevertheless, most of these firms compete internationally and in all major financial centers. In response to the subprime mortgage crisis and to the collapse of Bear Stearns, on March 19, 2008, the Federal Reserve set up the Primary Dealers Credit Facility (PDCF), whereby primary dealers could borrow at the Fed's discount window using several forms of Collateral (finance), collateral including mortgage-backed loans. The PDCF was closed on February 1, 2010.Federal Reserve Bank of New York:Primary Dealer Credit Facility FAQ
Retrieved March 20, 2008


History

The current system of primary dealers was set up in 1960 with 18 dealers. The number of primary dealers grew to 46 in 1988, declined to 21 by 2007 and stands at 24 in July 2019. The most recent addition to the list of primary dealers was Amherst Pierpont Securities LLC on May 6, 2019. The last previous addition was Wells Fargo Securities LLC on April 18, 2016. Name changes of the firms are fairly common as are withdrawals due to mergers; for example, when Merrill Lynch was taken over by Bank of America, the Merrill Lynch name was at first withdrawn but the Bank of America dealer firm was later renamed Merrill Lynch.


Current primary dealers with the Federal Reserve Bank of New York

As of May 6, 2019, according to the Federal Reserve Bank of New York the list includes: * Amherst Pierpont Securities LLChttp://www.apsec.com * Scotiabank, Bank of Nova Scotia, New York Agency * Bank of Montreal, BMO Capital Markets Corp. * BNP Paribas, BNP Paribas Securities Corp. * Barclays Investment Bank, Barclays Capital Inc. * BofA Securities * Cantor Fitzgerald, Cantor Fitzgerald & Co. * Citigroup, Citigroup Global Markets Inc. * Crédit suisse, Credit Suisse AG, New York Branch * Daiwa Securities Group, Daiwa Capital Markets America Inc. * Deutsche Bank, Deutsche Bank Securities Inc. * Goldman Sachs, Goldman Sachs & Co. LLC * HSBC, HSBC Securities (USA) Inc. * Jefferies Group, Jefferies LLC * JPMorgan Chase, J.P. Morgan Securities LLC * Mizuho Financial Group, Mizuho Securities USA LLC * Morgan Stanley, Morgan Stanley & Co. LLC * NatWest Markets, NatWest Markets Securities Inc. * Nomura Group, Nomura Securities International, Inc. * Royal Bank of Canada, RBC Capital Markets, LLC * Societe Generale, Societe Generale, New York Branch * Toronto-Dominion, TD Securities (USA) LLC * UBS, UBS Securities LLC. * Wells Fargo, Wells Fargo Securities LLC.


References


External links


NY Federal Reserve - Primary Dealers
{{Bond market Primary dealers, Federal Reserve System