LeoGlossary: Primary Dealer
A primary dealer is a financial institution that buys government securities with the intention of selling them to others. Hence, they serve as a market maker. These are typically major investment banks.
Since the USD is the reserve currency, the distribution of US Treasuries are crucial to the global financial and banking system. For this reason, the Fed has the most diverse and extensive list of primary dealers.
Primary Dealers in the U.S.
Banks and broker-dealers trade directly with the Federal Reserve System. The means transacting directly with the Federal Reserve Bank of New York. These are the firms that make bids when the Fed conducts open market operations, provide information to the Fed's open market trading desk, and to participate actively in U.S. Treasury securities auctions.
Government securities need to be of specific liquidity and quality. For this reason, primary dealers provide valuable information about what is needed by the banking and financial system.
Posted Using LeoFinance Beta