Primary dealers

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Primary dealers are banks or brokerage firms who may trade directly with the Federal Reserve System of the United States. They are required to make bids or offers when the Fed conducts open market operations, provide information to the Fed's open market trading desk, and to actively participate in U.S. Treasury securities auctions. They consult with both the U.S. Treasury and the Fed about funding the budget deficit and implementing 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 policy.

Between them, these 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 forex trading volume. Arguably, this group's members are the most influential and powerful non-governmental institutions in world financial markets. Group membership changes slowly, with the current list available from the New York Fed.

The primary dealers form a worldwide network that is needed to distribute the huge amount of new U.S. government debt. For example, Daiwa Securities, Mizuho Securities, and Nomura Securities distribute the debt to Japanese buyers. BNP Paribas, Barclays, Deutsche Bank, and Greenwich Capital (a division of the Royal Bank of Scotland) distribute the debt to European buyers. Goldman Sachs, Lehman Brothers, and Citigroup account for many American buyers. Nevertheless, most of these firms compete internationally and in all major financial centers.

The newest primary dealer (effective on August 1, 2006) is Cantor Fitzgerald. The previous last major change to the list (excluding name changes and mergers) was Countrywide Securities, which joined in 1999. It is an American firm which focuses on mortgage markets and electronic or internet securities sales.

Effective September 15, 2006, ABN AMRO Bank, N.V., New York Branch has withdrawn its name from the list of primary dealers.

Effective February 8, 2007, CIBC World Markets Corp. has withdrawn its name from the list of primary dealers.