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bid tendered, and these deposits are held without interest for
days or weeks until the auction purchase settles. In practice,
only primary dealers submit competitive bids directly to the
Treasury; they do so for their own accounts as well as on behalf
of others.
After Treasury securities are issued through the auction
process, they are generally traded over the counter in direct
transactions between the buyer and the seller or through
interdealer brokers (as defined below).3 Prices are quoted as
bids (the price that a buyer is willing to pay) and offers or
asks (the price at which a seller is willing to sell). A
transaction is effectuated when a buyer or seller accepts a bid
or offer, respectively, or when they negotiate a different price.
Over-the-counter trading of Treasury securities is usually
effectuated over the telephone on the basis of established
business relationships.
"Primary dealers" are the 35 to 40 firms which have been
recognized as such by the Fed to deal with it directly in the
Treasury securities market.4 In designating primary dealers, the
3 Between the announcement of an upcoming auction and the
issuance of the securities following the auction, new issues of
Treasury securities also are traded over the counter on a
"when-issued" (WI) basis for a period that may last from several
days to approximately 2 weeks. The purchaser of WI securities
must pay for the securities on or before the date that the
securities are issued.
4 Dealers in the Treasury securities market who are not
primary dealers are known informally as "secondary dealers".
(continued...)
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Last modified: May 25, 2011