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Fed applies the following criteria: (1) The firm must have
adequate capital relative to the positions it assumes; (2) the
firm must participate consistently and meaningfully in Treasury
auctions of new securities and must submit bids in every auction;
(3) the firm must file periodic reports with the Fed setting
forth certain market information; and (4) the firm must be an
effective market maker.
Primary dealers trade Treasury securities for their own
accounts (proprietary trading) or for the accounts of customers
pursuant to customer directives (customer trading). These two
types of trading are not mutually exclusive. A primary dealer
may accept a customer's bid or offer for a particular security as
part of the dealer's proprietary trading strategy, or it may
initiate trades to improve its proprietary position. Primary
dealers frequently trade Treasury securities with other primary
dealers either directly (trader to trader) or indirectly through
interdealer brokers. Primary dealers frequently sell to other
primary dealers the Treasury securities that they purchase at
auction. When a primary dealer and a counterparty agree on a
transaction, a trade ticket is prepared which states the terms of
the transaction. The primary dealer uses the information on the
trade ticket to prepare a confirmation slip that is sent to the
counterparty.
4(...continued)
The Treasury securities market has many secondary dealers.
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Last modified: May 25, 2011