A pre-approved bank, broker/dealer or other financial institution that is able to make business deals with the U.S. Federal Reserve, such as underwriting new government debt. These dealers must meet certain liquidity and quality requirements as well as provide a valuable flow of information to the Fed about the state of the worldwide markets.
A
primary dealer is a firm which buys government securities directly from a
government with the intention of reselling them to others, thus acting as a
market maker of government securities. The government may regulate the behavior
and numbers 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 Canada, France,
Italy, Spain, the United Kingdom, and the United States.
These
primary dealers which all bid for government contacts competitively, purchase
the majority of Treasuries at auction and then redistribute them to their
clients, creating the initial market in the process.