Two brokerage firms are seeking to become primary dealers at a time when the number of firms playing that essential role in the U.S. government debt market has dwindled to a record low of 16 because of the credit crisis.
The brokerages are MF Global and Nomura Securities International, spokesmen from each firm confirmed today.
The Federal Reserve Bank of New York approves the firms that qualify but spokesman Andrew Williams declined to comment on the matter. The primary dealer system was established in 1960 with 18 dealers and reached a record 46 in 1988. On Wednesday, the number fell to 16 as Merrill Lynch & Co. withdrew following its merger with Bank of America Corp., already a primary dealer. Bear Stearns & Cos. Inc. similarly withdrew last October after being bought by JPMorgan Chase & Co. Only seven are U.S. firms.
Primary dealers directly buy Treasury securities through the New York Fed, the market arm of the U.S. central bank. Primary dealers play a particularly important role at a time when the U.S. government is running record budget deficits and Treasury auctions, but they also enjoy direct access to lending from the Fed.
With the U.S. Treasury facing an enormous financing task over the next several years, helping facilitate that process has to be a worthwhile enterprise, said David Resler, chief economist at Nomura. His firm, which had been a primary dealer previously, gave up that status in November 2007, as it reassessed its role in U.S. credit markets.