Wells Fargo Named Primary Dealer for U.S. Debt by New York Fed

  • San Francisco-based bank becomes 23rd member on roster
  • First added member since TD Securities in February 2014

One of the bond market’s most exclusive clubs has a new member.

The brokerage arm of Wells Fargo & Co., the third-biggest U.S. bank by assets, was designated a U.S. primary dealer by the Federal Reserve Bank of New York on Monday. It’s the first addition to the list since February 2014, when the U.S.-based brokerage of Toronto-Dominion Bank was included. The roster of primary dealers has grown to 23 firms from as low as 17 in 2008, although it remains below its 1988 peak of 46.

“A long process of working with the Fed has come to a conclusion,” Elise Wilkinson, a spokeswoman for San Francisco-based Wells Fargo, said by phone. “The scope and scale of what we’ve been doing, it’s been at the level of a primary dealer for a long time.” The process took years, Wilkinson said, declining to elaborate.

Fresh Competition

The addition of Wells Fargo Securities LLC signals the arrival of a large competitor in a market where roughly $500 billion trades daily, according to the Securities Industry and Financial Markets Association. It’s the first U.S.-based bond dealer to join the list since MF Global Holdings Ltd. in 2011, which was dropped before the end of that year after the firm’s collapse.

“Inclusion of a well-capitalized, well-rated firm onto the primary dealer list can only be a positive for the Treasury market,” Kevin McPartland, head of research for market structure and technology at financial-services consulting firm Greenwich Associates, said in an e-mail.

It also represents a bright spot in the business of bond trading, where large banks are retrenching. Treasuries trading volumes have held up better than other types of debt, rising 1 percent in the first quarter from a year earlier, compared with a 12 percent drop in mortgage-backed securities, according to New York Fed data compiled by Bloomberg Intelligence.

What’s more, Wells Fargo has been expanding its lineup of bond-trading businesses as its competitors shrink. The bank has plans to start trading single-name credit default swaps, people with knowledge of the matter said last month.

Primary dealers are required to make “reasonably competitive” bids for a pro-rata share of every U.S. debt auction, according to the New York Fed. Last year, a total $2.1 trillion of Treasury bills, notes and bonds were issued, according to Sifma. The firms also trade with the Fed as it implements monetary policy, and provide market commentary for the New York Fed’s trading desk.

“Wells Fargo is moving up the ranks in investment banking and being a primary dealer in Treasury instruments signifies their rising importance in finance,” Bill Smead, chief executive officer at Seattle-based Smead Capital Management, which holds Wells Fargo shares and manages about $2.4 billion, said by e-mail.

“This is important when other sources of revenue are scarce and will be one more way higher interest rates would be helpful to overall profits,” he said.

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