Fed Changes Its Rules to Expand, Align Primary Dealer Criteria

The Federal Reserve Bank of New York changed its eligibility criteria in a bid to widen the pool of firms eligible to become primary dealers and align the regulations for foreign and domestic banks.

The New York Fed cut its minimum net-regulatory capital for dealers to $50 million from $150 million, according to a statement Wednesday. It also raised the Tier 1 capital threshold, a measure of a firm’s overall financial strength, to $1 billion from $150 million. Banks will need to make up at least 0.25 percent of the Treasury market to qualify for primary dealer eligibility. Previously there was no minimum market share requirement.

“The New York Fed is seeking to expand and diversify the pool of firms eligible to apply for primary dealer status,” according to the statement.

Primary dealers trade with the Fed, and are obligated to bid at debt auctions. Banks used to seek out the distinction, but post-crisis regulations and evolving technology lessened the appeal and profit potential in the benchmark market for global borrowing.

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