U.S. Government Securities

The U.S. government securities market encompasses all primary and secondary market transactions in securities issued by the U.S. Treasury, certain federal government agencies, and federal government-sponsored enterprises.Government-sponsored enterprises (GSEs) are publicly-traded corporations created by Congress to address public policy concerns about the ability of members of certain groups to borrow sufficient funds at affordable rates. GSEs do not receive federal funds and rely primarily on debt financing for their day-to-day operations. GSE securities are not government securities; however, market participants rate and price GSE securities similar to U.S. government-issued securities. Trading in government securities is conducted over the counter between brokers, dealers, and investors. In over-the-counter trading, participants trade with one another on a bilateral basis rather than on an organized exchange. Nearly all U.S. government securities are issued and transferred through a book-entry system operated by the Federal Reserve.

In the primary market, U.S. Treasury securities are issued through regularly scheduled auctions. The Federal Reserve Banks serve as conduits for the auctions, with the Federal Reserve Bank of New York coordinating much of the auction activity. Individuals, corporations and financial institutions may participate in the auctions. Participation in Treasury auctions, however, is typically concentrated among a small number of dealer firms, known as primary dealers.Primary dealers are designated trading counterparties for the Federal Reserve Bank of New York in its execu-tion of market operations to carry out US monetary policy. Currently there are 23 designated primary dealers.

In the secondary market for government securities, trading activity takes place between primary dealers and non-primary dealers. Customers of these dealers are financial institutions, non-financial institutions and individuals. The majority of transactions between primary dealers and other large market participants are conducted through inter-dealer brokers that provide both anonymity and price information to market participants. Approximately 2,000 securities brokers and dealers are registered to operate in the U.S. government securities market.


 

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Fixed Income Clearing Corporation (FICC)