The Treasury Securities Market and Primary Dealer System

GAO testified on its study of the government securities market's strengths and weaknesses, specifically: (1) the relevance of the standards used to designate primary dealers; and (2) the uses which certain market participants make of the primary dealer designation. GAO found that: (1) the Federal Reserve System should review the standard requiring participation in auctions to determine whether the requirement is still needed now that the securities market is so large, since it has not enforced, and dealers have not adhered to, the standard; (2) the Federal Reserve should rely on the creditworthiness of trading counterparties as a condition for participation in the trading system, rather than relying on all of the primary dealer standards; and (3) since aspiring primary dealers are not subject to the same daily reporting and oversight requirements as primary dealers, there is a potential oversight gap in the market.