Securities Dealers Transactions

Trading among securities dealers and between dealers and their customers' amounts to billions of dollars a day. Average daily transactions in the U.S. government securities market were in excess of $13.1 billion in 1979. Indeed, so large is the government securities market that the volume of trading usually exceeds by four or five times the total volume of trading on the major U.S. stock exchange. The majority of traders by far are in treasury bills. It is also clear that government securities dealers trade heavily among themselves, usually trough brokers. Government security brokers do not take investment positions themselves but try to match bids and offers placed with them by dealers and other investors.
Dealerships are a cutthroat business where each dealer firm is out to maximize its returns from trading even if gains must be made at the expense of competing dealers, indeed, market analysts housed within each dealer firm study the daily price quotations of their competitors. If one dealer temporarily under prices some securities (I.e., offers excessively generous yields), other dealers are likely to rush in for a "hit" before the offering firm has a chance to correct its mistake. It is a business with little room for the inexperienced or slow-moving trader. Yet, as we have seen, the government securities dealers are essential to the smooth functioning of the financial markets and to the successful placement of billions of dollars in new U.S. government securities issued each year.