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Definition of Dealer

Dealer Image 1

Dealer

An entity that stands ready and willing to buy a security for its own account (at its bid price) or sell
from its own account (at its ask price).


Dealer

A person or firm in the financial asset business who buys for his or her own account and then resells to customers, in contrast to a broker, who buys only on behalf of a customer.



Related Terms:

Dealer loan

Overnight, collateralized loan made to a dealer financing his position by borrowing from a
money market bank.


Dealer market

A market where traders specializing in particular commodities buy and sell assets for their
own accounts.


Dealer options

Over-the-counter options, such as those offered by government and mortgage-backed
securities dealers.


Foreign exchange dealer

A firm or individual that buys foreign exchange from one party and then sells it to
another party. The dealer makes the difference between the buying and selling prices, or spread.



Odd lot dealer

A broker who combines odd lots of securities from multiple buy or sell orders into round lots
and executes transactions in those round lots.


AIBD

Association of International Bond dealers.


Dealer Image 2

Ask price

A dealer's price to sell a security; also called the offer price.


Away

A trade, quote, or market that does not originate with the dealer in question, e.g., "the bid is 98-10
away from me."


Distributed

After a Treasury auction, there will be many new issues in dealer's hands. As those issues are
sold, it is said that they are distributed.


Exchange

The marketplace in which shares, options and futures on stocks, bonds, commodities and indices
are traded. Principal US stock exchanges are: New York Stock Exchange (NYSE), American Stock Exchange
(AMEX) and the National Association of Securities dealers (NASDAQ)


Floating supply

The amount of securities believed to be available for immediate purchase, that is, in the
hands of dealers and investors wanting to sell.


Gestation repo

A reverse repurchase agreement between mortgage firms and securities dealers. Under the
agreement, the firm sells federal agency-guaranteed MBS and simultaneously agrees to repurchase them at a
future date at a fixed price.


GNMA Midget

A GNMA pass-through certificate backed by fixed rate mortgages with a 15 year maturity.
GNMA Midget is a dealer term and is not used by GNMA in the formal description of its programs.


Go-around

When the Fed offers to buy securities, to sell securities, to do repo, or to do reverses, it solicits
competitive bids or offers from all primary dealers.


Hit

A dealer who agrees to sell at the bid price quoted by another dealer is said to "hit" that bid.


In the box

This means that a dealer has a wire receipt for securities indicating that effective delivery on them
has been made.


Inventory

For companies: Raw materials, items available for sale or in the process of being made ready for
sale. They can be individually valued by several different means, including cost or current market value, and
collectively by FIFO, LIFO or other techniques. The lower value of alternatives is usually used to preclude
overstating earnings and assets.
For security firms: securities bought and held by a broker or dealer for resale.



ISDA

International Swap dealers Association. Formed in 1985 to promote uniform practices in the writing,
trading, and settlement of swaps and other derivatives.


Lender (Credit Insurance)

Individual or firm that extends money to a borrower with the expectation of being repaid, usually with interest. Lenders create debt in the form of loans. Lenders include financial institutions, leasing companies government lending agencies and automobile dealers.


Make a market

A dealer is said to make a market when he quotes bid and offered prices at which he stands
ready to buy and sell.


Margin account (Stocks)

A leverageable account in which stocks can be purchased for a combination of
cash and a loan. The loan in the margin account is collateralized by the stock and, if the value of the stock
drops sufficiently, the owner will be asked to either put in more cash, or sell a portion of the stock. Margin
rules are federally regulated, but margin requirements and interest may vary among broker/dealers.


Market impact costs

Also called price impact costs, the result of a bid/ask spread and a dealer's price concession.


NASDAQ

National Association of Securities dealers Automatic Quotation System. An electronic quotation
system that provides price quotations to market participants about the more actively traded common stock
issues in the OTC market. About 4,000 common stock issues are included in the NASDAQ system.


NASDAQ

The automatic quotation system of the National Association of Securities dealers, providing brokers and dealers with price quotations for over-the-counter stocks.


Negotiated markets

Markets in which each transaction is separately negotiated between buyer and seller (i.e.
an investor and a dealer).


Over-the-counter market (OTC)

A decentralized market (as opposed to an exchange market) where
geographically dispersed dealers are linked together by telephones and computer screens. The market is for
securities not listed on a stock or bond exchange. The NASDAQ market is an OTC market for U.S. stocks.


Phone switching

In mutual funds, the ability to transfer shares between funds in the same family by
telephone request. There may be a charge associated with these transfers. Phone switching is also possible
among different fund families if the funds are held in street name by a participating broker/dealer.



Plus

ealers in government bonds normally give price quotes in 32nds. To quote a bid or offer in 64ths, they
use pluses; a dealer who bids 4+ is bidding the handle plus 4/32 + 1/64, which equals the handle plus 9/64.


prospectus

A legal document that must be filed with securities regulators in order to distribute securities, including mutual funds. Mutual fund dealers are required by law to distribute this document to investors before the purchase of any units. It contains all key information, such as investment objectives and strategies, risk factors and financial highlights.


Public Securities Administration (PSA)

The trade association for primary dealers in U.S. government
securities, including MBSs.


Quotation

The bid and offered prices a dealer is willing to buy or sell at.


Real market

The bid and offer prices at which a dealer could do "size." Quotes in the brokers market may
reflect not the real market, but pictures painted by dealers playing trading games.


Repurchase agreement

An agreement with a commitment by the seller (dealer) to buy a security back from
the purchaser (customer) at a specified price at a designated future date. Also called a repo, it represents a
collateralized short-term loan, where the collateral may be a Treasury security, money market instrument,
federal agency security, or mortgage-backed security. From the purchaser (customer) perspective, the deal is
reported as a reverse Repo.


Retail

Individual and institutional customers as opposed to dealers and brokers.


Run

A run consists of a series of bid and offer quotes for different securities or maturities. dealers give to and
ask for runs from each other.


Scale

A bank that offers to pay different rates of interest on CDs of varying rates is said to "post a scale."
Commercial paper dealers also post scales.


Shopping

Seeking to obtain the best bid or offer available by calling a number of dealers and/or brokers.


Specialist

On an exchange, the member firm that is designated as the market maker (or dealer for a listed
common stock). Only one specialist can be designated for a given stock, but dealers may be specialists for
several stocks. In contrast, there can be multiple market makers in the OTC market.


Specific issues market

The market in which dealers reverse in securities they wish to short.


Spectail

A dealer that does business with retail but that concentrates more on acquiring and financing its own
speculative positions.


Street

Brokers, dealers, underwriters, and other knowledgeable members of the financial community; from
Wall Street financial community.


Take

1) A dealer or customer who agrees to buy at another dealer's offered price is said to take that offer.
2) Also, Euro bankers speak of taking deposits rather than buying money.


Technical condition of a market

Demand and supply factors affecting price, in particular the net position,
either long or short, of the dealer community.



 

 

 

 

 

 

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