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The term refers to banks or other financial services firms that provide information about their market activities to a monetary authority or central bank. The information is used to compile statistics and can also play a key part in the conduct of monetary policy. For example, since 1998 G10 central banks have been supplying the Bank for International Settlements (BIS) with data on activity in (OTC) derivatives markets reported to them by dealers. In the U.S., dealers in government securities report their positions and trading volumes to the Federal Reserve.
The information is used by the Fed to conduct monetary policy and open market operations
See also: Primary Dealer