What is a Paper Dealer?
How Does a Paper Dealer Work?
unsecured and discounted promissory note issued to finance the short-term needs of large institutional buyers. Banks, corporations and foreign governments commonly use this type of funding. Companies with very high credit usually commercial paper. Because of this, it tends to be a very low-risk investment.
Exempt from SEC registration, commercial paper generally matures in a short period of time and usually does not exist for more than 270 days. The average maturity of commercial paper is between 30 and 35 days. The average investment is about $100,000, but some commercial paper are made in of $1 million or more. makers and other financial institutions, paper dealers, facilitate the trading in this market.
Why Does a Paper Dealer Matter?
Paper dealers are middlemen. Generally, they purchase commercial paper is occasionally issued as an interest-bearing , it typically trades at a discount to its par value. In other words, investors usually purchase commercial paper and then receive its at . The discount, or the difference between the purchase price and the face value of the note, is the interest received on the .
Paper dealers facilitate trades for retail investors (though many individual investors buy commercial paper through mutual and ETFs) as well as mutual funds and commercial bank trust departments. These large institutional investors often prefer the cost savings inherent in using commercial paper instead of traditional bank .