UPDATE 1-RBC Capital Markets named U.S. primary dealer

(Recasts, adds comment, detail, background)

By Kristina Cooke and Pav Jordan

WASHINGTON, July 7 (Reuters) - RBC Capital Markets won the right to be a U.S. primary dealer of Treasury securities starting on Wednesday, part of a push by the unit of Canada's largest bank to win more U.S. and European business.

The addition of RBC will increase the number of firms that deal directly with the U.S. Federal Reserve to 17 from a record low of 16. Primary dealers are required to bid at Treasury auctions and the Fed regularly consults with them as it gathers market intelligence.

RBC Capital Markets, a unit of the Royal Bank of Canada (RY.TO), was the lead bookrunner for all Canadian debt, Canadian domestic corporate debt and Canadian government debt for the first half of 2009.

The firm has been actively expanding its business in the United States and in the United Kingdom and has doubled its revenue from fixed income and currency outside of Canada in the past five or six years.

"This is a logical extension of our global rates franchise, where we are already making markets as the equivalent of a primary dealer in both the UK and Canada," said Mark Standish, president and co-chief executive of RBC Capital Markets.

Though the number of primary dealers shrank to a record low in the network's 49-year history during the financial crisis, the prospect of money to be made as a wave of huge government debt issuance looms to fund economic rescue programs has made the primary dealer status more appealing to a broader range of institutions.

"This is a springboard. It gives us access to clientele that traditionally may not have dealt with non-primary dealer counterparties," said Jonathan Hunter, RBC Capital Markets' global co-head, fixed income and currencies.

"This is clearly a further arrow in our quiver as it relates to a commitment to the U.S. market," he said.

In a February report, the Treasury Borrowing Advisory Committee said a larger primary dealer community would help to "reduce the possibility of an undersubscribed auction."

RBC Capital Markets' addition follows that of mid-sized U.S. investment bank Jefferies & Co (JEF.N) in June.

Other institutions are also likely to be added to the exclusive network. Futures and options broker MF Global Ltd (MF.N) and Japanese bank Nomura Holdings Inc (8604.T) confirmed earlier this year that they were in talks with the Fed about becoming primary dealers, but have given no updates since then.

Potential dealers must qualify in terms of reputation, capacity, and adequacy of staff and facilities.

The list of dealers has been decimated in the global financial crisis' dramatic reshaping of Wall Street.

Countrywide, which is now owned by Bank of America Corp (BAC.N); Lehman Brothers (LEHMQ.PK); Merrill Lynch, also now owned by BofA; and Bear Stearns all dropped off the dealer list during the crisis.