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Difficulty: MediumBroker-Dealers, Investment Advisers, and Intermediaries

A introducing broker-dealer enters into a fully disclosed clearing agreement with a carrying broker-dealer to execute and clear customer transactions. In this arrangement, which of the following functions is the direct responsibility of the carrying firm?

  1. Safekeeping customer cash and securities, and sending trade confirmations and account statementsAnswer
  2. B
    Opening customer accounts directly and making investment suitability recommendations to clients
  3. C
    Maintaining the official record of corporate share ownership and cancelling physical stock certificates
  4. D
    Examining member broker-dealers for financial compliance and regulating securities industry conduct

Answer

Safekeeping customer cash and securities, and sending trade confirmations and account statements
In a fully disclosed clearing relationship, the carrying (or clearing) broker-dealer executes post-trade services, maintains custody of customer funds and securities, and generates official customer communications such as trade confirmations and monthly/quarterly account statements.

Step-by-Step Solution

1
Analyze the relationship between introducing and carrying broker-dealers under a fully disclosed clearing arrangement.
Introducing firms handle client-facing sales and account opening, while carrying firms handle back-office processing and custody.
Federal regulations require explicit division of operational responsibilities between introduced and carrying entities.
2
Evaluate which specific duties belong to the carrying firm.
Carrying firms execute clearing, settlement, custody of assets, and distribution of regulatory trade confirmations and account statements.
Carrying firms maintain net capital requirements to hold client funds and process post-trade settlements.

Key Concept

Operational division between Carrying (Clearing) Broker-Dealers and Introducing Broker-Dealers
Estimated Time:1m 0s
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Topics

Broker-Dealers, Investment Advisers, and Intermediaries

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