On Monday, October 12, a retail investor purchases 500 shares of a corporate stock through a broker-dealer. The firm fills the customer's buy order directly out of its own proprietary inventory. Under SEC and FINRA rules, which of the following statements correctly identifies the regular-way settlement date for this transaction and the required capacity disclosure on the trade confirmation?
- Settlement occurs on Tuesday, October 13, and the confirmation must disclose that the firm acted as a principal, including the mark-up charged.Answer
- BSettlement occurs on Wednesday, October 14, and the confirmation must disclose that the firm acted as a principal, including the mark-up charged.
- CSettlement occurs on Tuesday, October 13, and the confirmation must disclose that the firm acted as an agent, including the commission charged.
- DSettlement occurs on Wednesday, October 14, and the confirmation must disclose that the firm acted as an agent, including the commission charged.
Answer
Settlement occurs on Tuesday, October 13 (T+1), and the confirmation must state that the broker-dealer acted as a principal (dealer) selling from its inventory, disclosing the mark-up.
Under current SEC rules, standard regular-way settlement for corporate equity securities takes place on the first business day following the trade date (). Since the trade occurred on Monday, October 12, settlement takes place on Tuesday, October 13. Furthermore, because the firm filled the customer's order directly out of its own inventory, it acted as a principal (dealer) for its own account, which must be explicitly stated on the trade confirmation along with the mark-up charged.
Step-by-Step Solution
Key Concept
Regular-Way T+1 Settlement and Broker-Dealer Capacity Disclosures