An investor maintains a brokerage account with an introducing firm that clears transactions on a fully disclosed basis through a carrying broker-dealer. The investor submits an order to purchase shares of a corporate stock. The carrying broker-dealer fills the customer's order directly out of its own proprietary inventory and assesses a mark-up on the trade. Separately, an independent entity is contracted by the issuing corporation to record changes of ownership, cancel old shares, issue new certificates, and distribute corporate dividends to shareholders. In what capacity did the carrying broker-dealer act when executing the order, and what market intermediary role is being performed by the independent entity?
- The carrying broker-dealer acted in a principal capacity, and the independent entity functions as the transfer agent.Answer
- BThe carrying broker-dealer acted in an agency capacity, and the independent entity functions as the transfer agent.
- CThe carrying broker-dealer acted in a principal capacity, and the independent entity functions as the Depository Trust Company (DTC).
- DThe carrying broker-dealer acted in an agency capacity, and the independent entity functions as the National Securities Clearing Corporation (NSCC).
Answer
The carrying broker-dealer acted in a principal capacity, and the independent entity functions as the transfer agent.
When a securities firm buys or sells securities for its own proprietary account and charges a mark-up or mark-down, it is acting as a principal (dealer). Additionally, the intermediary contracted by an issuer to maintain official records of stock ownership, process certificate transfers, and distribute dividend payments is defined as the transfer agent.
Step-by-Step Solution
Key Concept
Broker-Dealer Capacities (Agent vs. Principal) and Market Intermediary Roles (Transfer Agent)
Estimated Time:1m 30s