Examkin

Question

Difficulty: EasyTypes of Markets and Trading Venues

When a broker-dealer executes a customer's trade in the secondary market acting in an agency capacity, how is the firm compensated for completing the transaction?

  1. By charging a commission for executing the trade on behalf of the customerAnswer
  2. B
    By selling the security out of its own inventory with a mark-up
  3. C
    By retaining a portion of the capital raised for the issuing corporation
  4. D
    By collecting a central custody and safekeeping fee directly from the Depository Trust Company

Answer

By charging a commission for executing the trade on behalf of the customer
When a broker-dealer operates in an agency capacity (as a broker), it represents the customer by finding a counterparty to execute the trade and is compensated by charging a commission.

Step-by-Step Solution

1
Identify the operational capacity of the broker-dealer in the scenario.
The firm is acting in an agency capacity (as a broker).
The question specifies an agency trade where the firm represents the customer rather than trading for its own account.
2
Determine the form of compensation corresponding to an agency transaction.
Brokers acting in an agency capacity earn a commission.
When a firm acts as a broker (agent), it connects a buyer and seller without taking a position in inventory and charges a commission.

Key Concept

Broker (Agency) vs. Dealer (Principal) Capacity and Compensation
Estimated Time:45s
Rate this question

Topics

Types of Markets and Trading Venues

More questions from this topic