A retail investor places an order to purchase shares of stock, and the executing broker-dealer fills the order directly from its own proprietary account inventory. In what capacity is the firm acting for this transaction, and what compensation details must be disclosed on the trade confirmation?
- The firm is acting as a principal (dealer) and must disclose the mark-up added to the transaction price.Answer
- BThe firm is acting as an agent (broker) and must disclose the commission charged for executing the trade.
- CThe firm is acting as a principal (dealer) and must disclose the commission charged to the customer.
- DThe firm is acting as an agent (broker) and must disclose the mark-down applied to the trade.
Answer
The firm is acting as a principal (dealer) and must disclose the mark-up added to the transaction price.
When a broker-dealer fills a customer order using its own inventory, it acts as a principal (dealer). For a retail sale from inventory, the firm sells at a net price that includes a mark-up, which must be explicitly disclosed on the trade confirmation along with the firm's capacity.
Step-by-Step Solution
Key Concept
Broker-Dealer Capacity and Remuneration Disclosure on Trade Confirmations
Estimated Time:45s