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Question

Difficulty: MediumSettlement Dates, Trade Confirmations, and Corporate Actions

A retail investor purchases shares of common stock through a registered broker-dealer, which executes the order on an exchange in an agency capacity. Under SEC Rule 10b-10, which of the following pieces of information must be disclosed on the written trade confirmation delivered to the customer at or before settlement?

  1. A
    The markup or markdown added to the transaction price, reflecting the firm's inventory profit as an agent
  2. The capacity in which the firm acted and the specific commission charged on the transactionAnswer
  3. C
    A statement confirming that the securities purchase has been reviewed and endorsed by the Securities and Exchange Commission
  4. D
    A regular-way settlement date specified as two business days following the trade date (T+2)

Answer

The capacity in which the firm acted and the specific commission charged on the transaction.
Under SEC Rule 10b-10, trade confirmations sent to customers at or before completion of a transaction (settlement) must disclose key transaction details. When a firm acts as an agent, it must explicitly disclose the capacity in which it acted and the commission charged for executing the trade.

Step-by-Step Solution

1
Identify the role/capacity of the broker-dealer in the transaction scenario.
The firm acted as an agent (broker) executing the transaction on an exchange on behalf of the customer.
Broker-dealer capacity dictates the required remuneration disclosures under trade confirmation rules.
2
Determine the disclosure requirements under SEC Rule 10b-10 for agency transactions.
When acting as an agent, the firm must disclose its agency capacity and the exact commission charged.
SEC Rule 10b-10 mandates customer transparency regarding firm role and remuneration.

Key Concept

Trade Confirmation Disclosures and Broker-Dealer Capacity
Estimated Time:1m 0s
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Topics

Settlement Dates, Trade Confirmations, and Corporate Actions