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Difficulty: HardBroker-Dealers, Investment Advisers, and Intermediaries

An introducing broker-dealer enters into a fully disclosed clearing agreement with a carrying (clearing) broker-dealer. Under FINRA rules and standard industry practice, which of the following functions is primarily the responsibility of the carrying broker-dealer?

  1. Safekeeping customer funds and securities and issuing trade confirmations and account statementsAnswer
  2. B
    Determining the overall investment suitability of recommendations made by the introducing firm's registered representatives
  3. C
    Delegating physical asset custody and statement delivery entirely to the National Securities Clearing Corporation (NSCC)
  4. D
    Extending FDIC insurance coverage to customer equity and cash balances held within the brokerage accounts

Answer

Safekeeping customer funds and securities and issuing trade confirmations and account statements.
In a fully disclosed clearing agreement, the carrying broker-dealer performs back-office functions including maintaining physical custody of customer assets, executing trade settlements, and directly issuing trade confirmations and account statements to the introducing firm's clients.

Step-by-Step Solution

1
Differentiate between introducing broker-dealers and carrying (clearing) broker-dealers.
Introducing firms focus on client relationships and sales, while carrying firms handle back-office clearing and operational functions.
Fully disclosed clearing agreements separate customer-facing activities from trade processing and custody.
2
Identify the operational responsibilities explicitly assigned to the carrying broker-dealer.
The carrying firm maintains custody of funds and securities, clears transactions, and sends customer statements and trade confirmations.
FINRA rules require carrying firms to provide operational infrastructure and account maintenance for introducing firms operating on a fully disclosed basis.

Key Concept

Carrying (Clearing) vs. Introducing Broker-Dealer Operational Roles
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Topics

Broker-Dealers, Investment Advisers, and Intermediaries

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