A retail customer purchases 500 shares of an exchange-listed stock through a registered broker-dealer. The firm fills the order by selling shares directly from its own inventory to the customer at a price that includes a price addition above the prevailing market price. Which of the following disclosures must be included on the customer's trade confirmation for this transaction?
- The firm's capacity as principal and the dollar amount of the mark-upAnswer
- BThe firm's capacity as agent and the total dollar amount of commission charged
- CA regular-way settlement timeline specifying payment and delivery two business days after the trade date ()
- DA disclosure that trade clearing and central counterparty netting were performed by the Depository Trust Company (DTC)
Answer
The firm's capacity as principal and the dollar amount of the mark-up
When a broker-dealer sells securities directly from its own inventory to a customer, it is acting in a principal (dealer) capacity. SEC Rule 10b-10 and FINRA rules require trade confirmations to explicitly state that the firm acted as principal and to disclose the dollar amount of the mark-up applied to the transaction price.
Step-by-Step Solution
Key Concept
Broker-Dealer Capacity and Trade Confirmation Requirements
Estimated Time:1m 0s