On Wednesday, June 10, a retail investor purchases 500 shares of corporate stock through a firm that fills the order by selling the shares directly out of its own inventory. Under FINRA and SEC rules governing standard regular-way transactions, on which business day will this trade settle, and how must the broker-dealer disclose its operational capacity on the trade confirmation sent to the customer?
- The trade settles on Thursday, June 11, and the confirmation must state that the firm acted as a principal and disclose the mark-up.Answer
- BThe trade settles on Friday, June 12, and the confirmation must state that the firm acted as a principal and disclose the mark-up.
- CThe trade settles on Thursday, June 11, and the confirmation must state that the firm acted as an agent and disclose the commission.
- DThe trade settles on Friday, June 12, and the confirmation must state that the clearing corporation (NSCC) acted as a principal agent to execute the trade.
Answer
The trade settles on Thursday, June 11 (T+1), and the confirmation must state that the firm acted as a principal and disclose the mark-up.
Regular-way settlement for corporate securities occurs on T+1 (one business day following the trade date), making Thursday, June 11 the settlement date for a trade executed on Wednesday, June 10. Furthermore, when a firm executes an order out of its proprietary inventory, it acts in a principal (dealer) capacity and must state this capacity on the trade confirmation along with the mark-up charged.
Step-by-Step Solution
Key Concept
Regular-way settlement timeline (T+1) and broker-dealer capacity disclosure on trade confirmations
Estimated Time:1m 30s