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Question

Difficulty: EasySettlement Dates, Trade Confirmations, and Corporate Actions

When a registered broker-dealer executes a securities transaction for a customer, SEC and SRO rules require the firm to send a written trade confirmation at or before the completion of the transaction. Which of the following disclosures regarding the firm's capacity must be explicitly included on this trade confirmation?

  1. Whether the broker-dealer acted as an agent for the customer or as a principal for its own accountAnswer
  2. B
    That trade clearing was executed by the Depository Trust Company instead of the National Securities Clearing Corporation
  3. C
    That regular-way settlement for equity securities occurs on the second business day after the trade date
  4. D
    That purchasing common stock provides guaranteed preferred dividend rights ahead of corporate bondholders

Answer

The trade confirmation must explicitly disclose whether the broker-dealer acted as an agent (broker) or as a principal (dealer) in the transaction.
Under SEC Rule 10b-10 and FINRA rules, a broker-dealer must disclose on the written trade confirmation the capacity in which it acted: either as an agent (broker) charging a commission, or as a principal (dealer) acting for its own account and charging a mark-up or mark-down.

Step-by-Step Solution

1
Identify the mandatory capacity disclosures required on customer trade confirmations under SEC and SRO rules.
Broker-dealers are required to specify if they executed the trade as an agent (broker) or principal (dealer).
Investors have a right to know if their firm acted as a middleman for a commission or bought/sold securities for its own inventory with a mark-up/mark-down.
2
Evaluate the answer choices against official FINRA and SEC trade confirmation requirements.
Disclosing whether the firm acted as an agent or principal is the only mandatory capacity disclosure listed.
Clearing entity operational roles, outdated settlement timelines, and equity rights descriptions are incorrect disclosures.

Key Concept

Broker-Dealer Capacity Disclosure on Trade Confirmations
Estimated Time:45s
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Topics

Settlement Dates, Trade Confirmations, and Corporate Actions