On Thursday, October 15, a retail customer places an unsolicited market order with a broker-dealer to purchase 1,000 shares of an exchange-listed corporate stock. The broker-dealer executes the order by filling it directly from its own inventory at 0.50 per share mark-up. Regarding the broker-dealer's capacity disclosure on the trade confirmation and the regular-way settlement date for this transaction, which of the following statements is correct?
- The firm acted in a principal capacity and must disclose the mark-up on the trade confirmation, with regular-way settlement occurring on Friday, October 16.Cevap
- BThe firm acted in a principal capacity and must disclose the mark-up on the trade confirmation, with regular-way settlement occurring on Monday, October 19.
- CThe firm acted in an agency capacity and must disclose a commission on the trade confirmation, with regular-way settlement occurring on Friday, October 16.
- DThe firm acted as a clearing depository, transferring safekeeping duties to NSCC, with regular-way settlement occurring on Monday, October 19.
Cevap
The firm acted in a principal capacity and must disclose the mark-up on the trade confirmation, with regular-way settlement occurring on Friday, October 16.
The statement specifying that the firm acted in a principal capacity, must disclose the mark-up on the trade confirmation, and settles on Friday, October 16 is correct. When a broker-dealer satisfies a customer order from its own inventory, it acts as a principal/dealer and charges a mark-up (or mark-down). SEC Rule 10b-10 and FINRA rules require written confirmation detailing the firm's capacity and mark-up amount at or before trade completion. Furthermore, regular-way settlement for equity transactions occurs on the next business day (T+1), making Friday, October 16 the correct settlement date.
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Anahtar Kavram
Broker-dealer capacity (principal vs. agency) disclosure on trade confirmations and regular-way T+1 settlement cycles.