An institutional investment manager executes a block order to buy corporate equities with Firm X, which fills the order directly from its own proprietary account inventory. Firm X then sends the trade details to Firm Y, which maintains the manager's central margin account, provides safekeeping and asset custody, and aggregates multi-broker trade confirmations onto a consolidated statement. In this arrangement, in what capacity did Firm X act, and what primary intermediary role is fulfilled by Firm Y?
- Firm X acted in a principal capacity charging a mark-up; Firm Y acts as a prime broker providing custody and account consolidation.Cevap
- BFirm X acted in an agency capacity charging a commission; Firm Y acts as a transfer agent responsible for updating shareholder ownership records.
- CFirm X acted in a principal capacity charging a commission; Firm Y acts as the National Securities Clearing Corporation (NSCC) providing automated trade netting.
- DFirm X acted in an agency capacity charging a mark-up; Firm Y acts as an introducing broker that forwards orders to a carrying firm.
Cevap
Firm X acted in a principal capacity charging a mark-up, while Firm Y operates as a prime broker offering consolidated custody, clearing, and margin services.
The correct response accurately identifies that executing a trade out of proprietary inventory means Firm X acted as a principal (dealer), earning a mark-up. It also correctly recognizes Firm Y as a prime broker, which enables institutional clients to trade with multiple executing firms while maintaining a centralized account for clearing, margin, custody, and consolidated reporting.
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Broker-Dealer Capacity and Prime Brokerage Roles
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