On Tuesday, May 12, a retail investor purchases 50 corporate bonds directly from a broker-dealer's own inventory. Under FINRA rules and standard regular-way settlement guidelines, which of the following correctly identifies the settlement date and the capacity disclosure required on the trade confirmation?
- The transaction settles on Wednesday, May 13, and the confirmation must disclose that the broker-dealer acted as a principal, including the mark-up charged.Cevap
- BThe transaction settles on Thursday, May 14, and the confirmation must disclose that the broker-dealer acted as a principal, including the mark-up charged.
- CThe transaction settles on Wednesday, May 13, and the confirmation must disclose that the broker-dealer acted as an agent, including the commission charged.
- DThe transaction settles on Wednesday, May 13, and the trade confirmation must be issued directly by the Depository Trust Company (DTC) to the customer.
Cevap
The transaction settles on Wednesday, May 13 (T+1 regular-way), and the trade confirmation must disclose that the broker-dealer acted in a principal capacity and disclose the mark-up charged.
Under standard industry rules, regular-way settlement for corporate bonds occurs on T+1, making the settlement date Wednesday, May 13. Additionally, when a firm executes a customer trade using its own inventory, it acts in a principal capacity. SEC and FINRA rules require trade confirmations to explicitly disclose whether the firm acted as principal or agent, along with the mark-up charged on retail transactions.
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T+1 Regular-Way Settlement and Broker-Dealer Capacity Disclosures on Trade Confirmations