A broker-dealer firm fills a retail investor's order to buy 500 shares of an over-the-counter (OTC) unlisted equity security directly out of the firm's own inventory, adjusting the execution price to include a mark-up. On the trade confirmation, the firm discloses that it executed the order for its own account. Which of the following statements correctly characterizes this market venue transaction?
- The transaction took place in the secondary market, with the broker-dealer acting as a principal (dealer) for its own inventory account.Cevap
- BThe transaction took place in the primary market because the retail investor purchased securities directly from a financial institution rather than through an exchange.
- CThe transaction took place in the secondary market, with the broker-dealer acting in an agency capacity as a broker charging a commission for matching buyer and seller.
- DThe transaction required trade settlement through the Depository Trust Company (DTC) to perform continuous net settlement and trade matching services.
Cevap
The transaction took place in the secondary market, with the broker-dealer acting as a principal (dealer) for its own inventory account.
In secondary market transactions, broker-dealers operate in one of two capacities: as an agent (broker) matching buyers and sellers for a commission, or as a principal (dealer) buying and selling for their own account out of inventory for a mark-up or mark-down. Because the firm filled the order directly from its own proprietary inventory, it acted as a principal/dealer in the secondary OTC market.
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Anahtar Kavram
Secondary market trading dynamics and broker-dealer capacity (broker/agent vs. dealer/principal).