Questions and Answers
If a customer has an account with a discount broker-dealer that specializes in online trading and is being charged a commission, the firm is MOST likely acting in which capacity?
If ABC Brokerage (a broker-dealer) purchases 600 shares of stock from a customer and places the securities into its inventory, it likely acted as a(n):
The third market is concerned with:
A broker-dealer is clearing its trades through another broker-dealer but is not disclosing specific information regarding its clients. Who is responsible for maintaining the account records?
Signup and view all the answers
A customer sells 500 shares of stock to a broker-dealer that makes a market in the stock. The broker-dealer acted in a(n):
Signup and view all the answers
When trading equity securities, the term dark pool is BEST defined as trading:
Signup and view all the answers
A broker-dealer acting in an agency capacity will charge customers a:
Signup and view all the answers
Which of the following statements is NOT TRUE concerning a clearing corporation?
Signup and view all the answers
The OTC Bulletin Board (OTCBB) is BEST defined as:
Signup and view all the answers
Study Notes
Broker-Dealer Roles
- A broker-dealer charging a commission acts as an agent, facilitating trades for clients without taking ownership.
- A broker-dealer acting as a principal or dealer charges customers a markup or markdown, taking ownership of the securities.
Market Maker Activities
- If a broker-dealer purchases stocks to place into inventory, it operates as a dealer (principal).
- A market maker, always ready to buy or sell, typically charges a markdown when acquiring stocks and a markup when selling.
Third Market Overview
- The third market involves securities traded off-exchange but are listed on formal exchanges like NYSE or Nasdaq.
- It allows institutional investors to trade these listed securities in the OTC market.
Omnibus Accounts
- In an omnibus account, the introducing broker-dealer is responsible for maintaining account records while the clearing broker-dealer processes trades.
- This arrangement allows the clearing broker to handle trades without needing detailed client info from the introducing firm.
Dark Pools Explained
- Dark pools are trading venues allowing investors to transact anonymously without quotes being displayed, providing privacy in trading.
Commissions in Agency Capacity
- When acting as an agent, a broker-dealer typically charges a commission for facilitating transactions rather than taking ownership of the security.
Clearing Corporation Misconceptions
- Clearing corporations do not manage automated book-entry changes; that role belongs to depositories like the DTC.
- They provide services like trade comparison, reporting, and aid in asset transfers between broker-dealers.
OTC Bulletin Board Definition
- The OTC Bulletin Board (OTCBB) serves as a quotation system for securities not listed on major exchanges like NYSE or Nasdaq, enabling price and trading information access for these stocks.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
Test your knowledge with these flashcards on securities fundamentals covered in Chapter 1 of the Securities Industry Essentials (SIE). This quiz focuses on the roles of broker-dealers and the terminology you need to understand the financial services industry better.
