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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 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):
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:
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?
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?
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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):
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):
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When trading equity securities, the term dark pool is BEST defined as trading:
When trading equity securities, the term dark pool is BEST defined as trading:
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A broker-dealer acting in an agency capacity will charge customers a:
A broker-dealer acting in an agency capacity will charge customers a:
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Which of the following statements is NOT TRUE concerning a clearing corporation?
Which of the following statements is NOT TRUE concerning a clearing corporation?
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The OTC Bulletin Board (OTCBB) is BEST defined as:
The OTC Bulletin Board (OTCBB) is BEST defined as:
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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.
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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.
