broker-dealer
   HOME

TheInfoList



In , a broker-dealer is a , or other organization that engages in the business of trading for its own account or on behalf of its customers. Broker-dealers are at the heart of the securities and derivatives trading process. Although many broker-dealers are "independent" firms solely involved in broker-dealer services, many others are business units or subsidiaries of s, s or . When executing trade orders on behalf of a customer, the institution is said to be acting as a . When executing trades for its own account, the institution is said to be acting as a dealer. Securities bought from clients or other firms in the capacity of dealer may be sold to clients or other firms acting again in the capacity of dealer, or they may become a part of the firm's holdings. In addition to execution of securities transactions, broker-dealers are also the main sellers and distributors of mutual fund shares.


Main points of activity

* Professional participant in securities market who carries out dealer activity shall be called dealer. * Announcing the price, the dealer is committed to announce other essential conditions of the buy-sell contract of securities: minimum and maximum number of securities subject to purchase and/or sale, as well as the term of announced price's validity.


Functions

* All the functions of including financial consulting * Organization and support of turnover (liquidity), or market-making (price announcing, duty of sell and buy of security at announced price, announcing of min and max number of securities that can be bought/sold at announced price, implementing time periods when announced prices are available) * Dealers are large financial institutions that sell securities to end users and then hedge their risk by partaking in the interdealer market. Interdealers facilitate and execution between dealers.


Regulation


United States

:''See: '' In the , broker-dealers are regulated under the by the (SEC), a unit of the U.S. government. All brokers and dealers that are registered with the SEC (pursuant to ), with a number of exceptions, are required to be members of the (SIPC) (pursuant to ) and are subject to its regulations. Some regulatory authority is further delegated to the (FINRA), a . Many states also regulate broker-dealers under separate state securities laws (called ""). The 1934 Act defines "broker" as "any person engaged in the business of effecting transactions in securities for the account of others", and defines "dealer" as "any person engaged in the business of buying and selling securities for his own account, through a broker or otherwise". Under either definition, the person must be performing these functions as a business; if conducting similar transactions on a private basis, they are considered a and subject to different requirements. When acting on behalf of customers, broker-dealers have a duty to obtain "best execution" of transactions, which generally means achieving the best economic price under the circumstances. On April 28, 2004, the SEC voted unanimously to change the which applies to broker-dealers, thus allowing those with "tentative net capital" of more than $5 billion to increase their leverage ratios. The rule change remains in effect, though subject to modifications. Although broker-dealers often provide investment advice to their clients, in many situations they are exempt from registration under the U.S. Investment Advisers Act of 1940, so long as (i) the investment advice is "solely incidental" to brokerage activities; and (ii) the broker-dealer receives no "special compensation" for providing the investment advice. Both elements of this exemption must be met to rely on it. Many broker-dealers also serve primarily as distributors for shares. These broker-dealers may be compensated in numerous ways and, like all broker-dealers, are subject to compliance with requirements of the Securities and Exchange Commission and one or more self-regulatory organizations, such as the Financial Industry Regulatory Authority (FINRA). The forms of compensation may be sales loads from investors, or Rule 12b-1 fees or servicing fees paid by the mutual funds. There are several online portals that offer broker dealer assistance and search capabilities.


United Kingdom

UK securities law uses the term to refer to businesses involved in the purchase and sale of securities for the account of others. The authorises and regulates companies engaging in such activity as "regulated activities"Financial Services and Markets Act 2000, schedule 2
/ref> under the .


Japan

The common ese term for a broker-dealer is . Securities companies are regulated by the under the . The "big five" are , , , , and . Most major s in Japan also maintain broker-dealer , as do many foreign commercial banks and s. Securities companies must be organized as with a or auditing committee, and must maintain minimum of 50 million.


Largest Dealer Banks

* * * * * * * * * * * * * * * * * * *


See also

* * * * * * *


References


External links


Understanding Derivatives: Markets and Infrastructure - Chapter 3, Over-the-Counter (OTC) Derivatives
Federal Reserve Bank of Chicago, Financial Markets Group {{Authority control Fixed income