Business PracticesQuestion 82 of 100
An investment adviser proposes to act as broker for a client on one side of a trade while representing the counterparty on the other. This agency cross transaction:
a.Is flatly prohibited in every circumstance
b.Requires disclosure of the adviser's role and the conflicts involved, and the client's consent, with the adviser never having recommended the trade to both parties
c.Requires only that commissions be reasonable
d.Requires approval from the Administrator before each trade
Explanation
An agency cross transaction is permitted only with disclosure of the capacity in which the adviser acts, the compensation it will receive, and the conflict inherent in serving both sides, together with the client's consent and periodic reporting. The adviser may not have recommended the transaction to both the buyer and the seller. Reasonable commissions alone do not satisfy the rule, and there is no requirement of trade-by-trade approval by the Administrator.
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