Trading, Accounts & Prohibited ActsQuestion 231 of 398
A customer sells stock to a firm that buys the shares into its own inventory. The firm lowers the price it pays below the current market to compensate itself. What is this charge called?
a.A markdown
b.A commission
c.A management fee
d.A sales load
Explanation
When a firm acting as a principal buys securities from a customer for its own account, it pays slightly less than the prevailing market price; that difference is a markdown. A markup is the mirror image charged when the firm sells to a customer as principal, and a commission applies only to agency trades.
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