Trading, Accounts & Prohibited ActsQuestion 236 of 398
Why does it matter to a customer whether a firm executed a trade as an agent or as a principal?
a.Only principal trades are reported to regulators
b.It determines whether the customer pays a commission or a markup/markdown, both of which must be disclosed
c.Agency trades are always cheaper by law
d.Principal trades do not require a confirmation
Explanation
The firm's capacity determines the form of its compensation: a commission for agency trades or a markup/markdown for principal trades. Under SEC Rule 10b-10, the capacity and related charges must be disclosed on the trade confirmation so the customer understands the cost.
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