FINRA Series 7Processes and Confirms TransactionsMedium
A registered representative executes a trade for a customer acting as principal for the firm's own account. What must the trade confirmation disclose regarding this transaction?
- AThe firm's total daily trading volume in that security
- BThe name of the specialist who handled the order
- CThe identity of the counterparty on the other side of the trade
- DThat the firm acted as principal in the transaction
Show answer & explanationAnswer & explanation
Correct answer: D. That the firm acted as principal in the transaction
SEC and FINRA rules require confirmations to disclose the capacity in which the firm acted — either as agent (broker) or principal (dealer) — on every transaction. When acting as principal, the firm must disclose this fact on the confirmation.
Why the other options are wrong
- A. Aggregate daily trading volume is not required on confirmations.
- B. Specialist names are not a required confirmation disclosure item.
- C. Counterparty identity is not disclosed on customer confirmations.
Confirmation Capacity Disclosure
Trade confirmations must state whether the broker-dealer acted as agent or principal in the transaction.
- Agent trades disclose commission charged
- Principal trades disclose markup/markdown if required
- Capacity disclosure is mandatory on every confirmation
Memory trick: Agent or dealer — the ticket must tell her.