FINRA Series 7Processes and Confirms TransactionsMedium
A registered representative executes a customer's order acting solely as agent and charges the customer a commission. What must the trade confirmation disclose regarding this transaction?
- AOnly that the trade was executed, without further detail
- BThe names of all other parties who placed similar orders that day
- CThat the firm acted as agent and the amount of commission charged
- DThe firm's average cost basis in the security
Show answer & explanationAnswer & explanation
Correct answer: C. That the firm acted as agent and the amount of commission charged
Confirmations must disclose the capacity in which the firm acted (agent or principal). When acting as agent, the firm must disclose that capacity and the commission charged to the customer.
Why the other options are wrong
- A. Confirmations require detailed capacity and cost/commission disclosures, not merely notice of execution.
- B. Other customers' orders are never disclosed on a confirmation.
- D. Cost basis is not a required confirmation disclosure for agency trades.
Confirmation Disclosure – Agency Trades
When a firm executes a trade as agent, the confirmation must state that capacity and disclose the commission charged to the customer.
- Agency = disclose commission
- Principal = disclose markup/markdown or net price
- Capacity must always be shown
Memory trick: Agent = commission shown; Principal = markup shown.