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Stockbroker and Investment Broker

What is a Stockbroker

A broker-dealer is an institution in the business of executing trades on its own behalf and on behalf of its customers. Broker-dealers in the United States are monitored by the Securities and Exchange Commission (SEC), a federal regulatory authority established under the Securities Exchange Act of 1934. Broker-dealers are also regulated by a self-regulatory organization (SRO), which is known as the Financial Industry Regulatory Authority (FINRA). States also monitor broker-dealers using state specific securities laws, commonly referred to as “Blue sky laws.”

Functions of a Broker

The Securities Exchange Act describes a broker as “any person engaged in the business of effecting transactions in securities for the account of others.” It includes brokers of both securities and commodities. An institution acts as a “broker” when it performs trade orders on behalf of a customer; whereas an institution acts as a “dealer” when it executes trade on its own behalf.

Many broker-dealers have marketed themselves as "financial advisors" who perform client specific investment and retirement advice. In this role, broker-dealers act as investment consultants or financial advisors. It is also responsible for the broad duties of organizing and supporting liquidity, which includes market-making. Market-making involves announcing prices, selling and buying securities at the quoted price, designating the minimum and maximum amount of securities allowed to be bought and sold at the announced price, and allocating time periods during which the announced prices are offered.

Functions of a Dealer

 A dealer is defined by the Act as “any person engaged in the business of buying and selling securities for his own account, through a broker or otherwise.” A dealer does not refer to a “trader,” defined as a person buying and selling securities individually or in a fiduciary capacity, and not as a component of a business. Firms acting as a dealer can sell securities to clients or other firms acting in the capacity of a dealer, or they can retain the securities in the firm's holdings.

Dealers are responsible for announcing prices and specifying other critical information regarding the buy/sell contract of securities as well as the amount of securities available for sale and their legality.

 Duties of a Broker-Dealer

Broker-dealers engaged in business with the public are normally required to register with FINRA and are required to deal honestly on behalf of their customers. Additionally, broker-dealers have to abide by statutory, Commission, and SRO requirements, which are all designed to protect customers from unethical financial practices, even if the actions are not fraudulent. Individual states require broker-dealers to register with and be licensed by the state in which they conduct business.

A Broker-dealer is required to make financial decisions on behalf of their client according to the interests and specifications of their customer. They also must inform clients of potential conflicts of interest when giving recommendations.

Contact Information

To contact us for a free confidential consult, you can call us at (850) 435-7000 (Pensacola) or (800) 277-1193 (toll free). You also can request a free private and confidential evaluation by clicking Securities Misconduct & Fraud Evaluation Form, and your inquiry will be immediately reviewed by one of our attorneys who handles your specific type case.

 
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