Understanding Trading, Customer Accounts and Prohibited ActivitiesDifficulty 2/5
A firm fills a customer order from its own inventory rather than finding a counterparty. In what capacity did it act?
- AAs principal, because the firm traded from its own account
- BAs agent, because the firm traded from its own account
- CAs a transfer agent, because the firm traded from its own account
- DAs a municipal advisor, because the firm traded from its own account
Show answer and rationale
Correct: A. Principal means trading from the firm's own account and taking the other side. Agency means arranging the trade between the customer and someone else for a commission.
- B — Acting as agent means arranging a trade with a third party, not supplying the securities itself.
- C — A transfer agent maintains records of security ownership and does not fill customer orders.
- D — A municipal advisor advises municipal issuers and has no role in filling a customer order.