Agent
A source of far more angst than you would expect amongst the professional classes. An agent is one fellow who represents another fellow. When it comes to entering a contract, an agent enters legal relations on behalf of his principal, and does not take on any legal responsibility himself. These seems straightforward enough, but you soon encounter a thicket of confusion from which you may never emerge and into which you will almost certainly regret ever entering.
An agent must, of course, be duly authorised by the principal, but how will the contracting counterpart know this, without the principal being there to confirm it? An agent has a special relationship with a principal
Broker dealers
An Intermediary acts as True Agent if, acting on Buyer’s behalf, it agrees the purchase of an Asset from Seller by Buyer.
- True Agent acts at all times on Buyer’s behalf and never in its own capacity.
- A True Agent will not record the Asset in its own trading books at any time.
- There is never any contract with respect to the Asset either
- between True Agent and Seller, or
- between True Agent and Buyer.
- Buyer pays True Agent a Commission calculated on the contract between Buyer and Seller.
Asset managers and unallocated trades
A legal conundrum that arises in the context of bulk agency orders placed by an asset manager with a broker-dealer on behalf of several clients. Typically the agent will place the order first without naming the principals, only to advise the broker to which principals it should allocate the securities later in the day.
Agents will often proudly declare that at no time, in no circumstances, can they ever be liable as a principal for transactions they instruct in this way on behalf of their clients.
This convenient outlook — I mean, they would say that, wouldn’t they? — provokes more questions that it answers: if the agent isn’t responsible for unallocated trades, then, until they’re allocated, who is? The broker doesn’t know who the principal is, so it can hardly take up matters with it directly. On the other hand, asset managers will hotly deny any kind of personal liability, appealing to their regulatory status, meagre capitalisation, or sheer importance as a valued client in intimating that this risk ought to be the broker's problem.
But denying principal responsibility, in the eyes of the common law, is a rather optimistic disposition. An agent who has not disclosed its principal must perform, unconditionally, on its principal’s behalf. This the agent might not characterise as a principal obligation, but against the rest of the world, it may as well be. The counterparty’s interest is to be paid; it does not care by whom. Nor, under the common law, can agent the shed that responsibility even by naming the principal: the counterparty now has a choice against whom to enforce —- though this the parties may vary by agreement.
So much bunk — all of these reasons. The manager, as agent, chose not to disclose its principal. By doing so it accepted unconditional responsibility for settling its client’s transactions..