Agent
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
Asset managers will often proudly tell declare that at no time, in no circumstances, can they ever be personally liable for transactions they instruct on behalf of their clients. as a general proposition you can see what they're trying to say but it isn't quite that straightforward.
Where the manager instructs the transaction first and allocates it to a given client later — which is usually how managers like to carry on — this puts a dealer in an invidious position in between times. For a dealer cannot reject a trade against the street once it has executed it.
- The dealer must carry out the transaction regardless of whether the manager allocates to its client. Therefore the dealer is exposed to market risk immediately. That market risk is for the manager′s client’s account.
- If the manager has not disclosed the client′s identity to the dealer, as its agent the manager has two options. It can either:
is in fact performance of an agency role, but economically (from the dealer′s perspective) it is identical to a principal obligation.