Executing broker

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Brokerage Anatomy


Resources: Bank of England Financial Stability Papers | FIA/ISDA documentation |
Trading capacities: Principal | Undisclosed principal Riskless principal | Agent | Undisclosed agent
Broker types: Broker | Dealer | Broker/dealer | Executing broker | Clearing broker | Prime broker | FCM | CCP
Clearing: Clearing overview | How clearing works | What gets cleared? | Who clears? | Clearing documentation

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To be contrasted with a prime broker, an executing broker is a good old fashioned share broker (or dealer), who accepts (or broker-dealer) orders from clients to buy or sell securities. It may act as agent, principal, or riskless principal, and you may lose many hours of your life to the fruitless quest for knowledge should you enquire as to what the difference is between these statuses, and why it should matter.

Do you want to know what the difference between a broker, a dealer, and a broker-dealer is? You do, don’t you. You’d be disappointed if you found out. But find out you can, by clicking here - at your own risk of disappointment.

Broker capacity

Why it should matter:

  • Tax: Where stamp duty reserve tax is payable on equity transactions, a recognised intermediary may have an exemption where it is buying as a principal. (where it on-sells to a customer, SDRT will be payable; if it transacts “on swap”, SDRT may not be.
  • Conflicts of interest: Both the Investment Advisers Act of 1940 and ERISA contain sanctions with varying degrees of severity for discretionary investment managers who should transact for their clients with affiliated broker-dealers
  • Give-ups: How a trade is executed may have an impact on how it is given up.

Synthetic equity

The difference between a cash trade and an equity bought “on swap” - also known as a “contract for differences” or “CFD”. This is particularly important for tax purposes.

See also