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===Cash brokerage=== | ===Cash brokerage=== | ||
When handling a customer order there are three ways a [[broker]] could do it: | When handling a customer order there are three ways a [[broker]] could do it: | ||
# | #'''As [[principal]]''': [[client]] buys from [[broker]]; broker hedges by buying in its own name [[DvP]] in the market and settling DvP against the client. This is not “on behalf of” the client, but an unconnected [[hedging]] transaction. | ||
# | #'''As [[undisclosed agent]]''': [[client]] instructs [[broker]] to buy; [[broker]] executes in its own name in the market [[DvP]] and subsequently settles [[DvP]] against the client. This ''is'' “on behalf of the client.” | ||
# | #'''As [[custody]] [[agent]]''': [[client]] pre-delivers securities to broker and instructs it to sell them; broker executes in its own name in the market [[DvP]] and subsequently pays sale proceeds to the client. | ||
Note that economically, 1 and 2 are identical. 3 is a bit different. You should also have the feeling that 1 is not like custody at all, 2 resembles it but only really in form, and 3 is custody-like, but c’mon only for a short period. That feeling would be right. so: | Note that economically, 1 and 2 are identical. 3 is a bit different. You should also have the feeling that 1 is not like custody at all, 2 resembles it but only really in form, and 3 is custody-like, but c’mon only for a short period. That feeling would be right. so: |