Posted in Finance, Accounting and Economics Terms, Total Reads: 383
An individual or a firm which buys and sells securities for its own account, whether through a broker or otherwise, is called a dealer. Dealer acts as a principal in operating the account contrast to an agent or broker which executes orders on behalf of clients. The dealer realizes the profit by the differences in the prices paid to buy and sell the securities.
A dealer is also distanced from a trader on the fact that for a dealer, dealing in securities is a regular business while for a trader buying and selling of securities is not on the business basis.
The dealer can also act as brokers and would then be called broker-dealer or investment dealers giving investment services to investors, underwriting securities along with marketing and buying or selling them. They have to register with SEC (Security and exchange commission) and with FINRA (Financial industry regulatory authority). Broker dealer can be independent firms or a business units/subsidiary of commercial banks or investments banks.
SEC directs the individuals or firms engaging into the following activities to register as a dealer:-
1. Making a market in securities (buying or selling a specific security on a continuous basis)
2. Running a matched book of repurchase agreements.
3. Issuing of security by an individual which he/she can buy or sell.
SEC also wants dealer to execute order promptly, disclosure of information, charging price reasonably, manage conflict of interest to investor.