Trades

Trades:

Agent & Principal Trades:

-When customers make an Agent transaction, they are trading with another individual through an exchange, and the Broker-Dealer finds this other person with whom to trade. When customers make a Principal transaction, they are making a trade directly with a Broker-Dealer out of their inventory supply.

-When a BD is acting as a Broker (Agent), they are charging a commission to assist their client in buying a security from a BD or selling a security to a BD. When a BD is acting as a Dealer (Principal), they are they are selling securities from the dealer’s inventory supply to a client or buying the security from a client and adding it to the firm’s inventory.

BID v. ASK:

The Bid is always LESS than the Ask price, and most quotes will also provide the size (expressed in units of 100 shares) of the offer.

The Bid price is the dollar amount received by the seller. The Bid price represents an offer to buy a security.

The Ask price is the amount paid by the buyer. The Ask price represents an offer to sell a security.

For NMS Listed Stocks, the Designated Market Maker maintains an order book containing all the open limit orders for the security. The highest buy limit is the most that someone will pay for the stock and establishes the Bid. The lowest sell limit is the least someone will sell their securities and establishes the Ask. The highest available Bid and the lowest available Ask is sometimes referred to as the Inside Quote. The Spread is the difference between the Bid and Ask prices. A Market Maker is buying at the Bid and selling at the Ask.

Market Orders are executed immediately at the best available market price. Market orders are always executed before limit orders, and are executed in order, first-come-first-served. Limit orders are behind market orders.

Limit Orders set a limit price, designated by the client, and can only execute at the limit price or a better price. The limit price is the maximum purchase price if buying a security, and the minimum selling price if selling.

Stop orders are NOT orders. A Stop-order is a trigger price point, at which, the limit order will execute. A “Stop Order” is an order (buy or sell) that is not live until the trigger price is reached and the Stop-order becomes a Market Order, and is immediately executed at the best possible price, regardless is the price mosts up or down before the order size is satisfied.

A Stop-Limit Order is also an order triggered at a specified price by the client. A stop-limit order, at the trigger price, converts to a limit-order (not a market order). To execute the Stop-limit order, the trigger price must be reached by the security, and the trades must then be executed subject to a maximum buying price or a minimum selling price, limit order.

Settlement:

When a trade is executed in the market, it begins a process called settlement. Settlement is the process of ensuring money is received by the seller, and the securities are received by the buyer. End-of-the-Day, on Settlement Day, a trade must be complete.

T+1 settlement rules apply to all Treasuries.

T+2 settlement is required for all market trades of Corporate stocks, Corporate Bonds, Municipal Debt, US Agency Securities, and GSE securities.

Equity Options are settled T+2; while Index Options - those where no underlying security need change hands, are settled on T+1.

Good Delivery: When a certificate is delivered, it must be endorsed (signed) by all owners whose names appear on the face other certificate, and signed exactly as the name appears.