What Is a Securities Broker Dealer?

Securities being traded on the stock market

A securities broker dealer is a firm that can purchase and sell securities on behalf of their clients as well as their own accounts.

Types of Broker Dealers

There are two types of broker dealers: full-service and discount. A full-service broker dealer firm typically spends more time with the investor to identify her needs and charges higher fees or commissions. Discount broker dealers offer less expensive, but limited services, such as simply buying or selling securities.

Functions as Broker

When acting in a "broker" capacity, a broker dealer is buying and selling securities at the behest of its client. Broker dealer firms broker transactions after receiving orders from the client.

Functions as Dealer

If a broker dealer makes a transaction in a "dealer" role, the firm is also acting as a principal, effectively trading securities for its own portfolio.

Considerations

Certain transactions can place the firm in both broker and dealer capacities. For example, a client could place an order to buy a security that is held in the firm's inventory of accounts. The client must be notified of this potential conflict of interest.

Regulating Broker Dealers

Broker dealer firms must register with the Securities and Exchange Commission (SEC) and be members of the Financial Industry Regulatory Authority (FINRA). They must be registered with the state securities regulator for each state where they do business.

References

• Investor Words
• Selecting Investment Professionals
• Definition of Broker Dealer

Resources

• Financial Industry Regulatory Authority