What is Broker-Dealer? Definition and Example

What is Broker Dealer?

There are several parties involved in the business of marketable financial assets or securities. One party that is involved in such business is broker dealer. Broker dealer holds an important spot in financial marketplace. The involvements in security trading business take form of purchasing and selling assets. Financial assets that broker dealer manages include banknotes, stock, and derivatives.

Broker Dealer Definition

Broker dealer is a party (can be a person or a financial institution) involved in asset trading that conduct transaction of selling or purchasing the financial assets or securities. When the transaction is conduct on behalf of their own, the party is called dealer or principal. Meanwhile, when someone or a firm buys or sells securities for client, you can call them a broker or agent. One person or firm cannot be both broker and dealer in the same transaction.

In order to be able doing their job, a broker dealer needs to be registered in government’s database. The agency that deals with broker dealer is Securities and Exchange Commission or other similar types of agencies. Without license from related government agency, they cannot conduct the job legally.

What Does Broker Dealer Do? Example.

1. Designing Securities Offering

One cannot be one hundred percent sure that their financial asset will be well received by the market when it is launched. Broker dealer, particularly the seasoned one, will help you designing an interesting offering that is going to attract potential investors. The broker also detects some confusing clauses in the offering materials.

2. Disclosing Financial Product Information

If you are a newbie in financial trading business, relying on broker dealer expertise is almost mandatory. Broker dealer must reveal important information, such as: cost estimation for the product and service offered. This information will help consumer making better decision in financial planning since they tend to have minimum grasp of this matter.

3. Reviewing Investor and Fund

Broker dealer must ensure security of a trading activity. One way to do that is by reviewing investor to make sure the investor is accredited and not involved in fraudulent acts in the past. The broker dealer also ensures that the transaction does not utilize bad fund. This protects consumer from being trapped in a transaction that will harm them.

4. Regulation Checking

Experienced broker dealer knows the ins and outs of security exchange regulations. When making a purchase, they can ensure that the offering adheres to government regulations so there will be no legal consequence later. In the case of selling securities, broker dealer will ensure that every procedure adheres to law.