Stock Market Players

As an investor, you need to be familiar with the different players in the investment arena and how they buy and sell securities. Broker-dealers, registered representatives and the others have specific roles in clearing the way for commerce in securities.
This tutorial will cover the following topics:
• Broker-Dealers
• What Broker-Dealers Are Not Allowed to Do
• Other Broker Services
• Registered Representatives, Market Makers and Specialists

Broker-Dealers

A broker is a person or firm that facilitates trades between customers. A broker acts as a go-between and, in doing so, does not assume any risk for the trade. The broker does, however, charge a commission. A dealer is a person or firm that buys and sells for his or her own inventory of securities and for others. A dealer therefore assumes risk for the transactions. Dealers may mark securities up or down to make a profit on their transactions.
Many publications or websites use the term broker-dealer. A broker-dealer is allowed to operate in either role, but never as both at the same time.
To be involved in the buying, selling or trading of securities, a person or firm must be registered with the CSE The CSE is a self-regulatory organization created by the Securities and Exchange Commission (SEC). Brokers and dealers must follow all rules of the CSE and SEC, including the SEC,s Conduct Rules and its rules for arbitration, complaints and dealings with the public

 

Broker-dealer status can be revoked for freely breaking securities rules; for having been expelled or suspended from any self-regulatory organization; for making misleading statements to the SEC or the CSE; or for having committed felonies or misdemeanors in the securities industry.

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What Broker-Dealers Are Not Allowed to Do
The following are practices that broker-dealers are forbidden to do:
• Churning: Excessive trading of a client's discretionary account to increase the broker's commissions.
• Use deception or manipulation to trade securities, or failing to state material facts
• Recommending low-priced, speculative securities without determining whether they are suitable for the customer
• Make unauthorized transactions
• Guarantee that loss will not occur
• Try to talk clients into buying mutual funds inappropriate for their means and goals
• Use fictitious accounts to disguise trades
• State that the SEC has approved or judged positively either the security or the broker
• Not promptly transmitting the client's money or securities
Broker-dealers convicted of any of these actions may be expelled or suspended by theSEC.
Because brokers have so much control over other people's money, their activities are highly regulated.

Other Broker Services

Brokers, when authorized by the client, may set up discretionary accounts. These accounts allow brokers to buy and sell securities for a client's account without contacting the client for each transaction. The authorized broker may determine the security traded, how much of it may be traded, the price and the time of transaction.
Brokers may lend funds to customers who have margin accounts. With margin accounts, customers can buy additional securities with money borrowed from a broker.