A broker-dealer is any person or firm engaged in the business of buying and selling securities for the accounts of others or its own account.
Why It's Important
You may be thinking that is an expansive definition. Well, it is and for a good reason! A brokerage acts as a broker when it buys and sells for its customers and as a dealer when it buys and sells for itself. Broker-dealers can range from small, independent, boutique firms to subsidiaries of big banks and investment companies. There are over 3,700 broker-dealers in the US to choose from!
The big three (as of October 2018) are:
One role of a broker-dealer is to underwrite (distribute) new securities for issuers. Broker-dealers are powerful entities and essential for the flow of the market! A lot of financial advisors work under a broker-dealer, which is why you may see a company you don't recognize on your investing statements.
A broker-dealer could either be a wirehouse (which sells its own products to the market) or an independent broker-dealer (which sells products from other sources).
If you have investment accounts, your homework this week is to find out who the broker-dealer is.
*Hint: Check your latest statement*
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