Series 53: Principal Vs. Agency Transactions

Principal vs. Agency Transactions

A business that executes municipal securities trades can act as either a broker or a dealer. When acting as a broker, the firm serves as an agent, or go-between, for the buyer and the seller. The broker gets paid for the service by charging a commission. Transactions where a firm is acting as a broker are called agency transactions. A firm may act as broker or dealer on any particular transaction, but not both.

When acting as a dealer, the firm is putting its own money at risk, buying or selling securities out of its own inventory. Rather than brokering a deal for another party, the dealer is a principal to the trade, since the transaction is adding t