September Study Question of the Month

Which of the following statements is most accurate regarding cross-transactions between accounts at a broker-dealer? Cross-transactions only create a potential conflict of interest for investment advisers. Continue reading

 

 

Which of the following statements is most accurate regarding cross-transactions between accounts at a broker-dealer?
 
 
 
  1. Cross-transactions only create a potential conflict of interest for investment advisers.
  2. Broker-dealers are prohibited from engaging in cross-transactions.
  3. Cross-transactions are prohibited under all circumstances.
  4. Cross-transactions between accounts at a broker-dealer create conflict-of-interest risk.
Answer: D. Cross-transactions are direct transactions between two different clients with the same firm. For a broker-dealer, this creates a fairly obvious conflict of interest — the firm must execute transactions that are suitable for each customer, but there is a risk that the same transaction will benefit one client more than the other. A firm that engages in cross-transactions must obtain a signed waiver from its clients annually that acknowledges the activity.

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