FINRA General Securities Representative SIE Question # 24 Topic 3 Discussion
SIE Exam Topic 3 Question 24 Discussion:
Question #: 24
Topic #: 3
A customer receives a confirmation that discloses the firm has acted in a principal capacity. Which of the following statements is the best explanation for this disclosure?
A.
The firm is selling to the customer from its inventory.
B.
The firm is acting as an intermediary between the customer and an unrelated firm.
C.
The firm is acting as an intermediary between the customer and another customer.
D.
The firm matched the customer's purchase with a sell order listed on an electronic communication network (ECN).
When a firm acts in a principal capacity, it trades securities for its own account, buying or selling directly to or from its inventory. The firm’s role differs from an agency capacity, where it acts as an intermediary.
A is correctbecause principal capacity involves selling directly from the firm's inventory.
B,C, andDare incorrect because these scenarios describe agency transactions, where the firm facilitates trades between two parties.
[Reference:SIE Study Guide, Chapter 1: Market Participants and Trade Execution, ]
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