Broker Dealer

Resources for Improving Broker Dealer Operations

  • What is a Broker Dealer?

    Broker/Dealers act as intermediaries between markets (stock exchanges) and consumers (individuals and institutions). These brokerages provide an entry point for clients looking to perform trading activities and act as certified, regulated dealers within various stock exchanges (such as the New York Stock Exchange or NASDAQ). They keep track of customer account information and maintain secure servers and trading systems that allow trades to be executed remotely (via the internet) in an automated manner. These systems interface directly with various stock exchanges to match buy orders with sell orders and provide real-time pricing data for clients on various financial products, such as stocks, bonds (fixed income), currencies, and commodities.
  • The History of Broker Dealer

    The trading of financial instruments began almost 900 years ago. The first people to be identified as brokers managed debt in 12th century France. Venetian bankers began trading securities during the 13th century. Founded in 1602, the Dutch East India Company was the first joint stock company, and its shares were traded in Amsterdam. Dutch traders pioneered many of today’s common trading practices, such as options and short selling.

    The roots of the New York Stock Exchange (NYSE) can be traced back to the late 1700s, when 24 stockbrokers signed an agreement under a buttonwood tree on Wall Street in New York City. The aptly named Buttonwood Agreement stated that the 24 brokers involved would only do business with each other and would use a set commission rate of 0.25%. To this day, the NYSE is the world’s largest stock exchange, with a daily trading value of almost $50 billion.

    The world’s second largest stock exchange, the NASDAQ, was founded in 1971 by the National Association of Securities Dealers (NASD) and was the world’s first electronic stock market.
  • Modern Trends in Broker Dealer

    The number of purely advisory firms has been increasing, while the number of certified Broker-Dealers has declined to just more than 5,000 in the United States. In the 1990s discount brokers, who offer no investment advice but reduce commission rates, became very popular. These firms allowed clients to use the Internet to make trades based on their own decisions.

    Broker-dealers are highly regulated. The Dodd-Frank Act of July 2010 might be the most sweeping change to financial regulation since the Great Depression of the 1930s. Many investment advisors, hedge funds and private equity firms that had been exempt from regulation are now tightly governed by it. Among other provisions the law authorizes the U.S. Securities and Exchange Commission (SEC) to draw up point of sale disclosure rules on costs, risks and a broker-dealer’s fiduciary duty to each customer on whose behalf they trade.

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