• May 2019
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Dealer

In contrast to a broker, a dealer is a person or firm that buys or sells securities for their own account – i.e., a principal. However, they might use a broker to do so.

A dealer is different from a trader because a dealer buys and sells as part of business as usual while trader buys and sells for a personal account but not related to business.

A dealer’s whole game is turning a profit based on rising and falling securities prices. A dealer can also make markets in securities, underwrite securities, and provide investment services to investors.

As you probably have already suspected, the Securities and Exchange Commission (SEC) regulates dealers, requiring that they register with them and be members of the Financial Industry Regulatory Authority (FINRA), which sounds like just about the coolest club known to man.

If you find yourself doing the following as listed below, guess what? You just might be a dealer and you should probably register with the SEC. Stat.

You buy and sell a specific security on a continuous basis

You run a matched book of repurchase agreements

You issue or originate securities that you also buy and sell.

The SEC makes dealers do certain things when dealing with clients, which includes executing orders promptly, disclosing material information and conflicts of interest, and charging prices that are reasonable.

While brokers are not dealers, most dealers do also act as brokers. There’s a fun little logic game for you. Dealers/brokers can be small, independently run firms all the way up to affiliates of some of the largest banks. If you’re operating as a broker-dealer firm, your actions greatly depend on the market conditions and type of transaction.

Here’s a little fun fact for you: “Dealer” is a separate category in the US, but in Canada, an “investment dealer” quite literally means broker-dealer.

 

EXAMPLE:

I love my work as a dealer because it’s all about the highs and lows and no, I am not talking about dealing drugs.