Brokerdealers

A broker-dealer is a firm or individual that engages in both acting as a broker and as a dealer in securities markets. As brokers, they execute trades on behalf of clients, buying or selling securities according to the clients’ instructions. As dealers, they trade for their own account, providing liquidity by maintaining an inventory of securities and profiting from the spread between bid and ask prices. Many broker-dealers offer a broad suite of services beyond trade execution, including investment banking, underwriting, research, advisory offerings, and clearing and settlement arrangements.

Regulation and registration are central to broker-dealers. In the United States, broker-dealers must register with the Securities and Exchange Commission and become members of the Financial Industry Regulatory Authority, with ongoing compliance obligations under SEC and FINRA rules. They are commonly regulated to ensure fair dealing, best execution of customer orders, suitability of investment recommendations, and proper disclosure of conflicts of interest. Anti-money laundering controls and customer due diligence are also typical requirements. Customer assets and securities are often protected by investor protection schemes, such as SIPC in the U.S., though protections vary by jurisdiction.

Broker-dealers come in different forms. Retail broker-dealers primarily serve individual investors, while institutional broker-dealers work with institutions and professional clients. Some firms function as introducing brokers or clearing brokers, coordinating custody and post-trade activities. Globally, the precise regulatory framework and market structure may differ, but the core functions—facilitating trades, providing liquidity, and offering a range of financial services—are common to most broker-dealers.