BROKER DEALER Meaning and
Definition
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A broker-dealer refers to a financial institution or individual that engages in the business of buying and selling securities such as stocks, bonds, and mutual funds on behalf of its clients. Acting as an intermediary between buyers and sellers, a broker-dealer executes trades in the securities markets, facilitating the smooth functioning of the capital markets.
A broker-dealer plays a vital role in the financial ecosystem by leveraging its network, expertise, and resources to connect investors with investment opportunities and providing liquidity to the markets. This entails offering a range of services such as investment advice, research, trading execution, and custody services.
As a broker, the institution or individual buys and sells securities on behalf of clients as instructed, charging a commission or fee for these transactions. Simultaneously, as a dealer, they also act as a principal by buying securities for their own account and selling from their inventory to clients. This dual role of a broker-dealer provides flexibility in conducting transactions and ensuring market liquidity.
Broker-dealers are heavily regulated by financial authorities to ensure ethical conduct, client protection, and market integrity. Compliance with rules and regulations, maintenance of capital requirements, and recording accurate trade and client information are some of the key regulatory obligations imposed on broker-dealers.
Overall, a broker-dealer serves as a crucial link in the capital markets, facilitating the efficient flow of securities and enabling investors to access a diverse range of investment options while maintaining market stability.
Etymology of BROKER DEALER
The term "broker-dealer" is made up of two separate words: "broker" and "dealer", each with its own etymology.
The word "broker" can be traced back to the Middle English term "brocour", which came from the Anglo-French word "brocour" meaning "small trader" or "retail merchant". It eventually evolved from the Anglo-Norman French word "broceur" meaning "broker" or "middleman". The word further originated from the Old French word "brocheor" meaning "wine retailer", derived from the verb "brochier" meaning "to broach" or "tap a cask".
On the other hand, the word "dealer" can be traced back to the Middle English term "delere" from the Old English word "dǣlan" meaning "to divide" or "to distribute".
