In an agency transaction, what role does the dealer member play?

In an agency transaction, what role does the dealer member play?

• A. The dealer member sells securities directly to investors
• B. The dealer member buys or sells on behalf of a client
• C. The dealer member only advises clients on potential trades
• D. The dealer member trades solely for their own account

Answer: (B)

In an agency transaction, the dealer member acts on behalf of a client, executing trades by buying or selling securities according to the client's instructions. This role is integral to the agency model, where the dealer does not take a position in the securities themselves but instead facilitates transactions for their clients.

By representing the client's interests, the dealer member ensures that the client receives the best possible price and execution for their trades, maintaining a fiduciary responsibility. This practice emphasizes the importance of trust and transparency between the dealer member and their clients, as the dealer must provide unbiased advice and act in the best interest of the client.

This function distinguishes agency transactions from other types of trading, where the dealer may act for their own account or provide only advisory services without executing transactions. Therefore, understanding the dealer member's role is crucial for recognizing how client relationships function in financial markets.