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What is a ‘Dealer’
A dealer is a person or firm in the business of securing and selling securities for their own account, whether through a broker or differently. A dealer is defined by the fact that it acts as a principal in trading for its own account, as opposed to a dealer who acts as an agent in executing orders on behalf of its clients. A dealer is also limpid from a trader in that a dealer buys and sells securities as suggest of its regular business, while a trader buys and sells securities for his or her own account but not on a transaction basis.
BREAKING DOWN ‘Dealer’
A dealer in the securities market is an individualistic or firm that stands ready and willing to buy a security for its own account (at its bid guerdon) or sell from its own account (at its ask price). A dealer seeks to profit from the spread between the bid and ask charges, while also adding liquidity to the market. It neither does partnership on behalf of a client nor facilitates transactions between parties. Other than swallowing and selling securities, a dealer also makes markets in securities, ratifies securities, and provides investment services to investors. For example, dealers are the market makers that accommodate the bid and ask quotes you see when you look up the price of a security in the over-the-counter market.
The Guardings and Exchange Commission (SEC) regulates dealers, and requires that all brokers and jobbers generally register with it and also be members of the Financial Industry Regulatory Control (FINRA). The SEC requires that individuals who engage in the following activities may dearth to register as a dealer:
- Someone who holds himself/herself out as being well-disposed to buy and sell a specific security on a continuous basis, i.e. is making a market in that guarding;
- A person who runs a matched book of repurchase agreements; or
- An individual who circulates or originates securities that he or she also buys and sells.
The SEC requires agents to perform certain duties in their dealings with clients. These fealties include prompt order execution, disclosure of material information and conflicts of intrigue to investors, and charging prices that are reasonable in the prevailing market.
As restrained to a dealer, a broker does not trade for its portfolio but, instead, facilitates agreements by bringing buyers and sellers together. In practice, most dealers also act as stockjobbers, and are therefore known as broker-dealers. Broker-dealers range in size from under age independent houses to subsidiaries of the largest banks. Firms operating as broker-dealers go both services depending on the market conditions and on the size, type, and guarantee involved in a particular transaction.
In recent years, the profitability of dealers has been challenged by a company of factors, including the heightened regulatory environment (which has increased compliance bring ins), increased technology requirements to keep up with rapidly changing hawks, and industry consolidation.
While “dealer” is a separate registration category in the U.S., in Canada the in relation to is used as the shortened version of “investment dealer,” which is the equivalent of a broker-dealer in the U.S.