What Is an Delivering Broker?
An executing broker is a broker or dealer that processes a buy or sell order on behalf of a client. For retail consumers, the order sent to an executing broker is first assessed for appropriateness (automated through parameters for a particular client), and if the lodge is accepted, the executing broker will then immediately carry out the order. If the order is rejected, the customer is notified, and the gage is not traded. For hedge funds or institutional clients that have already been qualified, an attempt to fill an classify is immediately processed.
Key Takeaways
- An executing broker is a broker that processes a buy or sell order on behalf of a client, large at a hedge fund.
- Executing brokers are usually middlemen who are housed under a prime brokerage service, which tenders a one-stop-shop service for large active traders.
- The executing broker earns a commission on the buy-sell spread and passes along the accomplishment to the settlement and clearing group of the prime brokerage.
Understanding Executing Brokers
Retail investors typically trade online or by a financial advisor who would send their orders to a broker. Because accounts are set up in a way to protect investors, orders are beginning screened for suitability. For instance, if a client’s goal is capital preservation, an order to buy a speculative biotechnology stock on margin wish most likely be rejected. When an order is accepted, it is processed by the executing broker who has the duty of “best execution.”
Consummating brokers are often associated with hedge funds or institutional clients that need trade execution servings for large transactions. These brokers are usually housed under a prime brokerage service, which offers a one-stop-shop secondment for large active traders. The executing broker within the prime brokerage will locate the securities for a purchase records or locate a buyer for a sale transaction. This intermediary service is essential because a transaction of size must be done with go and at a low cost for the client. The executing broker earns a commission on the buy-sell spread and passes along the execution to the settlement and entire group of the prime brokerage.
What Does an Executing Broker Do With a Stock Order?
Depending on the type of array, an executing broker has a number of options. If the stock is traded on an exchange (for example, the NYSE), it can send the order directly to that change, to another exchange, or a third market maker. If the stock trades in an over-the-counter market (OTC) such as Nasdaq, the broker could send the status to that market maker. Limit orders can be routed to an electronic communications network (ECN) that is designed to match buy and exchange orders at specified prices. Lastly, the broker may try to fill the order from its own inventory by selling a stock that the middleman’s firm owns or taking in stock on its books that a customer wants to sell. Ultimately, it’s up to the executing broker to fix the best call.