SIE Understanding Trading, Customer Accounts and Prohibited Activities Question 26: Answer and Explanation

Question: 26

Which of the following would involve a broker-dealer acting in the capacity of a principal?

• A. The broker-dealer advised the investor to sell the security.
• B. The broker-dealer advised the investor to sell the security when it reaches a certain price.
• C. The broker-dealer purchased the security from the investor.
• D. The broker-dealer loaned the security to the investor.

Correct Answer: C

Explanation:

C: Choice C is correct because the broker-dealer was a participant in the transaction. Choices A, B, and D are incorrect because they do not involve the broker-dealer as a participant in the transaction. In those cases, the broker-dealer is said to be acting in an agency capacity.