An individual or firm which acts as an intermediary between a buyer and seller, usually charging a commission. For securities and most other products, a license is required. Person who serves as a trusted agent or intermediary in commercial negotiations or transactions. Brokers are usually licensed professionals in fields where specialized knowledge is required, such as finance, insurance, and real estate. Their rate of compensation (called brokerage or commission) is determined according to custom of the particular trade or by law, and is computed commonly either as a fixed percentage of the value of the transaction or on a sliding scale (higher the value, lower the percentage).

Brokerage firm:
Used interchangeably with broker when referring to a firm rather than an individual. Also called brokerage house or brokerage US term for a firm that provides financial or other services on commission basis Learning the jargon of personal finance and investing is like learning a foreign language to many people. However, the concept of a brokerage is fairly simple. A brokerage is a firm that basically serves as a middle man between you and your stocks, bonds, mutual funds and retirement accounts. The brokerage professionals do the investing for you while you live out your life. Brokerage Firms provides detailed information on Brokerage Firms, Commodity Brokerage Firms, Discount Brokerage Firms, Forex Brokerage Firms and more. Brokerage Firms is affiliated with Online Brokerages.

According to the Wall Street Journal's financial advice website FiLife, brokerage firms are divided into three different types: traditional brokerage firms, discount brokerage

firms and banks. the Dutch East India Company became the first publicly traded company in which shareholders could own a portion of the business. In the 1300s. the early twenty-first century saw a rise of online trading that enabled the average investor to take part in the stock market for the first time. Soon. enabling individuals to purchase stocks from a variety of organizations. the US exchange was moved to New York City and various firms like Morgan Stanley and Merrill Lynch were created to assist in the brokering of stocks . Changing with the times. The system was copied by brokerage firms across the world. houses began to be set up in major cities like Flanders and Amsterdam in which commodity traders would hold meetings. most notably on Chestnut Street in Philadelphia. Dealing in debt securities. brokers employ a variety of systems to aid investors with the purchase and sales of stocks and bonds in a variety of markets. They formally founded the London Stock Exchange in 1801 and created regulations and memberships. The History of Stock Brokerage Firms: Stock brokerage firms have been an established feature in the financial industry for nearly one thousand years. History: During the 11th century. The firms have changed over the years. In 1602. the French began regulating and trading agricultural debts on behalf of the banking community. The main question in choosing a brokerage is how much you trust yourself in investing. Significance: The earliest brokerage firms were established in London coffee houses. expanding the importance of the firms. Soon. growing to massive organizations that can affect the entire financial sector positively or negatively with their performance. creating the first brokerage system. The stocks improved the size of companies and became the standard bearer for the modern financial system. Venetian brokers began to trade in government securities.

stock brokerage firms began to move in a direction of market makers. giving access to a wider swath of people and adding liquidity to the market.and securities. held. This has resulted in increased profits and greater interconnection within the financial industry. Discounted commissions have lessened the price of trades. This allows a firm to make a profit from establishing the immediate sale and purchase price to an investor. The firms limited themselves to researching and trading stocks for investment groups and individuals. sold. creating massive financial institutions that valued. Working with hundreds of billions of dollars. Firms like Smith Barney were acquired by Citigroup and other investment banks. large share of the brokerage firms have moved to an online format. Trillions of dollars of assets were tied together in to the modern user. the larger firms began to merge and take over smaller firms in the last half of the 20th century. Effects: The creation of high valued brokerage firms like Goldman Sachs and Bear Sterns created a system of consolidation. The conflict with brokerage firms setting prices creates the concern that insider trading can result from the sharing of information. Considerations: During the 1900s. Features: . Regulators have enforced a system called Chinese Walls to prevent communication between different departments within the brokerage company. This conglomeration of the financial sector created an environment of volatility that caused a chain reaction when other firms like Bear Sterns and Lehman Brothers filed for bankruptcy. They adopted the policy of quoting both the buying and selling price of a security. The role of the stock brokerage firm is ever-changing and proves to be a boon for the future of the financial industry. insured and invested in securities. Smaller brokers different companies and resulted in a large economic collapse in late 2008.

" many of the discount brokerages such as E-Trade and Scottrade are offering more and more sources on their websites to help inform individual investors. these fees are not nearly as much as the charges at traditional brokerage firms Banks Many banks now offer brokerage services. this cuts out many of the commission fees that are usually associated with traditional brokerage services. According to the business information website Goliath. However. While discount brokerages usually do not offer the comfort of one-on-one interaction with an "expert. In addition. While there are obviously some commission fees involved.A such as E*Trade. These firms are the kind where you have a one-on-one live person who helps you map out your investing and helps you to pick the right stocks. The added convenience and personal attention paid to the small investor has resulted in a large influx of activity. As a result. Examples of this include Citi owning Smith Barney and Bank of America owning Merrill Lynch. TD Ameritrade and Charles Schwab have taken control of most individual investors accounts. Discount Brokers: Discount brokerages are mostly web-based and allow individuals more power over investing. the fact that the online resources offer up to the-minute pricing and immediate trades makes their format appealing Traditional Brokerage Firms: Traditional Brokerage Firms are basically what they sound like. Also. brokerage services offered by banks are very similar . Examples of traditional brokerages include Merrill Lynch and Smith Barney. These types of firms usually have a high commission in exchange for having that live person to guide you. traditional brokerage firms have referred their clients to call centers instead of live people in some instances. in recent times. some firms have changed their system from charging commission on transactions to charging a set fee based on your assets.

Brokerage services offered by banks give investors the comfort of having help from a live person and the convenience of having multiple financial services offered less than one roof. customer assets are safe and typically are transferred in an orderly fashion to another registered brokerage firm. and what you should know and do in the event that your brokerage firm ceases to operate. SIPC insurance is used as a last course of action in the unlikely event that the other customer protections have failed.000. In other words. registered brokerage firms must keep their customers' securities and cash segregated from their own so their traditional brokerage firm counterparts and have little to no distinction. Each have their own perks. If a Brokerage Firm Closes Its Doors: Given the turbulence affecting the financial services industry these days. but at the end of the day. Brokerage firms are also required to meet minimum net capital requirements to reduce the likelihood of insolvency. when a brokerage firm ceases to operate. For example. even if a firm fails. SIPC insurance comes into play in those rare cases of firm failure where customer assets are missing because of theft or fraud. This publication explains the role regulators—including FINRA play when a firm goes out of business unexpectedly. Discount brokers offer a large degree of freedom in selecting what stocks you want to invest in. the main question is self-trust. Choosing a Brokerage The main thing to consider when choosing a broker is basically how much trust do you put in yourself. its customers' assets will be safe. In virtually all cases. The traditional and bank based brokers give you the source of having an insider or live person direct on your investing path. and to be members of the Securities Investor Protection Corp (SIPC). While the customer . you may be wondering what would happen to your securities account if your brokerage firm closed its doors. Multiple layers of protection safeguard investor assets. which insures customer securities accounts up to $500.

safeguards are extensive and the track record of making investors whole in the aftermath of a financial crisis is strong. carrying firms must maintain higher levels of net capital than introducing firms— and they are responsible for segregating the customer funds and securities in their custody. . Because they have custody of customer assets. but it also maintains custody of your securities and other assets (like any cash in your account). the SEC's Rule 15c3-3 the "Customer Protection Rule" requires brokerage firms that have custody of customer assets to keep those assets separate from their own accounts. Regulatory Safety Net: Brokerage firms are required to follow certain rules that are designed to minimize the chances of financial failure and. the firm not only handles your orders to buy and sell securities. In other words. When you open an account with a brokerage firm that is a carrying firm. and there are steps and precautions investors can take to help protect their assets-not to mention their peace of mind. it is helpful to understand the difference between "clearing and carrying" firms (or "carrying" firms for short) and "introducing" firms. customers' cash must be placed in a special. not all investor assets may be covered. and fully paid customer securities must be kept separate from firm and customer margin securities Carrying and Introducing Firms: To understand how these rules work. The minimum net capital a firm must have on hand depends on its size and business. In addition. the SEC's Rule 15c3-1 the "Net Capital Rule" requires brokerage firms to maintain certain levels of their own liquid assets. to protect customer assets if they do fail. For example. more importantly. separate "reserve" account. the brokerage firm accepts your orders but it will have an arrangement with a carrying firm to maintain custody of your securities account. With an introducing firm.

was bought by J. What Happens if SIPC Protection Is Invoked? . What Happens to My Account? Historically. including the SEC and FINRA. All brokerage firms must file financial statements (on Form X-17A-5) with the SEC and those that are publicly traded must file quarterly. If you hear your firm is in financial trouble. Other firms self-liquidate. for example. The first thing you should do is avoid panic. If My Firm Fails. brokerage firms that have faced financial insolvency meaning they cannot meet their financial obligations as they come due have handled the crisis in different ways. work with the firm to make sure that customer accounts are protected and that customer assets are transferred in an orderly fashion to one or more SIPC-insured brokerage firms.P. Some have been able to find a buyer to stave off insolvency.Additional rules require firms that do business with public customers to have their financial statements audited by an independent accounting firm annually. contact the firm to see what procedures you should follow. Morgan in 2008. When a brokerage firm self-liquidates. annual and other periodic reports with the SEC (which investors can view using the SEC's EDGAR database of company filings). For example. securities regulators. as did Drexel Burnham Lambert in 1990. What Do I Do? The failure of a brokerage firm will understandably cause some anxiety for the firm's customers. Bear Stearns. there may be a window of time when you cannot trade or transfer your account. We describe how an investor can obtain a firm's financial statements in our Investor Checklist.

SIPC is a non-profit organization created in 1970 under the Securities Investor Protection Act (SIPA) that provides limited insurance to investors on their brokerage accounts if their brokerage firm becomes insolvent. officers or anyone with a significant beneficial ownership in the failed firm. All brokerage firms that do business with the investing public are required to be members of SIPC.000 customers. and • Accounts of partners. hedge funds or investment contracts (such as limited partnerships) that are not registered with the SEC. conversion. fixed annuities.000 in cash claims. SIPC coverage of $500.000. another is a joint account with your spouse. you will be notified by letter that your brokerage firm has closed and that SIPC has begun a "Direct Payment Procedure" or a liquidation .000 is extended to each "legal customer. it does so only when a firm shuts down due to financial circumstances in which customer assets are missing—because of theft." For instance. SIPC protection is limited. If SIPC liquidation takes place. Investments in commodity futures. currency. However. if you have three accounts at a firm and one is an individually held account in your name only. It covers the replacement of missing stocks and other securities up to $500. directors.7 billion in cash and securities to an estimated 625. including $100. SIPC has advanced approximately $508 million to facilitate the return of more than $15. SIPC does not cover the following: • • Ordinary market loss. and a third is an IRA account in your name each account is considered a separate "legal customer" and each will be eligible for full SIPC coverage SIPC Liquidation: Step-by-Step In almost four decades of operation. or unauthorized trading or are otherwise at risk because of the firm's failure.

proceeding in court. Furthermore. including brokerage account records. • • Follow SIPC instructions in filling out necessary forms. Once liquidation is initiated. If you hear about a liquidation that involves your firm and have not received a letter. and Pay strict attention to time limits set forth in the notice and claim form. Some firms carry additional insurance over the protection limits currently provided by SIPC. go to the SIPC Web site for contact information. Two prominent names in the excess insurance . Locate cancelled checks and correspondence with your brokerage firm. • Verify your correct address. if a clearing firm is in financial trouble or in liquidation. SIPC advises in its Investor's Guide to Brokerage Firm Liquidations that you promptly: • Gather key information together. liquidate their securities positions and/or transfer holdings to another firm. Check your account statements for accuracy and verify that the statements monthly or quarterly statements and trade confirmations. most customers can expect to receive their assets in one to three months. Protections are generally triggered only in the event of the financial failure and liquidation of a participating securities affiliate and if the customers' securities are not returned by the firm or through SIPC. Under federal law. If you receive such a letter. Investors should be aware that they may be unable to transfer accounts or execute trades during the liquidation process. including their ability to trade. The speed at which customer funds and securities are returned depends on a number of factors. this may affect customers of introducing firms that clear through the troubled firm. SIPC or the court—has the authority to satisfy claims that are filed late. including the accuracy of brokerage firm records. no one—not the trustee. • • reflect all cash deposits you sent to the brokerage firm. Determine if there are any transactions that you did NOT authorize.

Stock Broker Company Stock Broker Company Overview: A stock broker company helps an investor to invest in the stock market. The online stock brokerage firms provide top class services. some policies may have caps or other limits on the amount of protection provided to individual customers or to the firm's customers as a group. In addition. The financial resources and history of a certain company acts as indicator of the . With the advent and subsequent increase of the Internet facilities. Types of Stock Broker Company: There are two separate types of stock broker companies the off line stock broker companies and the online stock broker companies. As with all insurance. the online stock broker companies have gained popularity in the present day market. With the help of a stock broker company the investors can gain knowledge about the workings of a stock market. the ability to pay claims depends on the financial strength of the carrier. Information about the services of online stock broker companies could be obtained very easily from the internet. It is always advisable to check the credibility of the respective stock brokerage company. Yet another way is to conduct some market research about the company. They also furnish the clients with the newest information on the stock are a consortium of brokerage firms that formed the Customer Asset Protection Co (CAPCO) and Lloyds of London. Uses of Online Stock Broker Companies: It is convenient to use the services of the online stock broker companies as they are both time-saving and cost effective. This could be done by reading the testimonials that are available on their websites. A proper stock market company helps the investor to optimize his investments.

credibility of the company. History The basic services offered by a prime broker give a money manager the ability to trade with multiple brokerage houses while maintaining. They may be enumerated as below: • • • Providing information on the newest quotes Selling the stocks at the maximum possible price Continuous real time stock updates Prime brokerage: Prime brokerage is the generic name for a bundled package of services offered by investment banks and securities firms to hedge funds and other professional investors needing the ability to borrow securities and cash to be able to invest on a netted basis and achieve an absolute return. The best online stock broker companies value the confidentiality of their customers. fees for clearing and/or other services. These accounts are of extreme importance for the investors. the respective investor opens an account with the same. very much. in a centralized master account at . It also earns money by hypothecating the portfolios of the hedge funds it services and charging a fee to those borrowing securities and other investments. and by charging. The Prime Broker benefits by earning fees ("spreads") on financing the client's long and short cash and security positions. The business advantage to a hedge fund of using a Prime Broker is that the Prime Broker provides a centralized securities clearing facility for the hedge fund. and the hedge fund's collateral requirements are netted across all deals handled by the Prime Broker. Stock Broker Company Services: Both the online and offline stock broker companies offer their consumers a variety of services. as they enable the investors to be updated regarding the progress of their stocks. in some cases. Stock Broker Company Account: After choosing a stock brokerage company.

domestic long-short equities funds. broker-dealer Furman Selz in the late 1970s. money managers had to keep track of all of their own trades. The concept was immediately seen to be successful.S. Merrill Lynch. Counterparty diversification saw the largest flows of client assets out of Morgan Stanley and Goldman Sachs (the two firms who had historically had the largest share of the business. and Goldman Sachs. and therefore had the most . Restructuring transactions in 2008 included the absorption of Bear Stearns into JP Morgan. consolidate their positions and calculate their performance regardless of which brokerage firms executed those trades or maintained those positions. The concept and term "prime brokerage" is generally attributed to the U. Fundamentally. Lehman Brothers. prime brokerage business was created by Merrill Lynch's London office in the late 1980s. Bear Stearns. However. the acquisition of Merrill Lynch by Bank of America. the prime broker offers stock loan services. the acquisition of the assets of Lehman Brothers in the US by Barclays. the first hedge fund operation is attributed to Alfred Winslow Jones in 1949. sought to diversify their counterparty exposure away from many of their historic sole or dual prime broker relationships. Additionally. as numerous brokers and banks restructured. These services worked because they also allowed the money manager to maintain relationships with multiple brokerage houses for IPO allocations. The first nonU. and was quickly copied by the dominant bulge bracket brokerage firms such as Morgan Stanley. portfolio management was a significant challenge.S. worried about their credit risk to their prime brokers. At this nascent stage. Financial crisis of 2007-09 The financial crisis of 2007-09 brought substantial change to the marketplace for prime brokerage services. consolidated cash management and other services.their prime broker. the advent of the prime broker freed the money manager from the more time consuming and expensive aspects of running a fund. In the pre-prime brokerage marketplace.S. and the acquisition of certain Lehman Brothers assets in Europe and Asia by Nomura. hedge funds were much smaller than they are today and were mostly U. conference access and other products. portfolio reporting. and customers. best execution. research. all of the hedge fund’s cash and securities.

Kennedy thought that if a shoeshine boy could own stock. The market has become more accessible. . primarily through loans secured by the long positions of their clients. JP Morgan. something must have gone terribly wrong. as well as how to choose an online brokerage. Risks: Prime Brokers facilitate hedge fund leverage. In this article. make trades and protect yourself from fraud. and Deutsche Bank. In this regard. Online trading has given anyone who has a computer. plenty of "common" people own stock. You don't have to have a personal broker or a disposable fortune to do it. the Prime Broker is exposed to the risk of loss in the event that the value of collateral held as security declines below the loan value. and most analysts agree that average people trading stock is no longer a sign of impending doom. Now. to be the most creditworthy. In the 1920s. What made Kennedy sell? According to the story.. Other forms of risk inherent in Prime Brokerage include operational risk and reputational risk. enough money to open an account and a reasonably good financial history the ability to invest in the market. he got a stock tip from a shoeshine boy. The banks which captured these flows to the greatest degree were Credit Suisse. and into firms which were perceived. the stock market was the realm of the rich and powerful. which became one of the hallmarks of the Great Depression." the start of the catastrophic 1929 stock market crash. Many investors suffered enormous losses in the crash. at the time. How Online Trading Works: Legend has it that Joseph Kennedy sold all the stock he owned the day before "Black Thursday. but that doesn't mean you should take online trading lightly. and the client is unable to repay the deficit. we'll look at the different types of online trading accounts.exposure to the diversification process).

Stocks that issue frequent dividends are income stocks. Shareholders -. a Japanese stock exchange Worldwide Stock Exchanges has a list of major exchanges. A share of stock is basically a tiny piece of a corporation.people who buy stock -. Over-the-counter (OTC) stocks are not listed on a major exchange. but instead of talking to someone about investments. A business can also save its profit or re-invest it by making improvements to the business or hiring new people.Review of Stocks & Markets: Before we look at the world of online trading. which trades stocks auction-style on a trading floor The NASDAQ. and vice versa. you can go on to the next section. ." When a business makes a profit. Some online brokerages offer advice from live brokers and broker-assisted trades as part of their service. it can share that money with its stockholders by issuing a dividend. The price of a share varies according to economic conditions. The first time a company offers its stock for public sale is called an initial public offering (IPO). and others match buyers to sellers electronically. and you request your trades yourself. If you've already read How Stocks and the Stock Market Work. let's take a quick look at the basics of the stock market. A person or computer must match each buy order to a sell order. An exchange is like a warehouse in which people buy and sell stocks. and you can look up information on them at the OTC Bulletin Board or PinkSheets. also known as "going public. you decide which stocks to buy and sell.are investing in the future of a company for as long as they own their shares. Some examples of major stock exchanges are: The New York Stock Exchange. When you buy and sell stocks online. an electronic stock exchange The Tokyo Stock Exchange. Stocks in companies that re-invest their profits are growth stocks. the performance of the company and investors' attitudes. Some exchanges work like auctions on an actual trading floor. you're using an online broker that largely takes the place of a human broker. You still use real money.

advising the client on which stocks that he should buy or sell. As an investor. The brokerage firm then sends a stockbroker to the floor of the stock exchange where he performs these duties on behalf of the client. Here are five things you want to look for before you open an account. In this role. Who are employed in a brokerage firm? . the brokerage firm also loses money. Before You Open a Brokerage Account: Before you can begin investing. choosing a broker is one of the most important decisions you'll have to make. the company decides which stocks it would like to invest in and sends a broker to the exchange floor to perform the same transaction as he would for a client. clients are usually charged a fee. the firm studies the client's immediate financial needs and long-term financial goals. you'll need to choose a firm that offers that service. brokerage firms have made the majority of their profits by brokering stock trades. how many stocks and at what price. If the transaction loses the client money. We'll look at other qualities to look for in an online brokerage next. The firms act as their clients' legal representative on the floor of the stock exchange. read the article "What is a Broker" in the Beginner's Corner. The brokerage firm's client informs the firm which stocks it would like to buy or sell. Brokerage Firms as Investment Advisors: Brokerage firms can act as financial and investment advisors. Brokerage Firms and the Trade of Stocks: Traditionally. For this service. Brokerage firms can also perform stock transactions as the principle.If you need a broker to help you with your trades. The brokerage firm leaves the final choice up to the client. The brokerage firm receives a percentage from this sale as its fee. In this case. The firm devises a plan of action. buying or selling stocks for their own firm. you must open a brokerage account for those of you who don't know what this is.

There are many brokers that have dual license so that they can deal in both markets. A futures broker needs to have a Series 3 license. Most brokerage firms are publicly traded companies that also trade securities for their own profits. Full service brokerage firm offers advice on investment strategies. What are the licenses that a broker from any brokerage firm needs to have? The licensing and training requirement for futures brokers is different from that needed for licensed stockbrokers. while a Series 7 license is essential for a stockbroker. They also make money through proprietary trading. Discount brokerage firm is ideal for someone who is an experienced trader who makes his or her own decisions. research and news. What are the different types of brokerage firms? There are three main types of brokerage firms. Since these firms offer multiple services. Discount brokerage firms have lower commission costs than full service brokerage firms. hold or sell a particular stock.A brokerage firm hires traders and research analysts to work for them. They charge fees for acting as an intermediately between the buyers and sellers of securities. How does a brokerage firm make money? A brokerage firm sells its knowledge and expertise of the securities markets to its clients. An introducing brokerage firm is one that specializes in futures markets and buy or sell orders on commodities exchanges through established firms that are clearing members of exchanges. . their fees are also higher. Research analysts? research stocks track companies and provide advice on whether to buy. Traders are authorized to sell securities on behalf of the firm and its customers.

One needs to be sure of the costs and fees. Step 3 Orders are placed during market business hours. you will need to fill out paperwork that reviews your contact information." After-hours orders are placed the next business day the market is open. If this is a new account. income and investment objectives. How to Understand Brokerage Firms: Step 1 Discuss with your registered representative (broker) what investments are suitable for your situation. The form will also discuss your investment experience. Those that want to trade directly using the Internet also need to find out whether the systems at the brokerage firms comply with current standards. One also needs to find out the minimum account size that the firm accepts. including any hidden costs of dealing with the particular brokerage firm. . assets. Your broker should be able to give you a confirmation number immediately after the transaction is placed on the computer. debts. It is the job of brokers to understand the needs and objectives of their clients and find suitable investments. Step 2 Place an order with your broker. This is known as the "transaction date. the performance bond requirements. It is important for this information to be accurate to ensure your broker can give you the best advice possible as well as protect you from investments that your broker should not be placing you into. the handling of dispute orders and the track record of the firm.What are the factors to keep in mind before hiring a brokerage firm? One must ensure that the brokerage firm they hire has all the right licenses for trading in stocks and bonds and have the necessary clearance certificates.

Step 4 Deposit the funds for the transaction including any fees associated with the transaction. but the funds will not be officially in your account until the trade does settle. Step 5 Placing an order to sell work the same way. the asset will be sold (even at a loss) and you will be responsible for the difference. You have three days from the transaction date to "settle" the account. If the trade is not settled by this date. This is noted as "T + 3" in the brokerage industry. . The only difference is you are not responsible for getting the funds for the settlement date.

Sign up to vote on this title
UsefulNot useful

Master Your Semester with Scribd & The New York Times

Special offer for students: Only $4.99/month.

Master Your Semester with a Special Offer from Scribd & The New York Times

Cancel anytime.