Which statement best describes a securities dealer?

Which statement best describes a securities dealer?

• A. Individuals, legal entities, or partnerships that buy and sell securities on the secondary market on a professional or commercial basis
• B. Only banks and brokerages that operate primarily in the financial sector
• C. Agents who execute trades for clients but do not hold positions themselves
• D. Retail investors trading for personal accounts

Answer: (A)

A securities dealer is an entity that buys and sells securities for itself, operating in the market on a professional or commercial basis. They participate in the secondary market by maintaining an inventory and quoting prices, effectively providing liquidity to other market participants. Because they trade for their own account (as principal), they can profit from the bid–ask spread and price movements, rather than simply acting on behalf of clients. This distinguishes them from brokers or agents, who execute trades for clients without typically holding positions themselves. The scope isn’t limited to banks or brokerages; it includes individuals, legal entities, or partnerships that engage in this trading activity as a business. Retail investors, trading for personal accounts, don’t fit the dealer role.

A securities dealer is an entity that buys and sells securities for itself, operating in the market on a professional or commercial basis. They participate in the secondary market by maintaining an inventory and quoting prices, effectively providing liquidity to other market participants. Because they trade for their own account (as principal), they can profit from the bid–ask spread and price movements, rather than simply acting on behalf of clients. This distinguishes them from brokers or agents, who execute trades for clients without typically holding positions themselves. The scope isn’t limited to banks or brokerages; it includes individuals, legal entities, or partnerships that engage in this trading activity as a business. Retail investors, trading for personal accounts, don’t fit the dealer role.