When a broker-dealer charges a commission on a securities transaction, what role has it played?

When a broker-dealer charges a commission on a securities transaction, it is acting as an agent. In this role, the broker-dealer facilitates the transaction between buyers and sellers without taking ownership of the securities being traded. The commission represents the fee charged for providing this service.

This scenario reflects a key principle in the industry: agents earn commissions for their services in helping clients execute transactions. They do not assume any risk for the securities themselves, which distinguishes their role from that of a principal, who would buy and sell securities directly and thus take on risk associated with ownership.

Understanding the distinctions between the various roles in securities transactions is crucial for recognizing how broker-dealers operate in the financial markets. By acting as an agent, the broker-dealer helps to provide liquidity and facilitate trading, thereby contributing to the overall functioning of the securities markets.