Uniform Securities Agent State Law (Series 63) Practice Exam

What is the role of a broker/dealer?

1. A securities firm

2. A regulatory body

3. A market maker

4. An investment bank

The correct answer is: A securities firm

A broker/dealer primarily serves as a securities firm that facilitates the buying and selling of securities on behalf of clients or for its own account. This role encompasses two main functions: acting as a broker, where the firm executes trades on behalf of clients for a commission, and acting as a dealer, where it trades its own inventory of securities, earning profit from the spread between the purchase and selling prices. This definition encapsulates the general operations of a broker/dealer, as they are essential intermediaries in the capital markets, providing liquidity and maintaining orderly trading in securities. Unlike a regulatory body, which is responsible for enforcing laws and regulations governing the securities industry, or a market maker that specifically buys and sells particular securities to facilitate trading and ensure liquidity, a broker/dealer operates on a broader scale in terms of the various services offered to clients. Additionally, while some broker/dealers may have investment banking divisions, the primary classification of broker/dealers does not align with the functions of an investment bank, which focuses more on underwriting and advisory services related to corporate finance. Understanding the primary role of a broker/dealer as a securities firm highlights its significance in the functioning of financial markets and the overall economy.