Series 7 Exam Question 346: Answer and Explanation

Question: 346

Broker-dealers may charge a

I. commission

II. markup

III. markdown

• A. I only
• B. I and II
• C. II and III
• D. I, II, and III

Correct Answer: D

Explanation:

D. Broker-dealers act as both brokers (middleperson) and dealers (selling securities out of their own inventory). When broker-dealers act as brokers, they're purchasing or selling securities for an investor through a market maker. When acting as brokers, they charge a commission. When acting as dealers, they either buy securities from investors to add to their own inventory or sell securities to investors from their own inventory. In this case, the broker-dealer charges a markup (if the customer is buying) or a markdown (if the customer is selling). So, all answer choices given are correct depending on the capacity of the trade.