SIE Knowledge of Capital Markets Question 4: Answer and Explanation

Question: 4

Which of the following takes orders from a client and passes the order to an entity that is qualified to match the buy order with a sell order from another person?

• A. Hedge fund
• B. Prime broker
• C. Introducing broker
• D. Clearing broker

Correct Answer: C

Explanation:

C: A clearing broker may take orders but does not have characteristics, such as amount of invested capital, that qualify it to complete the trade. Choice A is a pooled investment firm and does not typically take orders from other persons or firms as one of its primary activities. Choice B refers to a firm that handles a variety of services for institutions or individuals with a high net worth. Choice D refers to the firm that would accept the order placed by an introducing broker and match it with a counterparty willing to complete the transaction.