SIE Exam Question 414: Answer and Explanation

Question: 414

When institutional investment managers open brokerage accounts at several clearing broker-dealers, those clearing broker-dealers process the transactions and have the back-office clearing and processing handled through a single broker-dealer. This firm is identified in the SEC and FINRA regulations as a:

• A. Floor Broker
• B. Registered Trader
• C. Prime broker
• D. Omnibus firm

Correct Answer: C

Explanation:

C: Think of a funnel. Big institutional investors are doing many trades every day through numerous broker-dealers with which they have accounts. But all the transactions and the cash and securities clearing and settlement are 'funneled' through one firm for accounting simplicity. The prime broker is the bottom part of the funnel.