SIE Understanding Trading, Customer Accounts and Prohibited Activities Question 28: Answer and Explanation

Question: 28

Markup/markdown is the compensation earned by the broker-dealer in which of the following circumstances?

• A. Providing advice when no trade is completed
• B. Acting in a principal capacity
• C. Acting in an agency capacity
• D. Acting as a Registered Investment Adviser

Correct Answer: B

Explanation:

B: Choice B is correct because markup/markdown is the difference between the price at which the broker-dealer buys a security and the price at which the broker-dealer sells the security, with one transaction being with a customer. Choice A is incorrect as that would involve no markup. Choice C is incorrect because compensation when acting in an agency capacity is commission. Choice D is incorrect, as compensation as a Registered Investment Adviser (RIA) may involve markup, commission, or one of various adviser fees.