Broker-Dealer Trading Mark-Ups

Overview

Broker-dealers must effect principal transactions at an aggregate price (including any markup or markdown) that is fair and reasonable to the customer. Charges that are excessively large are a violation of the SRO rules, and, if really excessive, are deemed to be a violation of the antifraud provisions of the Securities Exchange Act. The obligation to which the broker-dealer is subject that it not charge the customer more than a reasonable fee above the market price for executing the transaction is closely tied to, albeit it distinguishable from, the broker-dealer's obligation to execute any trade at the best possible price. See also the page on BD Best Execution.

In order to allow customers to determine if they are being charged reasonable mark-ups, broker-dealers are required on many transactions to disclose the amount that they charged for executing the transaction. See the topic pages on Confirmations and on Muni Trade Confirmations.

Broker-dealers are limited not only in the amount that they charge customers as to trades, but also on the amounts that they charge on other services. See the topic page on Broker-Dealer Service Fees.

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SEC and SRO Rules

SEA Rule 15c1-8 (Sales at the market)

 

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