Securities Market Participants and Trade Execution Vocabulary

A collection of vocabulary flashcards defining key securities market participants, clearing and settlement mechanisms, and execution practices from the lecture transcript.

Traders

Natural persons or entities that buy and sell securities on behalf of their clients without usually maintaining direct client relationships.

Broker-dealers

Financial organizations that help customers buy and sell securities.

Introducing brokers

Smaller broker-dealers whose primary role is to maintain customer relationships and facilitate trades, without keeping custody of customer assets or processing trades.

Clearing brokers

Large broker-dealers that maintain custody, process orders, provide clearing services, and facilitate trades for their own clients and introducing brokers.

Clearing services

Operations where clearing brokers work as intermediaries with clearinghouses to ensure a transaction will occur.

Clearinghouses

Organizations responsible for ensuring trades are properly finalized so that the buyer receives the security and the seller receives the cash.

Regular-way settlement

The settlement protocol for most securities occurring on the first business day after the transaction ($T+1$).

Market makers

Organizations that buy and sell securities solely on a principal basis with inventory to maintain ongoing bid and ask spreads and provide liquidity.

Bid

The price quote at which a market maker is willing to buy a security.

Ask

The price quote at which a market maker is willing to sell a security.

Payment for order flow (PFOF)

An arrangement where market makers compensate broker-dealers and other institutions for sending customer order traffic to them.

Best execution

The duty requiring a broker-dealer to execute customers' trades at the most favorable terms reasonably available under the circumstances.