General Securities Sales Supervisor (Series10) Practice Exam

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What is the status of a broker-dealer when they handle a customer order to sell stock under Rule 144?

They must execute transactions only through agents
They cannot buy the stock into their inventory
They can act as both principal and agent
They are prohibited from handling any sales

The correct answer is: They cannot buy the stock into their inventory

In the context of Rule 144, a broker-dealer's status when facilitating a customer's order to sell stock has specific implications. The most crucial aspect is that broker-dealers are not allowed to buy the stock into their inventory when a customer is selling under Rule 144. This rule exists to prevent potential market manipulation and to ensure that the sale is conducted fairly and transparently, particularly since Rule 144 is intended for the resale of restricted and control securities. The prohibition on the broker-dealer purchasing shares into their inventory helps maintain a clear distinction between customer transactions and the broker-dealer's own trading activities. This distinction is essential to uphold the integrity of the market and protect both the customer and the market at large. In this scenario, the broker-dealer must focus solely on executing the customer's sale without engaging in their own proprietary trading of the same securities at that moment.