General Securities Sales Supervisor (Series10) Practice Exam

Which of the following statements about customer transactions handled through a correspondent firm is TRUE?

1. Trades made through the correspondent firm are treated as agency trades

2. All transaction costs must be disclosed to the customer on the confirmation

3. Confirmation of the trade is made directly from the correspondent firm to the customer

4. The cost of using the correspondent firm is borne by the customer

The correct answer is: Confirmation of the trade is made directly from the correspondent firm to the customer

The focus on confirmation of trades through a correspondent firm being made directly to the customer highlights the operational structure of correspondent relationships in brokerage services. When transactions are conducted through a correspondent firm, it acts as an intermediary between the executing broker and the end customer. Consequently, the confirmation process typically involves the correspondent firm directly reaching out to the customer after the trade, ensuring that the customer receives immediate details about the transaction. This direct confirmation is crucial for maintaining transparency and efficient communication between the customer and the correspondent firm, providing the customer with essential information such as trade date, price, and the specific number of shares involved. It also reinforces the understanding that while the executing broker handles the trade, the correspondent firm takes on the responsibility of confirming that transaction back to the customer. The other statements about the nature of trades, transaction cost disclosure, and the burden of costs do not accurately reflect the protocol established with correspondent firms. While there are stipulations regarding costs and types of trades, the direct confirmation process specifically aligns with the operational practices associated with correspondent relationships, making that statement true.