Customer Confirmations
Every time a broker-dealer executes a transaction for a customer, a written confirmation must follow. SEC Rule 10b-10 and FINRA Rule 2232 set the requirements for what that confirmation must contain and when it must be delivered.
SEC Rule 10b-10 - Confirmation of Transactions
- Broker-dealers must send a written confirmation to the customer at or before the completion of a transaction (settlement date)
- A confirmation is required for every transaction in every security executed for or with a customer account
- FINRA Rule 2232 incorporates and supplements the SEC's confirmation requirements
Required Information on Confirmations
Every trade confirmation must include these components:
| Component | Details |
|---|---|
| Trade date | The date the transaction was executed |
| Settlement date | When payment or delivery is due |
| Security identity | Name, CUSIP, or other identifier |
| Quantity | Number of shares or units transacted |
| Price | Per-share or per-unit price |
| Capacity | Whether the firm acted as agent or principal |
| Commission (agent trades) | Dollar amount of commission charged |
| Markup/markdown (principal trades) | Required for corporate and agency debt with non-institutional customers when offsetting trade occurred same day |
| Net amount | Total dollar amount of the transaction |
| Accrued interest (debt securities) | Interest accrued since the last payment date |
Exam Tip: Gotchas
- Accrued interest appears on debt confirmations, not equity. If a question asks what must appear on a stock trade confirmation, accrued interest is not one of the answers.
- "Net amount" is the bottom line the customer pays or receives. It includes price, commission or markup, and accrued interest (if applicable).
Agent vs. Principal Disclosure
The capacity disclosure is one of the most frequently tested confirmation topics:
- Agent (broker): The firm matches a buyer and seller and charges a commission. The dollar amount must appear on the confirmation.
- Principal (dealer): The firm trades from its own inventory. It must disclose the markup or markdown on corporate and agency debt for non-institutional customers when the firm traded the same security on the same day (riskless principal transactions).
- A firm cannot act as both agent and principal in the same transaction
Think of it this way: An agent is a matchmaker who connects buyer and seller, earning a commission for the introduction. A principal is a dealer buying from or selling out of its own shelf. You cannot be both the matchmaker and the seller in the same deal.
Exam Tip: Gotchas
- If a question says the firm "charged a commission AND a markup" on the same transaction, that is a violation. A firm cannot act as both agent and principal simultaneously. Commission = agent. Markup = principal.
- Markup disclosure is not always required on principal trades. It only applies to corporate and agency debt, for non-institutional customers, when the firm executed an offsetting trade the same day.
Callable Security Disclosure
- If the security is callable, the confirmation must identify it as such
- Must indicate the customer may contact the firm for additional call information
Timing and Exceptions
- Confirmations must be sent no later than the settlement date
- For mutual fund purchases, prospectus delivery may substitute for certain confirmation elements
- Penny stock transactions require additional disclosures under SEC Rule 15g-6
Exam Tip: Gotchas
- The deadline is settlement date, not trade date. A confirmation sent the day after execution but before settlement is still on time.
- Mutual fund prospectus delivery can substitute for some confirmation details, but it does not eliminate the requirement entirely.