Quick Answer
A written confirmation must go out for every customer transaction no later than settlement date. It discloses the trade date, security identity, quantity, price, and whether the firm acted as agent (commission) or principal (markup/markdown where a rule requires it), never both. Settlement date, net amount, and accrued interest on debt appear as rules or practice require.
The SEC's trade-confirmation rule and FINRA's customer-confirmation rule set the requirements for what a confirmation must contain and when it must be delivered. Municipal securities transactions follow a parallel Municipal Securities Rulemaking Board (MSRB) confirmation rule with largely the same core content requirements, covered later in this unit.
What Must Happen After Every Transaction?
- 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, unless the trade qualifies for alternative periodic reporting (periodic investment plans, dividend reinvestment, or money market fund shares reported on a periodic statement)
- FINRA's customer-confirmation rule incorporates and supplements the SEC's confirmation requirements
What Information Must Appear on a Confirmation?
A confirmation carries these components. Some apply only to certain trades, as the table notes, and a few are customary practice rather than items the rules list:
| Component | Details |
|---|---|
| Trade date | The date the transaction was executed |
| Settlement date | When payment or delivery is due; FINRA requires it on exchange-listed and over-the-counter stock trades, and the MSRB rule requires it on municipal trades |
| Security identity | Name or other identifier; the Committee on Uniform Securities Identification Procedures (CUSIP) number is customary and the MSRB rule requires it on municipal confirmations |
| 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 (and municipal securities, under the parallel MSRB rule) with non-institutional customers when an offsetting trade occurred the same day, shown as both a dollar amount and a percentage of the prevailing market price |
| Net amount | Total dollar amount of the transaction (standard practice; the MSRB rule requires it on municipal confirmations) |
| Accrued interest (debt securities) | Interest accrued since the last payment date; standard on debt confirmations and required by the MSRB rule on municipal ones |
| Execution time and TRACE reference (covered corporate/agency debt) | Time of execution shown to the second, plus the Trade Reporting and Compliance Engine (TRACE) reference information the rule requires |
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 or Principal: Which Capacity Disclosure Applies?
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 buys or sells for its own account, whether from inventory or in an offsetting same-day trade. It must disclose the markup or markdown on corporate and agency debt (municipal securities follow a parallel MSRB rule with the same conditions) 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.
- Principal capacity does not create a universal markup-disclosure requirement. The enhanced dollar-and-percentage debt disclosure applies to qualifying non-institutional customer trades with sufficient same-day offsets, subject to exceptions. Equity principal trades can also require price-difference disclosure under their own conditions, so compensation disclosure is not limited to debt.
What If the Security Is Callable?
- If the security is a callable equity security, the confirmation must say it is callable and that the customer may contact the firm for more information
- If it is a debt security subject to redemption before maturity, the confirmation must say it may be redeemed in whole or in part before maturity, that redemption could affect the yield shown, and that more information is available on request
When Must the Confirmation Go Out?
- 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 confirmation disclosures: the inside bid/ask and share count, broker-dealer compensation, and associated-person compensation. (A separate rule governs the periodic penny-stock account statement, not the confirmation, covered in the next lesson)
Exam Tip: Gotchas
- The deadline is settlement date, not trade date. A confirmation sent the day after execution is still on time for a regular-way stock trade, because under T+1 that day is the settlement date.
- Mutual fund prospectus delivery can substitute for some confirmation details, but it does not eliminate the requirement entirely.
What Should You Check on Exam Day?
- Confirmation timing: at or before settlement date, for every transaction, every security, except trades reported under alternative periodic reporting (periodic plans and money market funds)
- Capacity: disclose agent or principal. Customer-paid agency remuneration and principal pricing compensation follow transaction-specific conditions; qualifying retail debt markups appear in both dollars and percentage terms
- Covered corporate/agency debt confirmations also show execution time to the second and the required Trade Reporting and Compliance Engine (TRACE) reference information; penny stock confirmations name three specific disclosures: inside bid/ask and share count, broker-dealer compensation, and associated-person compensation
- Accrued interest appears on debt confirmations, not equity confirmations. Principal pricing-compensation disclosure depends on the security and transaction; equity trades can also require price-difference disclosure
- Callable equity must be flagged as callable, with a note that the customer may contact the firm; callable debt instead carries the redemption, yield-effect and more-information statement; mutual fund prospectus delivery narrows, but does not replace, the confirmation requirement