An agency transaction is effected by a firm for the benefit of a customer. The firm merely executes a customr’s order and charges a fee for the service known as a commission.
When a customer places an order with a broker dealer the firm may elect to execute the order on either an agency or principal basis. When executing an agency transaction, the firm routes the order to the appropriate market and executes the order inline with the customer’s instructions. In doing so the firm is acting in the capacity of a broker and charges the customer a commission for its services. A firm may never act as agent and as a principal in the same transaction.
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