Markup is the compensation paid to a securities dealer for selling a security to a customer from its inventory.
When a firm is acting in the capacity of a dealer it buys and sells securities in and out of it’s own inventory. If a customer purchases a security from a dealer he is charged a markup in addition to the price of the security. The 5% Markup Policy states that the amount of the markup must be both fair and reasonable, though not limited to 5% of the transaction, as many factors affect the dollar amount of the markup.
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