An executing broker evaluates and executes client orders in accordance with market regulations, while clearing brokers manage client consultations. The executing broker ensures compliance with regulations and protects the market, brokerage, and investor from harm.
An executing broker is a type of financial broker or broker who is responsible for the completion and processing of an order entered by a client. As part of the process, such brokers will evaluate the order to ensure that it is in line with current policies and procedures and
in accordance with any regulations established by the market in which the order will be marketed. Only after the executing broker is satisfied that the order is appropriate does he or she proceed to execute the order on behalf of the client and place it on the market.
The role of an executing broker is somewhat different from that of a clearing broker. Clearing brokers generally have direct interaction with investor clients and manage the consultation processes with those clients on potential trades. In contrast, the executing broker focuses on what happens after the client has requested a specific trade to be performed for execution. In this sense, this type of stockbroker functions as a gatekeeper who determines if the order structure complies with current regulations and is considered legal and appropriate for trading. Unlike the clearing broker, who focuses on helping the client gain wealth, the execution broker is primarily concerned with order fulfillment in terms of meeting market and legal standards.
When an executing broker finds that a particular order does not meet the standards set by a market or exchange, or is in some way not fully compliant with government trading regulations, that broker will reject the order. In most cases, this means returning the rejected order to the clearing agent, along with the reasons for the rejection. This provides the clearing broker to review the issue with the client, restructure the order to meet market and government standards, and resubmit the order for execution.
The work of the executing broker benefits the market, the brokerage, and ultimately the investor. By focusing on the legalities associated with an order, the broker protects the market from being harmed in any way, possibly to the point of negatively affecting other investors. At the same time, the broker’s efforts help protect the brokerage from being censored by government trading officials and possibly losing its position in a market for a period of time. This type of broker also helps prevent investors from unknowingly violating trading regulations and possibly facing fines or even imprisonment as a result of an improper order.
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