Keeping Tabs On Your Broker

Investors often ask how they can be sure that a stockbroker actually has carried out a transaction as instructed. This question is addressed by the federal securities laws, the rules of the Securities and Exchange Commission and the self-regulatory organizations (such as the National Association of Securities Dealers and the national securities exchanges).

Federal securities laws require a broker-dealer to send an investor immediate written notification whenever the broker-dealer trades a security (other than a U.S. Savings Bond or municipal security), for that customer's account. Written confirmations provide investors with basic information about their securities transactions, such as the date and time of the transaction, the identity of the security, and the price and number of shares or units purchased or sold.

Depending on the transaction, other price information may also be disclosed. For instance, in trading debt securities, broker-dealers generally have to disclose certain yield information as well as pricing.

The information required to be disclosed varies depending upon the broker's role. If a broker-dealer undertakes a customer trade on an agency basis, then the broker-dealer is required to disclose that it acted as the customer's agent and the amount of commission charged the customer. In addition, in an agency transaction, a broker-dealer must reveal the buyer or seller of the security, or indicate that this information is available upon request. If a broker-dealer trades as a principal, on the other hand, the firm must disclose its capacity as principal and, depending upon the transaction, the mark-up or mark-down in connection with the transaction.

A confirmation also may serve as a customer invoice for the transaction. Investors should review their confirmations to ensure that they are correct and accurately reflect what was authorized. In addition, customers should question a broker- dealer when they believe a piece of information to which they are entitled has not been disclosed. If you do not object to wrong or incomplete information in connection with a trade, this may signal your approval of the broker's handling of the transaction.

If you have an inquiry regarding confirmations, contact the Office of Consumer Affairs, U.S. Securities and Exchange Commission, Washington, D.C. 20549.