Which type of pricing does the 5% policy cover?

Which type of pricing does the 5% policy cover?

• A. Only agency transaction pricing
• B. Only principal transaction pricing
• C. Both agency and principal transaction pricing
• D. Only negotiating transaction pricing

Answer: (C)

The 5% policy is a guideline established by the Financial Industry Regulatory Authority (FINRA) that provides a framework for fair pricing in securities transactions. This policy is applicable to both agency transactions, where a broker acts on behalf of a client to execute a trade, and principal transactions, where a broker buys or sells securities for their own account. The essence of the 5% policy is to ensure that the markups or markdowns are reasonable and do not exceed 5% of the total transaction value. This means it aims to prevent excessive charges in both types of transactions, promoting transparency and fairness in the market. The context of the other options is important for understanding why this comprehensive approach is necessary. Agency transactions involve brokers executing trades for clients, while principal transactions include brokers trading from their own inventory. Thus, to ensure that all clients, regardless of the transaction type, are treated fairly in terms of pricing, the policy covers both categories, making the correct answer comprehensive and inclusive.

The 5% policy is a guideline established by the Financial Industry Regulatory Authority (FINRA) that provides a framework for fair pricing in securities transactions. This policy is applicable to both agency transactions, where a broker acts on behalf of a client to execute a trade, and principal transactions, where a broker buys or sells securities for their own account.

The essence of the 5% policy is to ensure that the markups or markdowns are reasonable and do not exceed 5% of the total transaction value. This means it aims to prevent excessive charges in both types of transactions, promoting transparency and fairness in the market.

The context of the other options is important for understanding why this comprehensive approach is necessary. Agency transactions involve brokers executing trades for clients, while principal transactions include brokers trading from their own inventory. Thus, to ensure that all clients, regardless of the transaction type, are treated fairly in terms of pricing, the policy covers both categories, making the correct answer comprehensive and inclusive.