A principal trade occurs when a brokerage house buys securities on the secondary market with the express strategy to hold long enough for a price appreciation. At that point the broker sells retails to the end use and gains appreciation plus commission. Brokers are required to notify when they provide a principal trade, though will typically obfuscate the fact through the fine print. The broker always seeks to sell their inventory to prospective buyers rather than buying new into the market. Common in bond sales.
In the US, The Securities and Exchange Commission oversees principal trading at registered advisors and funds for compliance with Investment Company Act of 1940 and with the Investment Advisers Act . The SEC can take enforcement action if it suspects improper activities or lack of appropriate disclosures.
Famous quotes containing the words principal and/or trade:
“The principal point of cleverness is to know how to value things just as they deserve.”
—François, Duc De La Rochefoucauld (1613–1680)
“I look on trade and every mechanical craft as education also. But let me discriminate what is precious herein. There is in each of these works an act of invention, an intellectual step, or short series of steps taken; that act or step is the spiritual act; all the rest is mere repetition of the same a thousand times.”
—Ralph Waldo Emerson (1803–1882)