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:
“Light, God’s eldest daughter, is a principal beauty in a building.”
—Thomas Fuller (1608–1661)
“... it must be obvious that in the agitation preceding the enactment of [protective] laws the zeal of the reformers would be second to the zeal of the highly paid night-workers who are anxious to hold their trade against an invasion of skilled women. To this sort of interference with her working life the modern woman can have but one attitude: I am not a child.”
—Crystal Eastman (1881–1928)