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An executing broker is a type of financial dealer or broker that is responsible for the finalization and processing of an order that is entered by a client. As part of the process, brokers of this type will evaluate the order to make sure it is in line with current policies and procedures and in compliance with any regulations set by the market in which the order will be traded. Only after the executing broker is satisfied that the order is appropriate does he or she move on to actually execute the order on behalf of the client, and place it for trade in the marketplace.
The function of an executing broker is somewhat different from that of a clearing broker. Clearing brokers typically have direct interaction with investor clients and manage the processes of conferring with those clients on potential trades. By contrast, the executing broker is focused on what happens after the customer has requested that a specific trade be placed for execution. In this sense, this type of broker-dealer is functioning as a gatekeeper that determines if the structure of the order meets current regulations and is considered legal and appropriate for trade. Unlike the clearing broker, who is focused on aiding the customer in gaining wealth, the executing broker is concerned primarily with the compliance of the order in terms of meeting legal and marketplace standards.
When an executing broker finds that a particular order is not in compliance with the standards set by a market or exchange, or in some way is not fully compliant with governmental trading regulations, that broker will reject the order. In most instances, this means returning the rejected order to the clearing broker, along with the reasons for the rejection. This provides the clearing broker to revisit the issue with the client, restructure the order so that it is in compliance with both market and governmental standards, and resubmit the order for execution.
The work of the executing broker benefits the marketplace, the brokerage and ultimately the investor. By focusing on the legalities related to an order, the broker protects the market from being damaged in some manner, possibly to the point of adversely affecting other investors. At the same time, the efforts of the broker help to protect the brokerage from being censured by government trade officials and possibly losing standing in a marketplace for a period of time. This type of broker also helps to prevent investors from unknowingly breaching trading regulations and possibly facing fines or even imprisonment as the result of the inappropriate order.
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