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An inter-dealer broker is an entity that functions as the intermediary between parties who desire to buy or sell large quantities of securities, without having to reveal their identities. In some countries, a broker of this type may work with any two parties that wish to arrange this type of transaction. There are nations where an inter-dealer broker is only authorized to act as the liaison between two market makers, and cannot provide the same range of services to investors in general.
Typically, an inter-dealer broker is a brokerage firm that is authorized to conduct trades on the markets involved in the transaction. There are situations in which specific brokers within the firm focus on providing this type of investment support to larger clients. In recent years, the concept of the independent inter-dealer broker has gained attention in some nations, although the majority of brokers involved with these confidential transactions are still associated with established brokerage firms.
Transactions conducted with the aid of an inter-dealer broker usually involve substantial amounts of securities. The trading strategies utilized by most dealers are very similar to standard practices used by most exchanges, but with a focus on a select group of investors. While brokers of this type do manage deals involving large quantities of stocks or commodities, the commissions rates applied to the transactions are usually somewhat less than transactions involving smaller lots of securities.
One of the key elements of the work of an inter-dealer broker is confidentiality. At all steps in the transaction process, the identities of the buyer and seller are held in confidence. Both parties agree to the transaction without knowing the name of the other, and the transaction is completed with both parties remaining anonymous. Once the transaction is complete, one or both parties may choose to reveal their identities, but that is a decision made only after the broker-dealer has successfully settled the deal and moved on to other projects.
While the inter-dealer broker protects the identity of both the buyer and the seller from public disclosure, this does not mean the dealer is immune to any regulations regarding disclosure to government entities. In situations where information concerning a specific transaction is formally requested via legal channels, the broker must comply, and reveal the specific data that is included in that request. Failure to do so can mean penalties, legal action, and possibly loss of standing within certain exchanges.