How does someone Act as a principal in a secondary market? - ProProfs Discuss
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How does someone Act as a principal in a secondary market?



Asked by Keaton, Last updated: Oct 18, 2021

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John Smith

John Smith

John Smith
John Smith

Answered Sep 08, 2016

In the secondary markets, investment dealers facilitate an active and liquid market by maintaining an inventory of already issued and outstanding securities. they buy securities on the open market primarily to resell to clients of the firm. when acting as a principal in the secondary market, the dealer trades securities with clients from their own inventory. a month after the cnr issue began trading on the tsx, scotia capital enters the market and purchases a 200,000-share block of the cnr issue at an average price of $27 per share. the firm has been promoting the issue to some of its institutional clients. when scotia gets an order for cnr shares from a client, it sells shares from its own inventory, ideally at a price higher than the $27 per share it paid for them. the profit scotia makes is the spread between the price it paid and the price it receives for those shares.
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