What role does a broker-dealer play in agency transactions?

In agency transactions, a broker-dealer primarily functions as an intermediary, facilitating trades between buyers and sellers without taking ownership of the securities involved. This means that they execute orders on behalf of clients, ensuring that the best execution is achieved for the transactions. As agents, broker-dealers help clients navigate market transactions by matching buy and sell orders while earning commissions or fees for their services.

This role distinguishes agency transactions from principal transactions, where the broker-dealer would take ownership of the securities, either by buying them themselves before selling them to a client or holding them in inventory. In the case of offering investment services or trading advice, while broker-dealers may provide such support, it does not define their essential function in agency transactions; their critical role is to act as a facilitator in the buying and selling process.