Types of Broker-Dealers

There are many types of Broker-Dealers:

  • Clearing Broker-Dealer – This type compares and clears its client’s trades and its own trades against other broker dealers. Eg: DTTC
  • Commodity Houses – They don’t deal with securities. They deal with products like agriculture produce, oil, etc. They buy and sell futures on the products.
  • Correspondent firms – use the services of another firm who clears and settles the trades they have entered into behalf of their clients or themselves. Example: a division of Citi Bank uses the services of Pershing LLC for clearing and settlement in the US.
  • Discount brokers – they do not provide all the services a full fledged firm provides. So they charge a lower commission
  • Futures trading firms – trade on futures of stocks, metals, bonds etc.
  • Merger and Acquisitions
  • International Broker-Dealer
  • Online Broker-Dealer
  • Prime Brokers – Institutions get investment ideas from various Broker-Dealers that they do business with. They compensate them by executing trades through them(brokerage). These trades are recorded under one  broker called the Prime Broker who would ,maintain the institution’s portfolio. The institution gets one statement per month from the Prime Broker which is preferable than getting individual statement from each Broker-Dealers.

Have I missed anything? Please add you expertise in the comment section.


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