Your brokerage firm issues a trade confirmation every time you buy or sell a security. When a single tap or keystroke can make the difference between 100 and 1,000 shares, it’s important to review this information carefully as soon as you receive a confirmation.
Understand Your Confirmations
Trade confirmations contain key details about your transactions. These include the date of a transaction, the price at which you bought or sold a security, and the quantity you bought or sold. Depending on the type of security involved, the confirmation might also include the time of execution and a link to a website where you can view additional information about the security you traded.
Confirmations also inform you whether your firm acted as an agent for you or another customer, or whether the firm acted as a principal for its own account.
Generally, a firm that acts as agent is acting on your behalf to buy or sell a security. In this capacity, the firm must disclose the amount of the commission you were charged, if any, on the confirmation. If the firm acts as principal, it’s executing trades from its own account, and the price you pay or receive might include a markup (when it sells to you) or markdown (when it buys from you), which is the firm’s compensation for the transaction.
For stock transactions, any markup or markdown typically must be disclosed on the confirmation.
In addition, if you’re a retail customer trading municipal debt securities or corporate or agency bonds, your brokerage firm is generally required to separately disclose on the confirmation the markup or markdown you pay when the firm acted as principal and traded that same security with a third party on the same trading day as your transaction. Your confirmation will show the markup or markdown as both a dollar amount and a percentage of the prevailing market price of the security.
Be aware that you might get your confirmations from your brokerage firm’s clearing and carrying firms, which finalize ("settle" or "clear") trades and hold the funds or securities.
Ask Questions
Don’t hesitate to ask your investment professional or brokerage firm to provide the details about markups, markdowns, or any fees or commissions associated with your investments.
Brokerage firms typically are required to provide customers with quarterly account statements, and many of the tips and red flags associated with brokerage account statements also apply to trade confirmations. In addition, the following checklist can help you avoid problems:
- Check your trade confirmation against the information in your brokerage account statement for the period in which the trade took place. Contact the firm, in writing, about any discrepancies or trades you didn’t authorize.
- Confirmations might indicate whether trades are unsolicited or solicited. Make sure trades are properly categorized. Treat as a red flag an investment that was your investment professional’s idea but is reflected on the confirmation as an unsolicited trade.
- Scrutinize all fees, especially those that might have been added, such as handling fees or mailing charges. Be sure to ask for an explanation concerning fees you didn’t expect or that seem unreasonable.
Checking your trade confirmations for accuracy when you receive them is good practice. A careful inspection soon after the transactions take place can quickly alert you to errors or potential misconduct.
Contact your brokerage firm or investment professional if you find a problem. If the problem isn’t resolved, you can file a complaint with FINRA online at https://www.finra.org/complaint.
If you have questions or concerns about your investments, you can call the toll-free FINRA Securities Helpline for Seniors at 844-57 HELPS (844-574-3577).
Learn more about buying and selling securities.