General Securities Sales Supervisor (Series10) Practice Exam

When may a member firm use a third party to execute over-the-counter agency transactions?

1. Under no circumstances

2. If the resultant price is better than the best available market

3. If the resultant price is equal to the best available market

4. If the resultant price is reasonably related to the inside market

The correct answer is: If the resultant price is better than the best available market

A member firm may use a third party to execute over-the-counter agency transactions when the resultant price is better than the best available market. This condition ensures that the client is receiving an advantageous execution, which aligns with the regulatory and ethical obligations of the member firm to act in the best interest of its clients. In the context of agency transactions, firms have a responsibility to secure the best possible terms for their clients, and using a third party can only be justified if it creates a more favorable outcome for the client than what is readily available in the market. This also serves to foster transparency and trust in the trading process. The other options do not meet the necessary conditions for using a third party. If the price is equal to the best available market, there is no incentive or benefit to justify the use of a third party because the client would not gain any advantage. Similarly, if the price is merely reasonably related to the inside market but does not provide a clear benefit, it does not satisfy the requirement of ensuring the client receives the best execution. The framework surrounding these transactions is primarily focused on the client's best interests, which is why the specific condition of achieving a better price is pivotal.