how a broker dealer works
by definition broker dealers are buyers and sellers of securities and they are also distributors of other investment products as the name implies they perform a dual role in carrying out their responsibilities as dealers they act on behalf of the brokerage firm initiating transactions for the firm s own account as brokers they handle transactions buying and selling securities on behalf of their clients in their dual roles they perform a couple of vital functions they facilitate the free flow of securities on the open market and they buy or sell securities in their own accounts to ensure there is a market in those securities for their clients in this regard broker dealers are essential and they are also well compensated earning a fee on either or both sides of a securities transaction special considerationsbroker dealers that are tied directly to investment banking operations also engage in the underwriting of securities offerings when a broker dealer acts as an agent of the issuing company either as a principal underwriter of the stock or bond offering or as a member of the underwriting syndicate they enter into a contractual arrangement acting on a firm commitment with the issuer that obligates them to distribute a certain amount of the securities offered to the public in exchange for an underwriting fee they may also acquire a piece of the securities offering for their own accounts and may be required to do so if they are unable to sell all of the securities once the underwriting process is completed and the securities are issued the broker dealers then become distributors and their clients are typically the target of their distribution efforts in that effort the financial advisors of the firms then act as brokers to solicit their clients and recommend the purchase of the security for their accounts in this regard the broker dealers are facilitating the interests of the issuer themselves in the collection of a distribution fee and their clients although their only contractual obligation is to the issuer 