Principal Transactions by Investment Advisers
Chapters in this video
- 0:00 What a principal transaction is: Ivan vs. Iris
- 1:21 The direct financial conflict in every principal trade
- 2:47 Per-transaction written disclosure and client consent
- 3:37 Why blanket advance consent fails for principal transactions
- 4:08 Principal vs. agency cross: the consent contrast
- 5:00 The two narrow exceptions to the principal transaction rule
- 5:36 The 35-paying-recipients public distribution threshold
- 6:19 Rapid-fire exam recap
What this video covers
- The textbook definition of a principal transaction: when an investment adviser, acting for its own advisory account, buys from or sells to a client
- Why the adviser has a direct financial interest that creates an inherent conflict of interest in every principal trade
- The two prerequisites before completion of each principal transaction: written disclosure of principal capacity and client consent to that specific transaction
- Why blanket advance consent signed at account opening is a violation for principal transactions, even though it is permitted for agency cross transactions
- The exact contrast between principal transactions (per-transaction consent) and agency cross transactions (prospective blanket consent)
- The two narrow exceptions where the principal transaction rule does not apply
- The 35-paying-recipients threshold for the public-distribution exception and why paying is a crucial word
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