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Broker Compensation When a Principal Insists on the Original Counterparty

Article Quant Q&A · Author: Tapman
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Summary

The document explains a dealing practice in which a principal rejects compensation from a broker and insists that a transaction be completed with the original counterparty at the originally agreed price. The example describes a buyer and seller whose initial deal becomes unavailable, followed by a possible replacement deal at worse terms.

The broker can use compensation to bridge the difference between the original and replacement terms. Depending on how the transaction is arranged, that compensation may go to the buyer or seller, allowing the original counterparty deal to proceed at the agreed price. This is an explanatory example tied to a dealing certificate question. It does not discuss formal market rules, legal obligations, or how common the practice is across markets.

Key ideas

  • Insisting on the original name means requiring the transaction with the agreed counterparty at the original price.
  • A principal may reject compensation paid directly to them and ask that it support completion of the original deal.
  • Broker compensation can bridge the gap between original and replacement transaction terms.
  • The example explains the arrangement but does not establish broader dealing rules or legal requirements.

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Full text
# Why would a principal 'insist on a name' at the original price


# Why would a principal 'insist on a name' at the original price












A Dealing Certificate practice question

What is a principal doing if he 'insists on a name' at the original price?

Answer:

He refuses the broker's compensation and demands that the transaction is concluded at the agreed price with the same counterparty

A) I can't understand why someone would refuse fair compensation if a transaction is no longer possible and

B) What would be the point if the counterparty is unwilling or unable to complete the transaction

## Answer by Alex C (score 0)

https://quant.stackexchange.com/a/30694

I am not familiar with this exam. But I think he is saying "instead of you the broker giving me money in compensation, give it to the counterparty and ask the counterparty to go through with the original deal plus compensation from you"

For example: Principal A would sell at 10. Broker tells B, who agrees to buy at 10. But deal is no longer available. Broker tells B I can arrange another deal with C at 10.5 and in addition give you compensation of 0.5. B refuses and insists on deal with A. Broker goes back to A who is now willing to sell for 10.51, so broker arranges for deal at 10 between A and B, with A receiving 0.51 compensation from broker.

The point is simply that compensation that will "bridge the gap" (i.e approximately 0.5 in this case) can be paid to the seller or to the buyer depending whether the deal is done at the old or the new terms.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.