broker-dealer

You have probably noticed that the person who sells you fuel is often the same person who owns the filling station. Nobody finds that strange. They buy fuel in bulk, sell it to you in small quantities, and sometimes they also just sell you fuel from their own tank when they fancy the price. A broker dealer is that filling station owner, except the product is shares.

When a firm acts as a broker, it is running an errand for you. You tell your stockbroker at a firm like Meristem or Chapel Hill Denham that you want to buy ₦500,000 worth of MTN Nigeria shares, and they go and find someone selling and complete the deal for you, charging a commission for the errand.

But the same firm can also act as a dealer, which means it trades shares from its own account, for its own profit. It might buy a pile of shares because it believes the price will rise, then sell them later to someone else, keeping the difference. No errand for anyone, just the firm betting with its own money.

A broker dealer wears both caps depending on the moment. This is normal and regulated, but it is worth knowing, because it means the firm helping you buy shares might also be calmly trading the very same shares for itself. In the United Kingdom, firms regulated by the Financial Conduct Authority do exactly this dance daily on the London Stock Exchange.

For someone in London sending money home to invest through a Nigerian brokerage, this matters because the broker dealer is the bridge between your naira and the shares on the floor of the Nigerian Exchange. Knowing whether they are acting for you or for themselves in a given transaction is not paranoia, it is just good sense.