Which type of trader specializes in managing block trades on behalf of institution clients?
Correct Answer:
B
An agency trader specializes in executing large block trades for institutional clients without taking ownership of the securities. Their role is critical in facilitating liquidity and minimizing market impact during the execution of trades.
Key Responsibilities of Agency Traders:
Managing Block Trades:
Agency traders handle large transactions on behalf of institutions like pension funds or mutual funds, ensuring the trades are completed efficiently.
They do not use the firm's capital; instead, they act as intermediaries between the buyer and seller.
Minimizing Market Impact:
Large trades can significantly impact stock prices if not executed strategically. Agency traders use methods like algorithmic trading or dark pools to mitigate this impact.
Role vs. Other Traders:
Liability Trader: Trades using the firm's capital, assuming the risk of the position.
Market Maker: Provides liquidity by quoting buy and sell prices.
Responsible Designated Trader: Oversees order flow for specific securities on the exchange.
Why Option B Is Correct:
The question specifies managing block trades for institutional clients. This matches the role of agency traders, as they focus on executing trades on behalf of clients without taking positions themselves.
Reference from CSC Study Materials:
Volume 2, Chapter 27: 'Working with the Institutional Client,' Section on Roles and Responsibilities in the Institutional Market.
