Investor Bulletin: 

How to Read Confirmation Statements

The SEC’s Office of Investor Education and Advocacy is 

issuing this Investor Bulletin to provide you with guidance 

on how to read confirmation statements. 

What is a Confirmation Statement?

Under SEC rules, whenever you purchase or sell a 

security, the broker-dealer through whom you bought 

or sold the security is generally required to give or 

send you a written notification – or confirmation 

– with information about the transaction. The 

confirmation statement contains basic information 

about the transaction, such as the identity of the 

security, the amount of securities you purchased or 

sold, and the price that you paid or received.

The confirmation statement serves a basic investor 

protection function by:

Containing information that allows you – the 

investor – to verify the terms of your transactions; 

Alerting you to potential conflicts of interest with 

your broker-dealer;

Acting as a safeguard against fraud by informing 

you of the activities in your account; and 

Providing you a means by which to evaluate the 

costs of your transaction and the quality of your 

broker-dealer’s execution. 

When you receive a confirmation statement, you 

should verify that the information is correct. 

If you have questions, spot any errors, or 

see transactions that you did not make or 

authorize, you should contact your brokerdealer immediately. It also is a good idea to 

compare confirmation statements with periodic 

account statements for any discrepancies. 

Format of the Confirmation

While the SEC’s confirmation rule identifies the 

information that a broker-dealer is required to 

disclose to you when you purchase or sell a security, 

the rule does not require that the information be 

presented in any particular format. A confirmation 

statement may not always look the same across brokerdealers. Some broker-dealers, for example, may use 

alphanumeric codes on the front of the confirmation 

statement with information about what each code 

means located on the back of the confirmation 

statement. Often times, the back of a confirmation 

statement will contain lots of additional information 

that may not be directly relevant to your transaction. 

If your broker-dealer uses alphanumeric codes 

in its confirmation statements, or if you have 

questions about information that is on the back 

of a confirmation statement, you should contact 

your broker-dealer. 

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A Broker-Dealer’s “Capacity” and 

Compensation

In addition to information about the security you 

purchased or sold, the confirmation statement also 

tells you the “capacity” your broker-dealer acted in 

when effecting your transaction. The term capacity, 

in general, refers to whether your broker-dealer acts 

as your agent, on your behalf, in the transaction; or 

whether your broker-dealer acts as a principal, for its 

own account, in the transaction. Illustrated below 

is the difference between a broker-dealer acting as 

an agent and a broker-dealer acting as principal, and 

how a broker-dealer’s capacity often will determine 

whether and how a broker-dealer’s compensation is 

disclosed on the confirmation statement. When you 

engage in a securities transaction, whether you buy or 

sell the security, you will generally incur a transaction 

charge, which is the way you compensate the brokerdealer. When the broker-dealer acts as your agent, the 

charge will be called a commission; when the brokerdealer acts as a principal (as the opposite party to you 

in the transaction), the charge is called the “mark-up” 

or “mark-down” (described more below). 

Agent – Suppose that you want to buy 100 shares 

of ABC stock. In this very simple illustration, your 

broker-dealer executes your order through the 

facilities of a stock exchange, buying it from a third 

party through the exchange. In doing so, your 

broker-dealer acts as your agent and probably charges 

you a commission. You can find the amount of the 

commission on the confirmation statement.

A broker–dealer also may act as an agent for both you 

and someone else. In that case, the broker-dealer acts 

as a dual agent. This is similar to a real estate agent 

who has one client who wants to buy a house and a 

second client who is selling that house. In some cases, 

if you want to buy a security in a mutual fund through 

your broker, the broker may act as your agent and the 

mutual fund’s distribution agent (i.e., the mutual fund’s 

selling agent).

Principal – Let’s suppose again that you want to 

buy 100 shares of ABC stock and that your brokerdealer has, in its inventory, enough shares of ABC 

stock to fulfill your order. The broker-dealer sells 

you the shares out of its inventory. In this case, the 

broker-dealer acts as a principal in the transaction 

(that is, selling to you directly, as an opposite party). 

When acting in a principal capacity, the broker-dealer 

generally will not charge you a commission, but 

rather, is compensated for executing the transaction by 

charging you the “mark-up” or “mark-down” on the 

market price of the security being bought or sold by 

you. 

A mark–up is the difference in price between the 

current market price for the security and what the 

broker-dealer charged you for executing your security 

transaction. Conversely, if you place a sell order, the 

broker-dealer may buy your security to place into its 

inventory. The broker-dealer, acting as principal, may 

buy the security from you at the current market price 

and charge you for executing the transaction, thereby 

reducing your sales proceeds. This difference, or 

execution charge, is called a mark-down. For example, 

broker-dealers typically mark-up (or mark-down) the 

price when they buy (or sell) bonds from (to) investors. 

Confirmation statements disclose mark-ups and markdowns only for exchange-traded stock trades. For 

over-the-counter security transactions, such as bond 

trades, confirmations only show the price you paid; 

they do not break out any mark-up/mark-down. For 

example, if you buy or sell a bond with the brokerdealer acting as a principal, the confirmation statement 

will show only the price you paid (i.e., the net price), 

which includes the cost of the mark-up or mark-down 

and does not break it out separately. 

In some instances, the broker-dealer may enter the 

marketplace to purchase the security for itself and then 

turn around and sell you the security. The brokerdealer may choose to sell you the security at the 

same price for which it purchased the security, plus a 

mark-up. This is generally called a riskless principal 

transaction. It is called riskless because the broker-

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dealer, when purchasing the security, already knows 

that it can sell it to you at a certain price. 

Payment for Order Flow – The transaction

confirmation statement also must disclose whether 

the broker-dealer receives payment from third parties 

for “order flow.” Exchanges and market makers 

sometimes pay broker-dealers as an incentive to 

encourage the broker-dealers to route their customer 

orders to them, which is referred to as paying for 

order flow. For “order flow,” the confirmation 

statement must say that the source and nature of 

the compensation received by the broker-dealer in 

connection with the particular transaction are available 

to the customer upon written request.

SIPC Coverage

The confirmation statement generally will tell you 

whether your broker-dealer is a member of the 

Securities Investor Protection Corporation (SIPC). 

This information is important to you, because SIPC 

coverage may provide you some financial protection 

if a brokerage firm goes bankrupt or if your securities 

are lost or stolen. If that happens and your brokerage 

firm is a member of SIPC, then your cash and 

securities held by the brokerage firm may be protected 

up to $500,000, including a $250,000 limit for cash. 

SIPC covers most types of securities, such as stocks, 

bonds, and mutual funds. SIPC does not protect 

you, however, against losses caused by a decline in 

the market value of your securities. In addition, 

certain mutual fund broker-dealers are not required to 

disclose whether they are a SIPC member.

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Related Information

The Financial Industry Regulatory Authority’s 

It Pays to Understand Your Brokerage Account 

Statements and Trade Confirmations

The Securities Investor Protection Corporation’s 

website

Our educational materials provide tips on how 

investors can invest wisely. Investors can order 

our free publications by calling (800) SEC0330, or access them on the Internet through 

the SEC’s Investor.gov website. For additional 

educational information for investors, see 

the SEC’s Investor.gov website, the Office of 

Investor Education and Advocacy’s homepage, 

and www.sec.gov.

The Office of Investor Education and Advocacy 

has provided this information as a service to 

investors. It is neither a legal interpretation nor 

a statement of SEC policy. If you have questions 

concerning the meaning or application of a 

particular law or rule, please consult with an 

attorney who specializes in securities law.

Investor Assistance (800) 732-0330 September 2012

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