Brokerage firms can play a couple of roles in stock transactions.
The SEC requires a brokerage firm to tell its customers, either at the time of or before the completion of a transaction, whether it acted as agent or as principal. Because of the potential for conflicts of interest, the firm also must disclose if it acted as agent for the parties on both sides of a transaction. When a brokerage firm acts as an agent, it typically will charge a fee. This fee is called a commission and it must be disclosed on the confirmation. As an agent, the firm may purchase the security in the appropriate market on behalf of its customer.