Why would a principal 'insist on a name' at the original price
Why would a principal 'insist on a name' at the original price
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Tapman · External communityPost link
External question — Quantitative Finance Stack Exchange
Author: Tapman
Original post: https://quant.stackexchange.com/questions/30685
License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/
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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
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Alex C · External communityPost link
External answer — Quantitative Finance Stack Exchange
Author: Alex C
Original post: https://quant.stackexchange.com/a/30694
License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/
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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.
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Quoted from Forex.com.bd-Editorial External answer — Quantitative Finance Stack Exchange Author: Alex C Source score (net votes, not local likes): 0 Original post: https://quant.stackexchange.com/a/30694 License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/ Adaptation: HTML converted to plain text; contact email addresses removed. 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.
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