When it comes to investing and financial agreements, there are terms that may be unfamiliar to many. One such term is “give up agreement”, which is commonly used in the securities industry.
So, what exactly is a give up agreement? According to Investopedia, a give up agreement is a contract between two brokers that allows one broker to give up, or transfer, the trade execution responsibility to another broker. This typically happens when one broker does not have direct access to a particular market or exchange. In such cases, the broker who has access to the market can execute the trade on behalf of the other broker.
A give up agreement is also known as a “step-out” arrangement, as the receiving broker “steps out” of the trade execution process. This type of agreement is most commonly used in the institutional investing space, where large trades may need to be executed across multiple markets and brokers.
It`s important to note that a give up agreement does not transfer ownership of the securities being traded. Instead, it simply transfers the responsibility of executing the trade. The original broker who initiated the trade remains responsible for settling the trade and handling any associated paperwork.
Give up agreements are also subject to various regulations and rules, such as those set by the Financial Industry Regulatory Authority (FINRA). Brokers must ensure that they comply with these regulations when entering into give up agreements.
In conclusion, a give up agreement is a financial contract that allows one broker to transfer trade execution responsibility to another broker. It`s commonly used in the institutional investing space and is subject to various regulations and rules. By understanding the concept of give up agreements, investors can better navigate the complex world of securities trading.