---
kind: "section"
citation: "15 U.S.C. § 78k"
title: "15"
title_heading: "Commerce and Trade"
number: "78k"
heading: "Trading by members of exchanges, brokers, and dealers"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/15/78k"
units:
  - "Chapter 2B — Securities Exchanges"
---

# §78k. Trading by members of exchanges, brokers, and dealers

- (a) **Trading for own account or account of associated person; exceptions—**
  - (1) It shall be unlawful for any [member](/usc/15/78c.md?p=a-3-A) of a national [securities](/usc/15/78c.md?p=a-10) [exchange](/usc/15/78c.md?p=a-1) to effect any transaction on such [exchange](/usc/15/78c.md?p=a-1) for its own account, the account of an associated [person](/usc/15/78c.md?p=a-9), or an account with respect to which it or an associated [person](/usc/15/78c.md?p=a-9) thereof exercises investment discretion: Provided, however, That this paragraph shall not make unlawful—
    - (A) any transaction by a [dealer](/usc/15/78c.md?p=a-5-A) acting in the capacity of [market maker](/usc/15/78c.md?p=a-38);
    - (B) any transaction for the account of an odd-lot [dealer](/usc/15/78c.md?p=a-5-A) in a [security](/usc/15/78c.md?p=a-10) in which he is so registered;
    - (C) any stabilizing transaction effected in compliance with rules under [section 78j(b) of this title](/usc/15/78j.md?p=b) to facilitate a distribution of a [security](/usc/15/78c.md?p=a-10) in which the [member](/usc/15/78c.md?p=a-3-A) effecting such transaction is participating;
    - (D) any bona fide arbitrage transaction, any bona fide hedge transaction involving a long or short position in an [equity security](/usc/15/78c.md?p=a-11) and a long or short position in a [security](/usc/15/78c.md?p=a-10) entitling the holder to acquire or [sell](/usc/15/78c.md?p=a-14) such [equity security](/usc/15/78c.md?p=a-11), or any risk arbitrage transaction in connection with a merger, acquisition, tender offer, or similar transaction involving a recapitalization;
    - (E) any transaction for the account of a natural [person](/usc/15/78c.md?p=a-9), the estate of a natural [person](/usc/15/78c.md?p=a-9), or a trust created by a natural [person](/usc/15/78c.md?p=a-9) for himself or another natural [person](/usc/15/78c.md?p=a-9);
    - (F) any transaction to offset a transaction made in error;
    - (G) any other transaction for a [member](/usc/15/78c.md?p=a-3-A)’s own account provided that (i) such [member](/usc/15/78c.md?p=a-3-A) is primarily engaged in the business of underwriting and distributing [securities](/usc/15/78c.md?p=a-10) issued by other [persons](/usc/15/78c.md?p=a-9), selling [securities](/usc/15/78c.md?p=a-10) to customers, and acting as [broker](/usc/15/78c.md?p=a-4-A), or any one or more of such activities, and whose gross income normally is derived principally from such business and related activities and (ii) such transaction is effected in compliance with rules of the [Commission](/usc/15/78c.md?p=a-15) which, as a minimum, assure that the transaction is not inconsistent with the maintenance of fair and orderly markets and yields priority, parity, and precedence in execution to orders for the account of [persons](/usc/15/78c.md?p=a-9) who are not [members](/usc/15/78c.md?p=a-3-A) or associated with [members](/usc/15/78c.md?p=a-3-A) of the [exchange](/usc/15/78c.md?p=a-1);
    - (H) any transaction for an account with respect to which such [member](/usc/15/78c.md?p=a-3-A) or an associated [person](/usc/15/78c.md?p=a-9) thereof exercises investment discretion if such [member](/usc/15/78c.md?p=a-3-A)—
      - (i) has obtained, from the [person](/usc/15/78c.md?p=a-9) or [persons](/usc/15/78c.md?p=a-9) authorized to transact business for the account, express authorization for such [member](/usc/15/78c.md?p=a-3-A) or associated [person](/usc/15/78c.md?p=a-9) to effect such transactions prior to engaging in the practice of effecting such transactions;
      - (ii) furnishes the [person](/usc/15/78c.md?p=a-9) or [persons](/usc/15/78c.md?p=a-9) authorized to transact business for the account with a statement at least annually disclosing the aggregate compensation received by the [exchange](/usc/15/78c.md?p=a-1) [member](/usc/15/78c.md?p=a-3-A) in effecting such transactions; and
      - (iii) complies with any rules the [Commission](/usc/15/78c.md?p=a-15) has prescribed with respect to the requirements of clauses [(i)](#a-1-H-i) and [(ii)](#a-1-H-ii); and
    - (I) any other transaction of a kind which the [Commission](/usc/15/78c.md?p=a-15), by rule, determines is consistent with the purposes of this paragraph, the protection of investors, and the maintenance of fair and orderly markets.
  - (2) The [Commission](/usc/15/78c.md?p=a-15), by rule, as it deems necessary or appropriate in the public interest and for the protection of investors, to maintain fair and orderly markets, or to assure equal regulation of [exchange](/usc/15/78c.md?p=a-1) markets and markets occurring otherwise than on an [exchange](/usc/15/78c.md?p=a-1), may regulate or prohibit:
    - (A) transactions on a national [securities](/usc/15/78c.md?p=a-10) [exchange](/usc/15/78c.md?p=a-1) not unlawful under paragraph (1) of this subsection effected by any [member](/usc/15/78c.md?p=a-3-A) thereof for its own account (unless such [member](/usc/15/78c.md?p=a-3-A) is acting in the capacity of [market maker](/usc/15/78c.md?p=a-38) or odd-lot [dealer](/usc/15/78c.md?p=a-5-A)), the account of an associated [person](/usc/15/78c.md?p=a-9), or an account with respect to which such [member](/usc/15/78c.md?p=a-3-A) or an associated [person](/usc/15/78c.md?p=a-9) thereof exercises investment discretion;
    - (B) transactions otherwise than on a national [securities](/usc/15/78c.md?p=a-10) [exchange](/usc/15/78c.md?p=a-1) effected by use of the mails or any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17) by any [member](/usc/15/78c.md?p=a-3-A) of a national [securities](/usc/15/78c.md?p=a-10) [exchange](/usc/15/78c.md?p=a-1), [broker](/usc/15/78c.md?p=a-4-A), or [dealer](/usc/15/78c.md?p=a-5-A) for the account of such [member](/usc/15/78c.md?p=a-3-A), [broker](/usc/15/78c.md?p=a-4-A), or [dealer](/usc/15/78c.md?p=a-5-A) (unless such [member](/usc/15/78c.md?p=a-3-A), [broker](/usc/15/78c.md?p=a-4-A), or [dealer](/usc/15/78c.md?p=a-5-A) is acting in the capacity of a [market maker](/usc/15/78c.md?p=a-38))[^1] the account of an associated [person](/usc/15/78c.md?p=a-9), or an account with respect to which such [member](/usc/15/78c.md?p=a-3-A), [broker](/usc/15/78c.md?p=a-4-A), or [dealer](/usc/15/78c.md?p=a-5-A) or associated [person](/usc/15/78c.md?p=a-9) thereof exercises investment discretion; and
    - (C) transactions on a national [securities](/usc/15/78c.md?p=a-10) [exchange](/usc/15/78c.md?p=a-1) effected by any [broker or dealer](/usc/15/78c.md?p=h-2) not a [member](/usc/15/78c.md?p=a-3-A) thereof for the account of such [broker or dealer](/usc/15/78c.md?p=h-2) (unless such [broker or dealer](/usc/15/78c.md?p=h-2) is acting in the capacity of [market maker](/usc/15/78c.md?p=a-38)), the account of an associated [person](/usc/15/78c.md?p=a-9), or an account with respect to which such [broker or dealer](/usc/15/78c.md?p=h-2) or associated [person](/usc/15/78c.md?p=a-9) thereof exercises investment discretion.
  - (3) The provisions of paragraph (1) of this subsection insofar as they apply to transactions on a national [securities](/usc/15/78c.md?p=a-10) [exchange](/usc/15/78c.md?p=a-1) effected by a [member](/usc/15/78c.md?p=a-3-A) thereof who was a [member](/usc/15/78c.md?p=a-3-A) on February 1, 1978 shall not become effective until February 1, 1979. Nothing in this paragraph shall be construed to impair or limit the authority of the [Commission](/usc/15/78c.md?p=a-15) to regulate or prohibit such transactions prior to February 1, 1979, pursuant to paragraph (2) of this subsection.
- (b) **Registration of members as odd-lot dealers and specialists—** When not in contravention of such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate in the public interest and for the protection of investors, to maintain fair and orderly markets, or to remove impediments to and perfect the mechanism of a national market system, the rules of a national [securities](/usc/15/78c.md?p=a-10) [exchange](/usc/15/78c.md?p=a-1) may permit (1) a [member](/usc/15/78c.md?p=a-3-A) to be registered as an odd-lot [dealer](/usc/15/78c.md?p=a-5-A) and as such to buy and [sell](/usc/15/78c.md?p=a-14) for his own account so far as may be reasonably necessary to carry on such odd-lot transactions, and (2) a [member](/usc/15/78c.md?p=a-3-A) to be registered as a specialist. Under the rules and regulations of the [Commission](/usc/15/78c.md?p=a-15) a specialist may be permitted to act as a [broker](/usc/15/78c.md?p=a-4-A) and [dealer](/usc/15/78c.md?p=a-5-A) or limited to acting as a [broker or dealer](/usc/15/78c.md?p=h-2). It shall be unlawful for a specialist or an official of the [exchange](/usc/15/78c.md?p=a-1) to disclose information in regard to orders placed with such specialist which is not available to all [members](/usc/15/78c.md?p=a-3-A) of the [exchange](/usc/15/78c.md?p=a-1), to any [person](/usc/15/78c.md?p=a-9) other than an official of the [exchange](/usc/15/78c.md?p=a-1), a representative of the [Commission](/usc/15/78c.md?p=a-15), or a specialist who may be acting for such specialist: Provided, however, That the [Commission](/usc/15/78c.md?p=a-15), by rule, may require disclosure to all [members](/usc/15/78c.md?p=a-3-A) of the [exchange](/usc/15/78c.md?p=a-1) of all orders placed with specialists, under such rules and regulations as the [Commission](/usc/15/78c.md?p=a-15) may prescribe as necessary or appropriate in the public interest or for the protection of investors. It shall also be unlawful for a specialist permitted to act as a [broker](/usc/15/78c.md?p=a-4-A) and [dealer](/usc/15/78c.md?p=a-5-A) to effect on the [exchange](/usc/15/78c.md?p=a-1) as [broker](/usc/15/78c.md?p=a-4-A) any transaction except upon a market or limited price order.
- (c) **Exemptions from provisions of section and rules and regulations—** If because of the limited volume of transactions effected on an [exchange](/usc/15/78c.md?p=a-1), it is in the opinion of the [Commission](/usc/15/78c.md?p=a-15) impracticable and not necessary or appropriate in the public interest or for the protection of investors to apply any of the foregoing provisions of this section or the rules and regulations thereunder, the [Commission](/usc/15/78c.md?p=a-15) shall have power, upon application of the [exchange](/usc/15/78c.md?p=a-1) and on a showing that the rules of such [exchange](/usc/15/78c.md?p=a-1) are otherwise adequate for the protection of investors, to exempt such [exchange](/usc/15/78c.md?p=a-1) and its [members](/usc/15/78c.md?p=a-3-A) from any such provision or rules and regulations.
- (d) **Prohibition on extension of credit by broker-dealer—** It shall be unlawful for a [member](/usc/15/78c.md?p=a-3-A) of a national [securities](/usc/15/78c.md?p=a-10) [exchange](/usc/15/78c.md?p=a-1) who is both a [dealer](/usc/15/78c.md?p=a-5-A) and a [broker](/usc/15/78c.md?p=a-4-A), or for any [person](/usc/15/78c.md?p=a-9) who both as a [broker](/usc/15/78c.md?p=a-4-A) and a [dealer](/usc/15/78c.md?p=a-5-A) transacts a business in [securities](/usc/15/78c.md?p=a-10) through the medium of a [member](/usc/15/78c.md?p=a-3-A) or otherwise, to effect through the use of any [facility](/usc/15/78c.md?p=a-2) of a national [securities](/usc/15/78c.md?p=a-10) [exchange](/usc/15/78c.md?p=a-1) or of the mails or of any means or instrumentality of [interstate commerce](/usc/15/78c.md?p=a-17), or otherwise in the case of a [member](/usc/15/78c.md?p=a-3-A), (1) any transaction in connection with which, directly or indirectly, he extends or maintains or arranges for the extension or maintenance of credit to or for a customer on any [security](/usc/15/78c.md?p=a-10) (other than an [exempted security](/usc/15/78c.md?p=a-12-A)) which was a part of a new issue in the distribution of which he participated as a [member](/usc/15/78c.md?p=a-3-A) of a selling syndicate or group within thirty days prior to such transaction: Provided, That credit shall not be deemed extended by reason of a bona fide delayed delivery of (i) any such [security](/usc/15/78c.md?p=a-10) against full payment of the entire [purchase](/usc/15/78c.md?p=a-13) price thereof upon such delivery within thirty-five days after such [purchase](/usc/15/78c.md?p=a-13) or (ii) any [mortgage related security](/usc/15/78c.md?p=a-41) or any [small business related security](/usc/15/78c.md?p=a-53-A) against full payment of the entire [purchase](/usc/15/78c.md?p=a-13) price thereof upon such delivery within one hundred and eighty days after such [purchase](/usc/15/78c.md?p=a-13), or within such shorter period as the [Commission](/usc/15/78c.md?p=a-15) may prescribe by rule or regulation, or (2) any transaction with respect to any [security](/usc/15/78c.md?p=a-10) (other than an [exempted security](/usc/15/78c.md?p=a-12-A)) unless, if the transaction is with a customer, he discloses to such customer in writing at or before the completion of the transaction whether he is acting as a [dealer](/usc/15/78c.md?p=a-5-A) for his own account, as a [broker](/usc/15/78c.md?p=a-4-A) for such customer, or as a [broker](/usc/15/78c.md?p=a-4-A) for some other [person](/usc/15/78c.md?p=a-9).

## Footnotes

[^1]: So in original. Probably should be followed by a comma.

## Source credit

(June 6, 1934, ch. 404, title I, § 11, 48 Stat. 891; Aug. 10, 1954, ch. 667, title II, § 201, 68 Stat. 686; Pub. L. 94–29, § 6, June 4, 1975, 89 Stat. 110; Pub. L. 95–283, § 18(a), May 21, 1978, 92 Stat. 275; Pub. L. 98–440, title I, § 104, Oct. 3, 1984, 98 Stat. 1690; Pub. L. 103–68, § 1, Aug. 11, 1993, 107 Stat. 691; Pub. L. 103–325, title II, § 205, Sept. 23, 1994, 108 Stat. 2199.)

## Notes

### Editorial Notes

### Amendments

1994—Subsec. (d)(1)(ii). Pub. L. 103–325 inserted “or any small business related security” after “mortgage related security”.

1993—Subsec. (a)(1)(E). Pub. L. 103–68, § 1(1), struck out “(other than an investment company)” after “trust”.

Subsec. (a)(1)(H), (I). Pub. L. 103–68, § 1(2)–(4), added subpar. (H) and redesignated former subpar. (H) as (I).

1984—Subsec. (d)(1). Pub. L. 98–440 designated existing provisions of par. (1) as cl. (i) and added cl. (ii).

1978—Subsec. (a)(3). Pub. L. 95–283 substituted “February 1, 1978” for “May 1, 1975”, and “February 1, 1979” for “May 1, 1978” in two places.

1975—Subsec. (a). Pub. L. 94–29, § 6(2), prohibited stock exchange members from effecting any transaction on the exchange for its own account, the account of an associated person, or an account with respect to which the member or an associated person exercises investment discretion, exempted from that prohibition 8 types of transactions, and authorized the Commission, as it deems necessary or appropriate in the public interest or for the protection of investors, to regulate or prohibit the specifically exempted transactions, certain transactions otherwise that on a national securities exchange, and transactions on a national securities exchange effected by a broker or dealer not a member thereof for the account of such broker or dealer, the account of an associated person, or an account with respect to which such broker, dealer, or associated person exercises investment discretion.

Subsec. (b). Pub. L. 94–29, § 6(2), struck out requirement that specialist’s dealings be limited to those transactions reasonably necessary to permit him to maintain a fair and orderly market, expanded the Commission’s rulemaking authority in the area of specialist’s dealings so that the Commission may define responsibilities and restrict activities of specialists in response to changing conditions in the market, expanded the standards to be followed by the Commission in exercising its rulemaking power to include the maintenance of fair and orderly markets and the removal of impediments to and the perfection of the mechanism of a national market system, and inserted specific reference to the Commission’s power to limit the activity of a specialist to that of a broker or dealer.

Subsec. (e). Pub. L. 94–29, § 6(3), struck out subsec. (e) which directed the Commission to make a study, to be submitted on or before Jan. 3, 1936, of the feasibility of segregating the functions of dealer and broker.

1954—Subsec. (d). Act Aug. 10, 1954, reduced from 6 months to 30 days the prohibition period against extending credit to purchasers of a new issue by dealers.

### Statutory Notes and Related Subsidiaries

### Effective Date of 1978 Amendment

Pub. L. 95–283, § 18(b), May 21, 1978, 92 Stat. 275, provided that: “The amendment made by subsection (a) of this section [amending this section] shall be effective as of May 1, 1978.”

### Effective Date of 1975 Amendment

Amendment by Pub. L. 94–29 effective June 4, 1975, see section 31(a) of Pub. L. 94–29, set out as a note under section 78b of this title.

### Effective Date of 1954 Amendment

Amendment by act Aug. 10, 1954, effective 60 days after Aug. 10, 1954, see note under section 77b of this title.

### Executive Documents

### Transfer of Functions

For transfer of functions of Securities and Exchange Commission, with certain exceptions, to Chairman of such Commission, see Reorg. Plan No. 10 of 1950, §§ 1, 2, eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out under section 78d of this title.