What is a Broker Association

A broker association is a permitted association between exchange members who have shared responsibility for the execution of orders placed by their customers, essentially acting as one brokerage firm. These members thereby gain access to a collective pool of un-transacted orders, and they share the profits and losses associated with these trading activities.

BREAKING DOWN Broker Association

A broker is an individual or firm that charges a fee or commission for executing buy and sell orders submitted by an investor. Broker associations are formed among members of an exchange organization. An exchange is a physical or virtual place where buyers and sellers of securities, such as stocks and bonds, come together to transact with each other. The New York Stock Exchange and the NASDAQ are examples of exchanges in the United States.

Broker Associations in Practice

Brokers must become members of the exchanges on which they trade, and brokers from financial institutions both large and small are registered members of exchanges. Brokers from larger financial institutions are able to capitalize on economies of scale internally on account of their large size and client base. Smaller brokers and financial institutions are not necessarily able to participate in these economies of scale on their own. As such, broker associations developed, and are permitted by regulatory bodies, to allow smaller exchange members to capitalize on economies of scale through cooperation and shared responsibilities. The members of a broker association share responsibility for taking client orders, filling the orders, placing trades and so forth, and share in both the costs and profits of the transactions. Because they are able to work together to reduce costs and get better volume-based prices, the smaller brokers within the broker association can offer better deals for their clients than they could offer if they worked trades individually.