What does 'Give Up' mean

Give up is a procedure in securities or commodities trading where the executing broker places a trade on behalf of a second broker as if the second broker actually executed the trade. This is usually done because a broker cannot place a trade for a client based on other workplace obligations, or because the executing broker is working on behalf of an interdealer broker or prime broker who has taken the order directly from his client and passed it on to the executing broker. (This was more common in the era of floor trading, when certain floor brokers would receive orders from outside.) To ensure the trade is executed in a timely fashion, a request is made of another broker to place the trade on behalf of the first broker.

On the record books or trade log, the trade shows the information for the client's broker, and not the executing broker. Thus, the broker of the client and the broker on the other side of the trade receive the commission, while the executing trader gets a commission from the broker who received the order. The process is referred to as a "give up" because the one who executes the trade gives up the associated credit for the purchase or sale; the executing trader also gives up the associated commission from the originating client.

BREAKING DOWN 'Give Up'

The act of performing a trade in the name of another broker is generally considered a professional courtesy. In regard to the reimbursement of a broker for services rendered, the payment of services associated with a give up functions within an area that is not clearly defined.

Parties Involved in the Trade

While a standard trade often involves two parties – the buying broker and the selling broker – a give up involves at least one other person who executes the trade on the behalf of one of the two aforementioned brokers. In cases where both the original buying and selling brokers are otherwise obligated, it is possible for a fourth (or even fifth) party to become involved if the buying broker and the selling broker both ask separate traders to act on their behalf. This would result in a give up on the selling side and on the buying side. The use of give ups has diminished as physical trading floors have made way for electronic exchanges, but where order-routing algorithms may now take the role of an executing broker and "give up" the trade.

Example of a Give Up Scenario

Broker X gets a buy order from a client to buy 100 shares of XYZ of the New York Stock Exchange (NYSE). Broker X works upstairs at a large brokerage firm and needs to get the order down to the floor of the NYSE. To place the trade in a timely fashion, Broker X asks Floor Broker Y, who is housed directly on the NYSE, to place the order in his place. Broker Y then buys the stock on behalf of the client of Broker X.

Although Floor Broker Y places the trade, he must give up the transaction and record it as if Broker X placed the trade, since the trade was conducted on behalf of the client of Broker X. Thus, the transaction is recorded as if Broker X made the trade, even though Floor Broker Y executed the trade. Floor brokers are often paid by the non-floor brokerage firms either on retainer or with a per-trade commission. This may or may not be worked into the commission that Broker X charges his own clients.

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