The Law and Finance of Broker-Dealer Mark-Ups

22 Pages Posted: 10 Apr 2011

See all articles by Allen Ferrell

Allen Ferrell

Harvard Law School; European Corporate Governance Institute (ECGI)

Date Written: April 7, 2011


The prices charged retail customers by broker-dealers for less-liquid, lower-priced securities have been of long-standing regulatory concern. In particular, the National Association of Securities Dealers (succeeded now by the Financial Industry Regulatory Authority) has long had regulations prohibiting broker-dealers from charging excessive “mark-ups” and “mark-downs.” This paper, using a unique dataset generously provided by the National Association of Securities Dealers tracking some 161,635 equity transactions involving fourteen broker-dealers and retail customers in largely less liquid, lower-priced securities over the course of the 2003-2005 period, provides the first comprehensive analysis of the determinants of the mark-ups and mark-downs charged by broker-dealers. In particular, the effect of broker-dealer solicitation, broker-dealer participation in the trade as a principal, stock price volatility, stock price level, trade volume and the bid-ask spread are examined on the size of mark-ups and mark-downs charged. This analysis is placed in the context of the law on mark-ups and mark-downs.

Keywords: Mark-up, Mark-Downs, Broker-Dealers, Securities Regulation, Stock prices, Broker-Dealer Regulation

JEL Classification: G18, K22, K41

Suggested Citation

Ferrell, Allen, The Law and Finance of Broker-Dealer Mark-Ups (April 7, 2011). Available at SSRN: or

Allen Ferrell (Contact Author)

Harvard Law School ( email )

Griswold 303 1525 Massachusetts Avenue
Cambridge, MA 02138
United States
(617) 495-8961 (Phone)
(617) 495-1110 (Fax)

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels


Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics