{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/940/20/#05-overview-and-background","source":"FASB Accounting Standards Codification, Basic View","usage":"Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective.","topic":"940","topic_title":"Financial Services—Brokers and Dealers","subtopic":"940-20","subtopic_title":"Broker-Dealer Activities","section":{"number":"05","label":"05 Overview and Background","anchor":"05-overview-and-background","is_sec":false,"groups":[{"block":null,"heading":null,"paragraphs":[{"citation":"940-20-05-1","para":"05-1","html":"
This Subtopic addresses certain activities engaged in by brokers and dealers in securities (broker-dealers). The guidance in this Subtopic is presented in the following three Subsections:
  1. a
    General
  2. b
    Clearing
  3. c
    Underwriting.
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The General Subsections provide guidance on matters such as commissions, soft-dollar arrangements, mutual fund distribution fees, agency transactions, and broker-dealer financial presentation.
","snippet":"The General Subsections provide guidance on matters such as commissions, soft-dollar arrangements, mutual fund distribution fees, agency transactions, and broker-dealer financial presentation.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a2c8f8c151bf32ea447ab78f65af901d195039afba1c92da537585e9d373af28","downloaded_from":"2026-09-10T02:13:31.954Z","last_downloaded_at":"2026-09-10T02:13:31.954Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481996","source_sha256":"70416e9f07353b1965411aed904395457266a194d660f6cf101e4f9a37f6bb83"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b31f8a4d1e06a9f3904e4bb21bc0bf10ff1aac724d88a1ab89098e92ea0d0d2a","downloaded_from":"2026-09-10T02:13:31.954Z","last_downloaded_at":"2026-09-10T02:13:31.954Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481996","source_sha256":"70416e9f07353b1965411aed904395457266a194d660f6cf101e4f9a37f6bb83"}},{"block":null,"heading":"Commissions","paragraphs":[{"citation":"940-20-05-3","para":"05-3","html":"
Acting as an agent, a broker-dealer may buy and sell securities on behalf of its customers. In return for such services, the broker-dealer charges a commission.
","snippet":"Acting as an agent, a broker-dealer may buy and sell securities on behalf of its customers. In return for such services, the broker-dealer charges a commission.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c58f21c4ec145ef5da4e2744621043bdf030818352b53c7710c91f6f6dc8c918","downloaded_from":"2026-09-10T02:13:31.954Z","last_downloaded_at":"2026-09-10T02:13:31.954Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481996","source_sha256":"70416e9f07353b1965411aed904395457266a194d660f6cf101e4f9a37f6bb83"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:68aedbe238a5d64e22d83dcd2eabcde2828ed3f4e5f853b6685ec118e1766118","downloaded_from":"2026-09-10T02:13:31.954Z","last_downloaded_at":"2026-09-10T02:13:31.954Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481996","source_sha256":"70416e9f07353b1965411aed904395457266a194d660f6cf101e4f9a37f6bb83"}},{"block":null,"heading":"Soft-Dollar Arrangements","paragraphs":[{"citation":"940-20-05-4","para":"05-4","html":"
Soft-dollar arrangements generate commission income for the broker-dealer. Many of these soft-dollar arrangements are oral, and the value of the research to be provided is typically based on a percentage of commission income. Soft-dollar customers are typically institutional investors or money managers. Soft-dollar research may be generated either internally by the broker-dealer or purchased by the broker-dealer from a third party.
","snippet":"Soft-dollar arrangements generate commission income for the broker-dealer. Many of these soft-dollar arrangements are oral, and the value of the research to be provided is typically based on a percentage of commission in…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a1a26881ad7bee4f8ae298fa4c352479113139e58bef756e55482f42fdc36437","downloaded_from":"2026-09-10T02:13:31.954Z","last_downloaded_at":"2026-09-10T02:13:31.954Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481996","source_sha256":"70416e9f07353b1965411aed904395457266a194d660f6cf101e4f9a37f6bb83"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:950f55fc23c4fd91e1c9bc61424a0c2117709e040540253620628a50fdae7ea4","downloaded_from":"2026-09-10T02:13:31.954Z","last_downloaded_at":"2026-09-10T02:13:31.954Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481996","source_sha256":"70416e9f07353b1965411aed904395457266a194d660f6cf101e4f9a37f6bb83"}},{"block":null,"heading":"Mutual Fund Distribution","paragraphs":[{"citation":"940-20-05-5","para":"05-5","html":"
Broker-dealers may contract with one or more mutual funds to act as the registered distributor of the mutual fund's shares, assisting the fund in selling and distributing its shares. If a broker-dealer undertakes the responsibility for selling and distributing fund shares, it will incur different types of costs, the most common of which are commissions paid to those of its representatives who arrange fund sales. To compensate a broker-dealer for those selling efforts, mutual funds may establish some form of a fund-charge and shareholder-commission structure that provides fees to the broker-dealer either at the time of sale or over a specified period of time. Two common forms of compensation are the following:
  1. a
    A front-end commission paid to the broker-dealer by the fund shareholder at the time of sale
  2. b
    A 12b-1 distribution fee, which is paid by the fund over a period of time based on a percentage of the fund's daily net asset levels, together with a deferred sales charge, which is a commission paid to the broker-dealer by the shareholder at the time the shareholder exits the fund. Deferred sales charges are often charged to the shareholder in decreasing amounts over time.
","snippet":"Broker-dealers may contract with one or more mutual funds to act as the registered distributor of the mutual fund's shares, assisting the fund in selling and distributing its shares. If a broker-dealer undertakes the res…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a7398de0d0248395c67366128e0557853299b454f8c244384af0c185fbcea216","downloaded_from":"2026-09-10T02:13:31.954Z","last_downloaded_at":"2026-09-10T02:13:31.954Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481996","source_sha256":"70416e9f07353b1965411aed904395457266a194d660f6cf101e4f9a37f6bb83"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a4467ee61bf52b3873f89ea66ab2efc65be6274c3a2aaeacf0b27d9a408337fe","downloaded_from":"2026-09-10T02:13:31.954Z","last_downloaded_at":"2026-09-10T02:13:31.954Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481996","source_sha256":"70416e9f07353b1965411aed904395457266a194d660f6cf101e4f9a37f6bb83"}},{"block":"Clearing","heading":null,"paragraphs":[{"citation":"940-20-05-6","para":"05-6","html":"
The Clearing Subsections provide guidance for a broker-dealer's clearing operations.
","snippet":"The Clearing Subsections provide guidance for a broker-dealer's clearing operations.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:68b8d60d9e5df430ddc2dba9d705f50826f49b8a9e0b15b85a4e5e1db49adafa","downloaded_from":"2026-09-10T02:13:31.954Z","last_downloaded_at":"2026-09-10T02:13:31.954Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481996","source_sha256":"70416e9f07353b1965411aed904395457266a194d660f6cf101e4f9a37f6bb83"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:31c0ae855833646b3c8a2a267083f3bcd2c77396933c150ca3dda819aceb07db","downloaded_from":"2026-09-10T02:13:31.954Z","last_downloaded_at":"2026-09-10T02:13:31.954Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481996","source_sha256":"70416e9f07353b1965411aed904395457266a194d660f6cf101e4f9a37f6bb83"}},{"block":"Clearing","heading":"Dividend Department","paragraphs":[{"citation":"940-20-05-7","para":"05-7","html":"
The dividend department maintains a record of securities that the broker-dealer fails to receive or deliver on the record date. Securities received or delivered against fails that were open on the record date and that are in the name of the delivering broker should be accompanied by due bills. A due bill is an official authorization allowing the purchasing broker-dealer to make a legal claim on the selling broker-dealer for a future distribution to which it is entitled. For cash dividends or interest payments, this typically takes the form of a postdated check. It is usually the responsibility of the dividend department to collect or authorize payments for transactions of this nature.
","snippet":"The dividend department maintains a record of securities that the broker-dealer fails to receive or deliver on the record date. Securities received or delivered against fails that were open on the record date and that ar…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7ea3ea2515b07a19741bc450c72a220ea14813b7d63eb3eb0bc7843879a8cf09","downloaded_from":"2026-09-10T02:13:31.954Z","last_downloaded_at":"2026-09-10T02:13:31.954Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481996","source_sha256":"70416e9f07353b1965411aed904395457266a194d660f6cf101e4f9a37f6bb83"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7b84fb2d5c9f114db688dc9c0d5f503f04776592e58791be351184d367cf657a","downloaded_from":"2026-09-10T02:13:31.954Z","last_downloaded_at":"2026-09-10T02:13:31.954Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481996","source_sha256":"70416e9f07353b1965411aed904395457266a194d660f6cf101e4f9a37f6bb83"}},{"block":"Clearing","heading":"Suspense Accounts","paragraphs":[{"citation":"940-20-05-8","para":"05-8","html":"
Because of the number of transactions that take place when trades are cleared for the broker-dealer or its customers, unreconciled differences and trading errors occur. A broker-dealer often has several suspense accounts to facilitate the resolution and identification of differences.
","snippet":"Because of the number of transactions that take place when trades are cleared for the broker-dealer or its customers, unreconciled differences and trading errors occur. A broker-dealer often has several suspense accounts…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:30df3060a858fae8de4783b69e7610877e2783a017b8ea1c7457a63099745337","downloaded_from":"2026-09-10T02:13:31.954Z","last_downloaded_at":"2026-09-10T02:13:31.954Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481996","source_sha256":"70416e9f07353b1965411aed904395457266a194d660f6cf101e4f9a37f6bb83"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:8dd64a5d17a5a4d19fe6d1dbe80f5c92934040c3b07ca67c1b4c0d9a7d48ce85","downloaded_from":"2026-09-10T02:13:31.954Z","last_downloaded_at":"2026-09-10T02:13:31.954Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481996","source_sha256":"70416e9f07353b1965411aed904395457266a194d660f6cf101e4f9a37f6bb83"}},{"block":"Underwriting","heading":null,"paragraphs":[{"citation":"940-20-05-9","para":"05-9","html":"
The Underwriting Subsections provide guidance for a broker-dealer's underwriting activities.
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There are several different ways in which a broker-dealer may participate in the underwriting of a new issue of securities. The broker-dealer may be the managing or lead underwriter, a member of the syndicate, or a member of the selling group. Such participation may be on any of the following bases:
  1. a
    Firm commitment
  2. b
    Standby
  3. c
    Best efforts
  4. d
    All or none.
","snippet":"There are several different ways in which a broker-dealer may participate in the underwriting of a new issue of securities. The broker-dealer may be the managing or lead underwriter, a member of the syndicate, or a membe…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:781cdfcad73ab909675e116d9bd8847275df7251a696f63d27c282209c37a845","downloaded_from":"2026-09-10T02:13:31.954Z","last_downloaded_at":"2026-09-10T02:13:31.954Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481996","source_sha256":"70416e9f07353b1965411aed904395457266a194d660f6cf101e4f9a37f6bb83"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f5c50ce7b40fcd85810b672b9a02ffb9c4f309833b90ee9894e462be63f93a86","downloaded_from":"2026-09-10T02:13:31.954Z","last_downloaded_at":"2026-09-10T02:13:31.954Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481996","source_sha256":"70416e9f07353b1965411aed904395457266a194d660f6cf101e4f9a37f6bb83"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:dc154ed7e391aaad7a1535b9a3b2c668615a92686b48647c9516515ba94d0c97","downloaded_from":"2026-09-10T02:13:31.954Z","last_downloaded_at":"2026-09-10T02:13:31.954Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481996","source_sha256":"70416e9f07353b1965411aed904395457266a194d660f6cf101e4f9a37f6bb83"}},"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:dc154ed7e391aaad7a1535b9a3b2c668615a92686b48647c9516515ba94d0c97","downloaded_from":"2026-09-10T02:13:31.954Z","last_downloaded_at":"2026-09-10T02:13:31.954Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481996","source_sha256":"70416e9f07353b1965411aed904395457266a194d660f6cf101e4f9a37f6bb83"}}