A Dealing Certificate practice question
What is a principal doing if he 'insists on a name' at the original price?
Answer:
He refuses the broker's compensation and demands that the transaction is concluded at the agreed price with the same counterparty
A) I can't understand why someone would refuse fair compensation if a transaction is no longer possible and
B) What would be the point if the counterparty is unwilling or unable to complete the transaction
I am not familiar with this exam. But I think he is saying "instead of you the broker giving me money in compensation, give it to the counterparty and ask the counterparty to go through with the original deal plus compensation from you"
For example: Principal A would sell at 10. Broker tells B, who agrees to buy at 10. But deal is no longer available. Broker tells B I can arrange another deal with C at 10.5 and in addition give you compensation of 0.5. B refuses and insists on deal with A. Broker goes back to A who is now willing to sell for 10.51, so broker arranges for deal at 10 between A and B, with A receiving 0.51 compensation from broker.
The point is simply that compensation that will "bridge the gap" (i.e approximately 0.5 in this case) can be paid to the seller or to the buyer depending whether the deal is done at the old or the new terms.
