Floor Broker (FB)

A floor broker (FB) is an independent member of an exchange who is authorized to execute trades on the exchange floor on behalf of clients. A floor broker is a middleman who acts as an agent for clients, indirectly giving them the best access possible to the exchange floor. A floor broker’s clients typically include institutions and wealthy people such as financial-service firms, pension funds, mutual funds, high net worth individuals and traders. A floor broker’s primary responsibility is the “best execution” of client orders, and to achieve this objective, he or she must continuously assess a myriad of factors including market information, market conditions, prices and orders.

A floor broker (FB) is sometimes also known as a “pit broker.”

Once a floor broker receives a buy or sell order for a specific stock, he or she will attempt to get the most competitive market rate for the client. The floor broker does this by proceeding to the trading post on the exchange floor, where the specialist for the stock is located, and bids against other brokers and traders to get the best price for the stock purchase or sale. Upon completing the transaction, the floor broker notifies the client through the client’s registered representative.

A floor broker is different from a floor trader, who trades as principal for his or her own account, whereas the floor broker acts as an agent for clients. A floor broker also differs from a commission broker in that the latter is an employee of a member firm, while the floor broker is an independent member of the exchange.

Because floor brokers now have to compete with electronic changes, one of the major U.S. exchanges, the New York Stock Exchange (NYSE) has incorporated algorithmic tools and other automation to support its (blue-jacketed) floor brokers and keep them competitive with exchanges that are fully automated. Since 2007, the NYSE also allows its floor brokers to trade in stocks not listed on the NYSE. Independent floor brokers and house brokers, as well as designated market makers (DMM) at the NYSE, are represented by the Alliance of Floor Brokers (AFB), a trade association of more than 800 members.

Floor brokers are highly regulated, with the Securities and Exchange Commission (SEC) enforcing compliance and conducting investigations in cases where an exchange’s regulation of its brokers and their trading activities is in question. The SEC may bring charges when there is evidence of front-running, insider dealing or other illegal activity.