When you sell your rusty chainsaw at a garage sale, you can work out the sale yourself. A buyer gives over the cash, you handover the chainsaw. Deal done.
However, more complicated transactions, or transactions involving more complex assets, might require someone in the middle to facilitate the transaction. That facilitator is known as the settlement agent.
They help the two parties complete the transaction, moving cash from one side to the other, and assets the other way. They become useful in situations where knotty legal niceties have to play out during the process...things that could be messed up if a knowledgeable party isn't in the middle, directing traffic.
Related or Semi-related Video
Finance: What is a Block Trade?22 Views
Finance a la shmoop.. what is a block trade? yeah you think this was the yellow Marvin [A monopoly board]
Gardens trio bartered for the green Pennsylvania Avenue set but it's not
instead a block trade happens when a huge, you know block yes clever naming
there of shares needs to get sold think company founder just got divorced and [Man and woman sitting on a sofa]
old husband wants the dough fast she just wants to get rid of him you know
lose 185 pounds so of her 28 million shares she or rather her bank or brokers
put together a group of a half a dozen buyers who then buy the stock in a clean [Stock is dusted]
block trade there's a strange paradigm here sometimes companies shares are
thinly traded or not liquid meaning that there isn't a ton of volume every day in
the stock and large institutions wanna buy in big like to the tune of 5 million [Big institutions buy stock]
shares but if they buy 50,000 shares a day in the market well they'll likely
move the stock from say 18 bucks a share to 25 bucks a share by the time they're
done buying so sometimes supply of block trades is constrained and the trade
usually with price negotiated well beforehand goes off at a premium to
where it was regularly trading like that eighteen dollar figure maybe implies a
block trade that happens at 20 bucks the seller is usually happy because if they
dump the shares at fifty thousand a day into the market while they'd likely [Dump truck dumps stocks on the floor]
drive down the stock price to fifteen dollars or less in the process got it?
and this way they got a $2 premium above that 18 bucks 20 minus eighteen two
dollars there yeah and the institution is happy because now they own the [Institution smiling]
however many millions of shares that they own at a twenty dollar base price
instead of something likely much higher if they've gone into the market and
bought em, so that's when supply is constrained in a thinly traded low
volume in demand stock much more common as a block trade where there's a whole
lot of supply coming on board and not nearly the demand of buyers or investors
to take over the stock so it trades at a meaningful discount to whatever price it
was trading at like in the eighteen dollar a share case well maybe that
block trade happens at 17.20 or 16.50 or
thereabout so that's a block trade and here's a blockhead yeah ask your parents [Blockhead figure appears]
if you don't get the reference here...
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