Final answer:
In a securities transaction where a firm acts as a principal, its compensation is derived from the markup on the price of the security it sells from its own account. The correct option is (C).
Step-by-step explanation:
When a securities firm acts as a principal in a transaction, it is buying or selling securities for its own account, and its compensation comes from the markup on the price of the security.
This is different from acting as an agent or broker, where the firm would earn a commission for executing trades on behalf of clients. Therefore, the correct answer is c. markup.
When a firm sells securities that it has previously bought into its own inventory, it will sell them at a higher price than the purchase price, and the difference is the markup.
This charge is meant to cover the costs associated with holding the securities and the risk taken by the firm, as well as to provide a profit margin.