What Is a Bill Broker?

Also known as a discount house or note broker in many areas of the world, a bill broker is an individual or business entity that negotiates the purchase of different types of commercial papers at less than the face or par value. Depending on the nature of the broker’s business model, the negotiations may focus on acquiring the financial instruments and holding them until maturity, ultimately realizing the face value and earning a profit from each purchase. At other times, a bill broker may serve as an intermediary between a buyer and seller, helping to craft the terms of the purchase, including the discounted purchase price, for a fee.

Typically, a bill broker is known as a discount house in the United Kingdom. In this application, the business will arrange for the purchase of a wide range of financial instruments, including bills of exchange, different types of government bonds, promissory notes and even documents like the banker’s acceptance. Purchase prices are usually set as a percentage of the total amount due when the settlement date is reached. The discount house may choose to hold the acquired assets until the debts are settled in full, making it possible to earn a profit from the transaction in that manner. At other times, the house will offer the purchased instruments for sale at a rate above the price paid for the instruments and realize a return in a shorter period of time.

In the United States, the use of the term "bill broker" tends to be more common. The general process is much like the one used in the United Kingdom and other places, in that the broker may either make purchases that are held until maturity or broker deals between buyers and sellers in exchange for some sort of fee. As is true in other nations around the globe, the activities of a bill broker must be in compliance with standards and regulations set by the agencies and entities that oversee financial transactions within the country of origin.

An individual or firm that functions as a bill broker will typically evaluate different financial instruments before choosing to initiate an attempt to buy. This evaluation will consider factors such as the degree of risk associated with the instrument in question, and how much time remains until the instrument is to be settled in full. Assuming the instrument presents an acceptable level of return without carrying an undue amount of risk, a deal can be negotiated and allow all parties involved to benefit from the transaction.