Which entity or person must provide written disclosure in a principal transaction?

In a principal transaction, the party acting as the principal, which is typically the investment adviser or broker-dealer buying or selling a security for their own account, has a regulatory obligation to provide written disclosures. This requirement is in place to ensure transparency and to inform clients of the inherent conflicts of interest that may arise when the adviser is also acting as the counterparty in the transaction. The disclosure typically includes pertinent details about the transaction such as the nature of the conflict, the pricing, and any additional fees involved.

The importance of this requirement lies in the need to protect investors by ensuring they have full knowledge of the circumstances under which their transactions are occurring. It allows clients to make informed decisions and to consider whether they wish to proceed with the transaction knowing all the relevant information regarding the adviser’s role.

In this context, the other options, such as the client or the market regulator, do not bear the responsibility for providing this specific form of disclosure. The client's role is more reactive, as they are the ones receiving the information, while the market regulator oversees compliance and enforces applicable rules to ensure fair practices but does not engage in the disclosure process itself for individual transactions.