Does the ‘Agency’ Model Inherently Reduce the Risk of Price Manipulation?

Yes, the agency model inherently reduces the risk of price manipulation by the desk itself. Since the agent does not trade from its own inventory and is not taking market risk, its financial incentive is to find the best price for the client, not to profit from market movements.

A principal desk, conversely, has an incentive to manipulate the price to make its inventory trades more profitable, a conflict absent in the agency model.