Abstract: The prices charged retail customers by broker-dealers for less-liquid, lower-priced securities have been of long-standing regulatory concern. In particular, the National Association of Securities Dealers (succeeded now by the Financial Industry Regulatory Authority) has long had regulations prohibiting broker-dealers from charging excessive “mark-ups” and “mark-downs.” This paper, using a unique dataset generously provided by the National Association of Securities Dealers tracking some 161,635 equity transactions involving fourteen broker-dealers and retail customers in largely less liquid, lower-priced securities over the course of the 2003-2005 period, provides the first comprehensive analysis of the determinants of the mark-ups and mark-downs charged by broker-dealers. In particular, the effect of broker-dealer solicitation, broker-dealer participation in the trade as a principal, stock price volatility, stock price level, trade volume and the bid-ask spread are examined on the size of mark-ups and mark-downs charged. This analysis is placed in the context of the law on mark-ups and mark-downs.