Unit 3 Flashcards
Who is a Broker-Dealer?
Any person engaged in the business of effecting transactions in securities for the accounts of others or for its own account.
One of the roles of a BD is underwriting (distributing) shares of new securities for issuers.
Persons not included in the definition of BDs are:
- Agents
- Issuers
- Banks, savings institutions, and trust companies
- BDs with no place of business in the state
Are BDs allowed to do business with existing customers who are temporarily in a state?
Yes - to avoid unnecessary multiple registrations
When official residency is changed…
the 30-day rule applies
Is there a de minimis exception for broker-dealers?
NO.
Even if the BD does not maintain a pace of business in the state and has a single retail client → registration is required!
Federal Exemptions from Registration as a BD:
Conduct all of their business in one state - you do NOT have to register with the SEC
Without SEC registration, a BD cannot…
participate in any transaction executed on a national securities exchange
State Exemptions from Registration as a BD:
USA exempts a BD without a place a business in a state if the only transactions effected in the state are with the issuer of the securities involved in the transaction
Under the USA, you are a BD if:
- you have a place of business in the state regardless of the nature of your clients
OR
- you have even one retail client in the state
Under the USA, you are NOT a BD if:
- you have no place of business in the state
AND
- your only clients are other BDS, institutions, and issuers of the security involved in the transaction
OR
- you are registered in a state where you do maintain a place of business and only do business in a state with existing clients who are snowbirds
Agent
any individual (other than a BD) who represents a BD or issuers in transactions of securities
(only a natural person can be an agent)
Associated person
any person directly/indirectly controlling/controlled by the BD, any person who contributes capital, and any employees of the BD
(NOT including any clerical or ministerial employees)
Cold callers working for a BD would be defined as an agent if:
they did any more than ask if clients wanted to receive information.
In addition, anyones who receives compensation for solicited clients, they would be considered agents and would have to register.
Exclusions from the definition of agent for personnel representing issuers:
- When effecting transactions in exempt securities
- When effecting transactions exempt from registration
- When effecting transactions with existing employees, partners, or directors if no sales-related commission is paid for soliciting any person in this state
List the exempt securities
- U.S. government securities
- Foreign securities
- Securities issued by or guaranteed by a bank
- Commercial paper $50k or more with 9 months or less
- Investment contracts issued in connection with employee’s stock purchase, savings, pensions, profit-sharing plans
List the exempt transactions
- Unsolicited brokerage transactions
- Transactions between the issuer and underwriters
- Transactions with financial institutions
- Private placements
An individual employed by a company to sell an IPO to the public is:
an agent of the issuer needing registration, even if not paid compensation. The only exception would be if all transactions were exempt, such as only selling the shares to institutional investors.
An individual who works for an issuer of securities is:
excluded from the definition of agent when engaging in transactions with employees involving the issuer’s securities and does not receive compensation.
Individuals representing BDs in a sales capacity:
must register as agents regardless of what they sell.
What are the agent exemptions from registration?
- Snowbird exemption
- When the firm is excluded from the definition of BD because it has no place of business in the state and only deals with other BDs and institutions.
All BDs register with:
SEC
Unless told otherwise, assume any BD registers with the SEC and at least one state.
What form does a BD submit?
Form BD
What form does an agent submit?
Form U4
The Admin also may require that an applicant publish:
an announcement of the registration in one or more newspapers in the state.
What is NOT a cause for a statutory disqualification?
Loss of a civil lawsuit, even involving securities
Registration (usually) becomes effective for all securities professionals:
at noon of the 30th day after filing
Records must be preserved for:
3 years (the first 2 years easily accessible in the principal office) unless the Admin specifies otherwise.
Included in the recordkeeping requirements are:
electronic communications, particularly emails.
However, it is not required to maintain emails of a personal nature sent to non-clients (“Honey, I’m stuck at the office and will be late for dinner.)
What are the requirements to keep copies of a customer’s tax returns?
There are no requirements to keep copies of a customer’s tax returns
Financial Requirement for BDs
The Admin may establish net capital requirements for broker-dealers (but cannot exceed those required by federal law).
Broker-dealers who meet the SEC’s net capital or bonding requirements cannot be required to meet higher ones in any state in which they do business
Admin may require those BDs that have discretionary authority over, clients’ funds or securities to post surety bonds. In lieu of a surety bonds,
the Admin will accept deposits of cash or securities
Agent Registration Requirements
- Form U4 must be completed
- Disclosing citizenship applies
may not conduct securities transactions in a state unless that person is properly registered in the state. This is true even when receiving unsolicited orders.
Even if there is only one client
Agent Termination
If an agent terminates employment with a BD, both parties must notify the Admin.
If an agent terminates employment with one BD to join another BD, all three parties involved must notify the Admin.
Agent = All parties
Financial Requirements for Agents
There are no financial requirements or net worth requirements
Multiple Registrations
An individual may not have multiple registrations unless the BDs or issuers for whom the agent acts are affiliated by direct or indirect common control or the Admin grants an exception
The agent would have to go through the registration process with the second firm in the same manner as the original application (another Form U4)
A broker-dealer in Canada that has no office in this state may effect transactions for:
- A person from Canada who is temporarily a resident in this state who was already a client of the BD
- A person from Canada who is a resident in the state, whose transaction is in a self-directed, tax-advantaged retirement plan in Canada of which the person is the holder (in Canada, the equivalent of an IRA is called a Registered Retirement Savings Plan (RRSP)).
Renewal applications for Canadian BDs and agents who file for limited registration must be filed before:
December 1 each year
Investment Advisers register on the _____ level
federal (SEC) or state, NEVER BOTH
Investment Adviser Representatives only register on the ____ level
state
Broker-dealers register on what level?
Federal (FINRA) AND state levels
Agents register on what level?
Federal (FINRA) AND state levels
