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Unit 2: Regulation of Broker-Dealers and Their Agents Under the Uniform…
Unit 2: Regulation of Broker-Dealers and Their Agents Under the Uniform Securities Act - 15 Qs
Broker-dealer general characteristics
Exclusions from the definition of broker-dealer
No Place of Business in the State :check:
Excluded entities :check:
Agents, Issuers, (Banks, savings institutions, and trust companies), (Credit unions (treated like banks),
Pension Fund become institutional client when >1M AUM :check:
Definition, Legal form of business
Principa
l :check: A senior registered person at a broker-dealer who supervises agents and approves their activities
Broker = agent = commission.
Dealer = principal = markup/markdown
Suitability Obligation
list of required info :check:
Opening an account without all the info—BUT you CANNOT make recommendations yet // and unsolicited orders allowed
Age
info become relevant if custodial account //
Employment
becomes relevant for insider information
Day Trading :check:
Initial Registration
Initial registration requirements for BDs
When must a BD register in a state? :check:
Snowbird exemption :check:
NO “snowbird exemption” for Canadian broker-dealers -> must register in each U.S. state where their existing clients are temporarily vacationing
No Automatic State Registration :check:
BD has a place of business OR has ONE retail client
NO
BD must register in the state where it solicits to (mailing sales material)
if client send email from a state, BD does not have to register there
At least 1 retail clients
YES: Register
YES: Register
Note: Being registered with FINRA or the SEC does not automatically register the firm in any state.
Each state has its own Administrator and registration process
Submitting an application
Provide a consent to service of process
Payment of initial and renewal filing fees
Form BD
: register with the SEC (if interstate) and state Administrators / filed through FINRA's CRD
Amendements :check:
Financial & Bonding Requirements (SEC vs State) :check:
State Administrator requires post bonds and maintain minimum net capital
Surety Bonds :check:
Administrator’s Authority During Registration :check:
Federal Preemption (NSMIA 1966) :check:
Exemption to register :check:
Canadian BD rule :check:
Permitted (Clerical/Administrative) Activities :check:
Who Is and Who Is Not an Agent?
Exclusions
from an agent for admin personnel
From Agent for Personnel Representing issuers
An individual who represents an issuer must register as an agent UNLESS the security is exempt OR the transaction is exempt.
Exempt transaction
Exempt security
Definition : An individual employed by a broker-dealer accepting solicited OR unsolicited orders from existing customers to purchase exempt OR nonexempt securities:check:
Registration requirements for agents
Agent Registration Requirements
Form U4 :check: register with the state and their firm (BD or IA), filed by the employing firm on behalf of the indiv
New resident 30 day exemption :check:
Individuals Representing Issuers :check:
5 exempt securities rule :check:
1) US or Canadian government securities // 2) Bank securities // 3) Municipal Securities // 4) Savings Institutions organized and supervised by the US or any other state // 5) Commercial paper
Issuer example:
Insurance companies, Annuity companies, Life insurance companies,Holding companies with insurance subsidiaries
Dual registration allowed when... :check:
Initial registration
Must register if: represent a BD + work with securities :check:
even if supervise agents and not talk to clients
Initial registration procedure :check:
Registration Requirements
Natural person so required to disclose: Personal disclosures, Criminal history, Citizenship and not :red_cross: Form of business, Financial Statements
Post-Registration requirements of BDs
Post-registration Requirements of BDs
Recordkeeping & Examination :check:
current technology, disk storage is permitted as long as it is WORM (Write Once, Read Many)
must use electronic storage in a way that prevents alteration // Once stored → cannot be changed
SEC’s Recordkeeping Requirement :check:
Administrator’s Post-Registration Powers :check:
Termination :check:
Successor firm rule :check:
Successor registration and Post registration jurisdiction :check:
Registration: expirations and renewals :check:
Amendment: Reporting material change in the BD structure :check:
Post-registration requirements of agents
Post Registration
Notification Rule :check:
Termination procedures: Form U5
Form U4 Amendments: any material change to Form U4 must be reported by filing an amended Form U4 within 30 days
An agent’s registration is ONLY effective while employed by a registered broker-dealer.
Agent Termination :check:
General registration rules
Registration of all securities professionals expires every December 31, unless renewed and pay annual fee :check:
NO prorating
Issuer Representative does not have to register as agents if no compensation linked to the sale (member of issuer's board) :check:
Withdrawal of registration for BD, Agent, IA, IAR :check:
withdrawal of registration becomes effective
30 days
after the Administrator receives the written request
BUT Administrator can delay or extend the effective date if there are outstanding issues
CANNOT withdraw if disciplinary action is pending (revocation proceeding, suspension proceeding, any disciplinary action in progress)
may re-register later — withdrawal is NOT permanent
Administrator’s Authority
Investigation and Examination Powers :check:
Specific case
Canadian BDs
(1) Be properly registered in its Canadian province // (2) Register in each U.S. state where the client is located (NO Snowbird rule) // (3) Only do business with existing Canadian clients (no soliciting U.S. residents)
Foreign broker-dealers with NO special registration
BD may only accept unsolicited orders from existing clients (clients who relocated temporarily or permanently to the US)