Sales Activities - Registration and Regulation of Brokers and Dealers

No broker or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any security (other than commercial paper, bankers' acceptances, or commercial bills) unless that broker or dealer is registered under Section 15. However, the SEC may conditionally or unconditionally exempt any broker or dealer (or class of brokers or dealers) from the registration requirement (if in the public interest).

To register under Section 15, a broker or dealer must file for application with the Commission, including any information or documents required. Within 45 days of the filing date, the Commission must either grant the registration or institute proceedings to deny registration.

Section 15c-1 - Manipulative, Deceptive or Fraudulent Devices

Rule 15c-1 - Definitions

  • Customer: does not include any broker, dealer or municipal securities dealer

  • Completion of the transaction means:
    • The time when the customer buying a security pays the broker or dealer any part of the purchase price

    • The time when the security is delivered to the customer (or the customer's account) if the payment was made prior to the date requested

    • The time when the customer selling a security delivers it to the broker or dealer - if the security was already in custody, then the time the security is transferred from the customer's account

    • The time when the customer selling a security receives payment from the broker or dealer, if the security was delivered prior to the date required

  • Manipulative, deceptive or other fraudulent device or contrivance includes:

    • Any act, practice or course of business that operates as a fraud or deceit upon any person

    • Any untrue statement of a material fact or any omission to state a material fact that would make other statements made not misleading (statement or omission is made with knowledge or reasonable grounds to believe that it is untrue or misleading)

  • Misrepresentation by brokers and dealers as to registration includes any representation by a broker or dealer that registration with the Commission (or the failure of the Commission to deny or revoke its registration) indicates that the Commission has reviewed or approved its conduct, financial standing or business, or the merits of any security.

Rule 15c1-7 - Discretionary Accounts
It is considered a "manipulative, deceptive or other fraudulent device or contrivance" for any broker, dealer, municipal securities dealer or any agent or employee who is vested with any discretionary power to make any transactions, purchases or sales that are excessive in size or frequency in view of the nature and financial resources of the client's account. Any transaction in a discretionary account is also so considered unless, immediately after effecting such a transaction, a record, which includes the customer's name, security information (name, price and amount) and the date and time of the transaction, is produced.

Look Out
These same actions (trades excessive in size or frequency) also violate FINRA (previously known as NASD) Conduct Rules regarding suitability. They only fall under the SEC when performed in discretionary accounts.

Section 15c-2 - Fraudulent Acts and Fictitious Quotations
It is considered a deceptive practice for a broker or dealer to participate in a distribution of securities that has a registration statement filed under the Securities Act of 1933, unless he complies with the requirements of the rules under this section.

Rule 15-c2-8 - Delivery of Prospectus
Unless exempted under the Securities Exchange Act of 1940, a broker or dealer must deliver a copy of the preliminary prospectus to any person who is expected to receive a confirmation of sale at least 48 hours prior to sending such confirmation.

Preliminary Prospectus - The broker or dealer must take reasonable steps to provide a copy of the latest preliminary prospectus to anyone who makes a written request to receive it.

Final Prospectus - The broker or dealer must take reasonable steps to deliver a copy of the final prospectus during the period between the effective date of the registration statement and the later of the termination of such distribution or the expiration of the applicable 40-day or 90-day period under the Securities Act of 1933.

Delivery to Associated Person - The broker or dealer must take reasonable steps to make available copies of the preliminary prospectus (before the effective period) or final prospectus (after the effective date) to any of their associated persons who are expected to solicit customer orders for such securities.

Delivery to Other Broker/Dealers by Managing Underwriter - If the broker/dealer is a managing underwriter of a securities distribution, he must take reasonable steps to see that all other brokers or dealers participating in the distribution are furnished with sufficient copies of each preliminary and final prospectus (as requested).

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