Registrations of Persons - Agents: Registration

Registration requirement: It is unlawful for an individual to transact business in this State as an agent unless the individual is registered under this [Act] as an agent or is exempt from registration as an agent..."

The law then lists those persons who are exempt from registration in the state. These basically parallel the exemptions of the broker-dealers. Let's look at them:

  • The broker-dealer with which the agent is associated has no place of business in the state and the agent only conducts business with existing customers:

    • Who are not residents of the state, and are in the state for 30 days or less,

    • Who have moved to another state after establishing an account with the agent in his or her state of registration. The agent must apply for registration in the customer's new state of residence within 10 days of any securities transactions or of the discovery that the client has moved to the other state. There is a 60-day grace period allowed by law for transactions to continue so long as the agent has made application within the 10-day period. To apply for registration, the agent's B/D must be registered in the new state. We will deal with this extensively in practice questions.
  • The broker-dealer itself is exempt from registration in the state because of the Canadian and other foreign broker-dealer exemption and the agent's only transactions are with existing customers as described above.

  • The agent represents issuers of exempt securities.Let's repeat the list of these exempt securities:
    • Securities issued by governments. This includes the U.S. government; state and local governments and foreign governments with which the U.S maintains diplomatic relations.

    • Securities issued by banks. Remember that banks virtually always qualify as exemptions.

    • Securities issued by insurance companies authorized to do business in the state

    • Securities issued by railroads and public utilities that are regulated by the U.S. government, the state or a Canadian government regulatory body

    • Securities that are considered federal covered securities as described in the definition above

    • Securities of nonprofit organizations, such as churches

    • Investment grade commercial paper. Sometimes the exam will refer to these as promissory notes­, which have maturities of no more than 270 days and a minimum face amount of $50,000. The term "investment grade"refers to the top 4 grades, in terms of safety, as determined by such organizations as Moody's and Standard & Poor's.

Now, let's look again at what was just said: If an agent represents an issuer of exempt securities, then he or she is exempt from registration with the state. Earlier, we defined the securities of certain issuers, such as New York Stock Exchange (NYSE) stocks, as federal covered securities. If an agent represents one of those companies, he or she doesn't have to register with the state. This does not mean that the person isn't registered at all. The agent is likely to be registered with the SEC, just not with the state.

Also, an individual is not considered an agent if he or she does not make transactions in securities with public customers. Again, this law is designed to protect the investing public. The following are instances in which the person may be dealing in securities, but would be exempt from registration as an agent under the Uniform Securities Act.

  • An individual, such as an officer of a company, selling stock of his or her company (the issuer) and receiving no compensation for the transaction.

  • A representative of a B/D making transactions for federal covered investment advisers. Such IAs are considered "sophisticated investors."

  • An individual selling stock of his or her own company to employees of that company and receiving no compensation for the transactions. An example of this would be the clerk who handles employee stock option purchase plans. That person is paid for clerical duties, not for stock transactions.

  • A person whose duties are strictly clerical (or ministerial as the law says) in nature and who has no authority to accept orders

  • An individual who represents an issuer in transactions with an underwriter

  • An officer or director of a broker-dealer who is not involved in effecting securities transactions or the supervision of persons who make such transactions

There is a definite thread in the USA that exempts persons who are not compensated for transactions. Use this idea as another tool to help sort out exemptions

Agents: Limitations and Terminations
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