Regulation of Broker-Dealers and Securities - Broker-Dealer Regulation

To sell securities, you must be associated with a broker-dealer. In addition to FINRA registration under the Securities Exchange Act, both the broker-dealer firm and its employees (also referred to as agents or registered representatives) must be registered with each state where they transact business under the Uniform Securities Act.

This act is basically a model for state securities rules, often referred to as Blue Sky Laws. It was created in the 1950s so that broker-dealers and investment advisers could operate in multiple states without having to fulfill different requirements in each state.

The Registration Process
The registration process is essentially the same for broker-dealers, agents, investment advisers, and investment adviser representatives. However, instead of the Investment Advisor Registration Depository (IARD) system, broker-dealers and agents use the Central Registration Depository (CRD) system. While IAs use the IARD, their investment adviser representatives also use the CRD.

You can visit the Central Registration Depository by clicking here.

To register, the applicant must file an application along with the consent to service of process and a filing fee. In addition, there may be a minimum net capital requirement and/or a bond to cover potential legal costs.

States may not establish requirements which exceed the federal requirements in these areas:

  • Record keeping
  • Bonding
  • Margin
  • Net capital
  • Financial responsibility
  • Custody of securities

Exam Tips and Tricks
Most likely, questions about broker-dealer regulation under the Uniform Securities Act will include investment advisers as well. For example:

  1. The state administrator can require the filing of an application, the consent to service of process and a filing fee from all of the following EXCEPT:
    1. An investment adviser
    2. An investment adviser representative
    3. A federal covered adviser
    4. A broker-dealer registered representative

The correct answer is "c", since the administrator cannot require an application from a federal covered adviser but does have jurisdiction over broker-dealers and their representatives who do business in the state.

Securities Regulation
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