Regulation of Broker-dealers - Registration Requirements

Initial Registration
Initial registration for a broker-dealer is very simple. If a person or an entity falls under the definition of a broker-dealer, he/she/it must register as a broker-dealer. To register, the prospective broker-dealer must file an application with the state.

The initial application includes the following:

  • Name of business
  • Address of business
  • Type of business to be conducted
  • Qualifications of partners, directors and officers - including work history and financial solubility
  • Any/all negative history, including securities-related misdemeanor convictions, Administrative orders, and/or any felony convictions - including those not related to the securities markets

Initial Financial Requirements - Surety Bonds
At any time, the Administrator has the power to demand minimum financial requirements for any/all broker-dealers.
Specifically, the USA states:

  • "A licensed broker-dealer who is not registered under the Securities Exchange Act of 1934 [must] maintain minimum net capital and a prescribed ratio between net capital and aggregate indebtedness, which may vary with type or class of broker-dealer."
     
  • "The Administrator by rule may require a fidelity bond from a broker-dealer who is not registered under the Securities Exchange Act of 1934."
     
  • Paraphrased: If a broker-dealer or an investment advisor is not meeting the imposed requirements, it should immediately notify the Administrator.

Exam Tips and Tricks
Administrators have the ability to require broker-dealers or investment advisors to carry bonds (Surety or Fidelity) if the broker-dealers or IAs have discretionary authorization or hold client funds. If the Administrator thinks a situation is risky to the client, he or she may require bonds to protect against possible excessive losses. In addition, the Administrator may require a broker-dealer to maintain a minimum amount of net (liquid) capital.

Fees
Filing fees are required by the Administrator, usually on an annual basis. If an application is rejected for any reason, the Administrator retains the right to keep part of the fee.

Fees are transferable, applications are not. A broker-dealer with several subsidiaries that purchases a subsidiary can use the previous company's remaining filing fee, but must file a new application.
 

Look Out!
You might see a question on the test regarding the transferability of annual fees. Remember that fees are transferable and applications are not.

Testing
Administrators can reserve the right to require applicants to take an examination - either oral or written.
 

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

 

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 advisor.
  2. an investment advisor representative.
  3. a federal covered advisor.
  4. a broker-dealer registered representative.

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

Update
 

  • If a broker-dealer has any material change in vital information (e.g. address) at any time, it is to notify the Administrator immediately.
     
  • Records of a broker-dealer must be kept for a minimum of three years.

Financial reports must be filed annually - and even quarterly, in some special cases - with the Administrator.

  • Usually, all advertising and promotional material must be filed with the Administrator, unless exempt on either a security or transaction basis.
Post Registration Requirements
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