Uniform Securities Exam
Registration of Broker Dealers
Prior to conducting business in any state, a broker dealer must be properly registered or exempt from registration in that state. The first test when deciding if the broker dealer must register is determining if the firm has an office in the state. If the firm maintains an office within the state it must register with that state. An agent must register in their state of residence even if their firm is located in another state.
An agent who lives in New Jersey and who commutes to their office in New York must register in both New Jersey and New York.
Agents must also register in the states where they sell securities or offer to sell securities as well as where they advertise. If the firm does not have an office in the state they may or may not be required to register depending on whom they do business with. If a broker dealer does not have an office in the state and engages in securities transactions with the general public, then they must register. If a broker dealer with no office in the state conducts business exclusively with any of the following, they are not required to register in that state:
- Other broker dealers
- Issuers of securities
- Investment companies
- Insurance companies
- Savings and loans
- Trust companies
- Pension plans with more than $1,000,000 in assets
- Other financial institutions
- Institutional buyers
- Existing customers with less than 30 days temporary residency in the state (on vacation or business trips)
It is unlawful for a broker dealer to employ any agent who is not duly registered under the Uniform Securities Act (USA). When determining if an agent must register, you must first look at whom the agent works for. If the agent works for a broker dealer, the agent must register. The only exception is for officers and directors of a broker dealer who have no involvement with customers, securities transactions, or supervision. If the agent works for an exempt issuer, the agent is exempt from registration no matter what security is involved. Exempt issuers are:
- U.S. and municipal governments
- Canadian federal and municipal governments
- Foreign federal governments recognized by the United States
- Banks, savings and loans, and trust companies
An agent is also exempt from registering if they represent an issuer in the sale of an exempt security such as:
- Banker’s acceptances or time drafts with less than 270 days to maturity sold in denominations of $50,000 or more
- Investment contracts relating to employee savings, stock purchases, pension plans, or other benefit plans as long as no commission is received for such sales
An agent may also qualify for the de minimis exemption if they meet the following conditions:
- They are registered with FINRA
- They are registered with at least one other state
- They are not ineligible to register
- Their broker dealer is registered in the state
If the above conditions are met the agent may conduct business with clients who are in the state in question for up to 30 days. If the client has moved to the state in question the agent may conduct business with the client for up to 60 days while their registration is pending in that state.
Registering Broker Dealers
A broker dealer wishing to become registered in a state must first file an application with the state securities administrator. The broker dealer must also pay all filing fees and sign consent to service of process. By signing the consent to service of process, the broker dealer appoints the administrator as their attorney in fact and allows the administrator to receive legal papers for the applicant. Any legal papers received by the administrator will have the same force and effect as if they were served on the broker dealer.
All applications must also include:
- Type of organization (corporation, partnership)
- Address of business
- Description of business to be conducted
- Backgrounds and qualifications of officers and directors
- Disclosure of any legal actions
- Financial condition
The firm’s registration will become effective at noon, 30 days after the initial application has been received or at noon, 30 days after the administrator has received the last piece of required information. Registering a broker dealer in a state automatically requires that any officers and directors who act in a sales capacity register as agents in that state.
A broker dealer must be able to meet the minimum capital requirements set forth by the state securities administrator. If the broker dealer is unable to meet this capital requirement, they must post a surety bond to ensure their solvency. Broker dealers that meet the Securities Exchange Commission’s (SEC) minimum net capital requirements are exempt from USA’s capital and surety bond requirements. The administrator may also require that an officer or agent of the broker dealer take an exam that may be oral, written, or both.
Most states require that agents successfully complete the Series 66 exam before they may conduct business within their state. In addition to successfully passing the Series 66, an agent must also:
- Abide by and understand state securities laws and regulations
- Recognize that the state may require additional certification regarding the state’s securities laws
- Understand that they may not conduct business until they are properly registered
- An agent does not become registered in a state simply by passing the exam. An agent becomes registered only when the state securities administrator notifies them that they have become registered.
- An agent may not be registered in any state without being employed by a broker dealer or issuer and no broker dealer or issuer shall employ an agent that is not duly registered.
Changes in an Agent’s Employment
When an agent changes firms, the agent, former employer, and new employer all must notify the state securities administrator. This is done in most cases quite easily through the central registration depository (CRD) system for all firm and agent information. An agent’s termination becomes effective 30 days after notifying the state unless the administrator is in the process of suspending or revoking the agent’s registration. The administrator may still revoke an agent’s registration for up to one year after their registration has been terminated.
Mergers and Acquisitions of Firms
If another broker dealer from out of state is acquiring a broker dealer in state, the successor firm must file an application for registration within the state. The successor firm’s registration will become effective upon completion of the transaction. The registration fees for the successor firm will be waived.
All state registrations expire on December 31 and all broker dealers, investment advisers, and agents are required to file renewal application and pay a renewal fee.