The Securities Exchange Act of 1934 (Exchange Act) defines intermediaries by function. A broker (Exchange Act Section 3(a)(4)) is in the business of effecting securities transactions for the account of others. A dealer (Exchange Act Section 3(a)(5)) is in the business of buying and selling securities for its own account. Someone trading for their own account, but not as a regular business, is a trader, not a dealer, and does not register.
Exchange Act Section 15 governs the registration and regulation of brokers and dealers. Under Exchange Act Section 15(a)(1), a broker or dealer may not use the mails or interstate commerce to effect or induce securities transactions unless registered under Section 15(b). The statute exempts three groups:
- A firm doing exclusively intrastate business that uses no national securities exchange.
- A firm dealing only in exempted securities, commercial paper, bankers' acceptances or commercial bills.
- An individual associated with a registered firm, who works under its registration.
Section 15(a)(2) lets the Securities and Exchange Commission (SEC) grant further exemptions. Under the exemption of certain foreign brokers or dealers (Exchange Act Rule 15a-6), a foreign firm need not...
Common mistakes
- Mixing up the clocks. SEC withdrawal takes 60 days, while FINRA resignation, Form BD amendments and Form BR changes take 30. The successor bridge runs 45 days from the successor's Form BD, not the merger date.
- Treating the SEC order as enough. Business waits for FINRA membership under Section 15(b)(8) and each state's registration.
- Stretching the residence exclusion. A single customer meeting or a printed home address turns the residence into a branch office.
Bottom line
- A firm files Form BD in CRD, and the SEC must grant registration or start denial proceedings within 45 days.
- Business waits for FINRA (or sole-exchange) membership under Section 15(b)(8) and each required state registration.
- Amend Form BD promptly under Rule 15b3-1 and within 30 days under FINRA By-Laws Article IV Section 1(c).
- Keep Forms BD and BDW, with all amendments, for the life of the enterprise under Rule 17a-4(d).
Exam shortcut
Identify the event, then match the form: a new firm or changed answer means Form BD, an exit means Form BDW, and any office change means Form BR. For a location question, run the categories in this order: DECISION: qualifying RSL → non-branch; performs an OSJ function → OSJ; supervises non-branch sites → branch; regular sales or held out → branch; meets an exclusion → non-branch.
The full lesson (about 3,412 words, 23 min read) adds 2 worked examples, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- A1
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