Your customer travels across a state line, then decides to stay permanently. That change can alter your firm's registration obligations even though the account and investments remain the same.
Before accepting an order, you need to know which person must hold which registration. State law treats the securities business and the individual representing it as different actors.
The tested framework is the 1956 Uniform Securities Act (USA), as amended by the North American Securities Administrators Association (NASAA). A uniform act supplies model legislation for states to adopt. NASAA models bind a state only as adopted; exam questions using this Act follow its stated provisions.
Under §401(c), a broker-dealer is a person in the business of arranging securities transactions for others or trading securities for its own account. Either business activity is sufficient. A person can be an individual or a legal entity, such as a corporation or partnership. Incorporation is not a prerequisite.
When you arrange a customer's purchase, the firm acts as a broker, conducting the transaction for someone else.
Common mistakes
- Counting customers before classifying them. “Only one resident customer” does not create a broker-dealer exemption. Neither five clients nor fifteen offers supplies a general safe threshold.
- Timing the visitor automatically. Reject a supposed 30-day visitor limit. Check whether the existing customer became a resident instead.
- Transferring an exclusion to employees. “The bank is excluded” does not answer whether an individual performing brokerage activities needs agent registration.
Bottom line
- A broker-dealer can be an individual or entity conducting securities business for others or its own account.
- The institutional and existing-nonresident-customer exclusions require no place of business in the state.
- The existing-customer exclusion has no specified day limit, and broker-dealers have no general five-client or fifteen-offer exemption.
- Federal registration, applicable membership, and required state registration are separate obligations.
Exam shortcut
Read the noun first: firm, agent, security, or transaction. An answer granting relief to one does not automatically grant relief to another. Circle “place of business,” “existing customer,” and “resident.” These facts decide the out-of-state exclusions faster than the number of trades or visiting days. Attach every date to its event: application, amendment with deferral, expiration, renewal filing, or withdrawal. Then check for an order or pending proceeding before counting.
The full lesson (about 4,453 words, 30 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- D21
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