B, below. Broker-dealers that limit their activity to government or municipal securities require specialized registration. General-purpose broker-dealers that conduct a government securities business, however, must note this activity on their Forms BD. Form BD is discussed below. All firms that are brokers or dealers in government securities must comply with rules adopted by the Secretary of the Treasury, as well as SEC rules.
Firms that limit their securities business to buying and selling municipal securities for their own account municipal securities dealers must register as general-purpose broker-dealers. If, however, these entities are banks or meet the requirements of the intrastate exemption discussed in Part II.
Municipal securities brokers must register as general-purpose broker-dealers. Firms that run a matched book of repurchase agreements or other stock loans are considered dealers.
Note: Banks, thrifts, and other financial institutions should be aware that the Commission has proposed changes to rules that may affect them. The GLBA amended the Exchange Act, and banks now have certain targeted exceptions and exemptions from broker-dealer registration.
Currently, as a result of Commission rulemaking, banks are undergoing a phase-in period for compliance with the new law. The bank exemptions only apply to banks, and not to related entities.
It is important to note that exemptions applicable to banks under the Exchange Act, as amended by the GLBA, are not applicable to other entities, including bank subsidiaries and affiliates, that are not themselves banks.
As such, subsidiaries and affiliates of banks that engage in broker-dealer activities are required to register as broker-dealers under the Act. Also, banks that act as municipal securities dealers or as government securities brokers or dealers continue to be required to register under the Act.
The SEC has granted thrifts savings associations the same status as banks through its rules. As such, thrifts now have certain targeted exceptions and exemptions from broker-dealer registration. As with banks, it is important to note that exemptions applicable to thrifts are not applicable to other entities, including subsidiaries and affiliates that are not thrifts. As such, subsidiaries and affiliates of thrifts that engage in broker-dealer activities are required to register as broker-dealers under the Act.
The exemptions applicable to banks under the Exchange Act and thrifts under Commission rules do not apply to other kinds of financial institutions, such as credit unions. The SEC staff, however, has permitted certain financial institutions, such as credit unions, to make securities products available to their customers without registering as broker-dealers. Under a networking arrangement, financial institutions can share in the commissions generated by their referred customers, under certain conditions.
The financial institution engaging in such networking must be in strict compliance with applicable law and Commission staff guidance.
See , for example, letter re: Chubb Securities Corporation November 24, and NASD Rule applicable to broker-dealers that enter into networking arrangements with banks, thrifts, and credit unions. The SEC staff has permitted insurance agencies to make insurance products that are also securities such as variable annuities available to their customers without registering as broker-dealers under certain conditions.
These arrangements are designed to address the difficulties of dual state and federal laws applicable to the sale of these products. Through networking arrangements, insurance agencies can share in the commissions generated by their referred customers under certain conditions. Insurance agencies engaging in such networking must be in strict compliance with applicable law and Commission staff guidance.
September 28, Those interested in structuring such an arrangement should contact private counsel or the SEC staff for further information. Notably, insurance networking arrangements are limited to insurance products that are also securities. They do not encompass sales of mutual funds and other securities that do not present the same regulatory difficulties. See letter re: Lincoln Financial Advisors Corp. February 20, The offer of real estate as such, without any collateral arrangements with the seller or others, does not involve the offer of a security.
When the real estate is offered in conjunction with certain services, however, it may constitute an investment contract, and thus, a security. See generally Securities Act Release No. There is no general exception from the broker-dealer registration requirements for licensed real estate brokers or agents who engage in the business of effecting transactions in real estate securities.
In the past, the Division staff has granted no-action relief from the registration requirements to licensed real estate personnel that engage in limited activities with respect to the sale of condominium units coupled with an offer or agreement to perform or arrange certain rental or other services for the purchaser.
The relief provided in these letters is limited solely to their facts and should not be relied upon for activities relating to sales of other types of real estate securities, including tenants-in-common interests in real property. Broker-dealers may enter into arrangements to offer services to members of certain non-profit groups, including civic organizations, charities, and educational institutions that rely upon private donations.
If a broker-dealer does not qualify for any of the exceptions or exemptions outlined in the sections above, it must register with the Commission under Section 15 b of the Act.
You also use Form BD to:. Form BD asks questions about the background of the broker-dealer and its principals, controlling persons, and employees. The broker-dealer must meet the statutory requirements to engage in a business that involves high professional standards, and quite often includes the more rigorous responsibilities of a fiduciary.
Form BD contains additional filing instructions. Applicants that reside outside the U. Within 45 days of filing a completed application, the SEC will either grant registration or begin proceedings to determine whether it should deny registration. The SROs have independent membership application procedures and are not required to act within 45 days of the filing of a completed application. In addition, state registrations may be required. A broker-dealer must comply with relevant state law as well as federal law and applicable SRO rules.
Timeframes for registration with individual states may differ from the federal and SRO timeframes. As such, when deciding to register as a broker-dealer, it is important to plan for the time required for processing Federal, state, and SRO registration or membership applications. Duty to update Form BD. A registered broker-dealer must keep its Form BD current. Thus, it must promptly update its Form BD by filing amendments whenever the information on file becomes inaccurate or incomplete for any reason.
Prohibited Broker-Dealer Names. Further, a broker-dealer name is otherwise materially misleading would become subject to scrutiny under Exchange Act Section 10 b , and Rule 10b-5 thereunder, the general antifraud rules, and any other applicable provisions.
Before it begins doing business, a broker-dealer must become a member of an SRO. If a broker-dealer restricts its transactions to one national securities exchange and meets certain other conditions, it may be required only to be a member of that exchange. If a broker-dealer effects securities transactions other than on a national securities exchange of which it is a member, however, it must become a member of FINRA The Financial Industry Regulatory Authority, the primary regulator for United States stock brokers and brokerage firms.
A broker-dealer that does both exchange and over-the-counter business may become a member of multiple exchanges and FINRA. You may also wish to consult the web pages of the individual exchanges for additional information.
Every registered broker-dealer must be a member of the Securities Investor Protection Corporation, or SIPC, unless its principal business is conducted outside of the United States or consists exclusively of the sale or distribution of investment company shares, variable annuities, or insurance.
Every state has its own requirements for a person conducting business as a broker-dealer within that state. You can obtain contact information for these regulators from the North American Securities Administrators Association, Inc. For an overview of the state regulatory scheme, see, Introduction to Blue Sky Laws. A broker-dealer must file a Form U-4 with the applicable SRO for each associated person who will effect transactions in securities when that person is hired or otherwise becomes associated.
An associated person who effects or is involved in effecting securities transactions also must meet qualification requirements. These include passing an SRO securities qualification examination. If individuals engage only in activities involving sales of particular types of securities, such as municipal securities, direct participation programs limited partnerships or mutual funds, they may wish to take a specialized examination focused on that type of security, instead of the general securities examination.
There is also a special exam for assistant representatives, whose activities are limited to accepting unsolicited customer orders for execution by the firm. Supervisory personnel, and those who engage in specialized activities such as options trading, must take additional exams that cover those areas. These examinations require the Series 7 exam as a prerequisite. You can obtain copies of Form U-4, as well as information on securities qualification examinations, from an SRO.
Also note that individual states have their own licensing and registration requirements, so you should consult with the applicable state securities regulators for further information. Note: If you hold a series license, you must be properly associated with a registered broker-dealer to effect securities transactions.
It is not sufficient merely to hold a series license when engaging in securities business. A successor broker-dealer assumes substantially all of the assets and liabilities, and continues the business, of a registered predecessor broker-dealer. The filing should indicate that the applicant is a successor. See also , the instructions to Form BD. This form requires the broker-dealer to disclose the amount of any funds or securities it owes customers, and whether it is the subject of any proceedings, unsatisfied judgments, liens, or customer claims.
Form BDW may also be used by a broker-dealer to withdraw from membership with particular SROs, or to withdraw from registration with particular states, without withdrawing all of its registrations and memberships. Federal law permits firms already registered with either the SEC or the CFTC to register with the other agency, for the limited purpose of trading security futures, by filing a notice.
Section 15 b 12 of the Act provides a limited exception to this notice registration requirement for certain natural persons who are members of security futures exchanges. However, futures commission merchants or introducing brokers that conduct a business in securities other than security futures must be registered as general-purpose broker-dealers.
For more information on this topic, see Exchange Act Release No. Broker-dealers must also comply with many requirements that are designed to maintain high industry standards. We discuss some of these provisions below. Broker-dealers owe their customers a duty of fair dealing.
Based on this important representation, the SEC, through interpretive statements and enforcement actions, and the courts, through case law, have set forth over time certain duties for broker-dealers.
These include the duties to execute orders promptly, disclose certain material information i. SRO rules also reflect the importance of fair dealing. These rules generally require broker-dealers to observe high standards of commercial honor and just and equitable principles of trade in conducting their business. The exchanges and the MSRB have similar rules. This applies whether the broker-dealer is acting as agent or as principal. The SRO rules also include a duty of best execution.
A broker-dealer must provide its customers, at or before the completion of a transaction, with certain information, including:. A broker-dealer may also be obligated under the antifraud provisions of the Act to disclose additional information to the customer at the time of his or her investment decision. Broker-dealers must notify customers purchasing securities on credit about the credit terms and the status of their accounts.
A broker-dealer must establish procedures for disclosing this information before it extends credit to a customer for the purchase of securities. A broker-dealer must give the customer this information at the time the account is opened, and must also provide credit customers with account statements at least quarterly.
Exchange Act Rule 10a-1 is designed to limit short selling in a declining market. FINRA administers both examinations. If the broker-dealer is not filing with CRD, Form U-4 and reporting fee should be filed directly with the Commissioner. The filing of Form U-4 does not constitute an automatic approval. If the broker-dealer is filing with CRD, the amendment should be filed directly with CRD in accordance with its procedures.
If the broker-dealer is not filing through CRD, the amendment should be filed directly with the Commissioner. Note: If the broker-dealer needs to file fingerprint information with the Commissioner, the Request for Live Scan Services form should be completed in triplicate. The broker-dealer will be required to pay the fees charged by the DOJ for processing the fingerprints directly to the live scan operator.
Last updated: Nov 10, pm. The only major types of securities or investments that Series 7 licensees are not authorized to sell are commodities futures , real estate , and life insurance. The Series 7 exam is by far the longest and most difficult of all the securities exams.
It lasts for minutes and covers all aspects of stock and bond quotes and trading; put and call options ; spreads and straddles ; ethics; margin , and other account holder requirements; and other pertinent regulations. Those who carry this license are officially listed as "registered representatives" by FINRA, but they are generally referred to as stockbrokers.
Many insurance agents and other types of financial planners and advisors also carry the Series 7 license to facilitate certain types of transactions inherent in their businesses. Principals of general representatives must also obtain the Series 24 license. The Series 3 license authorizes representatives to sell commodity futures contracts , which are generally considered the riskiest publicly traded investments available. Representatives that carry the Series 3 license tend to specialize in commodities and often do little or no other business of any type.
The Series 3 exam is approximately minutes long and covers all forms of commodities transactions, options , hedging , margin requirements, and other regulations. An offshoot of this license is the Series 31 license, which allows representatives to sell managed futures pooled groups of commodities futures similar to mutual funds.
The Series 63 license, known as the Uniform Securities Agent license, is required by each state and authorizes licensees to transact business within the state. All Series 6 and Series 7 licensees must carry this license as well. The provisions of the Uniform Securities Act are tested on the minute exam. While this test is much shorter and covers less material than the FINRA exams, it is known for asking "trick" questions that force the candidate to definitively know the difference between which transactions and situations are permitted and which are required by the rules.
The Series 65 license is required by anyone intending to provide any kind of financial advice or service on a non-commission basis. Financial planners and advisors that provide investment advice for an hourly fee fall into this category, as do stockbrokers or other registered representatives that deal with managed-money accounts.
The exam for this license is a minute exam that covers the rules and regulations pertaining to registered investment advisors, as well as various investment vehicles and disciplines, economics, ethics, and analysis. Much of the material is covered on the Series 7 exam as well, as many of the advisors who sit for this exam are not, and may never become, Series 7 licensed and therefore need exposure to the investment material covered therein. In essence, it combines the Series 63 and 65 exams into one minute exam.
This test contains no investment material, as the Series 66 license is only available to candidates that are already Series 7 licensed. All tests are now given via computer at approved proctor testing sites. Once all relevant securities tests have been taken and a passing grade received, licensees must register their securities licenses with an approved broker-dealer , who will hold their licenses and oversee their business in return for a portion of the commission income.
Registered Investment Advisors do not need to associate themselves with a broker-dealer. Securities licenses are needed by anyone who wants to market and sell investments. The specific type of license depends on what type of investments the person wants to sell, how they expect to get paid, and what level of service they want to be able to provide to their customers.
Some companies will pay for a study course and the fees for taking the exam. The Series 7 license or general securities representative GS license allows the holder to sell almost all individual securities, including common and preferred stocks, call and put options, bonds, and other fixed income.
Excluded from the list: commodities futures, real estate, and life insurance. A securities license allows you to market and sell investments. Depending on the license held, you might have a job as a registered representative or an investment advisor.
The majority of financial and investment companies that hire or train new advisors will have a mandatory licensing program included in the training package.
The company will, in most cases, mandate which licenses must be obtained to sell the company's products and services. Those that decide to go into business for themselves still need to meet the licensing requirements of their chosen profession; the only real freedom of choice comes in which profession is chosen.
State Requirement. Financial Advisor Careers.
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