Registration of a broker-dealer
Brokers are regulated by the SEC, FINRA and any other self-regulatory organizations (“SROs”) such as stock exchanges, as well as by the states in which they operate. The Securities Exchange Act of 1934 (“The Exchange Act”) requires that any broker-dealer who deals in securities through interstate trading be registered. Unless there is an exemption from registration, the law requires registration of any a broker-dealer doing business on behalf of persons in their state or with persons in their state, as well as employees of a broker-dealer doing business within the state.
Broker-dealer activities include:
- participation in soliciting offers, negotiating or carrying out transactions with securities;
- receiving compensation for the transaction;
- holding investment funds or securities.
Individuals or entities that (i) consider themselves willing to buy and sell securities on an ongoing basis, or (ii) produce the securities they buy and sell, are often required to register as dealers. Under Section 15(b) of the Exchange Act, insurers, stockbrokers, marketers and other dealers must register as broker-dealers.
Under certain circumstances, other persons, such as investment bankers, consultants, broker-dealer intermediaries, may be required to register as broker-dealers if they are engaged in one or more of the activities characteristic of brokers or dealers.
Requirements for registering broker-dealers
Registration of a broker-dealer with the SEC is accomplished by filing an application pursuant to section 15(b) of the Exchange Act. Once the SEC grants a registration, it does not take effect until the broker-dealer becomes a member of FINRA. Until FINRA grants membership, a broker-dealer may not engage in any activity requiring registration, including soliciting offers, negotiating or trading securities, or receiving compensation based on a transaction. In accordance with SEC Rule 15b1-1, an application must be submitted through the FINRA Central Registered Depository (CRD) system. The CRD system allows applicants to use a single form and combined fees for registration and membership in multiple jurisdictions and FINRA.
When applying, disclosure of the following information is required:
- the chain of ownership of the broker-dealer;
- any links between a broker-dealer and other entities in securities or investment advisory companies;
- identification of employees and directors of the broker-dealer;
- activities that the broker-dealer intends to carry out.
FINRA & SRO membership for broker-dealers
FINRA requires broker-dealers to complete a New Membership Application (“NMA”). The NMA form contains fourteen individual standards for FINRA membership. The intangible asset form also contains a list of forms and supporting documents required to apply.
When applying for membership in FINRA & SRO, submission of information is required, including:
- detailed business plan including trial balance and net worth calculations, projections, proposed locations of businesses, types of securities offered, description of opportunities including proposed leases, number of markets to be created, any planned contractual arrangements such as insurance contracts, plans for any own positions, and a description of the communications and operational systems used to implement business continuity plans and any other plans;
- financial means and sources of information on capital;
- organizational structure;
- written guidelines, procedures and controls.
Chief executives and other persons associated with the broker-dealer who intend to engage in the brokerage or investment banking activities of the broker, the management of the broker-dealer and those who will supervise its activities must submit a Form U-4 and provide fingerprints, and pass specific exams.
FINRA requires a broker-dealer to have at least two securities principals and a financial and operations principal (FINOP).
In addition to registering as a member of the SEC and FINRA, a broker-dealer must register in any country in which it intends to operate in the securities industry, unless there is a possibility of such an exception. Broker-dealer agents must also register in the states where the broker-dealer operates.
If you still decide to conduct broker-dealer activities, or your activities related to this area, Finance Business Service specialists are ready to provide you with the following services:
|Preparation of an application and all necessary documents for passing the stages of registration with the SEC.|
|Preparation of necessary documents and support in obtaining the status of a new member of FINRA (NMA form) and preparation of a form for filing and FINRA.|
|Structuring relationships with banks and clearing agents.|
|Preparation and participation with the client in the interview before membership in FINRA, communication with the SEC.|
|Preparation of a detailed business plan and other necessary operational and financial procedures, as well as all necessary AML policies and procedures.|