Broker-dealers are an essential part of any private equity firm and securities trading as a whole. For this reason, they are highly regulated by the SEC, and violations of the regulations applying to broker-dealers are taken quite seriously. That’s part of why proper broker-dealer registration compliance is so important. A Priori securities lawyer can walk you through every aspect of broker-dealer registration, handle any issues that arise and help you understand whether you need to register at all.
Who Must Register?
Under Section 15 of the Securities Exchange Act of 1934, most brokers and dealers of securities must register with the SEC and join a self-regulatory organization (SRO). Brokers are defined in this Act as any person or entity “engaged in the business of effecting transactions in securities for the account of others.” Dealers are defined as any person or entity “engaged in the business of buying and selling securities for his own account, through a broker or otherwise.” Essentially, you must register as a broker-dealer if you buy and sell securities on another person’s behalf or if you buy them yourself with the intent to sell them to others.
The SEC applies this definition very broadly. Unless you are simply a trader, buying and selling on your own behalf, you may need to register if you may perform any actions ascribed to broker-dealers. If you are unsure if this applies to you, you should consult a securities lawyer.
How to Register
Before doing any business as a broker-dealer, you must first register with the SEC. To do this, you must file Form BD through the Central Registration Depository, operated by FINRA. Within 45 days, the application should be granted unless there are problems, in which case proceedings for possible denial will begin.
After the Form BD is approved, you must join an SRO, like FINRA or a national securities exchange. This often involves a fee and the process can take much longer. You must also comply with state-level broker-dealer regulations. If you are not sure what must be done in your state, consult a securities attorney.
Antifraud Regulations That Apply to Broker-Dealers
When you register as a broker-dealer, you agree to comply with all standards of professional conduct and uphold anti-fraud penalties or risk prosecution. Some of the most important anti-fraud regulations include the following:
- Duty of Fair Dealing. Broker-dealers must treat clients fairly by doing things like executing orders promptly, disclosing material information, charging reasonable prices and fully disclosing any conflicts of interest.
- Sustainability Requirements. Broker-dealers must only recommend only specific investments or overall investment strategies suitable to the customer’s needs and financial situation.
- Duty of Best Execution. Broker-Dealers must obtain the most favorable terms available for customers.
- Disclosure of Credit Terms. Broker-dealers must notify customers purchasing securities on credit of all relevant credit terms.
- Prohibition of Insider Trading. Broker-dealers must not use material non-public information in the purchase or sale of securities and refuse to effect deals they know to be such.
Depending on your situation, the cost of broker-dealer registration can vary dramatically, but hourly rates for Priori securities lawyers start around $225 per hour and range up to $450 per hour. In order to get a better sense of cost for your particular situation, put in a request to schedule a complimentary consultation and receive a free price quote from one of our lawyers.
Are there any exemptions that may mean that I do not have to register as a broker-dealer?
Yes. Every state has certain exemptions and the SEC has some exemptions on the federal level as well. If you are unsure of whether or not these apply to you, contact a securities lawyer in the jurisdiction where you operate for an answer in your specific situation.