Broker-Dealer Registration
Under the Uniform Securities Act, broker-dealers must register in each state where they conduct business unless an exemption or exclusion applies. Understanding the registration process, requirements, and timing is essential for the Series 63 exam.
When Registration Is Required
A broker-dealer must register in a state when:
| Situation | Registration Required? |
|---|---|
| Has a place of business in the state | Yes |
| Effects transactions with retail customers in the state | Yes |
| Employs agents who solicit in the state | Yes |
| No office in state, but deals with retail clients there | Yes |
| No office in state, deals only with institutions | No (excluded) |
Key Rule: If a broker-dealer has any place of business in a state, registration is required regardless of who they transact with.
The Registration Process
Application Requirements
To register as a broker-dealer, a firm must submit:
| Requirement | Description |
|---|---|
| Form BD | Uniform Application for Broker-Dealer Registration |
| Consent to Service of Process | Allows the Administrator to receive legal documents on the firm's behalf |
| Filing Fee | State-specific fee (varies by state) |
| Financial Statements | Audited balance sheet and net capital computation |
| Surety Bond | If unable to meet minimum net capital requirements |
Consent to Service of Process
The consent to service of process is a critical document that:
- Appoints the Administrator as the firm's agent for receiving legal papers
- Allows lawsuits to be filed in the state even if the firm has no physical presence
- Remains effective even after the registration terminates
- Cannot be revoked
Exam Tip: The consent to service of process is irrevocable and survives termination of registration. This protects investors who may need to sue a firm after it has left the state.
Effective Date of Registration
Initial Registration
| Scenario | Effective Date |
|---|---|
| Standard Application | Noon on the 30th day after filing (if no denial) |
| Earlier Approval | Administrator may grant earlier effectiveness |
| Incomplete Application | Clock starts when last required document is received |
Important: Registration becomes effective at noon on the 30th day unless the Administrator denies, postpones, or grants earlier effectiveness.
When Does the 30-Day Clock Start?
The 30-day period begins when the Administrator receives:
- A complete application
- All required documents
- The filing fee
If any piece is missing, the clock doesn't start until the last item is received.
Registration Expiration and Renewal
Annual Expiration
| Aspect | Rule |
|---|---|
| Expiration Date | December 31 of each year |
| Renewal Required | Must file renewal application and pay fee |
| Grace Period | Registration remains effective while renewal is pending |
Key Point: All broker-dealer registrations expire on December 31, regardless of when initial registration occurred. If a firm registers on December 1, it must still renew by December 31.
Renewal Process
To renew registration, a broker-dealer must:
- File a renewal application before December 31
- Pay the renewal fee
- Update any changed information (amendments)
Successor Firm Provisions
When a broker-dealer undergoes a business change, the USA provides for continuity:
What Is a Successor Firm?
A successor firm is created when a broker-dealer:
- Changes its legal form (e.g., partnership to corporation)
- Merges with another firm
- Is acquired by another entity
- Changes its name
Automatic Registration for Successors
| Requirement | Rule |
|---|---|
| Filing Deadline | Within 30 days of the change |
| Registration Status | Successor automatically registered |
| Condition | Must file amendment showing the change |
Exam Tip: The successor firm is automatically considered registered without filing a new application, provided it files an amendment within 30 days.
Minimum Financial Requirements
Net Capital Requirements
Broker-dealers must maintain minimum net capital:
| Requirement Type | Description |
|---|---|
| Net Capital | Liquid assets minus liabilities |
| SEC Requirements | Firms meeting SEC net capital rules satisfy state requirements |
| Surety Bond | Alternative if unable to meet net capital minimums |
Surety Bond
If a broker-dealer cannot meet minimum capital requirements, it may post a surety bond:
- Protects customers against financial harm
- Amount determined by Administrator
- Must be from an approved surety company
Recordkeeping Requirements
Broker-dealers must maintain books and records:
| Requirement | Details |
|---|---|
| Location | At principal place of business (or approved location) |
| Accessibility | Must be available for Administrator inspection |
| Retention Period | Varies by record type (typically 3-6 years) |
Key Takeaways
- Broker-dealers must register in each state where they have a place of business or deal with retail clients
- Registration becomes effective at noon on the 30th day after complete application
- All registrations expire December 31 and require annual renewal
- Successor firms are automatically registered if they file amendments within 30 days
- Consent to service of process is irrevocable and survives termination
A broker-dealer files a complete registration application with the state Administrator on November 1. Assuming no action is taken by the Administrator, when does the registration become effective?
All broker-dealer registrations in a state expire on:
Which of the following statements about the consent to service of process is TRUE?
2.2 Broker-Dealer Exemptions and Exclusions
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