Broker Dealer Registration

Miami, Boca Raton And West Palm Beach Florida Investment Fraud And Misrepresentation FINRA Arbitration, AAA Arbitration, JAMS Arbitration, State And Federal Court Litigation Attorney Russell L. Forkey, Esq. Who May be Classified as a “Broker”?

Section 3(a)(4)(A) of the Securities and Exchange Act of 1934 (the “Act”) generally defines a “broker” broadly as any person engaged in the business of effecting transactions in securities for the account of others.

Sometimes you can easily determine if someone is a broker. For instance, a person who executes transactions for others on a securities exchange clearly is a broker. However, other situations are less clear. For example, each of the following individuals and businesses may need to register as a broker, depending on a number of factors, which are too complicated to discuss herein. A few examples are: “finders,” “business brokers,” and other individuals or entities that engage in the following activities:

  • Finding investors or customers for, making referrals to, or splitting commissions with registered broker-dealers, investment companies (or mutual funds, including hedge funds) or other securities intermediaries
  • Finding investment banking clients for registered broker-dealers
  • Finding investors for “issuers” (entities issuing securities), even in a “consultant” capacity
  • Engaging in, or finding investors for, venture capital or “angel” financings, including private placements
  • Finding buyers and sellers of businesses (i.e., activities relating to mergers and acquisitions where securities are involved)
  • Investment advisers and financial consultants
  • Foreign broker-dealers that cannot rely on Rule 15a-6 under the Act (discussed below)
  • Persons that operate or control electronic or other platforms to trade securities
  • Persons that market real estate investment interests, such as tenancy-in-common interests, that are securities
  • Persons that act as “placement agents” for private placements of securities
  • Persons that market or effect transactions in insurance products that are securities, such as variable annuities, or other investment products that are securities
  • Persons that affect securities transactions for the account of others for a fee, even when those other people are friends or family members
  • Persons that provide support services to registered broker-dealers
  • Persons that act as “independent contractors,” but are not “associated persons” of a broker-dealer (for information on “associated persons,” see below)

In order to determine whether any of these individuals (or any other person or business) is a broker, one would look at the activities that the person or business actually performs. The facts associated with the activity are important. Many times, it is necessary to hire a qualified professional to assist in making the determination as to whether or not the individual or business is functioning as a broker.

Who May be Classified as a “Dealer”?

Unlike a broker, who acts as agent, a dealer acts as principal. Section 3(a)(5)(A) of the Act generally defines a “dealer” as: any person engaged in the business of buying and selling securities for his own account, through a broker or otherwise.

The definition of “dealer” does not include a “trader,” that is, a person who buys and sells securities for his or her own account, either individually or in a fiduciary capacity, but not as part of a regular business. Individuals who buy and sell securities for themselves generally are considered traders and not dealers.

Sometimes you can easily tell if someone is a dealer. For example, a firm that advertises publicly that it makes a market in securities is obviously a dealer. Other situations can be less clear. For instance, each of the following individuals and businesses may need to register as a dealer, depending on a number of factors:

  • a person who holds himself out as being willing to buy and sell a particular security on a continuous basis
  • a person who runs a matched book of repurchase agreements
  • a person who issues or originates securities that he also buys and sells

Broker-dealers, who operate in their capacities as such, are subject to a substantial number of federal and state statutes, rules and regulations designed to protect members of the investing public. If you have lost money as a result of your association with a broker-dealer, you should contact a qualified professional to review your particular situation.

Please keep in mind that the above information is being provided for educational purposes only. It is not designed to be complete in all material respects and that any statutes, rules or regulations referenced may be modified, from time to time. Thus, it should not be relied upon as legal or investment advice.

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