A broker dealer must be able to meet the minimum capital requirements set forth by the state securities administrator. If the broker dealer is unable to meet this capital requirement, it must post a surety bond to ensure its solvency. Broker dealers that meet the Securities and Exchange Commission's (SEC) minimum net capital requirements are exempt from the Uniform Securities Act's capital and surety bond requirements. The administrator may also require that an officer or agent of the broker dealer take an exam that may be oral, written, or both.
It is unlawful for a broker dealer to employ any agent who is not duly registered under the Uniform Securities Act (USA). When determining if an agent must register, you must first look at whom the agent works for. If the agent works for a broker dealer, the agent must register. Agents must register in their state of residence even if their firm is located in another state.
EXAMPLE An agent who lives in New Jersey and who commutes to an office in New
York must register in both New Jersey and New York.
Agents must also register in the states where they sell securities or offer to sell securities as well as where they advertise. If the firm does not have an office in the state, it may or may not be required to register depending on whom it does business with. If a broker dealer does not have an office in the state and engages in securities transactions with the general public, then it must register. If a broker dealer with no office in the state conducts business exclusively with any of the following, it is not required to register in that state:
• Other broker dealers.
• Issuers of securities.
• Investment companies.
• Insurance companies.
• Savings and loans.
• Trust companies.
• Pension plans with more than $1,000,000 in assets.
• Other financial institutions.
• Institutional buyers.
• Existing customers with less than 30 days temporary residency in the state (on vacation or business trips).
The only exception is for officers and directors of a broker dealer who have no involvement with customers, securities transactions, or supervision. If the agent works for an exempt issuer, the agent is exempt from registration no matter what security is involved. Exempt issuers are:
• U.S. and municipal governments.
• Canadian federal and municipal governments.
• Foreign federal governments recognized by the United States.
• Banks, savings and loans, and trust companies.
Agents are also exempt from registering if they represent an issuer in the sale of an exempt security such as:
• Bankers' acceptances or time drafts with less than 270 days to maturity sold in denominations of $50,000 or more.
• Investment contracts relating to employee savings, stock purchases, pension plans, or other benefit plans as long as no commission is received for such sales.
Agents may also qualify for the de minimis exemption if they meet the following conditions:
• They are registered with FINRA.
• They are registered with at least one other state.
• They are not ineligible to register.
• Their broker dealer is registered in the state.
If the above conditions are met, an agent may conduct business with clients who are in the state in question for up to 30 days. If the client has moved to the state in question, the agent may conduct business with the client for up to 60 days while his or her registration is pending in that state.