Registration Requirements for Securities Brokers and Dealers

Most brokers and dealers are required under Section 15 of the Securities Exchange Act of 1934 to register with the Securities and Exchange Commission and with a self-regulatory organization such as a national stock exchange before engaging in the securities business.

A “broker” acts as an agent in securities transactions and is defined in Section 3a(4) of the Securities Exchange Act of 1934 as “any person engaged in the business of effecting transactions in securities for the account of others…” Dealers act as principals and are defined in Section 3a(5) of the Securities Exchange Act of 1934 as “any person engaged in the business of buying and selling securities for his own account, through a broker or otherwise…”

Banks and traders are excluded from the definition of dealer. “Traders” are considered persons or entities for which trading in securities is something outside their regular business. Individuals who trade on their own account are considered traders rather than dealers under Section 3a(5).

Before doing business, brokers and dealers must take several steps:

• Register with the Securities and Exchange Commission by filing a Form BD through the Central Registration Depository operated by the National Association of Securities Dealers, Inc. Banks registering as municipal securities dealers must file Form MSD directly with the Securities and Exchange Commission.
• Become a member of a Commission-recognized self-regulatory organization, such as the New York or American Stock Exchanges, Nasdaq, or the National Association of Securities Dealers, Inc., and obtain membership in such organizations for “associated persons” such as salespeople.
• Comply with requirements of states in which the broker or dealer will be doing business.
• Become a member of the Securities Investor Protection Corporation which assists investors in recovering assets in the event of bankruptcy or other financial difficulties of a broker or dealer.

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