Quick Answer
A broker is an agent effecting trades for others (commission); a dealer is a principal trading its own account (markup). Registration runs three tiers (Securities and Exchange Commission, self-regulatory organization, states), all through one Form BD on the Central Registration Depository. FINRA membership adds a New Member Application, and jurisdiction survives withdrawal for two years.
Review definitions, registration, forms, FINRA membership, sanctions and customer protection.
Broker vs. Dealer and the Registration Trigger
- Broker = agent effecting securities transactions for the account of others; earns a commission.
- Dealer = principal buying and selling for its own account; earns a markup or markdown.
- One firm usually acts as both, registering as a broker-dealer (B/D).
- Trader exception: trading one's own account not as a regular business (a private investor) is excluded from the dealer definition.
- Bank exception: banks doing specified activities (trust, custody, networking) are excluded from the broker definition.
- Trigger: using the mails or interstate commerce to effect securities transactions is unlawful unless registered with the Securities and Exchange Commission (SEC).
Three-Tier Registration and Exemptions
| Tier | Authority | Mechanism |
|---|---|---|
| Federal | SEC (Securities Exchange Act of 1934) | Form BD |
| Self-regulatory (SRO) | FINRA By-Laws | Form BD + Form NMA (New Member Application) |
| State | Blue-sky laws (Uniform Securities Act) | Form BD via CRD, state-by-state |
- One form, three filings: the same Form BD on the Central Registration Depository (CRD) routes to the SEC, the SRO, and the states.
- Foreign broker-dealer exemption: available only for unsolicited transactions or chaperoned institutional business through a U.S.-registered B/D. Direct retail solicitation forces full SEC registration.
- Successor registration: successor files Form BD within 30 days; the predecessor's registration carries it for up to 45 days.
The One-Liners That Win Points
- A firm that buys into inventory and resells is a dealer; one that matches buyer and seller is a broker.
- A B/D registered with the SEC but not an SRO member cannot conduct over-the-counter (OTC) business.
- Form BD = entry; Form BDW = withdrawal; Form BR = per-branch registration.
- Every OSJ is a branch office, but not every branch office is an OSJ. Approving new accounts triggers OSJ status.
- The New Member Application (NMA) applicant bears the burden of proof on every standard; a tie goes to denial.
- A 25% or more single-owner equity change or a material business change triggers a Continuing Membership Application (CMA); only the business change must await FINRA's review.
- The investment adviser (IA) exclusion needs BOTH prongs: advice solely incidental AND no special compensation.
- Representing SEC registration as Commission approval or endorsement is a fraudulent practice.
- Securities Investor Protection Corporation (SIPC) restores missing customer assets at failed members; it does not insure investment value. Fraud does not automatically exclude a custody claim.
Numbers to Lock In
| Item | Value |
|---|---|
| SEC suspension of a B/D | up to 12 months |
| Firm-sanction conviction timing | 10 years before a registration application, or any time afterward |
| Associated-person sanction conviction timing | 10 years before commencement of proceedings |
| Form BDW effective (SEC registration) | 60 days after filing |
| Form BDW effective (SIPC member status) | 6 months after SEC effective date |
| FINRA retention of jurisdiction after withdrawal | 2 years |
| CMA advance filing (ownership/control change) | at least 30 days before (a material business change files anytime, effective only after review) |
| CMA equity-ownership trigger | 25% or more (single person/entity) |
| NMA Standards of Admission | 14 |
| Successor files Form BD | within 30 days |
| Predecessor registration carries successor | up to 45 days |
| Form BD amendment ("promptly") | generally 30 days |
| Form BD / organizational records retention | life of the enterprise |
| Most other books and records | 6 years |
| SIPC advances per separate capacity | $500,000 (including up to $250,000 cash) |
| Major U.S. institutional investor | at least $100 million in assets |
| U.S. institutional investor | $50 million or more in assets |
Top Gotchas
- A qualifying conviction 11 years ago can support firm sanctions if it followed the registration application. The SEC's associated-person conviction ground measures ten years before proceedings commence. Statutory disqualification has a separate test.
- The 60-day Form BDW effective period (SEC registration) is separate from the 6-month SIPC member-status delay.
- Filing Form BDW does not escape FINRA discipline: jurisdiction survives 2 years for conduct during membership, and a parallel rule reaches associated persons who leave via Form U5.
- "Life of the enterprise" is permanent, not 6 years. Form BD and organizational records outlive every other retention period.
- A bar applies to a person; revocation applies to a firm's registration, terms the exam often swaps.
- Failure to supervise is a stand-alone basis for sanctions, even if the principal never knew of the underlying violation.
- SIPC advances cap at $500,000, including $250,000 cash. Returned customer property may add to recovery; these are not total-recovery ceilings.
- The misrepresentation prohibition also reaches municipal securities dealers, and the cure is precise wording, not an after-the-fact disclaimer.
- The 25% equity trigger is a single-person/single-entity test; a pool where no one holds 25% does not trigger the CMA.
One-Breath Recap
Broker means agent; dealer means principal. Registration spans federal, self-regulatory and state authorities. Form BD handles registration, BDW withdrawal and BR branches. Remember FINRA's 14 admission standards, the 25% ownership-change trigger, material business changes and two-year retained jurisdiction. Apply the correct conviction clock. SIPC advances may supplement returned customer property; investment value is not insured.
Need more than the recap? Read the full Broker-Dealer Registration unit.