Quick Answer
A broker-dealer (BD) effects securities transactions for others (broker, earns commission) or its own account (dealer, earns markup or markdown). Banks and issuers are excluded. A firm with no in-state office dealing only with institutions is excluded too. Registration runs through Form BD, effective at noon on the thirtieth day.
The whole unit on one sheet: the definition, the exclusions, the registration mechanics, and the enforcement actions the exam loves.
The One-Liners That Win Points
- A broker acts for a customer's account (agency) and earns a commission; a dealer trades its own account (principal) and earns a markup on sales or a markdown on purchases. Most firms are both.
- Excluded from the broker-dealer definition entirely: banks, savings institutions, trust companies, and issuers selling their own securities. Excluded is stronger than exempt: an exempt entity IS a broker-dealer but need not register.
- Bank holding companies are NOT excluded: a holding company effecting securities transactions must register.
- No-place-of-business exclusion: a person with no office in the state is excluded if they deal ONLY with institutional-type counterparties (issuers, other broker-dealers, banks, insurance companies, investment companies, large employee benefit plans, other financial institutions).
- Canadian broker-dealer limited registration lets a Canadian firm (registered at home, member of a Canadian self-regulatory organization, no U.S. office, consent to service of process on file) serve only existing clients temporarily in the state (the snowbird rule). It may NOT solicit new U.S. clients and stays bound by the antifraud provisions.
- Registration is per-state. Registering with the Securities and Exchange Commission (SEC) and FINRA does not satisfy any state; federal and state registration are parallel, not substitutes.
- Registration is effective, never "approved": calling it "approved" is an unlawful representation.
- Consent to service of process appoints the state Administrator as legal agent, is a one-time filing, never renews, is irrevocable, and survives even after registration terminates.
- Cancellation is non-punitive (the firm is gone, out of business, or cannot be located); revocation is punitive (misconduct).
- States cannot set net capital higher than the SEC's; federal net-capital standards preempt.
Numbers to Lock In
| Item | Value |
|---|---|
| Registration effective (default) | noon on the 30th day after a complete filing |
| Withdrawal effective | 30 days after filing (unless a proceeding is pending) |
| Successor-firm amendment window | within 30 days of the change |
| All registrations expire | December 31 each year |
| Employee benefit plan threshold (institutional exclusion) | at least $1 million in assets |
| Felony / securities-misdemeanor lookback | past 10 years |
| Bar on acting on pre-known facts | 90 days from the effective date |
Top Gotchas
- Place of business is the pivot. No office plus only institutional clients equals excluded. No office but even one retail client equals must register. ANY in-state office equals must register regardless of client type.
- The no-place-of-business exclusion needs BOTH conditions: no office AND only institutional counterparties. One retail solicitation destroys it.
- Non-securities misdemeanors are NOT grounds for action; only felonies and securities-related misdemeanors within the past 10 years qualify.
- Insolvency alone is grounds for action; no fraud required.
- Withdrawal is not immediate: it takes 30 days, and the Administrator can hold it if a proceeding is pending, so a firm cannot escape enforcement by withdrawing.
- The 90-day time-bar applies only to facts the Administrator KNEW before effectiveness; facts discovered afterward can be acted on anytime, and any post-registration or newly found conduct removes the bar.
- Every action must serve the public interest AND include prior notice plus opportunity for hearing, with the emergency exception the only carve-out.
One-Breath Recap
A broker-dealer effects securities transactions for others (commission) or its own account (markup or markdown); banks, savings institutions, trust companies, and issuers are excluded, and so is an out-of-state firm with no in-state office dealing only with institutions, while a bank holding company or even one retail client forces registration. Register per-state via Form BD plus an irrevocable consent to service of process; registration is effective at noon on the thirtieth day, never "approved," and net capital cannot exceed the SEC's. The Administrator may deny, suspend, or revoke in the public interest with notice and hearing, cancels (non-punitively) firms that vanish, and honors a 30-day withdrawal it can freeze for a pending proceeding.
Need more than the recap? This is a condensed summary. If it is not enough, read the full Broker-Dealer Definition and Registration unit for the complete lesson.