BD Registration, Compliance, and Withdrawal

Understanding how broker-dealers register, maintain compliance, and how registrations end is essential for the Series 65 exam.

BD Registration Requirements

State registration process (Uniform Securities Act (USA) Sections 201-204):

  • Broker-dealers must register in each state where they conduct business
  • Registration is filed through the CRD (Central Registration Depository) system operated by the Financial Industry Regulatory Authority (FINRA)
  • Required filings:
    • Form BD (Uniform Application for Broker-Dealer Registration) - filed with the Securities and Exchange Commission (SEC), FINRA, and each state
    • Consent to service of process - one-time filing with initial registration; appoints the state Administrator as the firm's attorney-in-fact to receive legal papers; never needs to be renewed
    • Registration fees as required by the state

Registration Effective Date and Expiration

  • Registration becomes effective at noon on the 30th day after the application is filed (unless the Administrator acts sooner or institutes a proceeding)
  • All registrations expire on December 31 of each year unless renewed
  • Renewal requires filing updated Form BD and paying renewal fees before expiration

Exam Tip: Gotchas

The consent to service of process is filed only ONCE at initial registration and never expires. It survives even after the broker-dealer withdraws or is terminated. A renewed registration does NOT require a new consent.

Financial Requirements

  • The state Administrator may set minimum net capital requirements for broker-dealers
  • If a broker-dealer cannot meet the state's net capital requirement, it must post a surety bond
  • Broker-dealers that meet the SEC's federal minimum net capital requirements are exempt from the state's separate capital and surety bond requirements (federal preemption)
  • Broker-dealers with discretion over customer accounts or custody of customer funds may face additional bonding requirements

Post-Registration Requirements

  • Books and records - broker-dealers must maintain required books and records as specified by the Administrator and SEC rules
  • Form BD updates - must promptly amend Form BD whenever information becomes inaccurate or incomplete
  • FOCUS reports - broker-dealers file Financial and Operational Combined Uniform Single (FOCUS) reports with FINRA to disclose financials, including net capital computation
  • Inspections - the state Administrator may conduct inspections of a broker-dealer's books and records

Successor Firm Rule

  • When one broker-dealer acquires or succeeds another, the successor firm must file its own application for registration
  • The successor's registration becomes effective upon completion of the acquisition
  • No additional registration fees are due until the next renewal date (December 31)
  • The successor firm must file a new consent to service of process

Exclusions from State Registration

Certain broker-dealers are excluded from state registration (not from the definition) when they have no place of business in the state:

Institutional Client Exclusion

  • A broker-dealer with no office in the state that transacts business exclusively with institutional investors (e.g., other broker-dealers, banks, insurance companies, investment companies, pension funds, investment advisers) does not need to register in that state
  • If the broker-dealer takes on even one retail client in the state, the exclusion is lost

Existing Client / Vacation (Snowbird) Exclusion

  • A broker-dealer with no office in the state may continue to service an existing client who is temporarily present in the state (vacation, business travel, education)
  • The client must maintain primary residence in another state where the broker-dealer is registered
  • The client is not a resident of the state; merely visiting temporarily
  • Commonly tested threshold: temporary presence of 30 days or fewer

Exam Tip: Gotchas

Both exclusions from state registration require no place of business in the state as a prerequisite. If the broker-dealer opens an office, it must register in that state regardless of whether it deals only with institutions or existing clients.

Withdrawal, Cancellation, and Revocation

Withdrawal

  • A broker-dealer may voluntarily withdraw from registration by filing Form BDW
  • Withdrawal becomes effective 30 days after receipt of the application (or sooner if the Administrator permits)
  • If a revocation or suspension proceeding is pending when withdrawal is filed, the Administrator may delay or deny the withdrawal
  • The Administrator may institute proceedings against the broker-dealer for up to 1 year after withdrawal becomes effective

Cancellation

  • The Administrator may cancel a registration if the registrant is no longer in existence, has ceased doing business, or cannot be located

Revocation and Suspension

  • The Administrator may revoke, suspend, or deny registration for cause, including:
    • Filing a materially false or misleading application
    • Conviction of a securities-related felony or misdemeanor
    • Being enjoined by a court from engaging in securities business
    • Willful violation of securities laws or Administrator orders
    • Insolvency (failure to meet net capital requirements)
  • The Administrator must provide prior notice, opportunity for a hearing, and written findings of fact before revoking or suspending a registration

Exam Tip: Gotchas

Withdrawal does not protect a broker-dealer from enforcement. The Administrator retains jurisdiction for 1 year after withdrawal and can still bring an action based on pre-withdrawal conduct.