Registration and Post-Registration

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

How Does a Broker-Dealer Register?

State registration process under the Uniform Securities Act (USA):

• 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

When Does Registration Become Effective, and When Does It Expire?

• 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.

What Are the Financial Requirements?

• The Uniform Securities Act allows an Administrator to set minimum net capital requirements for broker-dealers only within federal limits
• Federal law (the Securities Exchange Act of 1934) bars a state from adding capital, custody, or bonding requirements for an SEC-registered broker-dealer that differ from or exceed the federal requirements
• The model Act allows a conditional surety bond for a registrant with custody or discretionary authority, subject to federal limits. Custody alone does not automatically require both a higher net capital minimum and a bond

The Act does not apply these requirements to every registration category, and the exam tests the comparison directly:

Exam Tip: Gotchas

• The IAR is the one category with neither requirement. The Act's capital provision names broker-dealers and investment advisers; its bonding provision names broker-dealers, agents, and investment advisers. An IAR appears in neither.
• An IAR has no individual net worth minimum or bonding obligation. Do not apply a firm's custody-based financial safeguards to its representatives.
• Agents can be bonded but never capitalized. An agent is a natural person, so there is no net capital figure to meet, but an agent who holds custody or exercises discretion can still be required to post a bond. Do not collapse the two columns into one.
• A bond is conditional, not an automatic custody add-on. The model Act bars a bond when a registrant's net capital, or an adviser's minimum financial requirement, exceeds the amount the Administrator requires. An appropriate deposit of cash or securities is accepted in place of a required bond. For an SEC-registered BD, federal preemption separately bars a different or additional state bonding requirement.

What Must a BD Do After Registration?

• Books and records: broker-dealers maintain required records under federal standards. A state cannot add its own retention schedule. Many business records run 3 years, with the first two easily accessible; blotters, general ledgers, the securities position record, and customer account records generally run 6 years. Separately, FINRA requires member firms to keep written customer complaint records for at least 4 years.
• Form BD updates: must promptly amend Form BD whenever information becomes inaccurate or incomplete
• Inspections: the state Administrator may conduct inspections of a broker-dealer's books and records

What Happens When One BD Succeeds Another?

• When one broker-dealer acquires or succeeds another, the successor firm must file its own application for registration. The predecessor may file it on the successor's behalf, whether or not the successor yet exists, which keeps the business from being interrupted while the new entity is formed
• The successor's registration becomes effective under the regular procedure (noon on the 30th day after filing, unless the Administrator sets an earlier date), not automatically on the closing 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

When Can a BD Skip State Registration?

Certain persons who would otherwise be broker-dealers fall outside the definition of broker-dealer in a state (so they need not register there) when they have no place of business in the state:

• The institutional client exclusion
• The existing client / vacation (snowbird) exclusion

Who Qualifies for the 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

Who Qualifies for the 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 broker-dealer must be licensed in the state where it maintains its place of business, and the client's primary residence must be outside the state being visited
• The client is not a resident of the state; merely visiting temporarily
• The exclusion turns on the client's residence (existing customer whose residence is not in this state), not on any number of days present. A snowbird who winters in the state for months still qualifies, because residence remains elsewhere

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.

The snowbird exclusion's residence test is negative, not positive: the client's residence just cannot be in the state being visited. The client does not need to reside in the state where the broker-dealer is licensed. A client from a third state qualifies exactly as a home-state client would.

How Does BD Registration End?

How Does Withdrawal Work?

• 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 the application is filed, or if such a proceeding (or one to impose conditions on the withdrawal) is instituted within 30 days after the application is filed, withdrawal becomes effective only at the time and on the conditions the Administrator sets by order
• If no proceeding is pending or instituted and withdrawal becomes effective automatically, the Administrator may still institute a revocation or suspension proceeding on the statutory willful-violation ground for up to 1 year after withdrawal becomes effective

When Does the Administrator Cancel Instead of Revoke?

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

What Grounds Support Revocation or Suspension?

• The Administrator may revoke, suspend, or deny registration only after finding both that the action is in the public interest and that the applicant or registrant meets at least one of the following grounds for cause:
  • Filing a materially false or misleading application
  • Conviction, within the past 10 years, of any felony or of a misdemeanor involving a security or the securities business
  • Being enjoined by a court from engaging in securities business
  • Willful violation of securities laws or Administrator orders
  • Insolvency (liabilities exceed assets, or the firm cannot meet its obligations as they mature: a broader test than merely failing a net capital requirement)
• The Administrator must provide prior notice, opportunity for a hearing, and written findings of fact and conclusions of law before revoking or suspending a registration

Exam Tip: Gotchas

Withdrawal does not protect a broker-dealer from enforcement. For 1 year after withdrawal becomes effective, the Administrator may still institute revocation or suspension proceedings on the statutory willful-violation ground.

What Should You Check on Exam Day?

• A BD registers state by state through Form BD, filed with the SEC, FINRA, and each state via the CRD; registration becomes effective at noon on the 30th day and expires every December 31.
• Consent to service of process is filed once at initial registration and never needs renewal.
• A successor firm files its own application (the predecessor may file it on the successor's behalf), owes no new fee until the next renewal, and must file a new consent to service of process.
• Both the institutional-client and existing-client exclusions require no place of business in the state. The existing-client rule also requires licensing where the BD has a place of business and turns on customer residence, not a day count.
• Form BDW takes effect 30 days after receipt unless a revocation or suspension proceeding is pending or instituted within those 30 days; afterward, willful-violation proceedings stay open for up to 1 year.