NASAA Series 63Regulation of Broker-Dealers and AgentsEasy
A state-chartered trust company operates a trust department that accepts customer orders to buy and sell securities on behalf of trust beneficiaries, receiving compensation for these services. Under the Uniform Securities Act, must the trust company register as a broker-dealer in the state?
- ANo, but only if the trust company processes fewer than five trades per year
- BNo, because banks, savings institutions, and trust companies are excluded from the definition of broker-dealer
- CYes, because it effects securities transactions for compensation like any broker-dealer
- DYes, unless it limits its trust department to institutional clients only
Show answer & explanationAnswer & explanation
Correct answer: B. No, because banks, savings institutions, and trust companies are excluded from the definition of broker-dealer
The Uniform Securities Act specifically excludes banks, savings institutions, and trust companies from the definition of 'broker-dealer,' regardless of the volume or nature of the securities activity they conduct as part of their banking or trust business.
Why the other options are wrong
- A. Incorrect — the exclusion is not based on transaction volume; that concept applies to agent de minimis rules, not banks.
- C. Incorrect — compensation for effecting trades does not override the statutory exclusion for banks and trust companies.
- D. Incorrect — the exclusion is not conditioned on client type.
Bank/Trust Company Exclusion
Banks, savings institutions, and trust companies are excluded from the USA's definition of 'broker-dealer,' so they never need BD registration for their banking/trust securities activities.
- Exclusion applies automatically, not conditionally
- Distinguishes financial institutions from firms needing BD registration
- Employees of these institutions are also generally excluded from 'agent' definition
Memory trick: Banks Bank on Being Excluded