NASAA Series 63Regulation of Broker-Dealers and AgentsMedium
An agent registered with a broker-dealer in State X has five existing retail clients who relocate to State Y, where the agent is not registered. Over the following 12 months, the agent executes trades for these five clients but solicits no new business in State Y. Under the de minimis exemption, is the agent required to register in State Y?
- ANo, because agents are never required to register in a state where they have no office
- BYes, because any transaction with a resident of State Y requires registration
- CNo, because the agent has not exceeded five retail clients in State Y within 12 months and the broker-dealer is registered there
- DYes, unless the clients are all accredited investors
Show answer & explanationAnswer & explanation
Correct answer: C. No, because the agent has not exceeded five retail clients in State Y within 12 months and the broker-dealer is registered there
The de minimis exemption allows an agent to transact business with no more than five retail clients in a state during a 12-month period without registering there, provided the agent's broker-dealer is registered (or excluded/exempt) in that state.
Why the other options are wrong
- A. Having no office does not eliminate registration duty beyond the de minimis limit.
- B. This ignores the de minimis exemption available under the USA.
- D. Accredited investor status is irrelevant to the retail client de minimis count.
Agent De Minimis Exemption
An agent may transact business with up to five retail clients in a state during any 12-month period without registering there, if the broker-dealer is registered or exempt in that state.
- Limit is five retail clients per 12-month period
- Institutional clients typically don't count toward the limit
- Broker-dealer must itself be properly registered or excluded
Memory trick: Five friends, twelve months, no fuss.