NASAA Series 63Regulation of Broker-Dealers and AgentsEasy
A broker-dealer in State X has no office or employees within State Y. All of its transactions in State Y are exclusively with issuers, other broker-dealers, and institutional investors. Under the Uniform Securities Act, how should this broker-dealer be classified in State Y?
- AIt is considered an agent in State Y and must register as such.
- BIt is excluded from the definition of a broker-dealer in State Y.
- CIt must register as a broker-dealer in State Y due to engaging in transactions within the state.
- DIt is exempt from registration but still falls under the definition of a broker-dealer in State Y.
Show answer & explanationAnswer & explanation
Correct answer: B. It is excluded from the definition of a broker-dealer in State Y.
The Uniform Securities Act provides specific exclusions from the definition of a broker-dealer for firms that have no place of business in a state and deal exclusively with institutional clients, other broker-dealers, or issuers. This scenario perfectly matches that exclusion.
Why the other options are wrong
- A. This is incorrect; the firm is a broker-dealer, not an individual agent, and is excluded from the BD definition.
- C. This is incorrect; the specific exclusion applies here, meaning registration is not required.
- D. This is incorrect; the exclusion means it's not considered a broker-dealer at all, not just exempt from registration while still being defined as one.
BD Exclusion (Institutional Clients)
A broker-dealer is excluded from the definition of a broker-dealer in a state if it has no place of business in that state and only deals with institutional clients, issuers, or other broker-dealers.
- No physical presence in the state
- Transactions are solely with specific client types
- Avoids the need for state registration
Memory trick: No home, just institutions, means no BD title.