NASAA Series 63Regulation of Broker-Dealers and AgentsEasy
A broker-dealer in State A wants to register in State B. As part of its application to State B, the Administrator requires the broker-dealer to file a surety bond of $10,000. Which of the following may the Administrator also accept in lieu of the surety bond?
- AA letter of credit from a foreign bank.
- BCash or securities of equivalent value.
- CA personal guarantee from the broker-dealer's CEO.
- DProof of insurance coverage for errors and omissions.
Show answer & explanationAnswer & explanation
Correct answer: B. Cash or securities of equivalent value.
Under the Uniform Securities Act, if a surety bond is required, the Administrator generally has the discretion to accept deposits of cash or securities of equivalent value as an alternative to the bond.
Why the other options are wrong
- A. A letter of credit from a foreign bank might not be acceptable due to enforceability concerns.
- C. A personal guarantee is typically not an acceptable substitute for a surety bond for a firm's registration.
- D. Errors and omissions insurance covers liability, which is different from the purpose of a surety bond (ensuring compliance and covering financial obligations).
Surety Bond Alternatives
When a surety bond is required for registration, the Administrator may permit the filing of cash or securities in an amount equal to the required bond.
- Provides financial protection for clients against misconduct.
- Cash or marketable securities are common alternatives.
- The Administrator has discretion over acceptable alternatives.
Memory trick: A bond ensures protection, but cash or securities can also serve as the 'sure' thing.