NASAA Series 63Regulation of Broker-Dealers and AgentsMedium
A broker-dealer, headquartered in State X, has no office in State Y. All of its clients in State Y are institutional investors, such as banks, insurance companies, and investment companies. Under the Uniform Securities Act, is this broker-dealer required to register in State Y?
- AYes, unless it also has fewer than 6 retail clients in State Y.
- BNo, because institutional investors do not require protection under the Act.
- CYes, because it has clients in State Y.
- DNo, due to the 'no place of business' and 'institutional client' exclusion.
Show answer & explanationAnswer & explanation
Correct answer: D. No, due to the 'no place of business' and 'institutional client' exclusion.
A broker-dealer without a place of business in a state is excluded from registration in that state if its only clients are institutional investors. This is a common de minimis-like exclusion for broker-dealers.
Why the other options are wrong
- A. The 'fewer than 6 retail clients' (de minimis) rule applies to Investment Advisers, not directly to Broker-Dealers for this type of exclusion.
- B. While institutional investors are considered sophisticated, the exclusion is specifically codified, not merely an assumption about their need for protection.
- C. Having clients in a state usually triggers registration, but the nature of the clients (institutional) provides an exclusion here.
BD Exclusion for Institutional Clients
A broker-dealer without a place of business in a state is excluded from registration in that state if its only clients are institutional investors or other broker-dealers.
- No physical office in the state.
- Clients are ONLY institutional investors or other BDs.
- This is an exclusion from the definition of a broker-dealer in that state.
Memory trick: No Office, Only Pros, No Problem