NASAA Series 63Regulation of Broker-Dealers and AgentsEasy
A broker-dealer located in State A has no office in State B. It effects transactions exclusively with institutional investors such as banks, trust companies, and pension plans in State B. Under the Uniform Securities Act, how would this broker-dealer's registration requirement in State B be characterized?
- AIt is excluded from the definition of a broker-dealer in State B.
- BIt must register as an investment adviser in State B.
- CIt must register in State B because it is transacting business in the state.
- DIt is exempt from registration in State B because it has no physical presence.
Show answer & explanationAnswer & explanation
Correct answer: A. It is excluded from the definition of a broker-dealer in State B.
The Uniform Securities Act provides an exclusion from the definition of a broker-dealer for firms that have no place of business in a state and deal exclusively with institutional clients, such as banks, trust companies, and pension plans.
Why the other options are wrong
- B. Broker-dealers effect transactions, investment advisers provide advice; this firm's activities align with a BD.
- C. While transacting business, the specific nature of clients (institutional) triggers an exclusion.
- D. Having no physical presence is a condition, but the *type* of clients is the key factor for this specific exclusion, not a general exemption.
BD Institutional Client Exclusion
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 deals exclusively with institutional clients.
- Requires no office in the state.
- Transactions must be *exclusively* with institutional clients.
- Institutional clients include banks, trust companies, insurance companies, investment companies, and pension plans.
Memory trick: No office, only institutions, means no state BD registration.