NASAA Series 66 Uniform Combined State Law ExaminationLaws, Regulations, and Guidelines, including Prohibition on Unethical Business PracticesEasy
A broker-dealer firm, engaged solely in effecting transactions in securities issued by the U.S. government, is considering whether it needs to register as a broker-dealer under the Uniform Securities Act. Based on its activities, what is the firm's registration requirement?
- AThe firm must register as a broker-dealer because the exemption for government securities applies only to investment advisers.
- BThe firm is considered a federal covered broker-dealer and registers only with the SEC, not the state.
- CThe firm is exempt from registration because it deals exclusively in federal government securities.
- DThe firm must register as a broker-dealer, but its agents are exempt from registration.
Show answer & explanationAnswer & explanation
Correct answer: C. The firm is exempt from registration because it deals exclusively in federal government securities.
Under the Uniform Securities Act, a broker-dealer whose business is exclusively limited to effecting transactions in certain exempt securities, such as U.S. government securities, is exempt from state registration.
Why the other options are wrong
- A. The exemption for government securities applies to broker-dealers under certain conditions, not only investment advisers.
- B. There is no 'federal covered broker-dealer' designation in the same way as 'federal covered investment adviser'; broker-dealers generally register with the SEC and states unless an exemption applies.
- D. If the firm is exempt from registration, its agents would also typically be exempt from agent registration for that specific activity.
Broker-Dealer Exemptions (USA)
Certain entities are excluded from the definition of 'broker-dealer' or are exempt from registration under the Uniform Securities Act based on their activities or the types of securities they handle.
- Issuers are generally not broker-dealers.
- Banks and other financial institutions are often excluded.
- Firms dealing exclusively in exempt securities (e.g., U.S. government securities) may be exempt.
Memory trick: Broker-dealers dealing only in Uncle Sam's paper don't need state stamps.