NASAA Series 63Regulation of Broker-Dealers and AgentsHard
A broker-dealer registered in State A wants to conduct business in State B. State B requires a surety bond of $10,000 for broker-dealers, but the broker-dealer maintains minimum net capital of $50,000 as required by its home state and federal regulations. Under the Uniform Securities Act, what is the most likely outcome for the surety bond requirement in State B?
- AThe broker-dealer must post the $10,000 surety bond in State B.
- BThe Administrator of State B may waive the bond requirement at their discretion.
- CThe broker-dealer is exempt from the surety bond requirement in State B due to its net capital.
- DThe broker-dealer must post a surety bond equal to its net capital, $50,000.
Show answer & explanationAnswer & explanation
Correct answer: C. The broker-dealer is exempt from the surety bond requirement in State B due to its net capital.
Under the Uniform Securities Act, an Administrator may require a surety bond, but generally, no bond is required of any registrant who has met the minimum net capital requirements of their home state or federal law. The net capital serves as an alternative to the bond.
Why the other options are wrong
- A. Maintaining sufficient net capital usually exempts a BD from a bond requirement.
- B. While the Administrator has discretion, the exemption due to net capital is a specific provision of the Act, not simply a discretionary waiver.
- D. The bond amount is usually fixed by the state, not tied to the BD's net capital in this manner.
Surety Bond Alternative (Net Capital)
Under the Uniform Securities Act, a broker-dealer that meets the minimum net capital requirements of its home state or federal law is generally exempt from state-mandated surety bond requirements.
- Surety bonds are generally required for BDs.
- Net capital serves as an alternative to a bond.
- Federal or home state net capital minimums apply for the exemption.
Memory trick: The 'Bond' protects, but 'Net Capital' can be its strong shield alternative.