Broker-Dealer Registration

Overview of Broker-Dealer Registration

Any person or entity engaged in the business of effecting transactions in securities for the account of others, or buying and selling securities for its own account, must register as a broker-dealer (BD) with the Securities and Exchange Commission (SEC). The Securities Exchange Act of 1934 established this requirement under Section 15(a), and it remains one of the foundational pillars of securities regulation. As a General Securities Principal, understanding the registration process inside and out is essential because you will be responsible for ensuring your firm and its associated persons maintain proper registrations at all times.

The registration requirement exists to protect investors by ensuring that only qualified, financially sound entities can conduct securities business. The SEC oversees the broad regulatory framework, while self-regulatory organizations (SROs) like FINRA handle much of the day-to-day oversight, examination, and enforcement. Broker-dealer registration is not a one-time event; it is an ongoing obligation that requires continuous compliance with regulatory requirements, including financial reporting, recordkeeping, and supervisory obligations.

Broker: Any person engaged in the business of effecting transactions in securities for the account of others. Dealer: Any person engaged in the business of buying and selling securities for its own account through a broker or otherwise. Most firms register as both a broker and a dealer, hence "broker-dealer."

Who Must Register

The requirement to register as a broker-dealer is broad and captures virtually any entity that regularly participates in securities transactions. This includes firms that execute trades for customers, firms that make markets in securities, firms that underwrite new issues, firms that act as placement agents, and firms that provide investment advice if they also effect transactions. The test is whether the entity is "in the business" of securities transactions, which FINRA and the SEC evaluate based on factors such as:

Regularity of participation: Does the entity regularly solicit, negotiate, or execute securities transactions?
Transaction-based compensation: Does the entity receive commissions, markups, or other transaction-based fees?
Holding out: Does the entity advertise or hold itself out as a broker, dealer, or securities professional?
Customer interaction: Does the entity handle customer funds or securities?
Active trading for own account: For dealer registration, does the entity actively buy and sell securities for its own account as a regular course of business?

Exemptions from Registration

Certain entities are exempt from broker-dealer registration. Understanding these exemptions is important for the Series 24 exam because principals must know who is and is not required to register. Key exemptions include:

Banks and savings associations: Banks that effect securities transactions as part of their traditional banking activities are generally exempt under the Gramm-Leach-Bliley Act, though they must comply with specific conditions and functional regulation requirements.
Issuers: Companies selling their own securities are generally not considered brokers or dealers, unless they regularly engage in such activities beyond their own offerings.
Intrastate broker-dealers: Firms whose business is exclusively intrastate (within a single state) and that do not deal in securities listed on a national exchange may be exempt from SEC registration, though they must still comply with state requirements.
Individuals associated with an issuer: Persons who sell securities on behalf of an issuer and meet specific conditions (no transaction-based compensation, not an associated person of a BD, etc.) may be exempt.
Government securities dealers: Entities dealing exclusively in government securities have separate registration requirements under the Government Securities Act.

Finders and referral agents who receive transaction-based compensation may need to register as broker-dealers, even if they do not execute trades themselves. The SEC has brought enforcement actions against unregistered finders. Principals must ensure that any person receiving transaction-based compensation is properly registered.

SEC Registration Process

To register as a broker-dealer with the SEC, a firm must file Form BD (Uniform Application for Broker-Dealer Registration) through the Central Registration Depository (CRD) system operated by FINRA. Form BD is a comprehensive application that collects information about the firm's ownership, management, business activities, disciplinary history, and financial condition. The form is filed electronically through the Web CRD system, and the SEC uses this information to evaluate whether the applicant meets the standards for registration.

Form BD Contents

Form BD requires extensive disclosure, including the following key areas:

Basic identifying information: Legal name, DBA names, main office address, mailing address, organizational form (corporation, LLC, partnership, etc.), and state of organization.
Business activities: The types of securities business the firm will conduct (e.g., retail, institutional, underwriting, market making, investment advisory services, private placements).
Direct and indirect owners and control persons: Identification of all persons who directly or indirectly own or control 10% or more of the firm, plus all executive officers, directors, and managing partners.
Disciplinary history: Criminal charges or convictions, regulatory actions, civil proceedings, customer complaints, and arbitration awards involving the firm or its control persons (Disclosure Reporting Pages or DRPs).
Financial information: Information about the firm's financial condition, including whether it will hold customer funds or securities.
Successor information: If the firm is a successor to a previously registered firm.
SRO memberships: Which self-regulatory organizations the firm intends to join.

Form BD registration becomes effective 45 days after filing unless the SEC issues an order denying or delaying registration. The SEC may institute proceedings to deny registration if the applicant has a disciplinary history or fails to meet required standards. Remember: the SEC can deny, but does not "approve" BD registration in the traditional sense.

Amendments to Form BD

A broker-dealer's registration is not static. The firm must promptly update Form BD whenever there is a material change to any information previously reported. Under FINRA rules, most amendments must be filed within 30 days of the change. Some changes require more immediate filing, particularly those related to disciplinary events. Failure to keep Form BD current is itself a violation that can result in regulatory action.

Common events triggering amendments include changes in the firm's name or address, changes in ownership or control, new or terminated business activities, disciplinary events involving the firm or its principals, and changes in the firm's organizational structure.

Withdrawal of Registration

A broker-dealer that wishes to cease operations must file Form BDW (Uniform Request for Broker-Dealer Withdrawal) through Web CRD. The withdrawal becomes effective 60 days after filing, unless the SEC or an SRO takes action to delay or deny the withdrawal. Importantly, withdrawal does not protect the firm from actions based on conduct that occurred while registered. The SEC retains jurisdiction over the firm for matters predating the withdrawal for a period that can extend well beyond the withdrawal date.

FINRA Membership Application

In addition to SEC registration, virtually all broker-dealers must become members of FINRA (or another SRO). FINRA membership is required for any BD that conducts a securities business with the public. The FINRA membership application process is separate from, and more detailed than, the SEC registration process. It involves a thorough review of the firm's business plan, compliance infrastructure, financial resources, and the qualifications of its principals.

The New Membership Application (NMA) Process

FINRA Rule 1010 series governs the membership application process. A firm seeking FINRA membership must submit a New Membership Application (NMA) that includes a comprehensive business plan, proposed written supervisory procedures (WSPs), financial projections, and information about the backgrounds of all proposed principals and registered representatives. The process typically involves several stages:

Pre-filing conference: An optional but recommended meeting with FINRA staff to discuss the application process and the firm's proposed business activities.
Application submission: The firm submits the NMA along with all required documentation and the application fee.
Review and assessment: FINRA's Member Regulation department conducts a thorough review. This includes evaluating the firm's business plan for viability, reviewing the qualifications and backgrounds of proposed principals, assessing the adequacy of supervisory procedures, verifying the firm's financial resources, and conducting background checks.
Membership interview: FINRA conducts interviews with the firm's proposed principals to assess their understanding of regulatory requirements and their preparedness to operate a compliant securities business.
Decision: FINRA issues a written decision approving, conditionally approving, or denying the application. FINRA must act on the application within 180 days of filing (this period may be extended by agreement).

FINRA evaluates membership applications based on 14 standards of admission under Rule 1014. These include the firm's ability to comply with securities laws, the adequacy of its supervisory system, the qualifications and disciplinary history of its principals, and whether the firm presents a risk to investors or the public interest.

Standards for Admission

FINRA Rule 1014 lists the standards a firm must meet for membership. The key standards include:

The applicant and its associated persons are capable of complying with applicable laws, regulations, and rules
The applicant and its associated persons have all required licenses and registrations
The applicant has established a supervisory system, including written supervisory procedures, that is reasonably designed to achieve compliance
The applicant has adequate net capital and financial resources to support its proposed business activities
The applicant has the operational capability to conduct its proposed business
The applicant has not made materially false or misleading statements in the application
Persons associated with the applicant do not have disciplinary histories that would create an unreasonable risk

Restrictions on New Members

FINRA may impose restrictions or conditions on new members. These restrictions serve as guardrails while the firm demonstrates its ability to operate compliantly. Common restrictions include limitations on the types of business activities the firm can conduct, required heightened supervision for certain associated persons, mandatory deposit of additional net capital, frequent financial reporting, and independent compliance audits. Restrictions are typically imposed for a defined period, after which the firm may apply to have them modified or removed.

Branch Office Registration

A broker-dealer that operates from multiple locations must register its branch offices. FINRA has specific rules about what constitutes a branch office, what constitutes a non-branch location (Office of Supervisory Jurisdiction or OSJ), and the supervisory requirements for each type of location. As a principal, you must understand these distinctions because the level of supervision required varies based on the classification of the office.

Definition of a Branch Office

Under FINRA Rule 3110, a branch office is any location where one or more associated persons of a member regularly conduct the member's securities business. The term "regularly" is interpreted broadly by FINRA. Generally, if an associated person uses a location as a primary work location or meets with customers at a location on a routine basis, that location is likely a branch office that must be registered.

Locations That Are Not Branch Offices

FINRA provides specific exclusions from the branch office definition. These non-branch locations include:

A location used solely for non-securities-related activities (accounting, back-office processing)
A residence of an associated person, provided that certain conditions are met (the location is not held out to the public as an office, no in-person customer meetings, customer funds and securities are not handled there)
A location temporarily used for business for fewer than 30 business days per year
A location used for a seminar or educational event, provided the event is not used to conduct securities business
A floor of a registered securities exchange or a registered clearing agency

Feature	Branch Office	Non-Branch Location	OSJ
Registration Required	Yes, with FINRA	No registration required	Yes, designated by firm
On-Site Supervision	Periodic inspection required	Subject to firm's WSPs	Principal on-site required
Inspection Frequency	At least every 3 years	Per firm's risk-based schedule	Annual review required
Customer Contact	Regular customer interaction	Limited or no customer contact	May include customer contact
Signage Required	Firm name must be displayed	Not required	Firm name must be displayed

Office of Supervisory Jurisdiction (OSJ)

An Office of Supervisory Jurisdiction (OSJ) is any office of a broker-dealer from which supervisory activities are conducted. Under FINRA Rule 3110, an OSJ includes any location where order execution or market making takes place, where the firm's structured products, municipal securities, or investment banking activities are supervised, where customer funds or securities are received, where customer complaints are resolved, where correspondent accounts are accepted, or where the firm's registered representatives are supervised.

Each OSJ must be supervised by a registered principal who is physically present at that location. The principal must review activities, approve transactions where required, and ensure that all regulatory requirements are met. FINRA requires that firms designate all locations from which supervisory activities are conducted as OSJs and staff them with appropriately qualified principals.

The key distinction: A branch office is any location where securities business is regularly conducted. An OSJ is a branch office from which supervisory activities are conducted. All OSJs are branch offices, but not all branch offices are OSJs. The exam frequently tests this relationship.

CRD System and State Registration

The Central Registration Depository (CRD) system is the electronic filing system used for the registration and licensing of broker-dealers and their associated persons. Operated by FINRA, the CRD serves as the central repository for registration information and disclosure events. Virtually all registration filings are made through Web CRD, including Form BD for the firm, Form U4 for associated persons, and Form U5 for terminations.

State Registration (Blue Sky Laws)

In addition to SEC registration and FINRA membership, broker-dealers must register in each state in which they conduct business. State securities laws, known as Blue Sky laws, impose their own registration requirements, which vary from state to state. Through the CRD system, a firm can file simultaneously for federal and state registrations, streamlining the process considerably.

State registration requirements may include additional financial requirements beyond SEC minimums, state-specific examination requirements for certain personnel, notice filings and fees, and compliance with state-specific conduct rules. States retain the authority to deny, suspend, or revoke broker-dealer registrations within their jurisdictions, and state securities regulators actively examine broker-dealers operating within their borders.

Maintaining Current Registration

A broker-dealer must keep all registration filings current and accurate. Key ongoing obligations include filing annual renewals and paying associated fees, promptly updating Form BD when material information changes, maintaining compliance with net capital requirements, filing FOCUS reports and other required financial reports on schedule, responding to regulatory inquiries and examinations, and ensuring that all associated persons maintain current registrations and continuing education requirements.

Failure to maintain current registrations is a serious violation. FINRA can fine, suspend, or expel member firms that allow registrations to lapse, fail to update required filings, or operate through unregistered locations or persons. As a principal, you bear personal responsibility for ensuring registration compliance.

Continuing Membership Application (CMA)

After a firm has been admitted to FINRA membership, certain material changes to the firm's business require a Continuing Membership Application (CMA) under FINRA Rule 1017. The CMA process ensures that FINRA can evaluate significant changes to a member's business before they take effect, protecting investors and the integrity of the marketplace.

Events Requiring a CMA

A member must file a CMA before undertaking any of the following changes:

Mergers or acquisitions: Any merger, acquisition, or business combination with another broker-dealer or the assets of another broker-dealer
Material change in business operations: Adding a new line of business or a business activity that requires a higher net capital requirement, or that represents a material change from the firm's existing business model
Transfer of ownership or control: Any transfer that results in a change of control of the member, including changes in direct or indirect ownership that result in one person or group obtaining 25% or more ownership
Transfer of assets or accounts: Any transfer of customer accounts or assets from another member firm that constitutes a material change in business

FINRA evaluates CMAs using the same standards applied to new membership applications. The firm must demonstrate that it can maintain adequate supervision, financial resources, and regulatory compliance after the proposed change. FINRA must act on a CMA within 180 days, and the firm may not implement the proposed change until FINRA approves the application.

Deep Dive Statutory Disqualification and the Membership Process

A person or firm is subject to statutory disqualification if they have been expelled or suspended from a self-regulatory organization, have been barred or suspended from association with a member, have been convicted of certain criminal offenses (felonies, or securities-related misdemeanors within 10 years), have been subject to certain court orders or SEC sanctions, or have filed a false or misleading application.

A member firm that wishes to associate with a statutorily disqualified person must file a Membership Continuance Application (MC-400) with FINRA. This is a separate process from the NMA or CMA and involves a heightened level of scrutiny. FINRA evaluates the nature and seriousness of the disqualifying event, the time elapsed since the event, the person's activities and conduct since the event, the proposed supervisory plan, and the firm's compliance history.

The MC-400 process is rigorous and approval is not guaranteed. FINRA may deny the application if it determines that the association would pose an unreasonable risk to the investing public. If approved, FINRA typically imposes heightened supervisory conditions, including designated supervisory principals, activity limitations, and enhanced reporting requirements.