Broker Dealer Registration
Jan. 14, 2013
Under Section 15 of the Securities Exchange Act of 1934, most "brokers" and "dealers" must register with the SEC and join a "self-regulatory organization," or SRO.
Section 3(4) of the Act defines "broker" broadly as:
any person engaged in the business of effecting transactions in securities for the account of others....
The term "person" includes entities as well as individuals.
Unlike a broker who acts as agent, a dealer acts as principal. Section 3(a)(5) of the Act generally defines a "dealer" as:
any person engaged in the business of buying and selling securities for his own account, through a broker or otherwise....
Traders are excluded from the definition of dealer. A trader is someone who buys and sells securities, either individually or in a trustee capacity, but not as part of a regular business. Individuals who buy and sell securities for themselves generally are considered traders and not dealers.
Sometimes you can easily tell if someone is a broker or dealer. For example, a person who executes transactions for others on a securities exchange clearly is a broker. And a firm that advertises publicly it makes a market in securities is obviously a dealer. Other situations can be less clear.
Please note that special provisions apply to broker and dealer activity by banks. For more information, please see guidance for Banks and Other Depository Institutions.
If you are doing, or may do, any of the activities of a broker or dealer, you should find out if you need to register. If you aren't certain, you may want to review SEC interpretations, consult with your attorney, or ask for our advice.