Broker dealer registration (NASAA Series 63, 65, 66)

Broker dealer registration is one of the topics you’ll need to know for the NASAA Series 63, 65, and 66 exams. In this video, we give you an overview of the registration process for broker dealers, the regulations you’ll need to know, and walk through a practice question from Achievable’s Series 63, 65, and 66 programs.

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Full Broker dealer registration (NASAA Series 63, 65, 66) video transcript:

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In order to operate as a broker-dealer in the Securities industry, a firm must go through the registration process to adequately register itself as a broker-dealer that might sound confusing. But basically there's a bunch of paperwork that has to be filled out a bunch of protocols and rules to be followed. And there's certain requirements for these firms. That must be in place before they're allowed to work with customers. The whole point of the registration process is to make sure there's some kind of oversight over these companies because these companies have an important job, they help their customers buy and sell Securities and their customers typically hold millions or billions, or sometimes trillions of dollars of assets and place them in the control of the broker-dealer. Envies, registration rules are in place to make sure that the proper Protocols are followed at all times in this video. We will cover the most important aspects of registration in the most likely Concepts that will be tested on the exam, first and foremost,

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Broker-dealers must file Form B D in that stands for broker-dealer with the appropriate, regulator in order to at least get the ball rolling on registration, as you've already learned in the achievable materials. Their number of different disclosures that must be made on Form B D, like, what's the business history of the firm who are the firm's officers directors are Partners? Has there. Ever been any kind of criminal history related to The Firm or its officers directors and partners? What's the financial makeup? What's the structure of the company etcetera? All of these things are disclosed on Form B D, which has been filed with the appropriate regulator. Most of the time, the appropriate Regulators will be the Securities and Exchange Commission, the SEC in the state of ministry, terms of the states in which the firm will be operating in. So, for example, if you have a broken either operating in Florida, Georgia and Alabama, they will file form BT with both the SEC in the state of ministry.

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Those three states unless they have some kind of exclusion that they might claim, which will allow them to avoid registration, the only time that might be different would be if we have what we call an intrastate broker-dealer, that would be a broker-dealer operating in one state only. And the SEC typically does not get involved with businesses that are operating only in one state. So for example, if we had a broke dealer only operating in Florida, not sit that broker-dealer would likely only register with the state of ministrator in Florida in the SEC would likely not have jurisdiction alongside Form B, D, firms must file, but we called the consent of service of process. The best way to think about the consent of service of process is that it appoints the state administrators as the legal power of attorney. For the firm should be not show up for some kind of legal proceeding. Now, an important thing to keep mind of is that the consent of service of process is a one-time-only filing. It's only done with the initial registration and

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Never has to be renewed, no matter how long the broker-dealer is in business. This same rule applies to agents investment advisors and investment advisor Representatives as well. In addition to, the process of filing fee is also required to be filed in. This is a very common test concept that a lot of people encounter on their exams. If they ask him a filing fee is required. The answer is going to be, yes, ninety-nine times out of a hundred. The only time that you might say no would be with what we call a successor from situation and that would occur, if one firm became part of another firm. So, for example, broker-dealer a buys out broker-dealer be and brings them into their business. And now they're just a bigger business. Do it be a filing required to be made with the state of ministrator, but that is the only time of filing fee is not required. To be paid again with a successor from situation. When a broker-dealer files, its registration paperwork. They have to disclose a number of different Financial aspects of their company in

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The reason for that is the basically make sure that we don't have broke companies in the Securities industry. Probably not a good luck. If I'm depositing money at a company and they're buying and selling securities on my behalf and oh yeah, by the way, this company is like on the edge of bankruptcy and has like, no money to their name. So in order to avoid that broker-dealers must maintain a certain amount of net capital which basically is a certain amount of money and assets at their disposal to make sure again that we don't have rope companies in the Securities industry. Most of the time, you're not going to encounter questions on how much they must obtain. But the important concept here will be understand that broker-dealers have minimum net capital, not net worth requirement. But net capital requirements investment advisors the other type of farm. We discussing this exam. Those are the ones that have net worth requirements. A surety bond, which is basically a form of insurance, should the broker-dealer run and do some kind of problem or if they

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Set something up for a customer a surety bond. Might be required to be posted by a broker-dealer. A lot of the time that really depends on how big the broker-dealer is. So, for example, if we have a huge broker-dealer that has billions or trillions of dollars of assets under management, then they probably don't need to post a surety bond, just because they have so much money and assets at their disposal, but a smaller broker-dealer, maybe that's just starting off. Likely would have to post a surety bond. We set this up front but form BB also requires the disclosure of all officers directors and or partners of the firm, which are basically be executive-level staff of the company. When those people are disclosed on Form, B D, they are automatically registered alongside the broker-dealer. If all the right components in necessary documents are submitted. Now this doesn't mean that officers directors and our partners avoid licensing exams that they still have to take their test.

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I mean that they don't have to fill out a separate you, for which is the registration form the agents and investment adviser Representatives, used to register themselves. You will learn more about form you. For later in me, a cheap ball materials has filed the consent of services submitted, the filing fee is paid at cetera. If all the necessary components are submitted to The Regulators, the registration of the broker-dealer is granted as effective on the 30th day after filing. Typically at noon, this is a test concept. You want to be really careful with registration is deemed effective, but it is never approved. The Regulators really don't like that word approved. Cuz I think it gives the idea that maybe The Regulators, like, what these firms are doing, no effective registration just means that they can legally operate in the industry. Once that occurs, once effective registration is at 8, and it will last at least until the end of the counter.

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Year at that time, it will technically expired. If the broker-dealer plans and saying in business through the New Year it's really important that they re register will have to pay another filing fee when they re-register, they're firm. And it's important that they do that at some point time in December or hopefully earlier in the month. If the firm gets the point where they don't get the re-registration process, by the end of the calendar year, technically the license will lapse which is not a good thing. Let's take a look at a practice question to see how we might be asked about the material, we just learned. All right, here we go. A Securities firm applies for broker-dealer registration in a state. What statement is true regarding the registration process. All right. Go ahead and pause this video. If you want to see if he can answer the question and then we'll break it down together shortly.

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Okay, let's see if you have the answer. Let's go ahead and break down each answer from beginning to end whether it's right or wrong to see if he can better. Understand what we need to know. The first answer, barring any setbacks registration is approved on the 30th day. You probably remember that we talked about form, BB has to be filled out a lot of disclosures, and if that's good with all the right documentation in the filing fee, registration is typically granted on the 30th day after filing. So that might seem like a good answer. First, mention 30 days fake seems like it matches but there's one key word here at that makes us an incorrect answer and it is the word approved. Remember, registration is granted as effective but it's never approved, the regulars. Never want to see me to buy Instant again. The word approved, it does come with some kind of element of hate. This phone's doing a good job, or this person is doing a good job. The Regulators don't approve register.

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The demon effective which means they can legally operate in the industry and just because that one word in there, the a word approved that is an incorrect answer. That is false. Next broker-dealers, must meet minimum net worth requirements. Remember broker-dealers. Do have to have a certain amount of money and assets at their disposal to operate in the industry because again, we don't want bro companies working with customers in our industry. That would be a bad book but broker-dealers don't have net worth requirements. They have net capital requirements, investment. Advisers are the professionals that have Network requirements. So again, it's just one word that there was this answer off. If we change Worth to Capital than quote, we have the right answer and that Capital requirement, because it says not worth. It's that little simple thing that makes that an incorrect statement or next officers, directors and partners are included on Form B, D. Okay, we talked about

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How broker-dealers have to include their executive team on their form BT and it's really important. That's close. Cuz we need to know who's running the company. There's really nothing there that we can argue against right through the are included, on Form B. B. And in fact, they are registered alongside the broker-dealer. Meaning, they don't have to file their own separate registration form form you for. So, that actually feels very much like the right answer. Although that is the third answer in front of us right now. It's really important that we keep going through. The answer is just to make sure that the last answer we can somehow save incorrect or false. That's always a good idea to do that. All right, last answer, when the firm operates in an agency capacity, it will charge markdowns and markups. We didn't discuss this in the beginning part of our video. But this goes back to the original legal, definition of a broker-dealer that you've learned about earlier in the achievable materials. Remember, the term broker-dealer is kind of an oxymoron mean two contradictory terms put together as one term brokers.

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Buyers and sellers in earn commissions and Brokers acting agency capacities. So, if that answer said a firm operating in it agency, capacity, orange commission. That would be a true statement. Now on to the word dealer dealers by Securities into their inventories and mark down prices and then sell their Securities. Do other investors and marked up prices earning what we call the spread when a broker-dealer acts any dealer capacity, we also call that a principal capacity and those are the terms. We really want to associate on that side dealer, principal mark up, mark down. So in this very last answer, we have terms mix together that should not be together. Agency broker commission, ABC versus principal dealer markdown. Mark said that last answer there is incorrect. So bottom line officers directors and partners are included on Form B D. That is a true statement, all the other statements are closed, but it's one or just a few words that are

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Find them off. Got to be careful on this exam because the test writers are going to try to throw you off and you got to pay attention to the details to get something like this. Correct.

Tyler York

05 May 2023, 11 min read