TreatiseTreatise

Broker-Dealer Regulation (2nd Edition)

 by Clifford E Kirsch
 
 Copyright: 2011-2017
 Last Updated: June 2017

 Product Details >> 

Product Details

  • ISBN Number: 9781402416897
  • Page Count: 4780
  • Number of Volumes: 4
  •  

Updated to ensure coverage of the latest laws and regulations governing broker-dealers, the second edition of Broker-Dealer Regulation provides comprehensive and practical overview of the many requirements of this highly regulated area. This two-volume work instructs on how brokerage firms can satisfy SEC/SRO standards, with detailed coverage of:

  • Registration reporting and record-keeping rules
  • Suitability and best execution standards
  • Ways of minimizing liability in the event of legal lapses, by documenting good-faith compliance efforts
  • The implementation of a tailor-made compliance program that can help detect and prevent illegal conduct within the firm.

Broker-Dealer Regulation is filled with practical suggestions on how to best comply with requirements in such areas as electronic trading, safeguarding customer information, trading desk activities and business continuity planning. Coverage includes FINRA Rule 2111, which governs what are and what are not suitable customer transactions • the SEC’s renewed emphasis on pursuing insider trading claims under 10b5-2 • the SEC’s Rule 15c3-5 on allocation between clearing firm and introducing broker in connection with risk management controls for clearing firms providing market access • and outsourcing issues for financial services firms.

Updated at least once a year, Broker-Dealer Regulation is an invaluable resource for broker-dealers, securities attorneys, compliance officers, and regulators.
  Table of Contents
  Preface
Chapter 1: Introduction
  • § 1:1 : Overview1-1
  • § 1:2 : The Pattern of Broker-Dealer_Regulation1-2
  • § 1:3 : Structure of This Book1-3
Chapter 2: What Is a Broker-Dealer?
  • § 2:1 : Exchange Act Registration Requirement2-4
    • § 2:1.1 : Section 152-4
    • § 2:1.2 : Consequences of Registration2-6
    • § 2:1.3 : Application of Certain Rules to Broker-Dealers Even If Not Registered2-9
    • § 2:1.4 : State Registration Requirements2-10
    • § 2:1.5 : Consequences of Illegally Doing Business As an Unregistered Broker-Dealer2-11
  • § 2:2 : What Is a Broker?2-12
    • § 2:2.1 : Generally2-12
    • § 2:2.2 : Effecting Transactions2-13
    • § 2:2.3 : Clerical and Ministerial Activities2-15
    • § 2:2.4 : “In the Business”2-15
    • § 2:2.5 : “For the Account of Others”2-17
    • § 2:2.6 : Role of Compensation in Analysis2-18
    • § 2:2.7 : Specific Contexts2-22
      • [A] : Finders2-22
      • [B] : Private Placement Agents2-23
      • [C] : M&A Brokers2-26
        • [C][1] : Private Company M&A Broker No-Action Letter2-29
        • [C][2] : Foreign M&A Brokers2-31
      • [D] : Networking Arrangements2-32
        • [D][1] : Banks2-32
        • [D][2] : Insurance2-34
      • [E] : Issuers and Their Associated Persons2-35
        • [E][1] : Issuers2-35
        • [E][2] : Associated Persons of Issuers2-36
        • [E][3] : Issuers and Associated Persons in Demutualizations, Exchange Offers, Conversions, Proxy Solicitations2-39
      • [F] : Bulletin Boards2-41
      • [G] : ATSs and Securities Exchanges2-43
      • [H] : Payroll Processing Services2-44
      • [I] : Personal Service Companies2-46
      • [J] : Other Service Providers to the Securities Industry, Broker-Dealers or Issuers2-47
        • [J][1] : Communications Services2-47
        • [J][2] : Confirmation and Other Processors2-48
        • [J][3] : Transfer Agents and Stock Plan Services2-50
        • [J][4] : Research Services2-52
        • [J][5] : Accountants2-54
      • [K] : Investment Advisers2-55
  • § 2:3 : What Is a Dealer?2-56
    • § 2:3.1 : Section 3(a)(5)(A)2-56
      • [A] : Generally2-56
      • [B] : Buying and Selling Securities for Own Account2-57
      • [C] : Engaged in the Business2-58
    • § 2:3.2 : “Traders” versus “Dealers”—Section 3(a)(5)(B)2-59
      • [A] : Generally2-59
      • [B] : Funds As Traders2-64
      • [C] : Issuers2-65
      • [D] : Dealers in OTC Derivatives2-66
  • § 2:4 : What Is a Security?2-70
    • § 2:4.1 : Statutory Definition2-70
    • § 2:4.2 : Case Law on “Investment Contracts”2-71
      • [A] : Generally2-71
      • [B] : Investment of Money2-71
      • [C] : Common Enterprise2-72
      • [D] : Expectation of Profits2-73
      • [E] : Solely from the Efforts of the Promoter or a Third Party2-74
    • § 2:4.3 : Case Law on “Notes”2-75
    • § 2:4.4 : OTC Derivatives2-80
      • [A] : Generally2-80
      • [B] : Case Law on Derivatives Prior to the Adoption of the Commodity Futures Modernization Act2-80
      • [C] : CFMA—Section 3A, 15(i)2-81
      • [D] : The Dodd-Frank Wall Street Reform and Consumer Protection Act2-82
        • [D][1] : New and Amended Definitions2-84
          • [D][1][a] : “Swap,” “SBS” and “Security”2-84
          • [D][1][b] : “SBS Dealer,” “SBS MSP” and “SBS SEF”2-87
          • [D][1][c] : Broker-Dealer_Registration Issues2-90
        • [D][2] : The Volcker Rule and Swaps Pushout Rule2-92
    • § 2:4.5 : Security Futures2-93
  • § 2:5 : Exempted Securities2-94
    • § 2:5.1 : Generally2-94
    • § 2:5.2 : Government Securities2-94
      • [A] : Definition2-94
      • [B] : Regulation of Government Securities Brokers and Dealers2-95
    • § 2:5.3 : Municipal Securities2-95
      • [A] : Definition2-95
      • [B] : Regulation of Municipal Securities Dealers2-96
    • § 2:5.4 : Other Exempted Securities2-96
  • § 2:6 : Intrastate Broker-Dealers2-96
  • § 2:7 : Other Exemptions from Registration2-99
    • § 2:7.1 : Commercial Paper Dealers2-99
    • § 2:7.2 : Foreign Broker-Dealers Operating Under Rule 15a-62-100
      • [A] : Background2-100
        • [A][1] : Pre-Rule 15a-6 Precedents2-100
        • [A][2] : Jurisdictional Language in Section 15 and Section 302-102
      • [B] : Rule 15a-62-105
        • [B][1] : Generally2-105
        • [B][2] : Unsolicited Transactions2-106
        • [B][3] : Research2-107
        • [B][4] : Rule 15a-6(a)(3) Arrangements2-108
        • [B][5] : Rule 15a-6(a)(4)2-111
      • [C] : Other Cross-Border Issues2-113
      • [D] : Proposal to Amend Rule 15a-62-113
    • § 2:7.3 : Mutual Recognition of Foreign Broker-Dealers2-113
    • § 2:7.4 : Banks2-114
      • [A] : Pre-GLBA Background2-114
      • [B] : Bank Brokerage Activities2-115
        • [B][1] : Section 3(a)(4)(B)2-115
        • [B][2] : Regulation R2-116
        • [B][3] : Networking Arrangements2-116
        • [B][4] : Trust and Fiduciary Activities2-117
        • [B][5] : Sweep Accounts and Money Market Funds2-118
        • [B][6] : Safekeeping and Custody2-118
      • [C] : Bank Dealer Activities2-119
        • [C][1] : Section 3(a)(5)(C)2-119
        • [C][2] : Bank Riskless Principal Activities—Rule 3a5-12-120
        • [C][3] : Bank Regulation S Transactions—Rule 3a5-22-121
        • [C][4] : Bank Securities Lending—Rule 3a5-32-122
    • § 2:7.5 : Charitable Exemption—Section 3(e)2-122
    • § 2:7.6 : Funding Portals2-123
    • § 2:7.7 : Associated Persons of Registered Broker-Dealers2-125
      • [A] : Section 15(a)(1)2-125
      • [B] : Retired Brokers—SEC Guidance and FINRA Rules Concerning Trailing Commissions2-125
    • § 2:7.8 : Miscellaneous Exemptions—Rule 15a-2 and 15a-52-128
    • § 2:7.9 : General Exemptive Authority2-128
  • § 2:8 : Doing Business As an Unregistered Broker-Dealer2-129
    • § 2:8.1 : SEC and State Enforcement2-129
    • § 2:8.2 : Private Actions—Exchange Act § 29(b)2-131
    • § 2:8.3 : Concerns for Controlling Persons2-133
    • § 2:8.4 : Concerns for Registered Broker-Dealers2-134
      • [A] : Compensation Sharing2-134
      • [B] : Participating in Syndicates with Unregistered Persons2-135
      • [C] : Aiding and Abetting2-136
    • § 2:8.5 : Concerns for Issuers2-136
      • [A] : Liability for Aiding and Abetting or Causing2-136
      • [B] : State Liability for Engaging Unlicensed Agents2-136
      • [C] : Section 292-137
Chapter 3: Brokers, Dealers and “Finders”
  • § 3:1 : Overview3-2
  • § 3:2 : The Statutory Scheme3-4
    • § 3:2.1 : Regulatory Requirements3-5
    • § 3:2.2 : What Is a Broker?3-8
      • [A] : “Effecting Transactions in Securities”3-9
        • [A][1] : Structuring Securities Transactions3-11
        • [A][2] : Helping Identify Potential Purchasers3-11
        • [A][3] : Credit-Related Activities3-12
        • [A][4] : Facilitating Negotiation of Transactions3-13
        • [A][5] : Soliciting Securities Transactions3-14
        • [A][6] : Facilitating the Execution of a Transaction, or Participating in Order-Taking and Order-Routing3-16
        • [A][7] : Handling Customer Funds and Securities3-19
        • [A][8] : Post-Execution Securities Activities3-19
      • [B] : “Engaged in the Business”3-19
        • [B][1] : Receiving Transaction-Related Compensation3-20
        • [B][2] : Holding Oneself Out As a Broker3-23
        • [B][3] : Participating in the Securities Business3-24
    • § 3:2.3 : What Is a Dealer?3-25
    • § 3:2.4 : What Is a Finder?3-29
  • § 3:3 : “Finders” No-Action Letters3-32
  • § 3:4 : Finders for Issuers3-33
    • § 3:4.1 : Rule 3a4-1: Associated Persons of an Issuer3-33
    • § 3:4.2 : Non-Associated Persons of an Issuer3-37
    • § 3:4.3 : Business Brokers and Investor Finders3-38
    • § 3:4.4 : Crowdfunding Intermediaries3-42
    • § 3:4.5 : Financial Advisers to Issuers3-46
    • § 3:4.6 : Associated Persons of Broker-Dealers3-51
    • § 3:4.7 : Listing, Matching and Trading Systems3-53
      • [A] : Listing Systems and Bulletin Boards3-53
      • [B] : Matching Systems3-57
      • [C] : Trading Systems3-62
  • § 3:5 : Finders for Registered Broker-Dealers3-63
    • § 3:5.1 : Networking Arrangements3-64
      • [A] : Depository Institutions3-65
      • [B] : Insurance Agents3-71
      • [C] : Real Estate Agents3-74
    • § 3:5.2 : Affinity Groups3-77
    • § 3:5.3 : Other Professional Referrals3-78
    • § 3:5.4 : Investment Advisers Engaged in Broker-Dealer Activity3-81
    • § 3:5.5 : Internet Portals3-83
    • § 3:5.6 : Financial Service Centers/Communication Links3-88
    • § 3:5.7 : The Intrastate Exemption and Registration Issues Under State Law3-91
Chapter 4: Bank Exemptions from Broker-Dealer Regulation
  • § 4:1 : Background4-2
  • § 4:2 : “Exempted Securities” and Instruments That Are Not “Securities”4-4
  • § 4:3 : What Is a “Bank”?4-5
  • § 4:4 : Bank Exemptions from Securities “Dealer” Status4-6
    • § 4:4.1 : What Is a “Dealer”?4-7
    • § 4:4.2 : 1934 Act Section 3(a)(5) and SEC GLB Act Dealer Rules4-8
      • [A] : Permissible Securities Transactions4-8
      • [B] : Investment, Trustee, and Fiduciary Transactions4-9
      • [C] : Asset-Backed Transactions4-9
      • [D] : Identified Banking Products4-10
      • [E] : Securities Lending “Dealer” and “Broker” Exemption4-11
      • [F] : Riskless Principal 500 Transaction Exemption4-12
      • [G] : Regulation S and Offshore Sales Exemption4-12
  • § 4:5 : Bank Exemptions from Securities “Broker” Status4-13
    • § 4:5.1 : What Is a “Broker”?4-13
    • § 4:5.2 : 1934 Act Section 3(a)(4) and Regulation R4-13
      • [A] : Third-Party Brokerage “Networking” Arrangements4-14
      • [B] : Trust and Fiduciary Activities4-17
      • [C] : Permissible Securities Transactions4-18
      • [D] : Certain Stock Purchase Plans4-18
      • [E] : Sweep Accounts4-19
      • [F] : Affiliate Transactions4-20
      • [G] : Private Securities Offerings4-20
      • [H] : Safekeeping and Custody Activities4-20
      • [I] : Identified Banking Products4-22
      • [J] : Municipal Securities4-23
      • [K] : De Minimis Exception4-23
      • [L] : Regulation S and Offshore Sales Exemption4-23
  • § 4:6 : FINRA Dual Bank Employees Supervision Rule Exemption4-24
  • § 4:7 : Volcker Rule and Title VII of the Dodd-Frank Act4-25
Chapter 5: Broker-Dealer and Associated Person Registration
  • § 5:1 : Overview5-2
  • § 5:2 : SEC Registration Process5-4
    • § 5:2.1 : Requirements in the Statute and Rules5-4
      • [A] : Application for Registration5-4
      • [B] : Grant or Denial of Registration5-5
      • [C] : Registration of Security Futures Broker-Dealers5-6
      • [D] : Six-Month Inspection5-7
    • § 5:2.2 : Form BD5-7
      • [A] : Items 1–135-8
      • [B] : Schedules A, B, and C5-9
      • [C] : Schedule D5-9
      • [D] : Schedule E5-9
    • § 5:2.3 : Form BR—Registration of Branch Offices5-9
    • § 5:2.4 : SIPC5-11
  • § 5:3 : Registration of Personnel5-12
    • § 5:3.1 : Generally5-12
      • [A] : Disqualification5-13
      • [B] : Restriction on Outside Activities5-14
    • § 5:3.2 : Categories of Registration5-14
    • § 5:3.3 : Qualification Examinations5-16
    • § 5:3.4 : Forms U4 and U55-18
    • § 5:3.5 : Warehousing Prohibition5-20
  • § 5:4 : FINRA Membership Process5-21
    • § 5:4.1 : Name of Firm5-24
    • § 5:4.2 : Membership Application5-24
      • [A] : Fidelity Bonding Requirements5-30
    • § 5:4.3 : Processing of Application5-30
    • § 5:4.4 : Interview5-31
    • § 5:4.5 : Decision and Appeals5-32
  • § 5:5 : NYSE and Other National Securities Exchanges5-32
    • § 5:5.1 : Demutualization5-34
    • § 5:5.2 : Affiliated Persons and Entities5-35
      • [A] : Control5-35
      • [B] : Allied Members; Principal Executives5-35
      • [C] : Approved Persons5-36
    • § 5:5.3 : Limitations on Withdrawals of Capital5-37
    • § 5:5.4 : Disabling Provision5-37
  • § 5:6 : State Registration Requirements5-37
Chapter 5A: State Regulation of Broker-Dealers and Agents
  • § 5A:1 : Introduction5A-4
  • § 5A:2 : Uniform Securities Acts5A-5
    • § 5A:2.1 : Uniform Sales of Securities Act of 1930 (“USA 1930”)5A-5
    • § 5A:2.2 : Uniform Securities Act of 1956 (“USA 1956”)5A-6
    • § 5A:2.3 : Uniform Securities Act of 1985 (“USA 1985”)5A-6
    • § 5A:2.4 : Uniform Securities Act of 2002 (“USA 2002”)5A-6
    • § 5A:2.5 : Persistence of Non-Uniformity5A-7
  • § 5A:3 : Definitions5A-8
    • § 5A:3.1 : Definition of Broker-Dealer5A-8
    • § 5A:3.2 : Definition of Agent5A-8
    • § 5A:3.3 : Exclusions from the Definitions5A-9
      • [A] : Exclusions from the Definition of Broker-Dealer5A-9
        • [A][1] : USA 19565A-9
        • [A][2] : USA 20025A-10
      • [B] : Exclusions from the Definition of Agent5A-11
        • [B][1] : USA 19565A-11
        • [B][2] : USA 20025A-11
    • § 5A:3.4 : Finders, Auctioneers, and M&A Brokers5A-11
      • [A] : Finders5A-11
      • [B] : Auctioneers5A-13
      • [C] : M&A Brokers5A-13
  • § 5A:4 : Regulatory Jurisdiction, FINRA, and NASAA5A-15
    • § 5A:4.1 : Concurrent Federal and State Jurisdiction5A-15
    • § 5A:4.2 : Foreign Broker-Dealers5A-16
    • § 5A:4.3 : FINRA5A-17
    • § 5A:4.4 : NASAA5A-17
    • § 5A:4.5 : Individual State Securities Administrators5A-18
    • § 5A:4.6 : Funding Portals under the JOBS Act5A-18
      • [A] : Federal Preemption of State Jurisdiction Over Out-of-State Registered Funding Portals5A-19
      • [B] : State Regulation of In-State Registered Funding Portals5A-20
      • [C] : Preservation of State Jurisdiction Over Unlawful Conduct of Funding Portals5A-20
  • § 5A:5 : State Jurisdiction Over the Itinerant/Internet Client5A-21
    • § 5A:5.1 : Federal Preemption and the Itinerant Client5A-22
    • § 5A:5.2 : USA 2002 and the Itinerant Client5A-22
      • [A] : De Minimis5A-22
      • [B] : Transactions with Pre-Existing Customers5A-23
      • [C] : Transactions with Recently Moved Customers5A-23
    • § 5A:5.3 : NASAA Statement of Policy on Communications by Financial Intermediaries Over the Internet5A-24
  • § 5A:6 : Registration and Exemption5A-25
    • § 5A:6.1 : Registration Requirements5A-25
      • [A] : Broker-Dealers5A-25
      • [B] : Agents5A-25
      • [C] : Successor Registration5A-26
    • § 5A:6.2 : Exemptions5A-26
      • [A] : Broker-Dealers5A-26
      • [B] : Agents5A-27
    • § 5A:6.3 : Dual Registration of Agents5A-28
    • § 5A:6.4 : Limitation on Association5A-28
  • § 5A:7 : Registration Process5A-29
    • § 5A:7.1 : Central Registration Depository5A-29
    • § 5A:7.2 : Uniform Forms5A-30
    • § 5A:7.3 : Consent to Service of Process5A-31
    • § 5A:7.4 : Examination Requirements5A-32
    • § 5A:7.5 : Time Period for Action on an Application5A-33
    • § 5A:7.6 : Federal Preemption of Capital, Margin, Books and Records, and Bonding5A-33
    • § 5A:7.7 : FINRA Membership5A-34
    • § 5A:7.8 : Renewal and Transfer of Registrations5A-34
      • [A] : Renewal5A-34
      • [B] : Transfer5A-34
    • § 5A:7.9 : Termination and Withdrawal5A-36
      • [A] : Termination5A-36
      • [B] : Withdrawal5A-36
        • [B][1] : Trail Commissions to Retired Agents5A-37
        • [B][2] : Form U-5 and Defamation Actions5A-38
  • § 5A:8 : Post Registration Compliance5A-39
    • § 5A:8.1 : Books, Records, and Net Capital5A-39
    • § 5A:8.2 : Compliance Audits and Inspections5A-39
      • [A] : Regulatory Audits and Inspections5A-39
        • [A][1] : Routine Audits and Inspections5A-40