Broker Dealer Registration

A broker-dealer is a company or other organization that trades securities for its own account or on behalf of its customers.

When executing trade orders on behalf of a customer, the institution is said to be acting as a broker . When executing trades for its own account, the institution is said to be acting as a "dealer." Securities bought from clients or other firms in the capacity of dealer may be sold to clients or other firms acting again in the capacity of dealer, or they may become a part of the firm's holdings.

Although many broker-dealers are "independent" firms solely involved in broker-dealer services, many others are business units or subsidiaries of commercial banks, investment banks or investment companies.

Regulation

United States

In the United States, broker-dealers are regulated under the Securities Exchange Act of 1934 by the Securities and Exchange Commission (SEC), a unit of the US government. Some regulatory authority is further delegated to the Financial Industry Regulatory Authority (FINRA), a self-regulatory organization. Many states also regulate broker-dealers under separate state securities laws (called "Blue sky laws").

The 1934 Act defines "broker" as "any person engaged in the business of effecting transactions in securities for the account of others," and defines "dealer" as "any person engaged in the business of buying and selling securities for his own account, through a broker or otherwise." Under either definition, the person must be performing these functions as a business; if conducting similar transactions on a private basis, they are considered a trader and subject to different requirements.

United Kingdom

UK securities law uses the term intermediary to refer to businesses involved in the purchase and sale of securities for the account of others.

The Financial Services Authority authorises and regulates companies engaging in such activity as "regulated activities" under the Financial Services and Markets Act 2000.

Japan

The common Japanese term for a broker-dealer is "securities company" ( 証券会社 , shōken-gaisha ^? ) . Securities companies are regulated by the Financial Services Agency under the Financial Instruments and Exchange Law. The "big three" are Nomura Holdings, Daiwa Securities Group and Nikko Cordial (a subsidiary of Sumitomo Mitsui Financial Group). Most major commercial banks in Japan also maintain broker-dealer subsidiaries, as do many foreign commercial banks and investment banks.

Securities companies must be organized as kabushiki kaisha with a statutory auditor or auditing committee, and must maintain minimum shareholder equity of ¥50 million.

References

1. ^ NASAA Broker-Dealer Resources
2. ^ Guide to Broker-Dealer Registration, Division of Trading and Markets, U.S. Securities and Exchange Commission, April 2008.

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