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  4. About Broker-Dealers and Broker Dealer Agents

About Broker-Dealers and Broker Dealer Agents

What is Broker-Dealer?

Broker-dealer (“BD”) is defined in Corporations Code (“Code”) Section 25004 and means any person engaged in the business of effecting transactions in securities in this state for the account of others or for his own account. Broker-dealer also includes a person engaged in the regular business of issuing or guaranteeing options with regard to securities not of his own issue. (This is not a complete definition. See Section 25004).

Generally speaking, broker-dealers are persons that act as securities dealers or brokers or perform both functions. A broker is an individual or firm who acts as an intermediary between a buyer and seller, usually charging a commission. A dealer is any person in the business of buying and selling securities for his or her own account, through a broker or otherwise.

Exemptions

Exemptions from the licensing requirement for broker-dealers and investment advisers are found in Code Sections 25200 thru 25209 and California Code of Regulations (“CCR”) Sections 260.200 thru 260.204.12.

Code Section 25200 is specifically related to broker-dealers and provides an exemption from the licensure requirement to any broker-dealer that (1) is registered with the Securities and Exchange Commission (“SEC”), (2) has not previously had any certificate denied or revoked by the Commissioner of Financial Protection and Innovation (“Commissioner”), (3) has no place of business in this state and (4) its only clients are other broker-dealers, banks, savings and loan associations, trust companies, insurance companies, investment companies registered under the Investment Company Act of 1940, pension or profit-sharing trusts (other than self-employed individual retirement plans), or other institutional investors or governmental agencies or instrumentalities (as defined in CCR §260.200).

Code Section 25200 also contains the de minimis standard that exempts a broker-dealer from the licensure requirement if the first three conditions listed above are true and the broker-dealer has no more than 15 other customers having an existing account with the broker-dealer.

How to apply for a Broker-Dealer Certificate?

Any person who intends to become a broker-dealer in California may apply for a broker-dealer certificate by filing an application. If the applicant is a member of Financial Industry Regulatory Authority (“FINRA”), the application (Form BD) should be filed directly with the Central Registration Depository (“CRD”). If the applicant is not a member of FINRA, the application (Form BD with additional documentation) should be filed directly with the Commissioner. Additional information and instructions for filing an application can be found in the Information to Assist Persons Applying for a Broker-Dealer Certificate and Instructions for Completing and Filing Form BD in California by Broker-Dealers Not Filing by Notification). These pages should be reviewed prior to filing an application and any questions concerning the application process should be directed to our Customer Services Office at 1-866-275-2677.

Application

Uniform Application for Broker-Dealer Registration (Form BD) – Form BD should be filed electronically with CRD if the applicant is a member of FINRA. If the applicant is not a member of FINRA, Form BD should be filed directly with the Commissioner. Form BD is available on the Department’s web site or FINRA’s web site at http://www.finra.org/industry/web-crd/current-uniform-registration-forms-electronic-filing-web-crd.

Application by Notification (Form 260.211.1) – A broker-dealer that (a) has a currently effective registration as a broker-dealer under the Securities Exchange Act of 1934, (b) is a member in good standing of the New York Stock Exchange (“NYSE”) or the American Stock Exchange (“AMEX”) and (c) has not had a certificate as a broker-dealer, investment adviser or agent revoked or denied under the Corporate Securities Law of 1968 or any predecessor statute (unless waived by rule or order of the Commissioner), may file an Application by Notification pursuant to Code Section 25211(b) (Form 260.211.1). The application by notification may not be used if an application for registration or membership with the NYSE or AMEX is pending.

 

Fees

The fee for filing a broker-dealer application is $300. If the applicant is filing with CRD, the fee is to be paid directly to CRD in accordance with its procedures. If the applicant is not filing with CRD, the fee is to be paid directly to the Commissioner. Fees are not refundable except as provided in Government Code Sections 13140-13144.

 

What is a Broker-Dealer Agent?

Note: On the web pages below, references are made to the Rules as found in Title 10, Chapter 3, California Code of Regulations (“CCR”). For information concerning the CCR and accessing sections of the CCR referenced on these web pages, visit CCR – Assistance page.

An agent or registered representative, sometimes referred to as a broker, is defined in Code Section 25003 and means any individual, other than a broker-dealer or a partner of a Licensed broker-dealer, who represents a broker-dealer or who for compensation represents an issuer in effecting or attempting to effect purchases or sales of securities in this state. (This is not a complete definition. See Section 25003). An agent is an employee of the broker-dealer and is subject to the supervision and control of the broker-dealer.

 

Qualification Requirements [CCR §260.217]

Every individual who is a broker-dealer, or a compliance supervisor, or reported agent of a broker-dealer must qualify by passing a securities examination as specified in CCR §260.217(a)(1) and should meet all applicable examination requirements of the SEC and the self-regulatory organizations of which the broker-dealer is a member. The examination requirement is the Uniform Securities Agent State Law Examination (“Series 63”) or Uniform Combined State Law Examination (“Series 66”). FINRA administers both examinations.

Employment Requirements [CCR §260.210]

Upon employment of an individual as an agent, a broker-dealer should obtain a properly executed Form U-4, evidence that such agent meets the qualification requirements of CCR §260.217, and ascertain (by investigation) the character, business reputation and experience of any individual, prior to executing any transaction on behalf of the broker-dealer. Evidence of compliance with CCR §260.217 and investigation of the agent, should be maintained as a part of the records of the broker-dealer as required by CCR §260.241.

How to Apply for a Broker-Dealer Agent Certificate

Filing Requirements [CCR §260.210]

  1. Employment – Upon employment of an individual as an agent, Form U-4 including any Disclosure Reporting Page(s) (“DRP”) should be completed in accordance with the form instructions. If the broker-dealer is filing with CRD, Form U-4 should be filed with, and the reporting fee paid to, CRD in accordance with its procedures. If the broker-dealer is not filing with CRD, Form U-4 and reporting fee should be filed directly with the Commissioner.
    The filing of Form U-4 does not constitute an automatic approval. The broker-dealer should not consider an agent “registration” approved until approved by the Commissioner and the broker-dealer has been notified of the approval. If the broker-dealer is filing with CRD, the approval will be received through CRD.
  2. Changes – Within 30 days of any changes to Form U-4, an amendment to Form U-4 should be filed. If the broker-dealer is filing with CRD, the amendment should be filed directly with CRD in accordance with its procedures. If the broker-dealer is not filing through CRD, the amendment should be filed directly with the Commissioner.
  3. Termination – Within 30 days of termination of an individual as an agent, Form U-5 should be filed in accordance with the form instructions. If the broker-dealer is filing with CRD, Form U-5 should be filed directly with CRD in accordance with its procedures. If the broker-dealer is not filing through CRD, Form U-5 should be filed directly with the Commissioner.
  4. Fingerprints – If the fingerprints of the individual to be employed as an agent for a non-FINRA broker-dealer are not on file with the Commissioner, such broker-dealer should file (1) a copy of the individual’s “Fingerprint Cards” page as found on CRD or (2) fingerprint information provided on forms from the Department and the cost of fingerprint processing. Information about whether an individual’s fingerprints are on file with the Commissioner may be obtained from any office of the Commissioner. Note: If the broker-dealer needs to file fingerprint information with the Commissioner, the Request for Live Scan Services form should be completed in triplicate. The fingerprints will be transmitted electronically to the Department of Justice (“DOJ”) for processing. The broker-dealer will be required to pay the fees charged by the DOJ for processing the fingerprints directly to the live scan operator. When filing Form U-4 with the Commissioner, the broker-dealer should include the Requesting Agency’s copy of the Request for Live Scan Services form and the $20 fingerprint processing fee. For current information concerning the location of live scan terminals, visit the Attorney General’s web site at https://oag.ca.gov/fingerprints/locations.

Fees

  1. The initial filing fee for each reported agent is $25. If the broker-dealer registers its agents with FINRA, the fee is paid directly to CRD. There is a $35 annual renewal fee for an agent.
  2. The processing fee for each fingerprint submission is $20.

Note:
References to Section 25xxx can be found at https://leginfo.legislature.ca.gov/ by selecting California Law, Corporations Code – CORP, Title 4.
References to Section 260.xxx can be found at “https://ccr.westlaw.com/ by selecting Title 10, chapter 3.

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