Effective registration
Effective registration
To apply for registration as an agent, the individual and their broker-dealer must file Form U-4, provide the required criminal, legal, and regulatory disclosures, and pay the appropriate filing fee. The initial application must also include a consent to service of process (you don’t need to re-submit it later).
Depending on the broker-dealer’s business and the requirements of a particular state, the state may also require a surety bond to be posted on the agent’s behalf.
The processing timeline is the same as it is for broker-dealers. If the filing is complete, registration becomes effective at noon on the 30th day after filing. The state administrator may choose to make registration effective sooner.
Once registered, agents (and other registered persons) may not state that they were “approved” by the state administrator.
Financial requirements
Unlike broker-dealers, agents are not subject to minimum financial requirements (there’s no minimum net capital requirement). Even though agents don’t have to maintain a specific asset level, both agents and applicants must disclose certain financial events, such as bankruptcy or compromises with creditors. An application may also be denied due to insolvency.
Insolvency or bankruptcy doesn’t automatically prevent registration. The administrator typically evaluates these situations case by case. If the applicant is actively addressing their financial issues, the administrator will often grant effective registration.
Form U-4 updates
Registered agents must file a Form U-4 amendment to update the state administrator if any material information on the form changes, including:
- Name changes (e.g., due to marriage)
- Home address
- Office location
- Jurisdiction changes (state registration status)
- Outside business activities (employment outside of firm)
- New events related to:
- Criminal actions
- Regulatory actions (e.g., suspension or revocation)
- Civil litigation involving securities
- Certain customer complaints*
- Financial status (e.g., bankruptcy)
*Only customer complaints involving accusations of theft or resulting in large settlements must be reported.
Most updates must be filed within 30 days of the event. Statutory disqualification events must be updated on Form U-4 within 10 days.
Outside brokerage accounts
An agent’s obligations to their employing firm don’t end with the Form U-4. Under FINRA Rule 3210, an agent who wants to open a securities account at another broker-dealer must:
- Get the employing broker-dealer’s prior written consent before the account is opened
- Notify the executing firm, in writing, that they’re associated with a FINRA member firm
Once the account is open, the executing firm must send duplicate account statements and trade confirmations to the employing firm on request. That’s what lets the employer supervise the agent’s personal trading for front running, insider trading, and other manipulative activity.
The rule follows the money rather than the name on the account: it covers any account in which the agent has a beneficial interest, including an account held by a spouse, a dependent child, or anyone else the agent supports financially. An agent can’t get around the rule by opening the account under a relative’s name.
This is a FINRA rule, so it binds agents of FINRA member broker-dealers. It sits alongside the NASAA prohibition on undisclosed outside securities activity (selling away) - both exist so the employing firm knows about, and can supervise, the securities business its agents do.
Canadian agents
Canadian agents may obtain limited registration through their Canadian broker-dealers. The same rules and process discussed previously apply to agents.
However, an agent does not have to be a member of a Canadian self-regulatory organization (SRO) or a stock exchange.
Termination
As long as an agent remains in good standing and renews registration each year (by December 31st), they may continue to operate legally in a state. Eventually, an agent’s registration will end - for example, due to retirement, a job change, a career change, or being discharged. In this context, these events are all treated as an agent’s termination, and the state administrator must be notified so the registration can be canceled.
Both the broker-dealer and the agent are responsible for notifying the state administrator when the agent’s employment ends. This is done by filing Form U-5. The agent and a firm supervisor sign the form and submit it to the appropriate state administrator(s).
If an agent leaves one broker-dealer and joins another, all three parties must notify the appropriate state administrator(s):
- The agent and the former broker-dealer complete and submit Form U-5.
- The agent and the new broker-dealer complete and submit Form U-4.
When a termination occurs, the state administrator must be notified “promptly,” which generally means within 30 days.
Termination doesn’t necessarily mean the employee was fired. For example, an agent might take a sabbatical or another temporary leave of absence and terminate registration during that period.