The overall cost of registration can be high in both time and money, especially for larger financial firms with hundreds or thousands of employees. In some situations, a person can avoid the agent registration process even if their job looks similar to an agent’s role.
The exclusions discussed in this chapter apply when a person does not meet the legal definition of an agent. If someone isn’t an agent under the law, there’s no agent registration requirement.
There are five specific exclusions we’ll cover:
Most broker-dealer employees will need to register as agents, but clerical employees can generally avoid registration.
There are many titles used for clerical-type jobs, including:
The key idea is function, not title. If an employee is not acting as an agent, they can avoid agent registration.
Here’s the legal definition of an agent:
So, if the employee is not:
then they are not operating as an agent.
Typical clerical functions include:
A clerical-sounding title (for example, “secretary”) does not automatically exclude someone from registration. For example, assume a secretary at a broker-dealer usually answers general questions and sets appointments for agents. An investor calls to place a trade, but no registered agents are available. The secretary takes the order and executes it on behalf of the customer.
That action would violate the Uniform Securities Act (USA). If a person acts as an agent, they must be registered unless a valid exclusion applies. Once a clerical employee starts performing agent functions, they lose the clerical exclusion (if it walks like a duck and quacks like a duck, it’s a duck).
In addition to avoiding agent-type activities, clerical employees also can’t be paid like agents. They may not receive compensation tied to a securities transaction (for example, a commission). However, they may receive bonuses based on overall business profits as long as the bonus is not directly tied to specific securities transaction(s).
In a previous chapter, we learned that broker-dealers have an institution exclusion. If a broker-dealer has no place of business in a state and only engages institutional investors, the broker-dealer is not required to register in that state.
The USA does not explicitly state that this exclusion applies to agents. This creates a legal “gray area,” but many compliance officers and securities attorneys apply the same logic to agents: if the broker-dealer isn’t required to register, it’s unlikely the state administrator would require the agent to register.
Therefore, it’s generally treated as safe to assume an agent may avoid registration in a state if they:
A similar idea applies to the vacation (snowbird) rule. Broker-dealers can avoid registration if they:
Agents are often associated with broker-dealers, but individuals can also be employed by issuers. A person representing (working for) an issuer can avoid registration as an agent when they perform certain types of securities transactions.
These transactions fall into two categories:
Certain exempt securities
An exempt security avoids registration based on what it is. For example, Treasury bonds (a type of US Government debt) are exempt from registration. Although they are securities, government securities are not subject to the registration process.
You’ll learn the full list of exempt securities later, but these are the exemptions that matter for this agent exclusion:
If an employee of an issuer facilitates a securities transaction involving any of the above, they are excluded from the definition of an agent.
For example, assume you work for the United States Department of the Treasury and sell Treasury securities (like Treasury bills, notes, and bonds) to the public. You are excluded from the definition of an agent and do not need to register with any state administrator.
This exclusion applies only to people representing an issuer. It does not apply to broker-dealer employees. For example, a broker-dealer employee who only facilitates trading in Treasury securities is not excluded and must register as an agent.
Certain exempt transactions
An exempt transaction allows a non-exempt security to be sold without registration.
For example, you may have learned about private placements (SEC’s Regulation D) on another licensing exam. An issuer can sell its non-exempt securities (for example, stock) without registration if the sale is limited to a private audience (typically wealthy individuals and institutions). When the offering is kept away from the general public, registration requirements generally don’t apply.
The USA describes many exempt transactions. We’ll cover each of these in more detail later in this material, but here’s a summarized list:
For now, assume a person is excluded from the definition of an agent if they represent an issuer and perform any of the transactions listed above.
For example, assume Deion works for a local shoe company. Deion helps the company sell stock to a small group of wealthy investors (a private placement). Although he’s facilitating a securities transaction, the law excludes Deion as an agent because he’s representing an issuer and facilitating an exempt transaction on the issuer’s behalf. However, Deion would be required to register if he performed the same transaction (a private placement) as an employee of a broker-dealer.
Many companies offer employees benefit plans that involve securities, including:
Many executives of publicly traded companies receive stock options (a type of stock purchase plan) as a major form of compensation. Stock options give the right to buy stock at a fixed price (for example, the right to buy 10,000 shares at $50). If the company’s stock price rises, the option becomes valuable.
Issuer employees often administer these plans. Human resources departments are commonly responsible for explaining and managing benefit plans.
As long as these employees do not receive commissions for this work, they are excluded from the definition of an agent and do not need to register.
For example, assume Sally works in the HR department of a publicly traded company. Part of her job is explaining and providing stock option plans to the company’s directors. When a director wants to exercise an option, they contact Sally. Sally’s role is to place the stock in the director’s account. She receives no commissions for her work, although she is paid a salary. In this scenario, Sally is excluded from the definition of an agent even though she’s involved in a securities-related transaction.
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