The overall cost of registration can be high in both time and money, especially for larger financial firms with hundreds or thousands of employees. Even so, there are specific situations where 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 legally an agent, they have no agent registration requirement.
There are five specific exclusions we’ll cover:
Most broker-dealer employees will need to register as agents, but employees in purely clerical roles can generally avoid registration. You’ll see many titles used for clerical-type work, including:
The key point is what the person does, not what their job title says. To see why, it helps to start with the legal definition of an agent:
If an employee is not facilitating securities trades, attempting to facilitate trades, or discussing the risks or benefits of securities, they aren’t acting as an agent.
Typical clerical functions include:
A clerical-sounding title doesn’t automatically create an exclusion. For example, assume a secretary at a broker-dealer usually answers general questions and schedules appointments. An investor calls to place a trade, but no registered agents are available. The secretary takes the order and executes it for the customer.
That would violate the Uniform Securities Act (USA). If someone acts as an agent, they must be registered unless a valid exclusion applies. Once a clerical employee starts doing agent work, they lose the clerical exclusion.
Compensation matters too. Clerical employees must also avoid being paid like an agent. They can’t 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 isn’t 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 isn’t required to register in that state.
The USA doesn’t explicitly extend this exclusion 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 in the state, it’s unlikely the state administrator would require the agent to register.
So, for exam purposes, it’s generally 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:
As with the institution rule, the USA doesn’t clearly state that this applies to agents, but the same practical approach is commonly used.
Agents are commonly associated with broker-dealers, but individuals can also represent (work for) issuers. A person representing an issuer can avoid registration as an agent when they perform certain securities transactions.
These transactions fall into two categories:
Certain exempt securities
An exempt security avoids registration because of what it is. For example, Treasury bonds are exempt from registration. Although they are securities, they aren’t subject to the registration process.
We’ll cover all securities exemptions in a future chapter. For this agent exclusion, these are the key exempt securities:
If an employee of an issuer facilitates a transaction involving any of the securities above, they’re excluded from the definition of an agent.
For example, assume you work for the United States Department of the Treasury and sell Treasury securities (Treasury bills, notes, and bonds) to the public. You’re excluded from the definition of an agent and don’t 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 because of how the transaction is conducted.
For example, you may have learned about private placements (the SEC’s Regulation D) on another licensing exam. An issuer can sell non-exempt securities (like stock) without registration if the offering is limited to a private audience (often wealthy individuals and institutions). When the general public isn’t involved, registration requirements often don’t apply.
There are many exempt transactions in the USA. We’ll cover each in more detail later in this material. For now, 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 primary 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.
Employees of the company (the issuer) often administer these plans. Human resources departments commonly handle the communication and paperwork. As long as these employees don’t receive commissions for this work, they’re excluded from the definition of an agent and don’t need to register.
Here’s a quick 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, 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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