The overall cost of registration can be high in both time and money, especially for large financial firms with hundreds or thousands of employees. Even so, there are limited situations where a person can avoid the agent registration process, even if their job looks similar to an agent’s role.
The exclusions 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, they have no agent registration requirement.
There are five specific exclusions we’ll cover:
Most broker-dealer employees must register as agents, but employees in purely clerical roles can generally avoid registration.
Clerical roles may be described using many different titles, including:
The key point is function, not job title. If the employee isn’t acting as an agent, they don’t need to register.
Here’s the legal definition of an agent:
So, if an employee is not facilitating securities trades, attempting to facilitate trades, or discussing the risks or benefits of securities, they aren’t operating as an agent.
Typical clerical functions include:
A clerical-sounding title doesn’t automatically create an exclusion. For example, suppose 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. If the secretary takes the order and executes it for the customer, the secretary is now acting as an agent.
That would violate the Uniform Securities Act (USA). If someone acts as an agent, they must be registered unless they qualify for a specific exclusion. Once a clerical employee starts doing agent work, they lose the clerical exclusion (if it walks like a duck and quacks like a duck, it’s a duck).
Compensation matters too. Clerical employees can’t be paid like agents, meaning they can’t receive compensation tied to securities transactions (for example, commissions). 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 say 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 in the state, 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 the agent:
A similar idea applies to the vacation (snowbird) rule. Broker-dealers can avoid registration if they:
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 can be summarized as transactions in:
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 aren’t subject to the registration process.
We’ll cover all securities exemptions in a future chapter. For this agent exclusion, these are the relevant exempt securities:
If an employee of an issuer facilitates a securities transaction involving any of the above, they’re excluded from the definition of an agent.
For example, suppose you work for the United States Department of the Treasury and sell Treasury securities (like 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 only applies to people representing an issuer. It doesn’t 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 avoid registration because of how the transaction is conducted.
For example, you may have learned about private placements (SEC’s Regulation D) on another licensing exam. An issuer can sell non-exempt securities (like stock) without registering the offering if the sale is limited to a private audience (often wealthy individuals and institutions). When the offering isn’t made to the general public, registration requirements generally don’t apply.
The USA describes many exempt transactions. We’ll go deeper into each one 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, suppose 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.
The issuer’s employees often administer these plans. Human resources departments are commonly responsible for explaining and managing benefit plans.
As long as these employees don’t receive commissions for this work, they’re excluded from the definition of an agent and don’t have to register.
For example, suppose 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 stock in the directors’ accounts. 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 performing a type of securities transaction.
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