Although broker-dealers register with both the SEC and state administrator, the Series 66 tends to focus solely on the state registration process. For the remainder of the broker-dealer registration section, we will only be discussing the state process and relevant regulations.
Once a registrant submits all the necessary paperwork and complies with general requirements, the state administrator reviews their request.
These are the important items a broker-dealer must submit:
The state administrator reviews the documentation to determine if registration will be granted. Here’s what the Uniform Securities Act (USA) says about the time frame associated with this review:
“If no denial order is in effect and no proceeding is pending… registration becomes effective on the 30th day after an application is filed, unless earlier made effective.”
This is a fancy way of saying registration will be granted if no problems exist on the 30th day the application is filed. This typically occurs at noon on the 30th day after filing (yes, the test can be this nitpicky). “Unless earlier made effective” means the state administrator has the power to speed up the process if they prefer.
Once the state administrator is confident registration will be granted, they first notify the applicant (the broker-dealer). It may sound strange, but the state administrator may also require the firm to take out a newspaper ad announcing their presence as a registered broker-dealer. Here’s the exact language from the USA:
“The [Administrator] may by rule or order require an applicant for initial registration to publish an announcement of the application in one or more specified newspapers published in this state.”
Whether the broker-dealer announces their registration status in a newspaper, online, or verbally with customers, they must be very careful with the language they use. There’s a key term the state administrator prefers for persons - effective registration. Once registration is effective, the broker-dealer can engage customers and operate legally in that state.
State administrators are particularly concerned with financial professionals and firms “playing up” their registration status. Registration does not mean the state administrator approves or guarantees the performance of any financial professional. For example, the regulators would have a big problem with a newly-registered broker-dealer posting this statement to their website:
“Our registration and business have been approved by the state securities administrator, so you know your money is safe with us!”
If you’ve taken a FINRA exam (like the SIE, Series 6, or 7), you’ve already come across this concept. The Securities and Exchange Commission (SEC) enforces similar rules, especially in conjunction with securities. When a security is registered with the SEC, it would be prohibited for the issuer or any financial firm selling those securities to imply any sort of approval from the SEC.
Securities regulators are basically the referees of the securities markets. Similar to the NFL referee signaling a Tom Brady touchdown, but refusing to give him a high five, the securities regulators want to portray themselves as impartial and unbiased as possible. Registration is like a touchdown; it signifies the applicant may operate legally in a state. It doesn’t mean the regulators like, adore, or approve of the applicant.
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