Along with the rules and regulations related to broker dealers on the NASAA Series 63, 65, and 66 exams, you will also need to know the key exceptions to those rules. In this video, we explore what the key exclusions are to being forced to register as a broker dealer, and then do a Series 63/65/66 practice question on the topic together.
If you’re looking for a comprehensive course to pass your FINRA or NASAA exam the first time, try Achievable’s FINRA and NASAA courses. We offer courses with industry leading pass rates for the FINRA SIE, Series 6, Series 7, Series 63, Series 65, and Series 66 exams.
0.0s You've already learned about what a broker-dealer is the registration requirements of a broker-dealer. All the forms & documents that must be file for the legally operate in the industry, you should feel comfortable with most of those things already through this part, in the achievable material. Now, the exam will focus on those Concepts but they will also focus on when we have a firm that is not legally considered a broker-dealer or excluded from the definition of a broker-dealer excluded, cancer complicated. But much as break it down. If a firm is excluded from registration as a broker-dealer, that means they are not meeting the definition of a broker-dealer and therefore are not required to register as a broker-dealer. As you've already learned registration sucks, this is not a fun process. It requires forms to be filed, filing fees have to be paid. You got to hire lawyers and accountants to fill out this paperwork for you. Registration is just a pain in the butt. 59.9s Four companies in for individuals that are working in the Securities industry. Of course, registration is important for the big broad picture to to make sure there's some kind of oversight over these companies and individuals. But if there's an opportunity to avoid registration, you better believe that Financial professionals will take on that opportunity. Good news, there's not a ton of significant points. You need to remember to consistently get test questions on this topic, right? So let's cover those. Few heavily tested test topics and make sure we feel good about the broker-dealer. Exclusions, there are likely to show up on your test. First, we have some general exclusion from the definition of a broker-dealer and most of these will probably make sense after we talked about them agents. Issuers. In banks are generally speaking. Excluded from the definition of a broker-dealer, agent says you've learned are the human beings. The natural persons that represent broker-dealers when they're performing their business. There basically, being 119.9s Who is a broker-dealer? I know it might sound basic and easy, we have the company and one hand versus the employees of the company on the other. But you should be aware. It's common for test questions. To try to trip you up on this topic again. Broker-dealers are the firm's or companies that executes Securities transactions for customers in agents are the employees that represent the firm while doing the same transactions. Second issuers, are not broker dealers. This one might feel like it's a bit out of left field, but this is to make sure that you understand the difference between the broker dealers that help customers buy and sell Securities versus the issuers of the Securities. So, for example, that's a Fidelity helps you buy stock in Coca-Cola. Does that mean that Fidelity is the issuer of Coca-Cola stock know? Coca-Cola is the issuer of that stock, but they don't have to register as the broker-dealer because their businesses selling soft drinks and doing other things on those. 179.9s Not helping investors buy and sell their stock. They have financial institutions do that on their behalf. So again, if I buy Coca-Cola stock through Fidelity Fidelity, is the broker-dealer. Coca-Cola is the issuer in Coca-Cola, does not need to register as a broker-dealer. That's something that might be a little confusing here. Is it sometime broker-dealers and issuers are one in the same. For example, Charles Schwab is one of the biggest broker-dealers out there, but also Charles Schwab is an issuer of their publicly traded stock. If you have a Charles Schwab account and buy Charles Schwab stock through your truck. Schwab account, technically, you're buying stock through Charles Schwab's broker-dealer business and they the company are also the issue of that same stock. Now, of course, broker-dealers with publicly traded stock trade way more than their own stock. So whether Charles, Schwab TD, Ameritrade or even Robinhood, yes, you could have an issue, an appropriate in the same scenario. But for test purposes, you should have some 239.8s That broke me. There's an issue where it's ninety-nine times. Out of a hundred are going to be two separate entities in issuers, are not considered broker-dealers vice-versa. The last General exclusion is a bank or Bank Banks, certainly are part of the financial industry. They're just typically not part of the Securities, part of the financial industry. Thanks are subject to their own rules regulations, and Regulators, all of which you really don't need to worry about for this exam and that's the point of this exclusion. Hey, if we have a bank that just doing banking stuff, even if there's some kind of maybe security involved, like if a bank is offering a bond or stock in his company to investors Banks, just generally speaking are not considered broker-dealers without thinking too much. Just keep it simple. If it's a bank, just assume it's not a big deal but there's one big exception. If it's a bank holding company, 292.4s No big holding company is an organization that has a banking business but they do more than just Banking and whatever you have a big organization that owns the banking business. But also has other businesses. Usually there are intertwined in the Securities markets. That's what we call Bank holding company. Almost all of the big Banks you know about today or Bank holding companies in really good example, that would be Bank of America. Bank of America does have a huge banking operation but also Bank of America owns Merrill Lynch and part of Maryland is operations are dedicated to broker-dealer business services. So basically Bank of America, in particular Bank of America Merrill Lynch division cannot avoid registration, just because the bigger brought a business is involved in banking. So bottom line, here's what you need to know if it's a bank and that's it you can assume it's excluded from the definition of a broker-dealer, but if they mention the term Bank holding company Bank holding companies, certainly can be considered broker-dealers and they 352.4s Will be considered broker-dealers, if a part of their business is dedicated to brokerage Services. Now, there are two other ways that a business that might even be operating as a broker-dealer can actually be considered excluded from registration. Both of these, exclusions come with the prerequisite of no office in a state, that is actually a really good test point to keep track of. If a broker-dealer has an office in estate, just means we have a physical location that their customers can go to. If that exists in a state you better believe they're going to be subject to registration in that state. If they don't they very well, could have boyfriend distraction. So for example, might say we have a broken either that has a principal place of business in California. Maybe they have a couple of offices on the west coast in Oregon and Washington what that broker-dealer gets on the phone and also perform some internet related activity with customers on the East Coast. Let's say in New York but they have no officer. The office in New York, is it possible? They can avoid. 412.3s Registration in the state of New York. It depends on what they're doing and who they're doing business with now. The first thing to be aware of is what we call the institution Bowl. If a broker-dealer has no place of business in the state and is only doing business with institution in that state. They can a claim that exclusion which means they don't have to register in that state. As you've learned earlier, in the achievable materials, institutional investors are professional dancers that typically are investing their own clients assets. So a mutual fund for example would be an Institutional Investor or a hedge fund or even an investment advisor. That's investing their clients asset. That would also be included in the definition of an Institutional Investor. So, back to our original example, we have a broker-dealer with offices in the west coast. They execute transactions for mutual funds based in New York City in New York, but actually don't have an office in New York and they do not deal at all with retail clients in New York. By the way, to retail clients, just an individual. 472.3s Quiet like you are me and not like an organization. In that case, that West Coast broker-dealer, although they're doing business in New York, can completely avoid registration in New York because of the institution rule. The last exclusion is what we call the vacation rule in place of business in the state. It is only dealing with customers or clients of theirs in the state that they are temporarily on vacation in, then there's no need for them to register in that state. This is a real primarily focused around retail investors. Let's go back to our example of our broker dealer on the west coast in California, Oregon Washington, but say they have retail investors that our customers of theirs. And those three states. One of their retail customers that resides in California, travels to the main on the East Coast for a quick vacation. Now, Ken that customer who's in Maine, call the broker-dealer or get online and do business with the broker-dealer without the broker-dealer actually. 532.3s Registered in the state of Maine in. The answer is yes, they can. As long as that customer of theirs is not completely relocating to that new state, then they can claim this exclusion in a void registration vacation is generally speaking considered temporarily visiting a location usually for 30 days or less, there's some related exceptions to the 30-day time frame. So freaked sample. If a customer of theirs who maintains our primary residence in California goes to Colorado to get a master's degree. If they're going there for a student program and it's clear, they're maintaining their primary residence in California and will eventually come back, then, they can also claim the same exclusion you might see test questions. Mention student programs or even more programs. So for example, a customer of their is residing in maintaining the primary residence in California is sent by their employer to Texas for a short-term work program of some form, maybe for a four or five months. 592.2s You can also claim is exclusion continue to work with that person again, as long as they're maintaining their primary residence in the Old State. Those are the big explosions to be aware of for the exam when it comes to broker-dealers. Not to bring this full picture. Let's actually look at a practice question together to better understand how we might be tested on this concept. All right, here it is. Which of the following persons is not excluded from the definition of a broker-dealer in a state. If you want to go ahead and see if you can answer the question yourself, take a second, pause the video and we will break this down together in just a few moments. Okay, let's see if you got the right answer. This question has a double negative in it. It's really important that. You understand what the question is asking you to look for before you actually get to me an answer. So let's do that, which of the following persons is not excluded, okay? That's a double negative not excluded. So a person that's excluded does not have to register. 652.2s Okay. So we're saying which one person's is not excluded. We're basically being asked for the one person here, they would be required to be registered as a broker-dealer. So to be clear, we have three scenarios here or there will be a broker-dealer exclusion one where there is not, let's go through each answer to understand why it's either right or wrong first FF security executions, a person offering Securities transaction Services only to institutional investors with an office in the state, okay? So they're only offering Securities transaction services to institutional investors and you'll remember us talking about the institution rule, but remember the institution wool came with a prerequisite of no office in the state and only dealing with institutions? 701.4s We clearly see the FFF security execution has an office in the state. So they would not be excluded. They would be subject to registration in that state simply because they have an office in that states. Now, that's our first answer. It seems like it's the right answer, but let's go ahead and go through all four answers here to confirm that the first ones correct, in all the rest of them are not going to be the answer. The remaining answers should all be exclusions related to what we just talked about before. Second answer CDE, distributions group, a person offering its Securities to investors in the state. Okay, that doesn't really say a lot there but let's go really to be meet of the answer there. A person offering its Securities to investors. Remember broker-dealer is generally speaking. Help investors buy Securities of other issuers. If we go back to the language in the answer, a person offering its Securities to investors in the state that very much makes it seem like that is an issue are there? 761.4s Broker-dealers in general, don't offer their own Securities to investors the offer, the Securities of other issuers to their investors and help them buy and sell them. So again, that's second one. There that is an issue. Or if we remember issuers are one of the three General exclusion that would be excluded from registration as a broker-dealer, third, Phoenix. Skylar a person representing a Securities. Firm wall affecting Securities transactions in the state. Okay. Where can I identify a really important word here that will help you figure out if we're talking about a human being, what we call Natural person or affirm? Remember the word person can be all-encompassing your person? I'm a person but also the company you work for is also a person they key word there in that. Third answer is the word representing any time. You see the word representing? You can safely assume we're talking about a human being a Ka and natural person with. The third answer is referring to is an agent and remember agents are 821.4s Scooter from the definition of a broker-dealer. So bottom line whenever you see the word representing their most likely referring to either an agent, which represents a broker-dealer or an investment advisor, representative who represents their investment adviser from last one. In Opp Financial a bank offering investment advice to its clients in the state, they're going to be excluded from the definition of a broker-dealer, really for two reasons. Number One, Bank member banks are not considered dope dealers, they are excluded. Unless we were to see that term Bank holding company. That's a different story, but even if we were to see the term Bank holding company, this bank here is only offering investment advice that's investment advisor turtur. They're not broker-dealer territory broker-dealers execute Securities transactions who sang to help their customers buy and sell Securities. They don't necessarily offer advice to their customers that again is investment. Advisor territory said that last answer is a double whammy excluded from the definition. 881.4s Broker-dealer because there are number one a bank and never to be giving investment advice, not doing Securities transactions.