Who issues securities licenses

Broker-dealers that are exchange specialists or Nasdaq market makers must comply with particular rules regarding publishing quotes and handling customer orders. These two types of broker-dealers have special functions in the securities markets, particularly because they trade for their own accounts while also handling orders for customers. These rules, which include the "Quote Rule" and the "Limit Order Display Rule," increase the information that is publicly available concerning the prices at which investors may buy and sell exchange-listed and Nasdaq National Market System securities.

The Quote Rule requires specialists and market makers to provide quotation information to their self-regulatory organization for dissemination to the public. The quote information that the specialist or market maker provides must reflect the best prices at which he is willing to trade the lowest price the dealer will accept from a customer to sell the securities and the highest price the dealer will pay a customer to purchase the securities.

A specialist or market maker may still trade at better prices in certain private trading systems, called electronic communications networks, or "ECNs," without publishing an improved quote. This is true only when the ECN itself publishes the improved prices and makes those prices available to the investing public.

Thus, the Quote Rule ensures that the public has access to the best prices at which specialists and market makers are willing to trade even if those prices are in private trading systems. Limit orders are orders to buy or sell securities at a specified price. The Limit Order Display Rule requires that specialists and market makers publicly display certain limit orders they receive from customers.

If the limit order is for a price that is better than the specialist's or market maker's quote, the specialist or market maker must publicly display it. The rule benefits investors because the publication of trading interest at prices that improve specialists' and market makers' quotes present investors with improved pricing opportunities.

For purposes of the regulation, an alternative trading system or ATS is any organization, association, person, group of persons, or system that constitutes, maintains, or provides a marketplace or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange as defined in Rule 3b under the Exchange Act.

Further, for purposes of the regulation, an ATS may not set rules governing the conduct of subscribers other than with respect to the use of the particular trading system , or discipline subscribers other than by exclusion from trading. To the extent that an ATS or the sponsoring broker-dealer seeks to establish conduct or disciplinary rules, the entity may be required to register as a national securities exchange or obtain a Commission exemption from exchange registration based on limited trading volume.

In order to acquire the status of an ATS, a firm must first be registered as a broker-dealer, and it must file an initial operation report with respect to the trading system on Form ATS at least 20 days before commencing operation. The initial operation report must be accurate and kept current. The Commission does not issue approval orders for Form ATS filings; however, the Form ATS is not considered filed unless it complies with all applicable requirements under the Regulation.

Regulation ATS contains provisions concerning the system's operations, including: fair access to the trading system; fees charged; the display of orders and the ability to execute orders; system capacity, integrity and security; record keeping and reporting; and procedures to ensure the confidential treatment of trading information.

An ATS must also comply with any applicable SRO rules and with state laws relating to alternative trading systems and relating to the offer or sale of securities or the registration or regulation of persons or entities effecting securities transactions. Finally, an ATS may not use in its name the word "exchange," or terms similar to the word "exchange," such as the term "stock market.

Most broker-dealers that effect transactions in "penny stocks" have certain enhanced suitability and disclosure obligations to their customers. Penny stocks include the equity securities of private companies with no active trading market if they do not qualify for one of the exclusions from the definition of penny stock.

Before a broker-dealer that does not qualify for an exemption 9 may effect a solicited transaction in a penny stock for or with the account of a customer it must: 1 provide the customer with a risk disclosure document, as set forth in Schedule 15G, and receive a signed and dated acknowledgement of receipt of that document from the customer See Rule 15g-2 ; 2 approve the customer's account for transactions in penny stocks, provide the customer with a suitability statement, and receive a signed a dated copy of that statement from the customer; and 3 receive the customer's written agreement to the transaction See Rule 15g The broker-dealer also must wait at least two business days after sending the customer the risk disclosure document and the suitability statement before effecting the transaction.

In addition, Exchange Act Rules 15g-3 through 15g-6 generally require a broker-dealer to give each penny stock customer:. Broker-dealers, including foreign broker-dealers registered with the Commission and unregistered broker-dealers in the United States, must comply with Regulation S-P, See 17 CFR Part even if their consumers are non-U.

These notices must be clear and conspicuous, and must accurately reflect the broker-dealer's policies and practices. Before disclosing nonpublic personal information about a consumer to a nonaffiliated third party, a broker-dealer must first give a consumer an opt-out notice and a reasonable opportunity to opt out of the disclosure.

There are exceptions from these notice and opt-out requirements for disclosures to other financial institutions under joint marketing agreements and to certain service providers. There also are exceptions for disclosures made for purposes such as maintaining or servicing accounts, and disclosures made with the consent or at the direction of a consumer, or for purposes such as protecting against fraud, reporting to consumer reporting agencies, and providing information to law enforcement agencies.

In addition, it includes a safeguards rule that requires a broker-dealer to adopt written policies and procedures for administrative, technical, and physical safeguards to protect customer records and information. Further, it includes a disposal rule that requires a broker-dealer other than a broker-dealer registered by notice with the Commission to engage solely in transactions in securities futures that maintains or possesses consumer report information for a business purpose to take reasonable measures to protect against unauthorized access to or use of the information in connection with its disposal.

Broker-dealers offering certain types of accounts and services may also be subject to regulation under the Investment Advisers Act. See Section a 11 of the Investment Advisers Act. In general, a broker-dealer whose performance of advisory services is "solely incidental" to the conduct of its business as a broker-dealer and that receives no "special compensation" is excepted from the definition of investment adviser.

Thus, for example, a broker-dealer that provides advice and offers fee-based accounts i. Finally, under the same proposed rule, a broker-dealer that is registered under the Exchange Act and registered under the Investment Advisers Act would be an investment adviser solely with respect to those accounts for which it provides services that subject the broker-dealer to the Investment Advisers Act.

Pursuant to the rules of self-regulatory organizations, broker-dealers are required to arbitrate disputes with their customers, if the customer chooses to arbitrate. See e.

The purpose of this rule is to require a broker-dealer to have at all times enough liquid assets to promptly satisfy the claims of customers if the broker-dealer goes out of business.

Under this rule, broker-dealers must maintain minimum net capital levels based upon the type of securities activities they conduct and based on certain financial ratios. Broker-dealers that do not clear and carry customer accounts can operate with lower levels of net capital. This rule protects customer funds and securities held by broker-dealers.

Under the rule, a broker-dealer must have possession or control of all fully-paid or excess margin securities held for the account of customers, and determine daily that it is in compliance with this requirement. The broker-dealer must also make periodic computations to determine how much money it is holding that is either customer money or obtained from the use of customer securities. If this amount exceeds the amount that it is owed by customers or by other broker-dealers relating to customer transactions, the broker-dealer must deposit the excess into a special reserve bank account for the exclusive benefit of customers.

This rule thus prevents a broker-dealer from using customer funds to finance its business. Broker-dealers must make and keep current books and records detailing, among other things, securities transactions, money balances, and securities positions.

They also must keep records for required periods and furnish copies of those records to the SEC on request. These records include e-mail. Broker-dealers also must file with the SEC periodic reports, including quarterly and annual financial statements.

The annual statements generally must be certified by an independent public accountant. In addition, broker-dealers must notify the SEC and the appropriate SRO 12 regarding net capital, recordkeeping, and other operational problems, and in some cases file reports regarding those problems, within certain time periods. This gives us and the SROs early warning of these problems. Certain broker-dealers must maintain and preserve certain information regarding those affiliates, subsidiaries and holding companies whose business activities are reasonably likely to have a material impact on their own financial and operating condition including the broker-dealer's net capital, liquidity, or ability to conduct or finance operations.

Broker-dealers must also file a quarterly summary of this information. This information is designed to permit the SEC to assess the impact these entities may have on the broker-dealer. In addition to the provisions discussed above, broker-dealers must comply with other requirements. These include:. The appropriate SRO generally inspects newly-registered broker-dealers for compliance with applicable financial responsibility rules within six months of registration, and for compliance with all other regulatory requirements within twelve months of registration.

A broker-dealer must permit the SEC to inspect its books and records at any reasonable time. In general, all broker-dealers must register in the lost and stolen securities program. The limited exceptions include broker-dealers that effect securities transactions exclusively on the floor of a national securities exchange solely for other exchange members and do not receive or hold customer securities, and broker-dealers whose business does not involve handling securities certificates.

Broker-dealers must report losses, thefts, and instances of counterfeiting of securities certificates on Form XF-1A, and, in some cases, broker-dealers must make inquiries regarding securities certificates coming into their possession. A registration form can be obtained from Securities Information Center, P.

Box , Boston, MA Generally, every partner, officer, director, or employee of a broker-dealer must be fingerprinted and submit his or her fingerprints to the U. Attorney General. This requirement does not apply, however, to broker-dealers that sell only certain securities that are not ordinarily evidenced by certificates such as mutual funds and variable annuities or to persons who do not sell securities, have access to securities, money or original books and records, and do not supervise persons engaged in such activities.

A broker-dealer claiming an exemption must comply with the notice requirements of Rule 17f Broker-dealers have broad obligations under the Bank Secrecy Act "BSA" 13 to guard against money laundering and terrorist financing through their firms. The BSA, its implementing regulations, and Rule 17a-8 under the Exchange Act require broker-dealers to file reports or retain records relating to suspicious transactions, customer identity, large cash transactions, cross-border currency movement, foreign bank accounts and wire transfers, among other things.

Firms must develop and implement a written anti-money laundering compliance program, approved in writing by a member of senior management, which is reasonably designed to achieve and monitor the member's ongoing compliance with the requirements of the BSA and its implementing regulations. Under this obligation, firms must:. OFAC administers and enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries, terrorists, international narcotics traffickers, and those engaged in activities related to the proliferation of weapons of mass destruction.

OFAC's sanctions programs are separate and distinct from, and in addition to, the anti-money laundering requirements imposed under the BSA on broker-dealers. OFAC programs are also strict liability programs — there are no safe harbors and no de minimis standards, although having a comprehensive compliance program in place could act as a mitigating factor in any enforcement action. OFAC publishes regulations implementing each of its programs, which include trade restrictions and asset blockings against particular countries and parties tied to terrorism, narcotics trafficking, proliferation of weapons of mass destruction, as well as a number of programs targeting members of certain foreign jurisdictions.

As part of its efforts to implement these programs, OFAC publishes a list of Specially Designated Nationals, which is frequently updated on an as-needed basis. This screening should include originators or recipients of wire and securities transfers.

The Commission, Federal Reserve Board, and Comptroller of the Currency published an interagency White Paper emphasizing the importance of core clearing and settlement organizations and establishing guidelines for their capacity and ability to restore operations within a short time of a wide-scale disruption. In , NASD and the NYSE adopted rules requiring every member to establish and maintain a business continuity plan, with elements as specified in the rules, and to provide the respective SROs with emergency contact information.

For additional information about how to obtain official publications of SEC rules and regulations, and for on-line access to SEC rules:. Publications Section U. SEC's website: www. Financial Industry Regulatory Authority Key West Avenue Rockville, MD call center to check on the registration status of a firm or individual www. New York Stock Exchange, Inc.

Suite Washington, D. We wish to stress that we have published this guide as an introduction to the federal securities laws that apply to brokers and dealers. It only highlights and summarizes certain provisions, and does not relieve anyone from complying with all applicable regulatory requirements.

You should not rely on this guide without referring to the actual statutes, rules, regulations, and interpretations. See Part V. Section 10 b is a broad "catch-all" provision that prohibits the use of "any manipulative or deceptive device or contrivance" in connection with the purchase or sale of any security.

Sections 15 c 1 and 15 c 2 apply to the over-the-counter markets. Section 15 c 1 prohibits broker-dealers from effecting transactions in, or inducing the purchase or sale of, any security by means of "any manipulative, deceptive or other fraudulent device," and Section 15 c 2 prohibits a broker-dealer from making fictitious quotes. Broker-dealers are neither required to disclose the precise amount of these payments nor any formula that would allow a customer to calculate this amount.

Nevertheless, Rule 10b is not a safe harbor from the anti-fraud provisions. Recent enforcement actions have indicated that failures to disclose the nature and extent of the conflict of interest may violate Section 17 a 2 of the Act. See Edward D. CCH 84, at p. The updated structure adds a new exam—the Securities Industry Essentials SIE exam—which anyone who wants to earn their first license after that date will have to pass.

You may also take it while still in school. The other good news is that if you prefer, you can take your "top-off" exam first, if you wish, and the SIE afterwards. Most of those who hire or train new advisors will have a mandatory licensing program included in their training package, and almost all firms mandate which securities licenses must be obtained to sell the company's products and services.

These are the most common securities licenses. Keep in mind that to earn some of these licenses, like the Series 6 and Series 7, you will need to be sponsored by or work for a broker-dealer. There might be additional requirements for selling securities in your state or the state where you want to be licensed.

This test contains no investment material, as the Series 66 license is only available to candidates that are already Series 7 licensed. All tests are now given via computer at approved proctor testing sites.

Once all relevant securities tests have been taken and a passing grade received, licensees must register their securities licenses with an approved broker-dealer , who will hold their licenses and oversee their business in return for a portion of the commission income. Registered Investment Advisors do not need to associate themselves with a broker-dealer. Securities licenses are needed by anyone who wants to market and sell investments. The specific type of license depends on what type of investments the person wants to sell, how they expect to get paid, and what level of service they want to be able to provide to their customers.

Some companies will pay for a study course and the fees for taking the exam. The Series 7 license or general securities representative GS license allows the holder to sell almost all individual securities, including common and preferred stocks, call and put options, bonds, and other fixed income. Excluded from the list: commodities futures, real estate, and life insurance. A securities license allows you to market and sell investments. Depending on the license held, you might have a job as a registered representative or an investment advisor.

The majority of financial and investment companies that hire or train new advisors will have a mandatory licensing program included in the training package. The company will, in most cases, mandate which licenses must be obtained to sell the company's products and services. Those that decide to go into business for themselves still need to meet the licensing requirements of their chosen profession; the only real freedom of choice comes in which profession is chosen. State Requirement.

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