Broker Dealer

Broker Dealer in the United States

Broker Dealer Definition

See “Brokers” in this legal Encyclopedia and below.

Securities Dealers

Securities “dealers” buy and sell stock for themselves. They are different from “brokers,” who are in the business of selling stock to investors, although “Broker-Dealers” do both.

Securities dealers are listed in Standard & Poor’s Security Dealers of North America.

National Association of Securities Dealers

The National Association of Securities Dealers, Inc. (NASD) formerly ran the NASDAQ stock exchange and NASD Regulation, Inc., which was Wall Street’s self-regulating agency. The NASDAQ became a public corporation in 2005, and the NASD sold its ownership share in 2006. In July 2007, the NASD merged its regulatory functions with the enforcement arm of the New York Stock Exchange to form the Financial Industry Regulatory Authority (FINRA). For more information about the National Association of Securities Dealers, Inc., click here.

Stock Broker Definition

See “Brokers” in this legal Encyclopedia.

Broker Dealer in the Uniform Securities Act (2002)

Section 102(4) of the Uniform Securities Act (2002) deals with the concept and actions of the Broker-Dealer. Prior Provisions were: 1956 Act Section 401(c) and RUSA Section 101(2).

This definition generally follows the definition of broker-dealer in the 1956 Act and RUSA. The use of the compound term is meant to include either a broker or a dealer. The recognized distinction is that a broker acts for the benefit of another while a dealer acts for itself in buying for or selling securities from its own inventory.

The distinction between “a person engaged in the business of effecting transactions in securities” and an investor, who may buy and sell with some frequency and is outside the scope of this term, has been well developed in the case law. See 6 Louis Loss & Joel Seligman, Securities Regulation 2980-2984 (3d ed. 1990).

The 1956 Act Section 401(c) excluded from the definition of broker-dealer a person who during any 12 consecutive months did not direct more than 15 offers to buy or sell in this State. In this Act exemptions from broker-dealer registration are provided in Section 401(b).

The Gramm-Leach-Bliley Act, signed into law in November 1999, rescinded the blanket exemption of banks from the definition of broker and dealer in Sections 3(a)(4) and (5) of the Securities Exchange Act of 1934. The Gramm-Leach-Bliley Act permits a bank to avoid registration as a broker or dealer at the federal level if the bank limits its activities to those specified in the Securities Exchange Act. This Act generally adopts the activity focused exceptions for banks included in the Gramm-Leach-Bliley Act, with minor modifications relating to the private placement and de minimis brokerage activities of banks (15 U.S.C. 78c(a)(4)(B)(vii) and (xi)). This Act also reaches savings institutions.

A state may decide to adopt an exclusion in Section 102(4)(C) that fully conforms with the bank exceptions contained in the Gramm-Leach-Bliley Act. For states that choose this approach, the language of Section 102(4)(C) should read:

“(C) a bank or savings institution if its activities as broker-dealer are limited to those specified in Section 3(a)(4) and 3(a)(5) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78c(a)(4) and (5)), or a bank that satisfies the conditions specified in Section 3(a)(4)(E) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(4)).”

Section 102(4)(E) of this Act also permits a securities administrator to adopt additional exclusions that exclude banks and other depository institutions, in whole or in part, from the definition of “broker-dealer.”

States that promptly adopt this Uniform Securities Act should consider whether it is appropriate to provide banks a transition period to comply with the Act’s new activity focused exceptions. The activity focused exceptions for banks in the Gramm-Leach-Bliley Act were originally to become effective at the federal level on May 12, 2001.

However, the Securities and Exchange Commission has delayed the effective date of these activity focused exceptions and thus continued the blanket exemption for banks beyond May 12, 2001, and commenced a rulemaking designed to clarify and define the scope of the bank exceptions in the Gramm-Leach-Bliley Act. See Sec. Ex. Act Rels. 44,291, 74 SEC Dock. 2155 (2001) (proposal); 45,897, 77 SEC Dock. 1555 (2002) (proposal). To avoid disrupting the activities of banks, states should consider delaying implementation of the activity focused exceptions in this Act until these exceptions are implemented at the federal level.

Section 15(h)(1) of the Securities Exchange Act of 1934, as amended by the National Securities Markets Improvement Act of 1996, preempts state law from “[establishing] capital, custody, margin, financial responsibility, making and keeping records, bonding, or financial or operational reporting requirements for brokers, dealers, municipal securities dealers, government securities brokers, or government securities dealers that differ from, or are in addition to the requirements in those areas established under [the Securities Exchange Act].” These preemptions are recognized in the substantive broker-dealer provisions in Article 4.

See Also

Brokers
NASDAQ
Securities Laws
Stock Prices

Definition of Broker-dealer in the Uniform Securities Act (2002)

“Broker-dealer” means a person engaged in the business of effecting transactions in securities for the account of others or for the person’s own account. The term does not include: (A) an agent; (B) an issuer; (C) a bank or savings institution if its activities as a broker-dealer are limited to those specified in subsections 3(a)(4)(B)(i) through (vi), (viii) through (x), and (xi) if limited to unsolicited transactions; 3(a)(5)(B); and 3(a)(5)(C) of the Securities Exchange Act of 1934 (15 U.S.C. Sections 78c(a)(4) and (5)) or a bank that satisfies the conditions described in subsection 3(a)(4)(E) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78c(a)(4)); (D) an international banking institution; or (E) a person excluded by rule adopted or order issued under the Uniform Securities Act (2002).

Broker Dealer: Open and Free Legal Research of US Law

Federal Primary Materials

The U.S. federal government system consists of executive, legislative, and judicial branches, each of which creates information that can be the subject of legal research about Broker Dealer. This part provides references, in relation to Broker Dealer, to the legislative process, the federal judiciary, and the primary sources of federal law (cases, statutes, and regulations).

Federal primary materials about Broker Dealer by content types:

Laws and Regulations

US Constitution
Federal Statutory Codes and Legislation

Federal Case Law and Court Materials

U.S. Courts of Appeals
United States courts of appeals, inclouding bankruptcy courts and bankcruptcy appellate panels:

Federal Administrative Materials and Resources

Presidential Materials

Materials that emanate from the President’s lawmaking function include executive orders for officers in departments and agencies and proclamations for announcing ceremonial or commemorative policies. Presidential materials available include:

Executive Materials

Federal Legislative History Materials

Legislative history traces the legislative process of a particular bill (about Broker Dealer and other subjects) for the main purpose of determining the legislators’ intent behind the enactment of a law to explain or clarify ambiguities in the language or the perceived meaning of that law (about Broker Dealer or other topics), or locating the current status of a bill and monitoring its progress.

State Administrative Materials and Resources

State regulations are rules and procedures promulgated by state agencies (which may apply to Broker Dealer and other topics); they are a binding source of law. In addition to promulgating regulations, state administrative boards and agencies often have judicial or quasi-judicial authority and may issue administrative decisions affecting Broker Dealer. Finding these decisions can be challenging. In many cases, researchers about Broker Dealer should check state agency web sites for their regulations, decisions, forms, and other information of interest.

State rules and regulations are found in codes of regulations and administrative codes (official compilation of all rules and regulations, organized by subject matter). Search here:

State opinions of the Attorney General (official written advisory opinions on issues of state law related to Broker Dealer when formerly requested by a designated government officer):

Tools and Forms

Law in Other Regions

*This resource guide is updated frequently. However, if you notice something is wrong or not working, or any resources that should be added, please notify us in any of the "Leave a Comment" area.

Leave a Comment