Exceptions for Certain Foreign Broker-Dealers
The Securities Exchange Act of 1934 also provides conditional exemptions from registration for foreign broker-dealers that engage in certain specified activities involving U.S. investors. Foreign broker-dealers are defined by the SEC as any non-U.S. resident ‘person’ that is not an office or branch of or a natural person associated with a registered broker-dealer and whose securities activities would otherwise qualify the ‘person’ as a broker or a dealer. Basically, if they are outside the U.S., not affiliated with registered broker-dealers, and engaged in the business of effecting securities transactions, foreign broker-dealers may be eligible for this exemption.
However, these foreign broker-dealers are limited to participating in a handful of specific activities to avoid registration requirements. These activities include:
- • Effecting unsolicited securities transactions, meaning transactions that are initiated by the customer
- • Providing research reports to American institutional investors
- • Soliciting and effecting transactions with or for most American institutional investors through a registered broker-dealer
- • Soliciting and effecting transactions directly with or for registered broker-dealers, banks serving as broker-dealers, certain international organizations, foreign persons temporarily present in the U.S., American citizens resident outside the U.S., and agencies or branches of U.S. persons permanently located outside of the U.S.