Exemptions from Registration
Persons and entities listed above that do not meet the definition of a broker-dealer do not have to register as broker-dealers. In addition, broker-dealers (persons or firms) that do not have a physical office in a state do not have to register in the state if their only clients are:
(i) the issuers of the securities involved in the transactions
- • Explanation: In other words, if the only transactions someone does in the state are with the people who actually created the securities being bought or sold, registration is not required. For example, if IBM were to issue a new type of bond and a person or firm were to buy those bonds directly from IBM, the person or firm would not be required to register in the state in which IBM is selling them the bonds.
(ii) other broker-dealers
- • Explanation: Similar to not being required to register when dealing with a security’s issuer, someone dealing only with another broker-dealer is not required to register in that state. The law does not require a person or firm to jump through the hoops of registration if they’re dealing only with individuals or firms who are industry professionals and don’t need nearly as much regulatory protection.
(iii) institutional buyers
- • Explanation: Like those dealing with the actual issuers of securities and other broker-dealers, individuals and firms dealing only with institutional buyers don’t need to register. These institutional buyers, who handle large amounts of money, are viewed as having enough sophistication to watch their own backs without as much help from regulators.
Since it’ll come up again and again, you should memorize the fact that an institutional buyer is someone or something that fits into one of the following categories:
- • Bank, savings institution, or trust company
- • Insurance company
- • Investment company (mutual fund)
- • Broker-dealer
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