2.1.2. Registration of Broker-Dealers
The persons and entities listed previously 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 company that created the securities being bought or sold, registration is not required. So, if ABC Brokerage has no office in New York and the only activity it performs in the state involves purchasing securities issued by a New York-based company directly from that company, ABC does not need to register in New York.
(ii) other broker-dealers
Explanation: Similar to not being required to register when dealing with a security’s issuer, a firm that deals only with another broker-dealer is not required to register in that broker-dealer’s state. In essence, the law does not require a person or firm to jump through the hoops of registration if it is dealing only with individuals or firms who are industry professionals and don’t need the same level of regulatory protection as retail clients.
(iii) [institutional investors]
Explanation: As when dealing with the actual issuers of securities and other broker-dealers, individuals and firms dealing only with institutional investors don’t need to register in the institutional investors’ state or states. These institutional investors, who handle very 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