B/d agent state registration inquiry

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Oct 22, 2006 5:44 pm

I work in the home office of an independent b/d w/ series 7, 63, 24 licenses.  I recently learned that our HOME OFFICE registered agents staffing our equity trade desk, bond trade desk and compliance office functioning as principals are registered w/ only 1 state.  The functions these positions facilitate are as follows:


1.  Accept orders from properly state licensed independent registered reps, investment advisors, and money managers on behalf of their clients (located in all 50 states) via phone.


2.  Accept orders directly from clients living throughout the 50 states who are assigned a broker but are unable to reach their broker.


3.  Accept orders directly from clients living throughout the 50 states who's rep of record is our firm's home office (our firm's self directed house accounts) 


4.  signing off as broker on account forms for these house accounts described in #3.


5.  Signing off as principal for all new accounts and additional account addendums, both for clients w/ rep of record that is appropriately state licensed in the state of their clients' residence and house clients.


6.  Listed as supervisory principal and supervising branch offices in states that we aren't state licensed for as principal.


Our firm is state licensed as b/d in all states.  Our CFO is an accountant that appears to micro-manage and oversees all compliance issues.  To me it appears a conflict of interest may exist between saving on annual cost of state licensing necessary home office agents and regulatory compliance requirements.


I've been informed that b/c our firm is state licensed as a b/d in all states, we at the home office can accept client orders w/o being state licensed in any additional states from our own.  I've also been told that b/c our reps are appropriately licensed in states that their business is conducted, we at the home office may accept trades as clerks from the appropriately state licensed reps w/o ourselves needing to be state licensed.  I've been told that this rational extends to the signage of applications as both broker and principal as well as for acting as supervisory principal for our various state branch offices.


These explanations all seem like a load of crap to me.  I am not a lawyer.  I have read sec act of 1934 regarding b/d and agent registration requirements.  I have read various state registration requirement language.  I have read the USA, and nothing appears to directly exempt our activities in the home office from state registration. 


Are we transacting securities, supervising operations, and principally approving accounts in accord w/ federal and state law, or is our CFO attempting to save a buck?


Also, what repercussions exist if any both on a firm level and a registered agent level?


Any input would be greatly appreciated.  I feel I can't trust my firm's management and don't want to find myself acting outside of the law.


Shew

Oct 23, 2006 9:13 am

I will have a detailed reply to your questions which is accurate/valid by the end of the week (unless Bill Singer beats me to it).

Oct 26, 2006 8:47 pm

I've been anxiously waiting anyone's input or response.  Any references that cite specific cases, judgements, rulings, etc. would be appreciated.  This may be asking too much, but I don't have the experience or knowledge to find past instances that incurred a judgement from either the nasd, fed, or state level.


I've recently received the opportunity to move to our firm's compliance office.  My compliance experience is minimal and I don't possess the tools to build a sufficiently credible case to present to management indicating that this issue (atleast to some degree) may be a concern.  If anyone can point me in the right direction in terms of finding past instances that I can cite, that would be great.  Also, of course, my concern has grown b/c now that I know and am a firm principal I worry that I may find myself named and held accountable (atleast to some degree) for not appropriately ensuring our traders are appropriately state licensed.  It's not if we get caught, but when.  The last thing I need is to some day find out I either can't get licensed in certain states or worse jeopardize my u4.


Hopefully I'm over worried, but I wouldn't mind that being the case. 


Thanks

Oct 26, 2006 9:04 pm

I, too, am Series 24 licensed, and my understanding is that I am required to be registered in all states where brokers that I supervise are licensed and transact business.

Oct 27, 2006 6:52 am

I still do not have answers to all of those questions. I will try to get them for you before close of business today, however.


Apologies for making a promise I may not be able to keep.