Bank Dealer Compliance Guide

The Securities Exchange Act of 1934 ("Exchange Act" or "Act") governs how the nation's securities markets and its brokers and dealers operate. We¹ have prepared this guide to summarize some of the significant provisions of the Act and its rules. You will find information about whether you need to register as a broker-dealer and how you can register, as well as what standards of conduct and financial responsibility rules broker-dealers must follow.

Caution — Make Sure You Follow All Laws and Rules

Although this guide highlights some of the significant provisions of the Act and the rules of the U.S. Securities and Exchange Commission ("SEC" or "Commission"), it is not comprehensive. Brokers and dealers, and their associated persons, must comply with all applicable requirements, including those of the SEC, as well as the requirements of any self-regulatory organizations to which the brokers and dealers belong, and not just those summarized here.

The SEC staff stands ready to answer your questions and help you comply with Commission rules. After reading this guide, if you have questions, please feel free to contact the Office of Interpretation and Guidance at (202) 942-0069 (e-mail marketreg@sec.gov) or the Regional Office of the SEC in your area. You will find a list of useful phone numbers at the end of this guide, or on the SEC's website at www.sec.gov/contact.shtml.

You may wish to consult with a private lawyer who is familiar with the federal securities laws, to assure that you comply with all laws and regulations. The SEC staff cannot act as an individual's or broker-dealer's lawyer. While the staff attempts to provide guidance by telephone to individuals who are making inquiries, the guidance is informal and not binding. Formal guidance may be sought through a written inquiry that is consistent with the Commission's guidelines for no-action, interpretive, and exemptive requests.

II. Who Is Required to Register

Most "brokers" and "dealers" must register with the SEC and join a "self-regulatory organization," or SRO. This section covers the factors that determine whether a person is a broker or dealer. It also describes the types of brokers and dealers that do not have to register with the SEC. Self-regulatory organizations are described in Part III, below./P>

A note about banks: The Exchange Act also contains special provisions relating to brokerage and dealing activities of banks. Please see Sections 3(a)(4)(B) and 3(a)(5)(C) and related provisions, and consult with counsel. Aspects of bank dealer activity are discussed in a publication issued by the SEC's Division of Market Regulation, entitled "Staff Compliance Guide to Banks on Dealer Statutory Exceptions and Rules," which is available on the SEC's website at: http://www.sec.gov/divisions/marketreg/bankdealerguide.htm. Bank brokerage activity will be discussed in a separate publication. Also see Section II.F, below.

A. Who is a "Broker"

any person engaged in the business of effecting transactions in securities for the account of others.

Sometimes you can easily determine if someone is a broker. For instance, a person who executes transactions for others on a securities exchange clearly is a broker. However, other situations are less clear. For example, each of the following individuals and businesses may need to register as a broker, depending on a number of factors:

In order to determine whether any of these individuals (or any other person or business) is a broker, we look at the activities that the person or business actually performs. You can find analyses of various activities in the decisions of federal courts and our own no-action and interpretive letters. Here are some of the questions that you should ask to determine whether you are acting as a broker:

A "yes" answer to any of these questions indicates that you may need to register as a broker.

B. Who is a "Dealer"

Unlike a broker, who acts as agent, a dealer acts as principal. Section 3(a)(5)(A) of the Act generally defines a "dealer" as:

any person engaged in the business of buying and selling securities for his own account, through a broker or otherwise.

The definition of "dealer" does not include a "trader," that is, a person who buys and sells securities for his or her own account, either individually or in a fiduciary capacity, but not as part of a regular business. Individuals who buy and sell securities for themselves generally are considered traders and not dealers.

Sometimes you can easily tell if someone is a dealer. For example, a firm that advertises publicly that it makes a market in securities is obviously a dealer. Other situations can be less clear. For instance, each of the following individuals and businesses may need to register as a dealer, depending on a number of factors:

Here are some of the questions you should ask to determine whether you are acting as a dealer:

C. What To Do If You Think You May Be a Broker or a Dealer

If you are doing, or may do, any of the activities of a broker or dealer, you should find out whether you need to register. Information on the broker-dealer registration process is provided below. If you aren't certain, you may want to review SEC staff interpretations, consult with private counsel, or contact the SEC's Division of Market Regulation by calling (202) 942-0069 or by sending an e-mail to marketreg@sec.gov. (Please be sure to include your telephone number.)

Note: If you will be acting as a "broker" or "dealer," you must not engage in securities business until you are properly registered. If you are already engaged in the business, you should cease all activities until you are properly registered. For further information, please see Part II.D and Part III, below.

D. Brokers and Dealers Generally Must Register with the Commission

Section 15(a)(1) of the Act generally makes it unlawful for any broker or dealer to use the mails (or any other means of interstate commerce) to "effect any transactions in, or to induce or attempt to induce the purchase or sale of, any security" unless that broker or dealer is registered with the Commission in accordance with Section 15(b) of the Act. There are a few exceptions to this general rule that we discuss below. In addition, we discuss the special registration requirements that apply to broker-dealers of government and municipal securities, including repurchase agreements, below.

1. "Associated Persons" of a Broker-Dealer

We call individuals who work for a registered broker-dealer "associated persons." This is the case whether such individuals are employees, independent contractors, or are otherwise working with a broker-dealer. These individuals may be called "stock brokers" or "registered representatives." Although associated persons usually do not have to register separately with the SEC, they must be properly supervised by a currently registered broker-dealer. They may also have to register with the self-regulatory organizations of which their employer is a member -- for example, NASD or a national securities exchange. To the extent that associated persons engage in securities activities outside of the supervision of their broker-dealer, they would have to register separately as broker-dealers. This is discussed further in Part III, below.

We do not differentiate between employees and other associated persons for securities law purposes. Broker-dealers must supervise the securities activities of their personnel regardless of whether they are considered "employees" or "independent contractors" under state law. See, for example, In the matter of William V. Giordano, Securities Exchange Act Release No. 36742 (January 19, 1996).

Unregistered entities are not permitted to receive commission income on behalf of a registered representative. For example, associated persons cannot set up a separate entity to receive commission checks. An unregistered entity that receives commission income in this situation must register as a broker-dealer. See, for example, Birchtree Financial Services, Inc. (September 22, 1998). Under certain circumstances, we have determined not to recommend enforcement action if unregistered entities engage in payroll administration services involving broker-dealers. See, for example, letter re: EPIX Holding Corp. (April 2, 2001). In those circumstances, the broker-dealer employer generally hires and supervises all aspects of the employees' work and uses the payroll and benefits administrator merely as a means to centralize personnel services.

2. Intrastate Broker-Dealers

A broker-dealer that conducts all of its business in one state does not have to register with the SEC. (State registration is another matter. See Part III, below.) This is a very narrow exemption. To qualify, all aspects of all transactions must be done within the borders of one state. This means that, without SEC registration, a broker-dealer cannot participate in any transaction executed on a national securities exchange or Nasdaq. Also, information posted on the Internet that is accessible by persons in another state would be considered an interstate offer of securities or investment services that would require Federal broker-dealer registration.

A word about municipal and government securities. There is no intrastate exception from registration for municipal securities dealers or government securities brokers and dealers.

3. Broker-Dealers that Limit their Business to Excluded and Exempted Securities

A broker-dealer that transacts business only in commercial paper, bankers' acceptances, and commercial bills does not need to register with the SEC under Section 15(b) or any other section of the Act. On the other hand, persons transacting business only in certain "exempted securities," as defined in Section 3(a)(12) of the Act, do not have to register under Section 15(b), but may have to register under other provisions of the Act. For example, some broker-dealers of government securities, which are "exempted securities," must register as government securities brokers or dealers under Section 15C of the Act, as described in Part II.E, below.

4. Broker-Dealers Must Register Before Selling Unregistered Securities — Including Private Placements (or Regulation D offerings)

A security sold in a transaction that is exempt from registration under the Securities Act of 1933 (the "1933 Act") is not necessarily an "exempted security" under the Act. For example, a person who sells securities that are exempt from registration under Regulation D of the 1933 Act must nevertheless register as a broker-dealer. In other words, "placement agents" are not exempt from broker-dealer registration.

5. Issuer's Exemption (Rule 3a4-1)

Issuers generally are not "brokers" because they sell securities for their own accounts and not for the accounts of others. Moreover, issuers generally are not "dealers" because they do not buy and sell their securities for their own accounts. Issuers whose activities go beyond selling their own securities, however, need to consider whether they would need to register as broker-dealers. This includes issuers that purchase their securities from investors, as well as issuers that effectively operate markets in their own securities or in securities whose features or terms can change or be altered. The issuer's exemption does not apply to the personnel of a company who routinely engage in the business of effecting securities transactions for the company or related companies (such as general partners seeking limited partnerships). The employees and other related persons of an issuer who assist in selling its securities may be "brokers," especially if they are paid for selling these securities and have few other duties.

Exchange Act Rule 3a4-1 provides that an associated person (or employee) of an issuer who participates in the sale of the issuer's securities would not have to register as a broker-dealer if that person, at the time of participation: (1) is not subject to a "statutory disqualification," as defined in Section 3(a)(39) of the Act; (2) is not compensated by payment of commissions or other remuneration based directly or indirectly on securities transactions; (3) is not an associated person of a broker or dealer; and (4) limits its sales activities as set forth in the rule.

Some issuers offer dividend reinvestment and stock purchase programs. Under certain conditions, an issuer may purchase and sell its own securities through a dividend reinvestment or stock purchase program without registering as a broker-dealer. These conditions, regarding solicitation, fees and expenses, and handling of participants' funds and securities, are explained in Securities Exchange Act Release No. 35041 (December 1, 1994), 59 FR 63393 ("1994 STA Letter"). Although Regulation M² replaced Rule 10b-6 and superseded the 1994 STA Letter, the staff positions taken in this letter regarding the application of Section 15 (a) of the Exchange Act remain in effect. See 17 CFR 242.102(c) and Securities Exchange Act Release No. 38067 (December 20, 1996), 62 FR 520, 532 n.100 (January 3, 1997).

6. Foreign Broker-Dealer Exemption (Rule 15a-6)

The SEC generally uses a territorial approach in applying registration requirements to the international operations of broker-dealers. Under this approach, all broker-dealers physically operating within the United States that induce or attempt to induce securities transactions must register with the SEC, even if their activities are directed only to foreign investors outside of the United States. In addition, foreign broker-dealers that, from outside of the United States, induce or attempt to induce securities transactions by any person in the United States, or that use the means or instrumentalities of interstate commerce of the United States for this purpose, also must register. Foreign broker-dealers that limit their activities to those permitted under Rule 15a-6 of the Act, however, may be exempt from U.S. broker-dealer registration. Foreign broker-dealers that wish to rely on this exemption should review Securities Exchange Act Release No. 27017 (effective August 15, 1989), 54 FR 30013, to determine whether they meet the conditions of Rule 15a-6. See also letters re: Securities Activities of U.S.-Affiliated Foreign Dealers (April 9 and April 28, 1997).

E. Requirements Regarding Brokers and Dealers of Government and Municipal Securities, and Dealers in Repurchase Agreements

Broker-dealers that limit their activity to government or municipal securities require specialized registration. Those that limit their activity to government securities do not have to register as "general-purpose" broker-dealers under Section 15(b) of the Act. General-purpose broker-dealers that conduct a government securities business, however, must note this activity on their Forms BD. (Form BD is discussed below.) All firms that are brokers or dealers in government securities must comply with rules adopted by the Secretary of the Treasury, as well as SEC rules.

Firms that limit their securities business to buying and selling municipal securities for their own account (municipal securities dealers) must register as general-purpose broker-dealers. If, however, these entities are banks or meet the requirements of the intrastate exemption discussed in Part II.D.2. above, they must register as municipal securities dealers. Municipal securities brokers must register as general-purpose broker-dealers.

Firms that run a matched book of repurchase agreements or other stock loans are considered dealers. Because a "book running dealer" holds itself out as willing to buy and sell securities, and is thus engaged in the business of buying and selling securities, it must register as a broker-dealer.

F. Special Rules That Apply to Banks and Other Financial Institutions

Banks. Prior to the enactment of the "Gramm-Leach-Bliley Act" ("GLBA") in 1999, U.S. banks were excepted from the definitions of "broker" and "dealer" under the Act. With the enactment of the GLBA, banks now have certain targeted exceptions and exemptions from broker-dealer registration. Currently, as a result of Commission rulemaking, banks are undergoing a phase-in period for compliance with the new law. Since October 1, 2003, banks that buy and sell securities must consider whether they are "dealers" under the federal securities laws. The Division of Market Regulation has issued a special compliance guide for banks, entitled "Staff Compliance Guide to Banks on Dealer Statutory Exceptions and Rules," which is available on the SEC's website at: http://www.sec.gov/divisions/marketreg/bankdealerguide.htm. Bank brokerage activity will be discussed in a separate publication.

Note: Banks, thrifts, and other financial institutions should be aware that the Commission has proposed changes to rules that may affect them. See Proposed Regulation B, Securities Exchange Act Release No. 34-49879 (June 17, 2004), 69 FR 39681 (June 30, 2004), www.sec.gov/rules/proposed/34-49879.htm.

The bank exemptions only apply to banks, and not to related entities. It is important to note that exemptions applicable to banks under the GLBA are not applicable to other entities, including bank subsidiaries and affiliates, that are not themselves banks. As such, subsidiaries and affiliates of banks that engage in broker-dealer activities are required to register as broker-dealers under the Act. Also, banks that act as municipal securities dealers or as government securities brokers or dealers continue to be required to register under the Act.

Thrifts. The SEC has granted thrifts (savings associations) the same status as banks through its rules. As such, thrifts now have certain targeted exceptions and exemptions from broker-dealer registration. (For further information, see the "Staff Compliance Guide to Banks on Dealer Statutory Exceptions and Rules" and the Commission's proposed Regulation B, both as noted above.) As with banks, it is important to note that exemptions applicable to thrifts are not applicable to other entities, including subsidiaries and affiliates that are not thrifts. As such, subsidiaries and affiliates of thrifts that engage in broker-dealer activities are required to register as broker-dealers under the Act.

Credit Unions and Financial Institution "Networking" Arrangements. The exemptions applicable to banks under the Exchange Act (and thrifts under Commission rules) do not apply to other kinds of financial institutions, such as credit unions. The SEC staff, however, has determined that it would not recommend enforcement action if certain financial institutions, such as credit unions, make securities products available to their customers without registering as broker-dealers. This is done through "networking" arrangements, where an affiliated or third-party broker-dealer provides brokerage services for the financial institution's customers, according to conditions stated in no-action letters and NASD Rule 2350. (For further information, see the Commission's proposed Regulation B, as noted above.)

G. Insurance Agency Networking

The SEC staff has determined not to recommend enforcement action if insurance agencies make insurance products that are also securities (such as variable annuities) available to their customers without registering as broker-dealers under certain conditions. This again is done through "networking" arrangements, where an affiliated or third-party broker-dealer provides brokerage services for the insurance agency's customers, according to conditions stated in no-action letters. These arrangements are designed to address the difficulties of dual state and federal laws applicable to the sale of these products. Through networking arrangements, insurance companies can share in the commissions generated by their referred customers under certain conditions. Insurance agencies engaging in such networking must be in strict compliance with applicable law and Commission staff guidance. Insurance companies should consult the letter re: First of America Brokerage Services, Inc. (September 28, 1995). Those interested in structuring such an arrangement should contact private counsel or the SEC staff for further information.

Notably, insurance networking arrangements are limited to insurance products that are also securities. They do not encompass sales of mutual funds and other securities that do not present the same regulatory difficulties. See letter re: Lincoln Financial Advisors Corp. (February 20, 1998).

H. Real Estate Broker Networking

Some products sold by real estate brokers, such as condominiums with corresponding rental pool agreements, may also be securities. Persons who receive compensation in connection with the sale of these products would need to be registered both as real estate brokers under certain state laws and as broker-dealers. See Letter re: The Snowy Owl Inn Condominium Unit Owners' Association (Nov. 17, 1992). Because this dual registration may be impractical, the Division staff has determined not to recommend enforcement action if licensed real estate brokers in limited circumstances enter into networking arrangements with registered broker-dealers in order to participate in the offer and sale of real estate securities without being registered as broker-dealers. In these arrangements, the registered broker-dealers must undertake all securities-related activity involved with the offer and sale, and the real estate brokers' activities are limited to ensuring compliance with applicable real estate laws. See Letter re: Gunnar & Associates (August 18, 1983); Letter re: Roland University Properties (April 9, 1984).

Unlike insurance networking arrangements, in which the individuals doing the selling are registered as both insurance agents and registered representatives, real estate networking arrangements are generally carried out by real estate brokers who, after showing the property to prospective clients, introduce the clients to registered representatives, then do not participate further in the sale except to share a commission. See Letter re: The Woodmoor Corporation (Feb. 3, 1972). In other words, the real estate broker introduces the parties to a securities transaction and then steps away. See Letters re: Moana/Kauai Corporation (Aug. 24, 1974) and (Aug. 10, 1974). If the real estate broker performs additional activities or receives transaction-based compensation or controls or holds customer funds or securities, he or she would have to register with the Commission as a broker-dealer. Those interested in structuring a real estate broker networking arrangement should contact private counsel or the SEC staff for further information.

I. Broker-Dealer Relationships with Affinity Groups

Broker-dealers may enter into arrangements to offer services to members of certain non-profit groups, including civic organizations, charities, and educational institutions that rely upon private donations. These arrangements are subject to certain conditions, as detailed in the letter noted below, to ensure that the organizations, or "affinity groups," do not develop a salesman's stake with respect to the sale of securities. See, for example, letter re: Attkisson, Carter & Akers (June 23, 1998).

III. How to Register as a Broker-Dealer

A broker-dealer may not begin business until:

it has properly filed Form BD, and the SEC has granted its registration;
it has become a member of an SRO;
it has become a member of SIPC, the Securities Investor Protection Corporation;
it complies with all applicable state requirements; and
its "associated persons" have satisfied applicable qualification requirements.

A. Form BD

If a broker-dealer does not qualify for any of the exceptions or exemptions outlined in the sections above, it must register with the Commission under Section 15(b) of the Act. Broker-dealers register by filing an application on Form BD, which you may obtain from the SEC's webpage at www.sec.gov or through the SEC's Publications Office at (202) 942-4040. You also use Form BD to:

Form BD asks questions about the background of the broker-dealer and its principals, controlling persons, and employees. The broker-dealer must meet the statutory requirements to engage in a business that involves high professional standards, and quite often includes the more rigorous responsibilities of a fiduciary.

To apply for registration, you must file one executed copy of Form BD through the Central Registration Depository ("CRD"), which is operated by NASD. (The only exception is for banks registering as municipal securities dealers, which file Form MSD directly with the SEC.) Form BD contains additional filing instructions. The SEC does not charge a filing fee, but the SROs and the states may. Applicants that reside outside the U.S. must also appoint the SEC as agent for service of process using a standard form. Incomplete applications are not considered "filed" and will be returned to the applicant for completion and re-submission.

Within 45 days of filing a completed application, the SEC will either grant registration or begin proceedings to determine whether it should deny registration. An SEC registration may be granted with the condition that SRO membership must be obtained. The SROs have independent membership application procedures and are not required to act within 45 days of the filing of a completed application. In addition, state registrations may be required. A broker-dealer must comply with relevant state law as well as federal law and applicable SRO rules. Timeframes for registration with individual states may differ from the federal and SRO timeframes. As such, when deciding to register as a broker-dealer, it is important to plan for the time required for processing Federal, state, and SRO registration or membership applications.

Duty to update Form BD. A registered broker-dealer must promptly update and keep current its Form BD by filing amendments whenever the information on file becomes inaccurate or incomplete for any reason.

B. SRO Membership

Before it begins doing business, a broker-dealer must become a member of an SRO. SROs assist the SEC in regulating the activities of broker-dealers. NASD and the national securities exchanges are all SROs. If a broker-dealer restricts its transactions to one national securities exchange and meets certain other conditions, the broker-dealer may be required only to be a member of that exchange. If a broker-dealer effects securities transactions other than on a national securities exchange of which it is a member, however, it must become a member of NASD. A broker-dealer that does both exchange and over-the-counter business may become a member of multiple exchanges and NASD. NASD's webpage at www.nasd.com provides detailed information on the NASD membership process. You may also wish to consult the webpages of the individual exchanges for additional information.

Firms that engage in transactions in municipal securities must also comply with the rules of the Municipal Securities Rulemaking Board, or MSRB. The MSRB is an SRO that makes rules governing transactions in municipal securities, but, unlike other SROs, it does not enforce compliance with its rules. Compliance with MSRB rules is monitored and enforced by the NASD and the SEC (in the case of broker-dealers), and the Federal bank regulators (in the case of banks). You may wish to consult the MSRB's website at www.msrb.org for additional information, or you can call the MSRB at (703) 797-6600.

C. SIPC Membership

Every registered broker-dealer must be a member of the Securities Investor Protection Corporation, or SIPC, unless its principal business is conducted outside of the United States or consists exclusively of the sale or distribution of investment company shares, variable annuities, or insurance. Each SIPC member must pay an annual fee to SIPC. SIPC insures that its members' customers receive back their cash and securities in the event of a member's liquidation, up to $500,000 per customer for cash and securities. (Claims for cash are limited to $100,000.) For further information, contact SIPC, 805 15th St., NW, Suite 800, Washington, DC 20005. Telephone: (202) 371-8300, fax: (202) 371-6728, or visit SIPC's website at www.sipc.org.

D. State Requirements

Every state has its own requirements for a person conducting business as a broker-dealer within that state. Each state's securities regulator can provide you with information about that state's requirements. You can obtain contact information for these regulators from the North American Securities Administrators Association, Inc. (NASAA), 10 G Street, NE, Washington, DC 20002. Telephone: (202) 737-0900, or visit NASAA's website at www.nasaa.org.

E. Associated Persons (Section 3(a)(18); Rule 15b7-1)

The Act defines an "associated person" of a broker-dealer to include any partner, officer, director, branch manager, or employee of the broker-dealer, any person performing similar functions, or any person controlling, controlled by, or under common control with, the broker-dealer. A broker-dealer must file a Form U-4 with the applicable SRO for each associated person who will effect transactions in securities when that person is hired. Form U-4 is used to register individuals and to record these individuals' prior employment and disciplinary history.

An associated person who effects or is involved in effecting securities transactions also must meet qualification requirements. These include passing an SRO securities qualification examination. Many individuals take the comprehensive "Series 7" exam. If individuals engage only in activities involving sales of particular types of securities, such as municipal securities, direct participation programs (limited partnerships) or mutual funds, they may wish to take a specialized examination focused on that type of security, instead of the general securities examination. There is also a special exam for assistant representatives, whose activities are limited to accepting unsolicited customer orders for execution by the firm. Supervisory personnel, and those who engage in specialized activities such as options trading, must take additional exams that cover those areas. These examinations require the Series 7 exam as a prerequisite.

You can obtain copies of Form U-4, as well as information on securities qualification examinations, from an SRO. NASD's website at www.nasd.com contains detailed information and guidance for individuals who wish to obtain a series license through NASD. Also note that individual states have their own licensing and registration requirements, so you should consult with the applicable state securities regulators for further information.

Note: If you hold a series license, you must be properly associated with a registered broker-dealer to effect securities transactions. It is not sufficient merely to hold a series license when engaging in securities business. If you hold a series license and wish to start an independent securities business, or otherwise wish to effect securities transactions outside of an "associated person" relationship, you would first need to register as a broker-dealer.

F. Successor Broker-Dealer Registration (Rules 15b1-3, 15Ba2-4, and 15Ca2-3)

A successor broker-dealer assumes substantially all of the assets and liabilities, and continues the business, of a registered predecessor broker-dealer. A successor broker-dealer must file a new Form BD (or, in special instances, amend the predecessor broker-dealer's Form BD) within 30 days of the successor situation. The filing should indicate that the applicant is a successor. See Securities Exchange Act Release No. 31661 (December 28, 1992), 58 FR 11. See also, the instructions to Form BD.

G. Withdrawal from Registration (Rule 15b6-1) and Cancellation

When a registered broker-dealer stops doing business, it must file a Form BDW (http://www.sec.gov/about/forms/formbdw.pdf ) with the SEC and with the SROs of which it is a member. This form requires the broker-dealer to disclose the amount of any funds or securities it owes customers, and whether it is the subject of any proceedings, unsatisfied judgments, liens, or customer claims. These disclosures help to ensure that a broker-dealer's business is concluded in an orderly manner and that customers' funds and securities are protected. In most cases, a broker-dealer must also file a final FOCUS report.

Form BDW is not considered "filed" unless it is deemed complete by the SEC and the SRO that reviews the filing. The SEC may also cancel a broker-dealer's registration if it finds that the firm is no longer in existence or has ceased doing business as a broker-dealer.

IV. Security Futures

Security futures, which are contracts of sale for future delivery of a single security or a narrow-based security index, are regulated as both securities and futures by the SEC and the Commodity Futures Trading Commission ("CFTC"). As a result, firms that conduct business in security futures must be registered with both the SEC and the CFTC. Federal law permits firms already registered with either the SEC or the CFTC to register with the other agency, for the limited purpose of trading security futures, by filing a notice. Specifically, firms registered as general purpose broker-dealers under Section 15(b) of the Act may "notice" register with the CFTC. Likewise, futures commission merchants and introducing brokers registered with the CFTC may notice register with the SEC. (Section 15(b)(12) of the Act provides a limited exception to this notice registration requirement for certain natural persons who are members of security futures exchanges). However, futures commission merchants or introducing brokers that conduct a business in securities other than security futures must be registered as general-purpose broker-dealers. For more information on this topic, see Exchange Act Release No. 44730 (effective August 27, 2001), 66 FR 45138, and 66 FR 43080 (effective September 17, 2001).

V. Conduct Regulation of Broker-Dealers

Broker-dealers, like other securities market participants, must comply with the general "antifraud" provisions of the federal securities laws. Broker-dealers must also comply with many requirements that are designed to maintain high industry standards. We discuss some of these provisions below.

A. Antifraud Provisions (Sections 9(a), 10(b), and 15(c)(1) and (2))

The "antifraud" provisions prohibit misstatements or misleading omissions of material facts, and fraudulent or manipulative acts and practices, in connection with the purchase or sale of securities.³ While these provisions are very broad, the SEC has adopted rules, issued interpretations, and brought enforcement actions that define some of the activities that the SEC considers manipulative, deceptive, fraudulent, or otherwise unlawful.⁴ Broker-dealers must conduct their activities so as to avoid these kinds of practices.

1. Duty of Fair Dealing

Broker-dealers owe their customers a duty of fair dealing. This fundamental duty derives from the Act's antifraud provisions mentioned above. Under the so-called "shingle" theory, by virtue of engaging in the brokerage profession (e.g., hanging out the broker-dealer's business sign, or "shingle"), a broker-dealer represents to its customers that it will deal fairly with them, consistent with the standards of the profession. Based on this important representation, the SEC, through interpretive statements and enforcement actions, and the courts, through case law, have set forth over time certain duties for broker-dealers. These include the duties to execute orders promptly, disclose material information (i.e., information the customer would consider important as an investor), charge prices reasonably related to the prevailing market, and fully disclose any material conflict of interest.

SRO rules also reflect the importance of fair dealing. For example, NASD members must comply with NASD's Rules of Fair Practice. These rules generally require broker-dealers to observe high standards of commercial honor and just and equitable principles of trade in conducting their business. The exchanges and the MSRB have similar rules.

2. Duty of Best Execution

The duty of best execution, which also stems from the Act's antifraud provisions, requires a broker-dealer to seek to obtain the most favorable terms available under the circumstances for its customer orders. This applies whether the broker-dealer is acting as agent or as principal.

The SRO rules also include a duty of best execution. For example, NASD members must use "reasonable diligence" to determine the best market for a security and buy or sell the security in that market, so that the price to the customer is as favorable as possible under prevailing market conditions.

3. Customer Confirmation Rule (Rule 10b-10 and MSRB rule G-15)

A broker-dealer must provide its customers, at or before the completion of a transaction, with certain information, including:

A broker-dealer may also be obligated under the antifraud provisions of the Act to disclose additional information to the customer at the time of his or her investment decision.

4. Disclosure of Credit Terms (Rule 10b-16)

Broker-dealers must notify customers purchasing securities on credit about the credit terms and the status of their accounts. A broker-dealer must establish procedures for disclosing this information before it extends credit to a customer for the purchase of securities. A broker-dealer must give the customer this information at the time the account is opened, and must also provide credit customers with account statements at least quarterly.

5. Restrictions on Short Sales (Rule 10a-1)

A "short sale" is generally a sale of a security that the seller doesn't own. Exchange Act Rule 10a-1 is designed to limit short selling in a declining market. The rule generally bars a person from selling an exchange-listed security that he or she does not own, unless the sale is at a price above the price of the last sale, or at the last sale price if that price was above the next preceding different price. Similarly, NASD rules restrict short selling in the over-the-counter markets.

In addition, Rule 105 of Regulation M, described in the next section, restricts the covering of short sales.

6. Trading During an Offering (Regulation M)

Regulation M, which contains six rules, is designed to protect the integrity of the securities trading market as an independent pricing mechanism by governing the activities of underwriters, issuers, selling security holders, and other participants in connection with a securities offering. These rules are aimed at preventing persons having an interest in an offering from influencing the market price for the offered security in order to facilitate a distribution.

Rule 101 generally prohibits underwriters, broker-dealers and other distribution participants from bidding for, purchasing, or attempting to induce any person to bid for or purchase, any security which is the subject of a distribution until the applicable restricted period has ended. An offering's "restricted period" begins either one or five business days (depending on the trading volume value of the offered security and the public float value of the issuer) before the day of the offering's pricing and ends upon completion of the distribution.

Rule 101 contains various exceptions that are designed to permit an orderly distribution of securities and limit disruption in the market for the securities being distributed. For example, underwriters can continue to trade in actively-traded securities of larger issuers (securities with an average daily trading volume, or ADTV, value of $1 million or more and whose issuers have a public float value of at least $150 million). In addition, the following activities, among others, may be excepted from Rule 101, if they meet specified conditions:

Rule 102 prohibits issuers, selling security holders, and their affiliated purchasers from bidding for, purchasing, or attempting to induce any person to bid for or purchase, any security which is the subject of a distribution until after the applicable restricted period.

Rule 103 governs passive market making by broker-dealers participating in an offering of a Nasdaq security.

Rule 104 governs stabilization transactions, syndicate short covering activity, and penalty bids.

Rule 105 prevents manipulative short sales in anticipation of an offering by prohibiting investors from the covering certain short sales with securities purchased in the offering.

7. Restrictions on Insider Trading

The SEC and the courts interpret Rule 10b-5 under the Act to bar the use by any person of material nonpublic information in connection with the purchase or sale of securities, whenever that use violates a duty of trust and confidence owed to the source of that information. Section 15(f) of the Act specifically requires that broker-dealers have and enforce written policies and procedures reasonably designed to prevent their employees from misusing material nonpublic information. Because employees in the investment banking operations of broker-dealers frequently have access to material nonpublic information, firms need to create procedures designed to limit the flow of this information so that their employees cannot use the information in the trading of securities. Broker-dealers can use these information barriers as a defense to a claim of insider trading. Such procedures typically include:

8. Restrictions on Private Securities Transactions

NASD Rule 3040 provides that "no person associated with a member shall participate in any manner in a private securities transaction" except in accordance with the provisions of the rule. To the extent that any such transactions are permitted under the rule, prior to participating in any private securities transaction, the associated person must provide written notice to the member firm as described in the rule. If compensation is involved, the member firm must approve or disapprove the proposed transaction, record it in its books and records, and supervise the transaction as if it were executed on behalf of the member firm. Other conditions may also apply. In addition, private securities transactions of an associated person may be subject to liability under Exchange Act Section 10(b) and Rule 10-5, as well as the broker-dealer supervisory provisions of Section 15(f) (described in Part V.A.7, above) and Section 15(b)(4)(E), and other relevant statutory or regulatory provisions.

B. Analysts and Regulation AC

Brokers, dealers, and persons associated with brokers or dealers that publish, distribute, or circulate research reports are required to include in those reports a certification that the views expressed in the report accurately reflect the analyst's personal views. The report must also disclose whether the analyst received compensation for the views expressed in the report. If the analyst has received related compensation, the broker, dealer, or associated person must disclose its amount, source, and purpose. Regulation Analyst Certification applies to all brokers and dealers, as well as to those persons associated with a broker or dealer that fall within the definition of "covered person." Regulation Analyst Certification also requires that broker-dealers keep records of analyst certifications relating to public appearances.

In addition to Commission rules, analyst conduct is governed by SRO rules, such as NASD Rule 2711 and NYSE Rule 472. The SRO rules impose restrictions on analyst compensation, personal trading activities, and involvement in investment banking activities. The SRO rules also include disclosure requirements for research reports and public appearances

C. Trading by Members of Exchanges, Brokers and Dealers (Section 11(a))

Broker-dealers that are members of national securities exchanges are subject to regulations regarding transactions they effect on exchanges. For example, except under certain conditions, they generally cannot effect transactions on exchanges for their own accounts, the accounts of their associated persons, or accounts that they or their associated persons manage. Exceptions from this general rule include transactions by market makers, transactions routed through other members, and transactions that yield to other orders. Exchange members may wish to seek guidance from their exchange regarding these provisions.

D. Extending Credit on New Issues; Disclosure of Capacity as Broker or Dealer (Section 11(d))

Section 11(d)(1) of the Act generally prohibits a broker-dealer that participates in the distribution of a new issue of securities from extending credit to customers on the new issue during the distribution period and for 30 days thereafter. Sales by a broker-dealer of mutual fund shares are deemed to constitute participation in the distribution of a new issue. However, Exchange Act Rule 11d1-2 permits a broker-dealer to extend credit to a customer on newly sold mutual fund shares after the customer has owned the shares for 30 days.

Section 11(d)(2) of the Act requires a broker-dealer to disclose in writing, at or before the completion of each transaction with a customer, whether the broker-dealer is acting in the capacity of broker or dealer with regard to the transaction.

E. Order Execution Obligations (Rules 11Ac1-1 and 11Ac1-4)

Broker-dealers that are exchange specialists or Nasdaq market makers must comply with particular SEC rules regarding publishing quotes and handling customer orders. These two types of broker-dealers have special functions in the securities markets, particularly because they trade for their own accounts while also handling orders for customers. These rules, which include the "Quote Rule" and the "Limit Order Display Rule," increase the information that is publicly available concerning the prices at which investors may buy and sell exchange-listed and Nasdaq National Market System securities.

The Quote Rule requires specialists and market makers to provide quotation information. The quote information that the specialist or market maker publishes must display the best prices at which he is willing to trade (the lowest price the dealer will accept from a customer to sell the securities and the highest price the dealer will pay a customer to purchase the securities). A specialist or market maker may still trade at better prices in certain private trading systems, called electronic communications networks, or "ECNs," without publishing an improved quote. This is true only when the ECN itself publishes the improved prices and makes those prices available to the investing public. Thus, the Quote Rule ensures that the public has access to the best prices at which specialists and market makers are willing to trade even if those prices are in private trading systems.

Limit orders are orders to buy or sell securities at a specified price. The Limit Order Display Rule requires that specialists and market makers publicly display certain limit orders they receive from customers. If the limit order is for a price that is better than the specialist's or market maker's quote, the specialist or market maker must publicly display it. The rule benefits investors because the publication of trading interest at prices that improve specialists' and market makers' quotes present investors with improved pricing opportunities.

F. Penny Stock Rules (Rules 15g-2 through 15g-9, Schedule 15G)

Broker-dealers that effect transactions in "penny stocks" have certain enhanced suitability and disclosure obligations to their customers.⁷ A penny stock is generally defined as any equity security other than a security that: (a) is listed on a national securities exchange or approved for quotation on Nasdaq, (b) is a reported security as defined by Rule 11Aa3-1(a), (c) has a transaction price of five dollars or more, (d) is issued by an investment company or by the Options Clearing Corporation, or (e) whose issuer has met certain net tangible assets or average revenues.⁸

Before a broker-dealer may effect a solicited transaction in a penny stock for or with the account of a customer it must: (1) provide the customer with a risk disclosure document, as set forth in Schedule 15G, and receive a manually signed and dated written acknowledgement of receipt of that document from the customer⁹; (2) approve the customer's account for transactions in penny stocks; and (3) receive the customer's written agreement to the transaction.¹⁰ In addition, Exchange Act Rules 15g-3 through 15g-6 general require a broker-dealer to give each penny stock customer:

Exemptions from the requirements of Exchange Act Rules 15g-2 through 15g-6 are provided for non-recommended transactions, broker-dealers doing a minimal business in penny stocks, trades with institutional investors, and private placements.¹¹

G. Privacy of Consumer Financial Information (Regulation S-P)

Regulation S-P requires broker-dealers to provide their customers with initial, annual and revised privacy notices, which must be clear and conspicuous, and which must accurately reflect their policies and practices. The regulation also requires broker-dealers to adopt appropriate policies and procedures to protect customer records and information. In addition, it limits disclosures to non-affiliated third parties of account number information for use in telemarketing, direct mail marketing and e-mail marketing. Subject to certain exceptions, Regulation S-P also requires broker-dealers to allow consumers to opt out of disclosures of their nonpublic personal information to non-affiliates.

Broker-dealers, including foreign broker-dealers registered with the Commission and unregistered broker-dealers in the United States, must comply with Regulation S-P, even if their consumers are non-U.S. persons or if they conduct their activities through non-U.S. offices or branches.

VI. Financial Responsibility of Broker-Dealers

Broker-dealers must meet certain financial responsibility requirements, including:

A. Net Capital Rule (Rule 15c3-1)

The purpose of this rule is to require a broker-dealer to have at all times enough liquid assets to promptly satisfy the claims of customers if the broker-dealer goes out of business. Under this rule, broker-dealers must maintain minimum net capital levels based upon the type of securities activities they conduct and based on certain financial ratios. For example, broker-dealers that clear and carry customer accounts generally must maintain net capital equal to the greater of $250,000 or two percent of aggregate debit items. Broker-dealers that do not clear and carry customer accounts can operate with lower levels of net capital.

B. Use of Customer Balances (Rule 15c3-2)

Broker-dealers that use customers' free credit balances in their business must establish procedures to provide specified information to those customers, including:

C. Customer Protection Rule (Rule 15c3-3)

This rule is designed to protect customer funds and securities held by broker-dealers. Under the rule, a broker-dealer must have possession or control of all fully-paid or excess margin securities held for the account of customers, and determine daily that it is in compliance with this requirement. The broker-dealer must also make periodic computations to determine how much money it is holding that is either customer money or obtained from the use of customer securities. If this amount exceeds the amount that it is owed by customers or by other broker-dealers relating to customer transactions, the broker-dealer must deposit the excess into a special reserve bank account for the exclusive benefit of customers. This rule thus prevents a broker-dealer from using customer funds to finance its business.

D. Required Books, Records and Reports (Rules 17a-3, 17a-4, 17a-5, 17a-11)¹²

Broker-dealers must make and keep current books and records detailing, among other things, securities transactions, money balances, and securities positions. They also must keep records for required periods and furnish copies of those records to the SEC on request. These records include e-mail. Broker-dealers also must file with the SEC periodic reports, including quarterly and annual financial statements. The annual statements generally must be certified by an independent public accountant. In addition, broker-dealers must notify the SEC and the appropriate SRO¹³ regarding net capital, recordkeeping, and other operational problems, and in some cases file reports regarding those problems, within certain time periods. This gives the SEC and the SROs early warning of these problems.

E. Risk Assessment Requirements (Rules 17h-1T and 17h-2T)

Certain broker-dealers must maintain and preserve certain information regarding those affiliates, subsidiaries and holding companies whose business activities are reasonably likely to have a material impact on their own financial and operating condition (including the broker-dealer's net capital, liquidity, or ability to conduct or finance operations). Broker-dealers must also file a quarterly summary of this information. This information is designed to permit the SEC to assess the impact these entities may have on the broker-dealer.

VII. Other Requirements

In addition to the provisions discussed above, broker-dealers must comply with other requirements. These include:

A. Examinations and Inspections (Rules 15b2-2 and 17d-1)

Broker-dealers are subject to examination by the SEC and the SROs. The appropriate SRO generally inspects newly-registered broker-dealers for compliance with applicable financial responsibility rules within six months of registration, and for compliance with all other regulatory requirements within twelve months of registration. A broker-dealer must permit the SEC to inspect its books and records at any reasonable time.

B. Lost and Stolen Securities Program (Rule 17f-1)

In general, all broker-dealers must register in the lost and stolen securities program. The limited exceptions include broker-dealers that effect securities transactions exclusively on the floor of a national securities exchange solely for other exchange members and do not receive or hold customer securities, and broker-dealers whose business does not involve handling securities certificates. Broker-dealers must report losses, thefts, and instances of counterfeiting of securities certificates on Form X-17F-1A, and, in some cases, must make inquiries regarding securities certificates coming into their possession. Broker-dealers file these reports and inquiries with the Securities Information Center (SIC), which operates the program for the SEC. A registration form can be obtained from Securities Information Center, P.O. Box 55151, Boston, MA 02205-5151. For registration and additional information, see the SIC's website at https://www.secic.com/sic/home/home.html.

C. Fingerprinting Requirement (Rule 17f-2)

Generally, every partner, officer, director, or employee of a broker-dealer must be fingerprinted and submit his or her fingerprints to the U.S. Attorney General. This requirement does not apply, however, to broker-dealers that sell only certain securities that are not ordinarily evidenced by certificates (such as mutual funds and variable annuities) or to persons who do not sell securities, have access to securities, money or original books and records, and do not supervise persons engaged in such activities. A broker-dealer claiming an exemption must comply with the notice requirements of Rule 17f-2. SRO members may obtain fingerprint cards from their SRO and should submit completed fingerprint cards to the SRO for forwarding to the Attorney General.

D. Use of Electronic Media by Broker-Dealers

The SEC has issued two interpretive releases discussing the issues that broker-dealers should consider in using electronic media for delivering information to customers.¹⁴ These issues include the following:

E. Electronic Signatures (E-SIGN)

F. Anti-Money Laundering Program

Broker-dealers have broad obligations under the Bank Secrecy Act ("BSA") to guard against money laundering and terrorist financing through their firms. The BSA, its implementing regulations, and Rule 17a-8 under the Exchange Act require broker-dealers to file reports or retain records relating to suspicious transactions, customer identity, large cash transactions, cross-border currency movement, foreign bank accounts and wire transfers, among other things.

The BSA, as amended by the USA PATRIOT Act, as well as SRO rules (e.g., NASD Rule 3011 and NYSE Rule 445), also requires all broker-dealers to have anti-money laundering compliance programs in place. Firms must develop and implement a written anti-money laundering compliance program, approved in writing by a member of senior management, which is reasonably designed to achieve and monitor the member's ongoing compliance with the requirements of the Bank Secrecy Act and its implementing regulations. Under this obligation, firms must:

VIII. Where to Get Further Information

Office of Interpretation and Guidance
Division of Market Regulation
U.S. Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
(202) 942-0069
e-mail: marketreg@sec.gov

For additional information about how to obtain official publications of SEC rules and regulations, and for on-line access to SEC rules:

Superintendent of Documents
Government Printing Office
Washington, DC 20402-9325
www.gpo.gov

Publications Section
U.S. Securities and Exchange Commission
450 Fifth Street, NW, Stop C-11
Washington, DC 20549
(202) 942-4046

SEC's website: www.sec.gov
The SEC's website contains contact numbers for SEC offices in Washington and for the SEC's regional offices.

National Association of Securities Dealers, Inc.
9509 Key West Avenue
Rockville, MD 20850
(301) 590-6500 (call center)
(800) 289-9999 (to check on the registration status of a firm or individual)
www.nasd.com

New York Stock Exchange, Inc.
20 Broad Street
New York, NY 10005
(212) 656-3000
www.nyse.com

North American Securities Administrators Association, Inc.
10 G Street, NE, Suite 710
Washington, DC 20002
(202) 737-0900
www.nasaa.org

Municipal Securities Rulemaking Board
1900 Duke Street, Suite 600
Alexandria, VA 22314
(703) 797-6600
www.msrb.org

We wish to stress that we have published this guide as an introduction to the federal securities laws that apply to brokers and dealers. It only highlights and summarizes some of the significant provisions, and does not relieve anyone from complying with all applicable regulatory requirements. You should not rely on this guide without referring to the actual statutes, rules, regulations, and interpretations.

¹ The words "we" and "our" in this guide refer to the Division of Market Regulation.

² The treatment of dividend (or interest) reinvestment and stock purchase plans is addressed in Rule 102 (c) of Regulation M. (See Part V.A.6, below.)

³ Section 9(a) prohibits particular manipulative practices regarding securities registered on a national securities exchange. Section 10(b) is a broad "catch-all" provision that prohibits the use of "any manipulative or deceptive device or contrivance" in connection with the purchase or sale of any security. Sections 15(c)(1) and 15(c)(2) apply to the over-the-counter markets. Section 15(c)(1) prohibits broker-dealers from effecting transactions in, or inducing the purchase or sale of, any security by means of "any manipulative, deceptive or other fraudulent device," and Section 15(c)(2) prohibits a broker-dealer from making fictitious quotes.

4 These include Rules 10b-1 through 10b-18, 15c1-1 through 15c1-9, 15c2-1 through 15c2-11, and Regulation M.

5 In addition, Rule 11Ac1-3 requires broker-dealers to inform their customers, upon opening a new account and annually thereafter, of their policies regarding payment for order flow and for determining where to route a customer's order.

⁶ SEC, Report by Division of Market Regulation, Broker-Dealer Policies and Procedures Designed to Segment the Flow and Prevent the Misuse of Material Non-Public Information, [1989-1990 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶84,520 at p. 80, 620-25 (March, 1990).

⁷ Rule 15g-1(a)(1) establishes a transaction exemption for brokers or dealers whose commission equivalents, mark-ups, and mark-downs from transactions in penny stocks during each of the immediately preceding three months and during eleven or more of the preceding twelve months, or during the immediately preceding six months, did not exceed five percent of its total commissions, commission equivalents, mark-ups, and mark-downs from transactions in securities during those months.

¹² Rules 17a-2, 17a-7, 17a-8, 17a-10 and 17a-13 contain additional recordkeeping and reporting requirements that apply to broker-dealers.

¹³ When a broker-dealer is a member of more than one SRO, the SEC designates the SRO responsible for examining such broker-dealer for compliance with financial responsibility rules (the "designated examining authority").

¹⁴ Securities Exchange Act Release No. 37182 (May 15, 1996), 61 FR 24644. See also, Securities Exchange Act Release No. 39779 (March 23, 1998), 63 FR 14806.

Guide to Broker-Dealer Registration

Division of Market Regulation U.S. Securities and Exchange Commission August 2004

TABLE OF CONTENTS

I. Introduction

II. Who Is Required to Register

A. Who is a "Broker"

B. Who is a "Dealer"

C. What To Do If You Think You May Be a Broker or a Dealer

D. Brokers and Dealers Generally Must Register with the Commission

1. "Associated Persons" of a Broker-Dealer

2. Intrastate Broker-Dealers

3. Broker-Dealers that Limit their Business to Excluded and Exempted Securities

4. Broker-Dealers Must Register Before Selling Unregistered Securities — Including Private Placements (or Regulation D offerings)

5. Issuer's Exemption (Rule 3a4-1)

6. Foreign Broker-Dealer Exemption (Rule 15a-6)

E. Requirements Regarding Brokers and Dealers of Government and Municipal Securities, and Dealers in Repurchase Agreements

F. Special Rules That Apply to Banks and Other Financial Institutions

G. Insurance Agency Networking

H. Real Estate Broker Networking

I. Broker-Dealer Relationships with Affinity Groups

III. How to Register as a Broker-Dealer

A. Form BD

B. SRO Membership

C. SIPC Membership

D. State Requirements

E. Associated Persons (Section 3(a)(18); Rule 15b7-1)

F. Successor Broker-Dealer Registration (Rules 15b1-3, 15Ba2-4, and 15Ca2-3)

G. Withdrawal from Registration (Rule 15b6-1) and Cancellation

IV. Security Futures

V. Conduct Regulation of Broker-Dealers

A. Antifraud Provisions (Sections 9(a), 10(b), and 15(c)(1) and (2))

1. Duty of Fair Dealing

2. Duty of Best Execution

3. Customer Confirmation Rule (Rule 10b-10 and MSRB rule G-15)

4. Disclosure of Credit Terms (Rule 10b-16)

5. Restrictions on Short Sales (Rule 10a-1)

6. Trading During an Offering (Regulation M)

7. Restrictions on Insider Trading

8. Restrictions on Private Securities Transactions

B. Analysts and Regulation AC

C. Trading by Members of Exchanges, Brokers and Dealers (Section 11(a))

D. Extending Credit on New Issues; Disclosure of Capacity as Broker or Dealer (Section 11(d))

E. Order Execution Obligations (Rules 11Ac1-1 and 11Ac1-4)

F. Penny Stock Rules (Rules 15g-2 through 15g-9, Schedule 15G)

G. Privacy of Consumer Financial Information (Regulation S-P)

VI. Financial Responsibility of Broker-Dealers

A. Net Capital Rule (Rule 15c3-1)

B. Use of Customer Balances (Rule 15c3-2)

C. Customer Protection Rule (Rule 15c3-3)

D. Required Books, Records and Reports (Rules 17a-3, 17a-4, 17a-5, 17a-11)12

E. Risk Assessment Requirements (Rules 17h-1T and 17h-2T)

VII. Other Requirements

A. Examinations and Inspections (Rules 15b2-2 and 17d-1)

B. Lost and Stolen Securities Program (Rule 17f-1)

C. Fingerprinting Requirement (Rule 17f-2)

D. Use of Electronic Media by Broker-Dealers

E. Electronic Signatures (E-SIGN)

F. Anti-Money Laundering Program

VIII. Where to Get Further Information

Modified: 09/01/2004

Division of Market Regulation
U.S. Securities and Exchange Commission
August 2004

D. Required Books, Records and Reports (Rules 17a-3, 17a-4, 17a-5, 17a-11)¹²