Broker-Dealer Registration

Under Section 15 of the Securities Exchange Act of 1934, most "brokers" and "dealers" must register with the SEC and join a "self-regulatory organization," or SRO.

Section 3(4) of the Act defines "broker" broadly as:

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

The term "person" includes entities as well as individuals. Banks are excluded from this definition.

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

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

Two groups are excluded from the definition of dealer—banks and "traders." A trader is someone who buys and sells securities, either individually or in a trustee 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 broker or dealer. For example, a person who executes transactions for others on a securities exchange clearly is a broker. And a firm that advertises publicly it makes a market in securities is obviously a dealer. Other situations can be less clear.

If you are doing, or may do, any of the activities of a broker or dealer, you should find out if you need to register. If you aren't certain, you may want to review SEC interpretations, consult with your attorney, or ask for our advice.

For more information, read our Compliance Guide to the Registration and Regulation of Brokers and Dealers. You may also want to review the Act and its rules.