Agents chapter recap

Ch 4-3 Exam Essentials — Regulation of Agents of Broker-Dealers

Definition (USA §401). An agent is an individual representing a BD or issuer in effecting or attempting to effect securities transactions. Firms are not agents. Clerical staff are not agents.

Issuer-rep exclusions. No agent registration required when representing the issuer in (1) specified exempt-security transactions (govt, muni, bank, commercial paper, employee-benefit plans), (2) exempt transactions, (3) specified federal-covered transactions, or (4) sales to the issuer's existing employees, partners, or directors for no commission. Lack of a commission alone is NOT a blanket exclusion.

Place of business + snowbird. Register where the agent has a place of business OR retail clients. Existing clients temporarily in another state (snowbird) do not trigger registration there if the agent has no place of business in that state.

Multiple BDs. An agent may register with more than one BD with written approval from each; separate Form U4 per firm.

Form U4. Filed by the firm through CRD. Covers identity, employment, disclosures, jurisdictions, exams. Fingerprints required. Pre-employment exam plus state law exam (63 or 66).

U4 amendments. Material changes filed within 30 days. Some firms use 10 days for statutory disqualification triggers (best practice).

Form U5. Filed by the firm within 30 days of termination. Discloses reason and any open matters. 2-year heightened review window for new disclosures post-termination.

Statutory disqualification (SEA §3(a)(39)). 10-year lookback for felonies and certain misdemeanors. Final regulatory bars, willful violations, false statements all trigger. MC-400 application required to associate.

Withdrawal vs denial vs suspension vs revocation (USA §204). Withdrawal effective in 30 days unless administrator initiates proceedings. Denial/suspension/revocation requires notice and opportunity for hearing.

Supervision (FINRA 3110). WSPs, designated principals, OSJ designations, annual compliance meeting, CEO certification. Office inspections: OSJ annual, non-OSJ at least every 3 years.

FINRA 3210. Outside BD accounts require written notice and consent from the employing firm. Executing firm transmits duplicate confirms/statements on request.

FINRA 2040. No transaction-based comp to unregistered persons except for narrow exceptions (foreign finders, retiring reps continuing commissions).

Dual registration. Reg BI when trading; fiduciary when advising. Series 66 satisfies both 63 and 65 state requirements but does not substitute for FINRA exams.

Agent-regulation exam traps — consolidated

1. "A BD itself is an agent." False. Only individuals are agents. The BD is the firm.
2. "An officer of an issuer must register to sell the issuer's stock to employees." Not necessarily — if no transaction-based comp is received, the officer exclusion applies.
3. "Selling Treasury securities for an issuer requires registration." False. Exempt-securities exclusion applies.
4. "An agent vacationing in Florida cannot service a NY client there." Allowed under the snowbird exemption for existing customers, provided the agent has no place of business in FL.
5. "U4 amendments are due within 60 days." Wrong. 30 days for most changes; some firms use 10 days for statutory disqualification triggers.
6. "U5 is filed by the agent." Wrong. The firm files U5 within 30 days of termination.
7. "The 2-year U5 review window means the firm must continue supervising." No. Only continued disclosure of new information about the prior tenure; not supervisory responsibility.
8. "An MC-400 lets the disqualified agent associate immediately." No. MC-400 is an application; FINRA must approve, often with heightened supervision conditions.
9. "FINRA 3210 only requires notification to the executing firm." Wrong. Notice AND consent from the employing firm; notification to the executing firm.
10. "FINRA 2040 prohibits all payments to non-registered persons." Wrong. Foreign finders and retiring-rep continuing commissions are exceptions.
11. "Withdrawal is immediate." Wrong. 30 days; administrator may initiate proceedings during the window.
12. "Series 66 alone qualifies for FINRA registration." No. Series 66 is a state-law exam. SIE + a FINRA top-off (e.g., Series 7) is still required for BD agent registration.