8.9.3.1. Exemptions from Registration
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. In other words, if the only transactions someone does in the state are with the company that actually 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. 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. The law does not require a person or firm to jump through the hoops of registration if they’re 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 buyers. Like those dealing with the actual issuers of securities and other broker-dealers, individuals and firms dealing only with institutional buyers don’t need to register in the institutional buyers’ state(s). Institutional buyers, who handle 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 again, you should memorize the fact that an institutional buyer is someone or something that fits into one of the following categories:
• Bank, savings institution, or trust company
• Insurance company
• Investment company (mutual fund)
• Broker-dealer
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