Rules and Regulations Governing Brokerage Industry
Generally, the brokerage sector is subject to a wide range of rules and regulations generated from a variety of regulatory agencies including SEC, Securities and Exchange Commission, the Federal Reserve and the numerous self regulatory organizations which include but are not limited to the National Association of Securities Dealers and the Securities Commission in all the states where specific brokers and broker dealers have their customers, offices or usually solicit potential customers.
The rules and regulations governing the industry are applied to various sectors. Nevertheless, relevant businesses in the industry are called upon to engage in certain activities that ensure broker dealer compliance. It would be almost impossible to enumerate and explain all the approaches adopted by various firms in ensuring compliance. Nevertheless, it is essential to touch on a number of issues that raise considerable concerns in the operation of a broker dealer regardless of where they are located in the country.
Registered representatives or broker dealers are usually advised to check their firm’s manual constantly to get hold of company’s specific procedures which may be different from those applied in a different firm on an issue considered identical. Some areas where extra care must be taken to ensure broker dealer compliance are as below.
1. Net capital reports
The rule governing the state of the net capital of a broker dealer requires that a firm maintains specified minimum net capital depending on the activity level of the company. What is more, rule 17a-11 requires the company to report incidences of deficiencies in the disposable capital to the NASD and SEC.
2. State security laws
Most of the broker dealers are usually registered in nearly all the states in the country. However, some of the regional firms normally register only in the states where their offices are maintained and where their customers actually reside. However, it is highly important for every broker dealer to know that the company and registered representatives must seek registration in every state where it has clients and mostly importantly, depending on the state under consideration, where it hopes to solicit business. Also referred to as Blue Sky laws, these state regulations are specific and different for every state in the country. While some states do not require any particular filing, few of them have their own registration forms, and some require brokers to seek registration even if they have a single customer within the state while others exempt firms with less than 3 or 5 customers.
Brokers and broker dealers are required to be conversant with all the rules and regulations so as to establish strategies for assuring compliance.
