What is a Broker-Dealer? - Davis Polk & Wardwell
What is a Broker-Dealer? - Davis Polk & Wardwell
What is a Broker-Dealer? - Davis Polk & Wardwell
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<strong>What</strong> Is a <strong>Broker</strong>-<strong>Dealer</strong>? § 1A:8.4<br />
allowed to grant selling concession, d<strong>is</strong>count or other allowances to<br />
non-members as they are allowed to grant to members. 494 Rule 2420(d)<br />
provides restrictions on payments by or to persons that have been<br />
suspended or expelled. 495 NASD Rule 2420(b)(2) also prohibits FINRA<br />
members from joining with any non-member broker-dealer in any<br />
syndicate or group for the d<strong>is</strong>tribution of securities. 496 However, Rule<br />
2420(c) allows members to pay concessions and fees to a non-member<br />
broker-dealer in a foreign country who <strong>is</strong> not eligible for membership<br />
subject to certain conditions. 497<br />
On December 2, 2009, FINRA proposed for public comment<br />
FINRA Rule 2040 which would replace several NASD rules including<br />
NASD Rules 2410 and 2420. 498 Proposed Rule 2040 would prohibit<br />
members or associated persons from paying or offering to pay, directly<br />
or indirectly, any compensation, fees, concessions, d<strong>is</strong>counts, comm<strong>is</strong>sions<br />
or other allowances to any person that <strong>is</strong> not reg<strong>is</strong>tered with<br />
the SEC as a broker-dealer but, by reason of receipt of any such<br />
payments, would be required to be so reg<strong>is</strong>tered. The proposed rule<br />
would be cons<strong>is</strong>tent with FINRA staff interpretations under<br />
NASD Rule 2420 and SEC rules and regulations under section 15(a)<br />
of the Exchange Act. Under the proposal, persons would look to SEC<br />
rules and regulations to determine whether the activities in question<br />
require reg<strong>is</strong>tration as a broker-dealer under section 15(a) of the<br />
Exchange Act.<br />
[B] Participating in Syndicates with Unreg<strong>is</strong>tered<br />
Persons<br />
FINRA prohibits its members from participating in underwriting<br />
syndicates with unreg<strong>is</strong>tered persons. FINRA Rule 5110(f)(2)(L) forbids<br />
FINRA members from participating in underwriting syndicates<br />
with unreg<strong>is</strong>tered persons hired by the <strong>is</strong>suer primarily to ass<strong>is</strong>t in the<br />
public d<strong>is</strong>tributions of non-underwritten offerings except associated<br />
persons of the <strong>is</strong>suer who are exempt from broker-dealer reg<strong>is</strong>tration<br />
under Rule 3a4-1 and applicable state law. 499<br />
494. NASD Rule 2420(b)(1).<br />
495. NASD Rule 2420, IM-2420-1(d).<br />
496. NASD Rule 2420(b)(2).<br />
497. NASD Rule 2420(c).<br />
498. See Regulatory Notice 09-69, supra note 459.<br />
499. FINRA Rule 5110(f)(2)(L). Th<strong>is</strong> limitation should not be read to prohibit<br />
certain otherw<strong>is</strong>e perm<strong>is</strong>sible syndicate activities, such as participating in<br />
underwriting syndicates with foreign persons that are not FINRA members,<br />
subject to conditions. See NASD Rules 2740(c) and 2420(c).<br />
(<strong>Broker</strong>-<strong>Dealer</strong> Reg., Rel. #9, 9/10)<br />
1A–111