What is a Broker-Dealer? - Davis Polk & Wardwell
What is a Broker-Dealer? - Davis Polk & Wardwell
What is a Broker-Dealer? - Davis Polk & Wardwell
You also want an ePaper? Increase the reach of your titles
YUMPU automatically turns print PDFs into web optimized ePapers that Google loves.
<strong>What</strong> Is a <strong>Broker</strong>-<strong>Dealer</strong>? § 1A:2.6<br />
in connection with securities-based activities generally <strong>is</strong> required to<br />
reg<strong>is</strong>ter as a broker-dealer. 171<br />
The SEC staff has denied a CPA firm’s no-action request under<br />
section 15(a) for its proposal to enter into an arrangement with<br />
a Reg<strong>is</strong>tered <strong>Broker</strong>-<strong>Dealer</strong>, through which it would have received<br />
transaction-related compensation. 172 Under that arrangement, the<br />
broker-dealer would offer certain financial products and services to<br />
clients of the CPA firm on the prem<strong>is</strong>es of the CPA firm. 173 The<br />
broker-dealer would not pay referral fees, finders’ fees or comm<strong>is</strong>sions<br />
to the CPA firm but the rent it would pay would be based on the value<br />
of the square footage leased plus the value of the income generated<br />
from the CPA firm’s clients. By contrast, the SEC staff has granted noaction<br />
relief to several tax preparers and accountants who proposed to<br />
enter a contract with a Reg<strong>is</strong>tered <strong>Broker</strong>-<strong>Dealer</strong>, under which they<br />
would refer prospective clients to the broker-dealer for a one-time<br />
referral fee. 174 The fees paid to the tax preparers and accountants<br />
would not depend on the amount of comm<strong>is</strong>sions or compensation<br />
received by the broker-dealer and would be paid only once for each<br />
account regardless of whether there would be subsequent comm<strong>is</strong>sions<br />
from th<strong>is</strong> account. 175 Th<strong>is</strong> letter appears to be incons<strong>is</strong>tent with prior<br />
and succeeding letters and provides little ongoing guidance.<br />
When a CPA <strong>is</strong> also a reg<strong>is</strong>tered representative of a broker-dealer,<br />
he may be able to receive transaction-based compensation from the<br />
broker-dealer, provided that no other CPAs who are not Reg<strong>is</strong>tered<br />
<strong>Broker</strong>-<strong>Dealer</strong>s or associated persons of a Reg<strong>is</strong>tered <strong>Broker</strong>-<strong>Dealer</strong><br />
will directly or indirectly benefit from the arrangement. 176 As the<br />
SEC has stated: “. . . the direct or indirect receipt by CPAs who are<br />
not Reg<strong>is</strong>tered <strong>Broker</strong>-<strong>Dealer</strong>s, or associate[d] persons thereof, of<br />
referral fees, finder’s fees, comm<strong>is</strong>sions . . . or similar transactionbased<br />
compensation in connection with transactions in securities<br />
still would require these CPAs to reg<strong>is</strong>ter as broker-dealers with the<br />
SEC.” 177<br />
171. See 1st Global Inc., SEC No-Action Letter (May 7, 2001) (citing Birchtree<br />
Financial Services, Inc., SEC Denial of No-Action Request (Sept. 22,<br />
1998)); Joseph K. Bannon, CPA, SEC No-Action Letter (Dec. 9, 1988).<br />
172. See Flexible Financial Marketing, Inc., SEC Denial of No-Action Request<br />
(Sept. 13, 1996).<br />
173. See id.<br />
174. See Redmond Associates and John Kendall Redmond, SEC No-Action<br />
Letter (Jan. 12, 1985).<br />
175. See id.<br />
176. See Joseph K. Bannon, CPA, SEC No-Action Letter (Dec. 9, 1988).<br />
177. See id.<br />
(<strong>Broker</strong>-<strong>Dealer</strong> Reg., Rel. #9, 9/10)<br />
1A–43