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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§ 1A:7 BROKER-DEALER REGULATION<br />
The SEC’s no-action guidance has provided that, for the Intrastate<br />
Exemption to be available, the broker-dealer and its associated persons<br />
must be residents of the state, reg<strong>is</strong>tered under the law of the state, and<br />
have experience limited to the business of selling securities in the<br />
state. 344 In other words, in considering no-action relief, the SEC staff<br />
has taken the view that the broker-dealer and its associated persons<br />
could not have previously engaged in the securities business in another<br />
state. 345<br />
The securities being underwritten or transacted by the broker-dealer<br />
cannot be traded on an interstate bas<strong>is</strong> in order for the broker-dealer to<br />
utilize the exemption. 346 All aspects of the transaction must be<br />
exclusively within the state, and the broker-dealer cannot otherw<strong>is</strong>e<br />
engage in securities activities having interstate implications. 347<br />
§ 1A:7 Other Exemptions from Reg<strong>is</strong>tration<br />
§ 1A:7.1 Commercial Paper <strong>Dealer</strong>s<br />
Exchange Act § 15(a)(1) expressly exempts from broker-dealer<br />
reg<strong>is</strong>tration any person who engages exclusively in the purchase or<br />
sale of commercial paper. 348 Moreover, as noted above, section 3(a)(10)<br />
of the Exchange Act excludes from the definition of “security” “any<br />
note . . . which has a maturity at the time of <strong>is</strong>suance of not exceeding<br />
nine months. . . .” 349 However, the commercial paper exclusion in<br />
the Exchange Act’s definition of security has been construed as<br />
344. Arizona Property Investors, Ltd., SEC No-Action Letter (Nov. 17, 1979);<br />
American Liberty Financial Corp., SEC Denial of No-Action Letter<br />
(Dec. 21, 1975).<br />
345. See American Liberty Financial Corp., SEC Denial of No-Action Letter<br />
(Dec. 21, 1975).<br />
346. CMS Financial Group, Inc., SEC Denial of No-Action Letter (Apr. 2, 1990);<br />
In the Matter of Professional Investors, Inc., SEC Release No. 34-5315<br />
(May 25, 1956); Buy Blue Chip Stocks Direct, SEC Denial of No-Action<br />
Letter (Jan. 24, 1996).<br />
347. See Corporate Investment Co., SEC No-Action Letter (July 17, 1974).<br />
See also CMS Financial Group, Inc., SEC Denial of No-Action Letter<br />
(Apr. 2, 1990); Buy Blue Chip Stocks Direct, SEC Denial of No-Action<br />
Letter (Jan. 24, 1996). In Guon v. United States, 285 F.2d 140 (8th Cir.<br />
1960), a broker could not take advantage of the Intrastate Exemption<br />
because, while the sale of securities were negotiated and agreed upon<br />
within one state, the broker transferred certificates of the securities and<br />
received payment in a second state.<br />
348. Exchange Act § 15(a)(1).<br />
349. Exchange Act § 3(a)(10). In Reves v. Ernest Young, 110 S. Ct. 945, 951 n.3<br />
(1990), the Court explicitly left open the question whether the presumption<br />
that every note <strong>is</strong> a security applies to such short-term notes.<br />
1A–80