What is a Broker-Dealer? - Davis Polk & Wardwell

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