Agents are individuals in a sales capacity who represent broker-dealers or issuers of securities. As agents, they act, usually on commission basis, on behalf of others. Agents are often referred to as registered representatives, whether sell registered securities or securities exempt from registration. The use of the term individual here is important. Only an individual, or a natural person, can be an agent. A corporation such as a brokerage firm is not a natural person, it is a legal entity. The brokerage firm is the legal person, or legal entity, the agent, a natural person, represents in securities transactions. Also, there are exclusions from registration as an agent, which are listed below.

Exclusions from the Definition of Agent for Administrative Personnel

Clerical and administrative employees of a broker-dealer are generally not included in the definition of agent and, therefore, are not required to be registered. Clerical and administrative employees do not effect securities transactions with the public. They attend to the administration of the broker-dealer as a business organization. Under these circumstances, they are like employees of any other corporation. In fact, if the broker-dealer they work for wishes to pay their employees, including this group, a year-end bonus based on company profits that’s not related to any individual’s sales efforts, it would be allowable and would not require registrations of the clerical personnel. The situation changes when administrative personnel take on securities-related functions. When they do so, they lose their exemption and must register as an agent.

Exclusions from the Definition of Agent for Personnel Representing Issuers

In many cases, individuals who represent issuers of securities are agents and therefore must register as such in the states in which they sell the issuers’ securities. In many cases, this occurs when a local company is looking to raise some additional capital in the range of several million dollars. Instead of going through the normal investment banking procedure and paying all of those fees and commissions to the investment bankers, the company, aka the issuer, either uses its own employees or hires an outside sales force to sell the new security. In general, these individuals are required to register as agents of the issuer. Individuals are excluded from the definition of agent and, therefore, are exempt from registration in a state when representing issuers in effecting transactions:

  • In certain exempt securities (listed below);
  • Exempt from registration; or
  • With existing employees, partners, or directors of the issuer if no sales-related commission or other remuneration is paid or given directly or indirectly for soliciting any person in this state.

Effecting Transactions in Exempt Securities

Securities exempt from registration are called exempt securities. Although there are almost a dozen different securities that qualify for exemption under the Uniform Securities Act, an individual is excluded from the term agent only when that individual represents an issuer in effecting transactions for the following five exempt securities:

  1. Any security issued or guaranteed by the United States, any state, any political subdivision of a state, or any agency of one or more of these or any security issued or guaranteed by Canada, any Canadian province, or any political subdivision of any such province;
  2. Securities of foreign governments with which the United States has diplomatic relation-ships;
  3. Any security issued by, or guaranteed by, any bank organized under the laws of the United States, or any bank, savings institution, or trust company organized and supervised under the laws of any state;
  4. Commercial paper rated in the top three categories by the major rating agencies with denominations of $50,000 or more with maturities of nine months or less; or
  5. Investment contracts issued in connection with employee’s stock purchase, savings, pensions, or profit-sharing plans.

Effecting Exempt Transactions

An employee of an issuer is not an agent when representing an issuer in exempt transactions. Transactions exempt from registration are called exempt transactions. Some examples are:

  • Unsolicited brokerage transactions;
  • Transactions between the issuer and underwriters;
  • Transactions with financial institutions; or
  • Private placements.

Agent Exemptions from Registration

There is no de minimis exemption for agents. If you have a single client in a state, regardless of whether or not you have a place of business there, you are an agent in that state and require registration.

There are only two exemptions. First is the snowbird exemption, which allows you do business with an existing client in a state they are visiting, usually to spend winter in warmer climates, even though you are not registered in that state. The second is when the firm is excluded from the definition of a broker-dealer because it has no place of business in the state and only deals with other broker-dealers and institutions, etc. In that case, the broker-dealer’s employees who service those clients are not considered to be agents in that state.

For more information on agent registration, check out our Registering as an Agent for a Broker-Dealer and Agent Registration Process blogs now.

If you need help determining whether or not you qualify for any exclusions from registration as an agent, please contact us. MasterCompliance provides expert consulting, outsourcing, and implementation tools in planning and budgeting your firm’s compliance responsibilities.