The four groups the Uniform Securities Act removes from the broker-dealer definition, the conditions attached to each and how the Series 65 and Series 63 test them

Under the Uniform Securities Act, four groups are excluded from the definition of a broker-dealer: agents, issuers, banks and similar financial institutions, and firms with no place of business in the state that deal only with certain institutional clients. If a person falls into one of these groups, they are not a broker-dealer in that state, so the state’s broker-dealer registration requirement does not apply to them.

The starting point is the definition itself. A broker-dealer is any person engaged in the business of effecting transactions in securities for the account of others or for its own account, and the exclusions carve out the people and firms that would otherwise be caught by those wide words.

This guide covers each exclusion, the difference between an exclusion and an exemption, the federal picture, worked examples, the exam traps and five practice questions. For the background on how broker-dealers operate, FRC’s guide to broker vs dealer explains the two roles a broker-dealer combines.

Why the Definition Needs Exclusions

The broker-dealer definition is deliberately wide. Any person in the business of buying and selling securities, whether for customers or for its own inventory, falls within it, and the word person includes firms and individuals alike.

Left unqualified, that wording would catch people the law never meant to regulate as broker-dealers. A company selling its own shares, a bank handling securities for its trust clients and an employee taking orders for a firm would all look like broker-dealers on a literal reading.

The exclusions solve that problem. Each one removes a group that is either regulated in another way or poses little risk to the retail investors that state registration is designed to protect.

Where This Topic Appears on the Exams

Broker-dealer exclusions appear in the laws and regulations section of the Series 65, and they are a core topic on the Series 63 and Series 66. Questions usually describe a person or firm and ask whether it is a broker-dealer in the state, whether it must register, or which exclusion applies.

FRC’s Series 65 Exam Preparation course covers the Uniform Securities Act definitions chapter by chapter, and the Series 65 requires no sponsor. The Series 7 Exam Preparation course explains how broker-dealers work day to day, and the SIE Examination Preparation course introduces the registration framework that sits behind it.

Every FRC course can be spread across interest-free monthly payments, so cost is no reason to delay. Definition questions are among the most dependable marks on the state law exams once the exclusions are learned properly.

The Four Exclusions at a Glance

The table gives the shape of the topic. The sections that follow explain each exclusion and the conditions attached to it, because the conditions are where most exam questions are set.

Exclusion One: Agents

An agent is an individual who represents a broker-dealer or an issuer in effecting or attempting to effect securities transactions. Agents are excluded from the broker-dealer definition because the law already regulates them under a separate category with its own registration.

This exclusion keeps the categories clean. The firm is the broker-dealer and registers as one, while the individuals selling on its behalf are agents and register as agents through that firm.

FRC’s guide to what an agent is under the Uniform Securities Act covers the agent definition, its own exclusions and how agents register. Together, the two definitions decide who in a securities firm needs which registration.

Exclusion Two: Issuers

An issuer is any person who issues or proposes to issue a security, such as a company selling its own shares or a municipality selling its own bonds. An issuer selling its own securities is not a broker-dealer.

The reasoning is that an issuer raising money for itself is not in the business of trading securities for others. Its activity is regulated through the registration of the securities it offers, not through broker-dealer registration.

This exclusion covers the issuer as an entity, not every individual who sells for it. A company employee who is paid a commission to sell the company’s shares to the public is an agent of the issuer and must register as one, even though the company itself is not a broker-dealer.

Exclusion Three: Banks, Savings Institutions and Trust Companies

Banks, savings institutions and trust companies are excluded from the broker-dealer definition under the Uniform Securities Act. The Uniform Securities Act of 2002 groups these under the term depository institution, together with international banking institutions.

The reason is that these institutions are already supervised by federal and state banking regulators. State securities law leaves that supervision in place rather than adding a second layer of broker-dealer registration.

The exclusion applies to the institution itself, not automatically to every business it owns. Many banking groups carry out retail brokerage through a separate subsidiary, and that subsidiary is a broker-dealer that must register in the ordinary way.

Exclusion Four: No Place of Business in the State

The fourth exclusion depends on two conditions, and both must be met. The firm must have no place of business in the state, and its only clients in the state must be of the types the Act lists.

Those clients are issuers, other broker-dealers, banks, savings institutions, trust companies, insurance companies, investment companies, pension or profit-sharing trusts, and other financial institutions or institutional investors, whether acting for themselves or as trustees. These are sophisticated clients that the state does not need to protect in the same way as individual investors.

The moment either condition fails, the exclusion is lost. A firm that opens an office in the state, or that takes on a single retail individual living in the state, must register there as a broker-dealer.

What Counts as a Place of Business

A place of business is any location where the firm offers, sells or regularly provides securities services, or which it holds out as a place where it does so. A branch office is the obvious example, but a home office used to do business with customers can also count.

That is why the exclusion is narrower than it first looks. A representative working from home in the state can give the firm a place of business there, even if the firm’s headquarters is elsewhere.

Firms that rely on this exclusion therefore control where their people work as well as who their clients are. The question on the exam is usually framed around one of those two facts changing.

The Existing Customer Temporarily in the State

A related situation concerns an existing customer who is only temporarily in another state, such as a retiree spending the winter away from home. A firm with no place of business in that second state can usually continue to serve the customer there without registering.

The Uniform Securities Act of 2002 sets this out as an exemption from registration rather than an exclusion from the definition. For exam purposes, the result is the same: the firm does not need to register in the second state for that existing customer, provided it is registered in the customer’s home state.

The rule covers existing customers only. Taking on a new individual customer who lives in the second state requires registration there.

No De Minimis Number for Broker-Dealers

Investment advisers have a de minimis rule that lets an out-of-state adviser with no place of business serve up to five retail clients in a state over twelve months without registering. Broker-dealers have no equivalent.

A broker-dealer with no place of business in a state that sells to even one individual retail customer resident there generally must register. FRC’s guide to the de minimis exemption explains the adviser rule and why it does not carry across.

This difference is one of the most tested contrasts on the state law exams. Many candidates apply the five-client figure to broker-dealers by mistake.

Exclusion vs Exemption

An exclusion means the person is not a broker-dealer in the state at all. An exemption means the person is a broker-dealer but does not have to register in that particular situation.

The distinction affects which rules apply. An excluded person sits outside the state’s broker-dealer rules, while an exempt broker-dealer still is one and remains subject to parts of the state’s oversight.

Neither status protects anyone from the antifraud provisions. Every person who offers, sells or buys securities in the state is subject to those provisions, whether or not they are registered, excluded or exempt.

What Is Not Excluded

The exclusions are specific, and the exam regularly tests situations that fall just outside them. A firm that sells only federal covered securities, such as listed stocks or mutual funds, is still a broker-dealer and must still register.

The federal covered label removes the need to register the security with the state, not the firm that sells it. FRC’s guide to what a federal covered security is explains that distinction in full.

Size and sophistication of the firm do not create an exclusion either. A large national broker-dealer with offices across the country registers in each state where it does business, just as a small one does.

Investment Advisers Are a Separate Definition

An investment adviser is defined separately from a broker-dealer, and the two definitions have their own exclusions. Broker-dealers are excluded from the investment adviser definition when their advice is solely incidental to their brokerage business and they receive no special compensation for it.

That exclusion works in one direction only. A broker-dealer that starts charging a separate fee for advice, or offers advice that goes beyond its brokerage role, may also become an investment adviser and need to register as one.

FRC’s guide to what a registered investment adviser is covers the adviser definition. Keeping the two sets of exclusions separate in your mind avoids one of the most common mix-ups on the exam.

The Federal Picture

At the federal level, the Securities Exchange Act of 1934 defines broker and dealer separately and requires most firms to register with the SEC on Form BD. The federal definitions have their own exceptions, including limited exceptions for certain bank securities activities.

The federal dealer definition also excludes a trader. A person who buys and sells securities for their own account, but not as part of a regular business, is not a dealer, which is why an individual investor managing their own portfolio does not need to register.

Most broker-dealers that deal with the public must also join FINRA. State registration sits alongside the federal requirements, and the Central Registration Depository handles filings for both, as FRC’s guide to what a CRD number is and how to find it explains.

What States Can and Cannot Require

Federal law limits how far states can go in regulating registered broker-dealers. Since the National Securities Markets Improvement Act of 1996, states cannot impose capital, custody, margin, financial responsibility, bookkeeping or reporting requirements that differ from or add to the SEC’s rules.

States keep their power to require registration, collect fees and enforce antifraud rules. They also keep their power to discipline broker-dealers and agents for misconduct, including by denying, suspending or revoking registration.

FRC’s guide to what powers the state Administrator has explains those enforcement tools. The exclusions decide who falls under them in the first place.

Worked Example: The Out-of-State Institutional Firm

A broker-dealer based in New York has no office in Ohio. Its only Ohio clients are two insurance companies and a pension fund.

The firm is not a broker-dealer in Ohio, because it has no place of business there and deals only with institutional clients the Act lists. It does not need to register in Ohio.

If the firm then opened an account for an Ohio resident investing her own savings, the exclusion would be lost. One retail client in the state is enough to require registration there.

Worked Example: The Bank and Its Subsidiary

A national bank buys and sells securities for its trust clients through its trust department. Its sister company, owned by the same banking group, runs a retail brokerage business selling stocks and funds to the public.

The bank itself is excluded from the broker-dealer definition under the Uniform Securities Act. The brokerage subsidiary is not a bank, so it is a broker-dealer and must register in each state where it does business.

The exam often places the two side by side. The answer turns on which legal entity is carrying out the activity, not on the group it belongs to.

Worked Example: The Company Raising Money

A manufacturing company sells shares directly to investors to fund a new plant. Its head of investor relations handles the sale and receives no commission.

The company is an issuer selling its own securities, so it is not a broker-dealer. Depending on the offering and the buyers, its employee may or may not be an agent, and that question is answered by the agent definition rather than the broker-dealer definition.

If the company instead hired an outside firm to sell the shares to the public for a fee, that firm would be acting as a broker-dealer. It would need to register in each state where it sold.

Worked Example: The Home Office

A broker-dealer headquartered in Texas employs a representative who lives in Colorado. She meets Colorado clients at her home, which the firm lists as an office.

The firm now has a place of business in Colorado, so it cannot rely on the out-of-state exclusion there. It must register in Colorado, and the representative must register as an agent in Colorado too.

Had the representative worked only from the Texas office and dealt only with institutional clients in Colorado, the result could have been different. The location of the business is one of the two facts the exclusion depends on.

The Exam Traps

The first trap is treating an agent as a broker-dealer. An individual selling for a firm is an agent, and agents are excluded from the broker-dealer definition.

The second trap is applying the five-client de minimis figure to broker-dealers. There is no numerical de minimis for broker-dealers, and one retail client in a state can trigger registration there.

The third trap is forgetting that both conditions of the out-of-state exclusion must be met. A firm with no place of business that takes on a single individual retail client loses the exclusion.

The fourth trap is assuming that selling only federal covered securities removes the need for the firm to register. It removes the need to register the securities, not the broker-dealer.

FRC’s guide to Series 65 ethics and laws questions and exam traps covers more traps in this area. For the full list across the exam, see FRC’s guide to Series 65 exam traps and common mistakes.

A Memory Aid

Remember “agents, issuers, banks and the out-of-towners.” That covers the four groups excluded from the broker-dealer definition.

For the fourth group, add “no office, no retail.” A firm with no place of business in the state that deals only with institutions stays outside the definition, and adding either an office or a retail client brings it back in.

Practice Questions

Question one: is an individual registered representative of a broker-dealer a broker-dealer under the Uniform Securities Act? No, an individual representing a broker-dealer is an agent, and agents are excluded from the broker-dealer definition.

Question two: is a bank that buys securities for its trust clients a broker-dealer under the Uniform Securities Act? No, banks, savings institutions and trust companies are excluded.

Question three: a firm with no office in a state sells only to insurance companies and pension funds there. Must it register in that state? No, it falls within the exclusion for firms with no place of business dealing only with listed institutional clients.

Question four: the same firm takes on one individual retail client resident in the state. Must it now register? Yes, broker-dealers have no de minimis number, so one retail client is enough.

Question five: a company sells its own shares directly to investors. Is the company a broker-dealer? No, an issuer selling its own securities is excluded from the definition.

Related Questions

Most people meet the broker-dealer definition for the first time while studying for their first licence. FRC’s guide to how to become a registered representative explains the exams, sponsorship and first steps into a broker-dealer career.

Get Exam-Ready

Exclusion questions reward candidates who know the four groups and the conditions attached to each. Once you can test a scenario against the agent, issuer, bank and out-of-state exclusions in turn, these questions become quick and reliable marks.

The FRC dictionary is more than a dictionary. It is a library of explainer videos, written explanations and on-page quizzes covering the FINRA and SEC rules you are tested on, so you can open any term and go deeper whenever a question catches you out.

Study With FRC

FRC’s programs and memberships are open to everyone. Whether you are preparing for the Series 65, the Series 7, the SIE or a combination, structured exam preparation turns topics like state registration into marks you can rely on.

FRC’s Professional Membership adds verified progress and a Digital Profile, so when you apply for roles, employers can see your exam progress and the knowledge you are building, not just read about it on a resume.

Your Next Step

Under the Uniform Securities Act, agents, issuers, banks and similar institutions, and firms with no place of business in the state that deal only with institutional clients are excluded from the definition of a broker-dealer. Everyone else in the business of effecting securities transactions is a broker-dealer and must register in each state where it does business, unless an exemption applies.

Remember “agents, issuers, banks and the out-of-towners,” and you will be ready for every version of this question the exam can ask.