Form BD

A broker is any person engaged in the business of effecting transactions in securities for the account of others. A dealer is any person engaged in the business of buying and selling securities for his own account, through a broker or otherwise. Most brokers and dealers must register with the SEC and join a self-regulatory organization.

A broker-dealer that conducts all of its business in one state does not have to register with the SEC. To qualify, all aspects of all transactions must be done within the borders of one state.

What Form BD Collects

Form BD asks questions about the background of the broker-dealer and its principals. The form is organized into Items.

Item 1 asks for the exact name, principal business address, mailing address, if different, and telephone number of the applicant. Item 2 asks the applicant to indicate by checking the appropriate boxes each governmental authority, organization, or jurisdiction in which the applicant is registered or registering as a broker-dealer. Item 3 asks the applicant to indicate its legal status. Item 4 asks, if the applicant is a sole proprietor, for the full residence address and Social Security Number.

Item 5 asks whether the applicant, at the time of the filing, is succeeding to the business of a currently registered broker-dealer. Item 6 asks whether the applicant holds or maintains any funds or securities or provides clearing services for any other broker or dealer. Item 7 asks whether the applicant refers or introduces customers to any other broker or dealer. Item 8 asks about arrangements the applicant has with any other person, firm, or organization. Item 9 asks about persons not named in Item 1 or Schedules A, B, or C.

Item 10 asks whether, directly or indirectly, the applicant controls, is controlled by, or is under common control with, any partnership, corporation, or other organization that is engaged in the securities or investment advisory business. Item 11 contains the disclosure questions, and the applicant uses the appropriate Disclosure Reporting Page (DRP) for providing details to yes answers to those questions. Item 12 asks the applicant to check the types of business engaged in, or to be engaged in if not yet active. Item 13 asks whether the applicant effects transactions in commodity futures, commodities or commodity options as a broker for others or as a dealer for its own account.

Schedules and Disclosure Reporting Pages

Schedule A provides information on the direct owners and executive officers of the applicant, and it is used only in new applications. Schedule B provides information on the indirect owners of the applicant, and it is also used only in new applications. Schedule C is used to amend Schedules A and B. Schedule D provides additional space for explaining answers to Item 1C(2), and yes answers to Items 5, 7, 8, 9, 10, 12, and 13. Schedule E is used to register or report branch offices or other business locations of the applicant.

The Disclosure Reporting Pages cover six kinds of disclosure: criminal, regulatory action, civil judicial action, bankruptcy and Securities Investor Protection Corporation, bond, and judgment and lien.

Signature, Oath and Consent to Service

The execution section of the form contains the applicant's consent to service of process. The applicant and the undersigned certify that the applicant is in compliance with applicable state surety bonding requirements and irrevocably appoint the administrator of each state designated in Item 2, or such other person designated by law, and the successors in such office, attorney for the applicant.

The applicant consents that service of any civil action brought by or notice of any proceeding before the Securities and Exchange Commission or any self-regulatory organization in connection with the applicant's broker-dealer activities, or of any application for a protective decree filed by the Securities Investor Protection Corporation, may be given by registered or certified mail or confirmed telegram to the applicant's contact employee at the main address, or mailing address if different, given in Items 1E and 1F.

The undersigned and applicant represent that the information and statements contained in the form, including exhibits attached and other information filed with it, are current, true and complete. This section must always be completed in full with original, manual signature and notarization. Form BD must first be submitted electronically and then a signed and notarized copy of the form must be sent to FINRA.

Registering With the SEC and the SRO

Broker-dealers register by filing an application on Form BD. A broker or dealer may be registered by filing with the SEC an application for registration in such form and containing such information and documents concerning such broker or dealer and any persons associated with such broker or dealer as the SEC, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. A broker-dealer must file one executed copy of Form BD through the Central Registration Depository.

Within forty-five days of filing a completed application, the SEC will either grant registration or begin proceedings to determine whether it should deny registration.

A broker-dealer also uses Form BD to apply for membership in an SRO, such as FINRA or a registered national securities exchange, to give notice that it conducts government securities activities, and to apply for broker-dealer registration with each state in which it plans to do business.

Before it begins doing business, a broker-dealer must become a member of an SRO. SROs assist the SEC in regulating the activities of broker-dealers. FINRA and the national securities exchanges are all SROs. If a broker-dealer restricts its transactions to the national securities exchanges of which it is a member and meets certain other conditions, it may be required only to be a member of those exchanges. If a broker-dealer effects securities transactions other than on a national securities exchange of which it is a member, however, including any over-the-counter business, it must become a member of FINRA, unless it qualifies for the exemption in Rule 15b9-1.

A broker-dealer must comply with relevant state law as well as federal law and applicable SRO rules.

Applying for FINRA Membership

An Applicant for FINRA membership files its application with the Department of Member Regulation of FINRA (the Department) in the manner prescribed by FINRA. Rule 1013 requires that the application include Form NMA; an original signed and notarized paper Form BD, with applicable schedules; an original FINRA-approved fingerprint card for each Associated Person who will be subject to Rule 17f-2 under the Securities Exchange Act of 1934; a new member assessment report; and a detailed business plan that adequately and comprehensively describes all material aspects of the business that will be, or are reasonably anticipated to be, performed at and after the initiation of business operations, including future business expansion plans, if any.

The application also includes a list of all Associated Persons; a description of the Applicant's supervisory system and a copy of its written supervisory procedures, internal operating procedures (including operational and internal controls), internal inspections plan, written approval process, and qualifications investigations required by Rule 3110; and a copy of the Applicant's written training plan to comply with Firm Element continuing education requirements described in Rule 1240(b), including the name of the Associated Person responsible for implementation.

If the Department determines within thirty days after the filing of an application that the application is not substantially complete, the Department may reject the application and deem it not to have been filed. Before the Department serves its decision on an application for new membership in FINRA, the Department shall conduct a membership interview with a representative or representatives of the Applicant.

After considering the application, the membership interview, other information and documents provided by the Applicant, other information and documents obtained by the Department, and the public interest and the protection of investors, the Department determines whether the Applicant meets each of the standards in Rule 1014(a).

The Standards for Admission

Under Rule 1014, the standards the Department applies include the following. The application and all supporting documents are complete and accurate. The Applicant and its Associated Persons have all licenses and registrations required by state and federal authorities and self-regulatory organizations. The Applicant and its Associated Persons are capable of complying with the federal securities laws, the rules and regulations thereunder, and FINRA rules, including observing high standards of commercial honor and just and equitable principles of trade.

In determining whether that standard is met, the Department takes into consideration whether a state or federal authority or self-regulatory organization has taken permanent or temporary adverse action with respect to a registration or licensing determination regarding the Applicant or an Associated Person; whether an Applicant's or Associated Person's record reflects a sales practice event, a pending arbitration, or a pending private civil action; and whether an Associated Person was terminated for cause or permitted to resign after an investigation of an alleged violation of a federal or state securities law, a rule or regulation thereunder, a self-regulatory organization rule, or industry standard of conduct.

The Applicant is capable of maintaining a level of net capital in excess of the minimum net capital requirements set forth in Rule 15c3-1 under the Securities Exchange Act of 1934 adequate to support the Applicant's intended business operations on a continuing basis, based on information filed under Rule 1013(b)(5). The Department may impose a reasonably determined higher net capital requirement for the initiation of operations after considering several listed factors.

The communications and operational systems that the Applicant intends to employ for the purpose of conducting business with customers and other members are adequate and provide reasonably for business continuity. The Applicant has financial controls to ensure compliance with the federal securities laws, the rules and regulations thereunder, and FINRA rules.

The Applicant has a supervisory system, including written supervisory procedures, internal operating procedures (including operational and internal controls), and compliance procedures designed to prevent and detect, to the extent practicable, violations of the federal securities laws, the rules and regulations thereunder, and FINRA rules. The Applicant has a recordkeeping system that enables Applicant to comply with federal, state, and self-regulatory organization recordkeeping requirements and a staff that is sufficient in qualifications and number to prepare and preserve required records. The Applicant has completed a training needs assessment and has a written training plan that complies with the continuing education requirements imposed by the federal securities laws, the rules and regulations thereunder, and FINRA rules.

The Decision on a Membership Application

Where the Department determines that the Applicant or its Associated Persons are the subject of any of the events set forth in Rule 1014(a)(3)(A) and (C) through (E), a presumption exists that the application should be denied. The Applicant may overcome the presumption by demonstrating that it can meet each of the standards in Rule 1014(a), notwithstanding the existence of any of those events.

If the Department determines that the Applicant meets each of the standards, the Department grants the application for membership. If the Department determines that the Applicant does not meet one or more of the standards in whole or in part, the Department grants the application subject to one or more restrictions reasonably designed to address a specific financial, operational, supervisory, disciplinary, investor protection, or other regulatory concern based on the standards for admission, or denies the application.

The Department serves a written decision on the membership application within thirty days after the conclusion of the membership interview or after the filing of additional information or documents, whichever is later. If the Department denies the application, the decision explains in detail the reason for denial, referencing the applicable standard or standards. If the Department grants the application subject to restrictions, the decision explains in detail the reason for each restriction.

Keeping Form BD Current

A firm is under a continuing obligation to update changes to information required by Form BD within a specified amount of time by filing an appropriate amendment. Upon approval of the Applicant's FINRA Member Firm Account Administrator Entitlement Form, the Applicant submits its Forms U4 for each Associated Person who is required to be registered under FINRA rules, any amendments to its Forms BD or U4, and any Form U5 electronically via Web CRD.

Rule 1017 applies to changes in ownership, control, or business operations. A member files an application for approval of any of the following changes to its ownership, control, or business operations, among others: a change in the equity ownership or partnership capital of the member that results in one person or entity directly or indirectly owning or controlling 25 percent or more of the equity or partnership capital. A member files an application for approval of a change in ownership or control at least thirty days prior to such change.

No member or person associated with a member may file with FINRA information with respect to membership or registration which is incomplete or inaccurate so as to be misleading, or which could in any way tend to mislead, or fail to correct such filing after notice thereof. Rule 1122 sets this standard.

Withdrawing Registration

Firms can file full or partial withdrawals of registration by submitting Form BDW. A partial withdrawal ends registration with one or more specified jurisdictions and/or SRO, but not with the SEC. A full withdrawal terminates registration with FINRA, all other SROs, the SEC and all jurisdictions. Registration with at least one SRO and jurisdiction must be maintained in order to submit a partial withdrawal filing.

Applicant firms that have not yet been approved for registration must also submit a Form BDW to withdraw their application. Form U5 is submitted to terminate registration for individuals registered with the firm, and all Form U5 filings must be submitted within sixty calendar days from the BDW filing date.

Form BD and the Individuals Who Work for the Firm

Individuals who work for a registered broker-dealer are called associated persons, and they may also be called stock brokers or registered representatives. A broker-dealer must file a Form U4 with the applicable SRO for each associated person who will effect transactions in securities when that person is hired or otherwise becomes associated.

Form BD registers the firm. Form U4 registers an individual who works for the firm, and Form U5 terminates that registration.

Exam Relevance

The Securities Industry Essentials examination content outline does not name Form BD. Topic 4.1.1, Registration and Continuing Education, under 4.1, SRO Regulatory Requirements for Associated Persons, in Section 4, Overview of the Regulatory Framework, lists SRO qualification and registration requirements, with definition of registered versus non-registered person, permitted activities of registered and non-registered persons, ineligibility for membership or association, background checks, fingerprinting, statutory disqualification, and failing to register an associated person listed beneath it; state registration requirements, with blue-sky laws named in parentheses; and the Continuing Education requirement, with Firm Element and Regulatory Element listed beneath it.

The rules listed for Section 4 include FINRA By-Laws Article IV, Membership, and the FINRA Rules 1000 Series, Member Application and Associated Person Registration. The rules listed for Section 1 include Section 15 of the Securities Exchange Act of 1934, Registration and Regulation of Brokers and Dealers. Candidates should check the current outline before the examination.

Common Misunderstandings

Form BD registers the individuals who work for the firm. Form BD is the Uniform Application for Broker-Dealer Registration, and a broker-dealer must file a Form U4 with the applicable SRO for each associated person who will effect transactions in securities.

Form BD registers the firm only with the SEC. Broker-dealers must file the form to register with the SEC, the self-regulatory organizations, and jurisdictions, and a broker-dealer also uses it to apply for membership in an SRO and to apply for registration with each state in which it plans to do business.

Registration takes effect when the form is filed. Within forty-five days of filing a completed application, the SEC will either grant registration or begin proceedings to determine whether it should deny registration, and before it begins doing business, a broker-dealer must become a member of an SRO.

Every broker-dealer must register with the SEC. A broker-dealer that conducts all of its business in one state does not have to register with the SEC, and to qualify, all aspects of all transactions must be done within the borders of one state.

Joining an exchange is always enough. If a broker-dealer effects securities transactions other than on a national securities exchange of which it is a member, including any over-the-counter business, it must become a member of FINRA, unless it qualifies for the exemption in Rule 15b9-1.

Form BD is filed once. By law, the applicant must promptly update Form BD information by submitting amendments whenever the information on file becomes inaccurate or incomplete for any reason.

An electronic filing is all that is needed. Form BD must first be submitted electronically and then a signed and notarized copy of the form must be sent to FINRA.

FINRA approval is automatic once the application is complete. The Department determines whether the Applicant meets each of the standards in Rule 1014(a), and it may grant the application, grant it subject to restrictions, or deny it.

A past regulatory event always ends an application. Where the Department determines that the Applicant or its Associated Persons are the subject of any of the events set forth in Rule 1014(a)(3)(A) and (C) through (E), a presumption exists that the application should be denied, and the Applicant may overcome the presumption by demonstrating that it can meet each of the standards.

Withdrawing the firm leaves the individuals registered. Form U5 is submitted to terminate registration for individuals registered with the firm, and all Form U5 filings must be submitted within sixty calendar days from the BDW filing date.

Key Points to Retain

Form BD is the Uniform Application for Broker-Dealer Registration, filed through the CRD system, operated by FINRA.

Broker-dealers must file the form to register with the SEC, the self-regulatory organizations, and jurisdictions.

Subject to the exceptions in Section 15(a)(1) of the Securities Exchange Act of 1934, a broker or dealer must be registered in accordance with subsection (b) before using the mails or any means or instrumentality of interstate commerce to effect transactions in securities.

Within forty-five days of filing a completed application, the SEC will either grant registration or begin proceedings to determine whether it should deny registration.

Before it begins doing business, a broker-dealer must become a member of an SRO, and a broker-dealer with over-the-counter business must become a member of FINRA unless it qualifies for the exemption in Rule 15b9-1.

Form BD must be promptly updated by amendment whenever the information on file becomes inaccurate or incomplete for any reason.

Form BDW withdraws registration, fully or partially, and Form U5 filings for individuals are due within sixty calendar days from the BDW filing date.

Rule 1013 sets the contents of a FINRA membership application, and Rule 1014 sets the standards for admission.

Rule 1017 requires an application for approval of a change in equity ownership that results in one person or entity directly or indirectly owning or controlling 25 percent or more of the equity or partnership capital.

The Securities Industry Essentials examination content outline does not name Form BD, and Topic 4.1.1 covers SRO qualification and registration requirements.