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The purpose of this paper is to summarize the SEC's recent approval of amendments to its net capital, customer protection, books and records, notification and reporting requirements for broker-dealers, in an effort to enhance financial responsibility and investor asset safekeeping obligations.

The paper summarizes new requirements for broker-dealers relating to custody, reporting, and Rules 15c3-3 (customer protection rule), 15c3-1 (net capital rule), 17a-3 and 17a-4 (books and records rules) and 17a-11 (notification rule) under the Securities Exchange Act of 1934; explains that several of the amendments approved codify long-standing SEC staff interpretations of the rules and accounting standards that govern these requirements; clarifies whether the requirements apply to broker-dealers that carry customer accounts on their books (commonly referred to as “carrying brokers”) and/or to limited-purpose broker-dealers that do not carry customer accounts on their books.

Although certain of the amendments codify long-standing SEC staff interpretations of the rules and accounting standards, broker-dealers will be subject to additional legal and regulatory requirements resulting from the amendments commencing in October 2013.

Broker-dealers should begin to consider whether changes to operations, policies and procedures, and reporting obligations will be required as a result of the amendments.

The paper provides practical explanation by experienced financial services lawyers.

This paper discusses disclosures required of on‐line broker‐dealers, and recommends various internal measures that on‐line broker‐dealers should take to comply with securities trading regulations. On‐line trading is transforming the relationship between investors and broker‐dealers. While the services offered by on‐line broker‐dealers may be different from those offered by full‐service brokers, the differences are diminishing, and both activities are subject to the same rules and regulations. A GAO report of May 2000, revealed that many on‐line broker‐dealers did not comply with disclosure requirements, resulting in complaints by customers who lost money or financial opportunities. As the SEC is strengthening its examinations, this article is helpful to firms that offer trading on‐line to comply with disclosure requirements for investor protection. This article is especially helpful for internal auditors of these firms in implementing internal policy and procedures to ensure adequate disclosures and to mitigate risks of investors’ litigation.

The purpose of this paper is to summarize the significant responses of the staff of the SEC to 16 frequently asked questions (FAQs) which supplement prior guidance on Rule 15a‐6 under the Securities Exchange Act of 1934.

The paper lists Rule 15a‐6 activities, refers to prior guidance on the rule, and summarizes the following issues, among others, covered in the FAQs: transactions between a foreign broker‐dealer and a person temporarily in the USA, distribution by a foreign broker‐dealer of research reports to major US institutional investors, activities of foreign broker‐dealers taken with unaffiliated registered broker‐dealers, boundaries to the definition of “solicitation” by a foreign broker‐dealer of a US investor, and minimum net capital requirements for a registered broker‐dealer in a chaperoning arrangement with a foreign broker‐dealer.

This guidance does not break new ground and may be supplemented in the future. An amendment of Rule 15a‐6 is still necessary to address its fundamental limitations.

The paper provides practical explanation by experienced financial services lawyers.

To alert financial market participants to rules jointly proposed by the US Securities and Exchange Commission (SEC) and US Federal Deposit Insurance Corporation (FDIC) regarding orderly liquidation of certain large broker-dealers as mandated in Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank).

Explains how typical broker-dealer liquidations are generally effected, the alternative of determining a broker-dealer to be a “covered broker-dealer” to be liquidated through an orderly liquidation proceeding under Title II of Dodd-Frank, the appointment of the FDIC as receiver and Securities Investor Protection Corporation (SIPC) as trustee, the requirement for the SIPC to file a protective decree with a federal district court, the possible use of “bridge broker-dealers” to facilitate an orderly liquidation, the FDIC’s procedures for settling claims of customers and other creditors against covered broker-dealers, and additional proposed provisions for administrative expenses and unsecured claims.

Counterparties of broker-dealers that could be subject to an orderly liquidation proceeding should evaluate the proposal and consider whether, if adopted, the rules would require any changes to credit risk or other internal procedures. Large broker-dealers that could be the subject of such an orderly liquidation proceeding should do the same. Although the formal comment period has closed regarding the proposal, market participants that did not submit comments but who still wish to influence final rule making should still consider submitting written comments to the SEC and FDIC or otherwise advocating before them.

Practical guidance from experienced securities and financial services lawyers.

In the Spring 2003 issue of this Journal, I addressed the regulatory uncertainty surrounding the treatment of broker‐dealers’ expense‐sharing arrangements. As pointed out in that article, in 2002 the National Association of Securities Dealers, Inc. (NASD) conducted a comprehensive “sweep” examination of member‐firms’ financial reporting procedures, with special attention to the treatment of expenses and liabilities. The results of the sweep confirmed that many broker‐dealers, particularly small firms, relied on parents and affiliates to pay for part or all of their expenses. The results of this regulatory audit raised the NASD’s concern that many broker‐dealers failed to adhere to the financial responsibility rules under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In large part, this was due to an inherent conflict between the general accounting standards governing the recording of expenses and liabilities and the requirements imposed on broker‐dealers to accrue and book expenses and liabilities under the Exchange Act’s financial reporting rules. Following the sweep, the NASD wrote to certain member firms that did not appear to be following the financial responsibility rules. These letters asked the firms to explain their failure to report expenses that were paid, or subject to payment by, affiliated parties and to justify their procedures on expense and liability reporting. Some broker‐dealers responded that it was not possible to coordinate the accounting of expense‐sharing arrangements with the reporting requirements set forth under the Exchange Act’s rules.

This article provides an overview of the US Securities and Exchange Commission’s (SEC) recent approval of a package of rulemakings and interpretations designed to enhance the quality and transparency of investors’ relationships with investment advisers and broker-dealers.

The article provides legal analysis for and historical context of the requirements of the SEC’s adopted rules, Regulation Best Interest and Form CRS in addition to the two separate interpretations under the Investment Advisers Act of 1940, the Standard of Conduct for Investment Advisers; and the Broker-Dealer Exclusion from the Definition of Investment Adviser.

The SEC’s adopted regulatory package does not adopt a uniform fiduciary standard for broker-dealers and investment advisers but instead promulgates legal requirements and mandated disclosures in order to conform to the SEC’s perceived expectations for reasonable investors.

Investment advisers and broker-dealers should consult with their legal counsel in assessing how and to what extent the new regulatory package is applicable to them.

This article provides practical guidance from lawyers who have extensive experience with the Investment Company Act, Investment Advisers Act, and the Securities Acts.

Traditionally, full-service broker/dealers catering to institutional investors have bundled trade execution with investment research. Since 2018, new market regulation has forced broker/dealers to unbundle and to sell research separately. The purpose of this paper is to shed some light on the expected pricing of research.

A stylized model is presented in this study in which a monopolist fixed income, currencies and commodities (FICC) research provider faces a linear demand function and picks an appropriate price schedule.

It is shown that it is important to initiate the price discovery process using a low price and that some broker/dealers will not be able to identify a regulatory compliant price/quantity solution because their research-production fixed cost is very high compared to the research demand function they face.

There are three main findings from our model: pricing research at cost is not always possible; if there is a unique solution, an iterative approach only works when starting off with a low-enough initial price; and if there are two solutions, only the low-cost/high-volume solution can be discovered in an iterative process.

The results presented are important to broker/dealers about to discover the market demand for their FICC research publications on the back of the implementation of MiFID II. Having distributed FICC research for free in the past, they have no knowledge about the demand function (other than what is demanded at a price of zero). Because research publications are highly differentiated products, observing the pricing of competitors is insufficient. Iteratively gaining knowledge about the demand function using price adjustments and customer questionnaires becomes the most likely mean for discovering the demand function. It is important to initiate the price discovery process with a low price. Some broker/dealers will not be able to identify a regulatory compliant price/quantity solution because their research-production fixed cost is too high compared to the research demand function they face. Finally, it is shown that these broker/dealers with two possible equilibriums face difficulty in identifying the high-price/low-volume research equilibrium because of the non-converging nature of the iterative process.

The aim of this article is to provide a description of the rule proposals and other events that preceded the SEC's adoption of the 2005 Final Rule, a summary of the terms of the 2005 Final Rule, and a brief update regarding the status of the 2005 Final Rule.

Describes the SEC's 1999 proposed rule, “Certain Broker Dealers Deemed Not to Be Investment Advisers,” questions that led to that proposed rule, commentary on that proposed rule regarding advisory activities for which broker‐dealers receive special compensation, commentary regarding differences between the regulation of broker‐dealers and the regulation of investment advisers, commentary regarding investors' understanding of the differences between broker‐dealers and investment advisers, the five‐year period without a formal rule, the 2005 Proposed Rule, the 2005 Final Rule, and concerns that remain after issuance of the 2005 Final Rule.

The Chairman of the SEC directed the SEC staff to investigate and report within 90 days on ways in which the policy issues raised by the 2005 Final Rule could be addressed. In addition to the investigation of issues raised by the 2005 Final Rule by the SEC staff, and although the 2005 Final Rule was adopted, to some extent, in response to the lawsuit filed against the SEC by the Financial Planning Association (the “FPA”) in July 2004, the FPA filed a new lawsuit against the SEC on April 28, 2005.

A useful summary of the background and remaining issues related to the SEC's 2005 Final Rule on application of the Adviser's Act to broker‐dealers offering certain non‐traditional brokerage programs.

A pooled income fund (PIF) is one of the methods created under the 1969 Tax Reform Act whereby a taxpayer may make a tax‐deductible remainder gift to a charitable organization. The fund, established by a charitable organization to receive irrevocable gifts from at least two donors, pays current income to the individual beneficiaries for life, but at the termination of each income interest, the allocable principal must revert permanently to the charitable organization. In recent years, a number of PIFs have been offered to the public by charitable organizations through broker‐dealers or related entities. There are numerous securities‐law issues implicated by the sales of these PIFs, including: (i) whether broker‐dealers may solicit donations to such funds and receive compensation for their solicitations; (ii) the effect of the broker‐dealers’ solicitation and receipt of compensation have on securities registration for the PIF or units offered therein under the Securities Act of 1933, the Securities Exchange Act of 1934, or the Investment Company Act of 1940; (iii) whether staff and persons affiliated with the sponsoring charity, including parties assisting them in the marketing of such pooled income funds, also should be permitted to solicit donations; (iv) whether such charities or persons, or parties assisting them in the marketing of such pooled income funds, then should be required to register as broker‐dealers; (v) what securities licenses may be required of the aforementioned parties; and (vi) whether there are ways to design the manner in which third parties other than broker dealers are compensated to resolve any potential issues arising from answers to the previous questions. This article first sets forth the applicable law involved in the analysis and then attempts to answer each of the issues presented above.

An exhaustive analysis of the current state of play of both the old and new law and the regulations promulgated thereunder. A one‐stop analysis of the state of the requirements under the USA Patriot Act and particularly how it affects broker‐dealers.