Here is a question I ran into this morning and am having trouble understanding. (question is not from the achieveable question bank so I’m not sure if its just something I’m unlikey to see or what).
Sharon is an agent for Highwater Securities, a broker-dealer registered in all 50 states. Sharon receives an unsolicited order from a bank located in State X, a state in which she has no place of business. Under the Uniform Securities Act,
A)because Sharon has no place of business in State X and the client is an institution, Sharon may accept the order without registering in State X.
B)because Sharon has no place of business in State X and the order is unsolicited, Sharon may accept the order without registering in State X.
C)because Highwater Securities is registered in all 50 states, Sharon must also be registered in all of them.
D)Sharon must be registered in State X in order to accept the order.
I was thinking that there are two ways agents are exempt. The first is that they have no place of business in the state and are only helping existing clients who are there temporarily. The second is that there is no place of business in the state, and they are only helping institutional clients. I thought the second exemption applied to this question, so I went with A, but the correct answer is D. Now I am confused. Thanks!
Tough question! I would agree with you that the answer is actually A:
Sharon has no business presence in State X, and the client is an institution (the bank). Therefore, she can accept the unsolicited order without needing to register in State X.
There is some ambiguity regarding the applicability of the institution exemption applying to agents, as we mention in our Series 66 Agent Registration section:
There’s no mention of this exclusion applying to agents in the USA. This is a legal “gray area,” but most compliance officers and securities lawyers also apply this exclusion to agents. If the broker-dealer isn’t required to register, why would the state administrator force an agent to register? Therefore, it’s safe to assume an agent may avoid registration in a state if they maintain no office (in that state) and only engage institutional investors.
Just because Highwater Securities is registered in State X doesn’t mean Sharon needs to be registered there, too, especially since she doesn’t have any physical presence in the state.
If the order was solicited would you still consider A to be the answer?
The situation is different if the order was solicited, and I’d go for D.
In that case, Sharon would need to register in State X. Solicited orders imply that the agent actively approached the client, which means they are engaging more directly with the investor in that location.