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Glossary

Broker-dealer

What a broker-dealer is, how it registers with the SEC and FINRA, and the roles it plays in Reg CF, Reg A+, and Reg D offerings.

A broker-dealer is a person or firm in the business of effecting securities transactions for others (a broker) or buying and selling securities for its own account (a dealer). Under Section 15(a) of the Securities Exchange Act of 1934, a broker-dealer must register with the SEC, generally on Form BD, and join a self-regulatory organization, in practice FINRA.

Registration and supervision

Registration brings net capital requirements, customer protection rules, books and records obligations, and FINRA examinations. The people who sell securities for the firm are registered representatives who pass qualification exams. FINRA's BrokerCheck shows the registration and disciplinary history of any firm or representative.

Receiving transaction-based compensation, such as a percentage of money raised, for bringing investors into an offering is a strong sign of broker activity. A person paid that way who is not registered, or associated with a registered firm, creates a problem for the person and potentially for the issuer.

Roles in exempt offerings

  • Regulation Crowdfunding. A broker-dealer may act as the offering's intermediary in place of a funding-portal. Unlike a portal, it may make recommendations and may hold investor funds, subject to its own rules.
  • Regulation A+. Reg A offerings are often run with a broker-dealer of record that handles investor onboarding, anti-money-laundering checks, and suitability. Underwriting compensation in these offerings is reviewed by FINRA under its Rule 5110. Funds in a minimum-amount offering are handled under Exchange Act escrow rules.
  • Regulation D. Placement agents in private placements are broker-dealers. A Rule 506(c) offering may use a broker-dealer to verify accredited status. See accredited-investor.

Why it matters to marketing

The broker-dealer, not the marketing team, decides which communications it approves under FINRA's communications rules when it is involved, and it may impose its own review before an ad goes live. A marketing firm paid per investor or per dollar raised risks looking like an unregistered broker. See cost-per-investor.

Further reading

This page is general information about securities rules, not legal advice. Whether an arrangement requires broker-dealer registration is a question for securities counsel.

Topics:glossarycrowdfundingregulation

Related articles

  • FINRA

    What FINRA is, whom it regulates, and where it appears in Regulation Crowdfunding, Regulation A+, and other exempt offerings.

  • Regulation Crowdfunding (Reg CF)

    Definition of Regulation Crowdfunding, the size and investor limits it carries, how an issuer may advertise a Reg CF offering, and what that means for the marketing around a raise.

  • Funding portal

    What a funding portal is under Regulation Crowdfunding, how it registers with the SEC and FINRA, and what it may and may not do for an issuer.

  • Regulation A+ (Reg A)

    Definition of Regulation A+, the difference between Tier 1 and Tier 2, the reporting it requires, and how a qualified offering may be advertised.

  • Escrow

    How investor funds are held in escrow during a Reg CF or Reg A+ offering, who may hold them, and when they are released or returned.

  • Regulation D

    Definition of Regulation D, the private placement exemption, the difference between Rule 506(b) and 506(c), and what each allows a company to say in public.

Show all 23

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