Founded by Former SEC Attorneys

      SEC and NASD Registration.   In order to register as a broker-dealer under the Exchange Act, the Firm must file an application on Form BD with the Central Registration Depository ("CRD") located in Rockville, Maryland and operated by the NASD. Form BD is the basic disclosure form in the broker-dealer registration process. The filing of Form BD with the CRD enables the applicant to register simultaneously with the SEC, the NASD and the states designated by the spplicant on the form.

       Form BD calls for identificationand background information on the applicant, its executive officers, owners and indirect owners. It also seeks to elicit information about any previous court or regulatory agency disciplinary action taken against the applicant and its control persons. This information is then scrutinized by the NASD; affirmative answers may provide a basis for the NASD to deny an applicant membership.

       Not only must the Firm itself register with the NASD, but all persons associated with the firm who are to function as either principals or representatives must also register. "Principals" are defined as officers of the firm and other management personnel actively involved in the management of the firm's investment banking or securities business. "Representatives" are generally defined as sales personnel. Employees whose functions are solely clerical or ministerial in nature are exempt from NASD qualification and registration requirements. Whereas Form BD is used as the registration application for the firm, Form U-4 is used as the application form for the registration of each individual associated with the firm.

       The application process with the NASD entails satisfying the NASD District Office that the applicant possesses the necessary financial solvency and that its members possess the necessary knowledge and experience to operate a broker-dealer firm in compliance with the NASD requirements concerning record keeping, supervision and capital adequacy. Brokers located in New York City and certain counties around New York City are assigned to the District No. 10 office located in Manhattan.

      Net Capital and Aggregate Indebtedness.   The financial solvency of a broker-dealer is regulated through its net capital and aggregate indebtedness. An important factor in determining the amount of net capital to be maintained is whether the broker-dealer will hold customer funds or securities. Following are some of the types of broker-dealers and their net capital requirements.

1. A full-service broker or dealer that carries customer or broker or dealer accounts and receives or holds funds or securities for those accounts ... $250,000.
2. Other dealers ... $100,000.
3. A broker or dealer that introduces transactions and accounts of customers or other brokers or dealers to another registered broker or dealer that carries such accounts on a fully-disclosed basis, if the introducing broker or dealer receives but does not hold customer or other broker or dealer securities ... $50,000.
4. A broker or dealer engaged in the sale of redeemable shares of registered investment companies and certain other share accounts ... $25,000.
5. A broker or dealer that does not receive, directly or indirectly, or hold funds or securities for or owe funds or securities to customers and does not carry accounts of, or for, customers, and is not covered by categories (i) - (iv) above. This category is frequently used by broker-dealers engaged solely in effecting private placements ... $5,000.

      Examinations. Every Person engaged in the investment banking or securities business of the Firm who is to function as a principal must be registered as a supervisory principal. Principals include sole proprietors, officers and directors, general partners, managers of limited liability companies and managers of branch officers designated officers offices of supervisory jurisdiction. Unless the broker-dealer is a sole proprietorship, it must have at least two registered supervisory principals.

      Business Plan. The application submitted to the NASD district office will include a business plan describing the business the Firm proposes to conduct. The elements of the business plan include:

• an organiztion and ownership chart;
• financial statements;
• a monthly projection of income and expenses for the first 12 months of operation;
• a description of the securities to be sold and the expected categories of customers;
• a description of the Firm's business facilities;
• a list of contractual commitments;
• a description of the Firm's financial controls, supervisory procedures and record keeping facilities; and
• a continuing education training plan.

      Supervisory Procedures Manual. The Firm will be required to prepare a supervisory procedures manual for review by the NASD as part of the registration process. The manual identifies the supervisory principals and designates responsibility for supervisory functions.

      Securities Investor Protection Corporation. All broker-dealers registered under Section 15(b) of the Exchange Act engaged in business within the U.S. are required to be members of the Securities Investor Protection Corporation ("SIPC"). SIPC is a nonprofit corporation which was created to administer the Securities Investor Protection Act, a federal law which provides insurance for customers of brokerage firms. Broker-dealers whose principal business, taking into account the business of affiliated entities, is conducted outside the United States, and its territories and possessions, may be excluded from membership.

      Fidelity Bond Requirements. All firms that are required to become SIPC members must carry a blanket fidelity bond that meets NASD requirements as to form, amount and type of coverage. Basically, members must carry a fidelity bond in an amount equal to at least 120 percent of their required minimum net capital, with a minimum bond of $25,000, to cover losses caused by the misconduct of officers and employees, including breaches of the duty of fidelity, misplacement or forgery of securities or other instruments, and fraudulent trading.

      State Registration. Broker-dealers must register in every state in which they conduct business, and must cause their agents soliciting customers or effecting transactions in the state to be licensed in the state, unless there is an exemption available under state law. Registration in most states may be commenced through the CRD, by designating states to which copies of the Form BD should be forwarded, and by depositing appropriate fees with the CRD. States that do not accept filing on the CRD include Alabama, California, Hawaii, Michigan, and West Virginia. However, many of the states that accept filing of the Form BD through CRD also require additional documentation filed directly with the state.