Definitions of Broker-Dealers
Chapters in this video
- 0:00 Decoding who is and who isn't a broker-dealer
- 1:05 Broker versus dealer: the matchmaker and the used car lot
- 1:51 Dual-capacity prohibition and why double dipping is banned
- 2:25 Market makers trade as principals from their own inventory
- 2:57 Karl the Clerk: when clerical workers become associated persons
- 4:04 Underwriting commitments ranked by underwriter risk
- 5:46 Firm commitment equals dealer, best efforts equals broker
- 6:06 The Nada BD Club: agents, issuers, and banks
- 6:40 Excluded versus exempt: never a BD versus a BD with a hall pass
- 7:46 Rapid-fire exam recap
What this video covers
- The broker-dealer (BD) split: brokers act in agency capacity for commissions, dealers act in principal capacity for markups and markdowns
- Why the dual-capacity prohibition bans commission and markup on the identical transaction
- Why market makers are always dealers (principal capacity), never agents, because they profit from the bid-ask spread on their own inventory
- Who qualifies as an associated person of a broker-dealer, and why purely clerical or ministerial employees are excluded until they discuss specific securities
- The four underwriting commitment types ranked by risk: firm commitment, best efforts, all-or-none, and mini-max
- Why firm commitment underwriters act as dealers (principal) while best efforts underwriters act as brokers (agency)
- The excluded versus exempt distinction: excluded entities never meet the BD definition at all, while exempt entities meet the definition but receive a regulatory pass
- The Gramm-Leach-Bliley Act caveat that removed the blanket bank exclusion from federal broker-dealer registration
Read the full lesson, free
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