Definition of a Broker-Dealer
Chapters in this video
- 0:00 Broker versus dealer: capacities, not identities
- 0:58 The broker hat: agent for others' accounts
- 1:57 The dealer hat: principal from firm inventory
- 2:47 The "whose account" decision rule
- 3:21 Capacities change transaction by transaction
- 3:47 Exclusion one: agents are natural persons, not firms
- 4:45 Exclusion two: issuers in one-time offerings
- 5:41 Exclusion three: banks and federal law carve-out
- 6:13 Exam trap pop quiz: entity versus individual
- 7:01 Rapid-fire recap
What this video covers
- Why broker and dealer are capacities (hats), not permanent identities, and how the same firm switches between them transaction by transaction
- How to use the "whose account" test to classify any trade: customer's account means broker (agent, commission), firm's own account means dealer (principal, markup or markdown)
- Why an agent is a natural person (individual) who represents a broker-dealer, and why an agent is excluded from the broker-dealer definition even though both must register separately
- Why issuers selling their own securities in one-time offerings are excluded from broker-dealer status, and the mutual-fund exception for issuers regularly trading their own securities
- Why banks are generally excluded from the broker-dealer definition under federal law, including the specific activities (government securities sales, trust services) they may conduct without broker-dealer registration
- How exam writers set traps by confusing the business entity (broker-dealer) with the natural person (agent), and how to avoid this classic wrong answer
Read the full lesson, free
This video's complete written lesson is free to read in the CertFuel app, no signup wall. The complete Series 66 course also includes adaptive practice questions and spaced-repetition flashcards.