SEC Licensing, Registration, and Conduct Rules for Market Participants
Scope
This domain tests SEC licensing, registration, and conduct rules for broker-dealers, trading participants, and salesmen. It asks who may solicit, what firm must stand behind each order, and how conduct obligations are supervised.
Core rules
- A broker-dealer must be registered with the SEC and, to execute on the PSE, be a PSE trading participant; clearing and depository membership are separate.
- A securities salesman must be registered with the SEC, pass the required qualification, and be associated with one registered broker-dealer. Registration is not freely portable; a transfer or new application is needed before soliciting for a new firm.
- Supervision covers approval of accounts, order tickets, confirmations, complaints, conflicts, and advertising. Salesmen cannot hold client funds or securities outside firm procedures.
- Conduct rules require fair dealing, disclosure of material conflicts, suitability, accurate records, and prompt handling of client instructions.
Worked example
A PSE trading participant wants to hire an experienced salesman registered with another broker. The firm must complete its due diligence and SEC registration or transfer process. Until the SEC approves the transfer and the salesman is associated with the hiring firm, the salesman must not solicit or take orders for it. The firm, not just the individual, remains responsible for supervision.
Traps
PSE membership is not the same as SEC broker-dealer registration. A salesman cannot be “licensed” through an employer without SEC action, and cannot serve two broker-dealers as a workaround. Registration does not eliminate firm-level supervision or conduct liability.