US Broker-Dealer: SEC Registration, FINRA Membership and Net Capital

Concept

A broker-dealer is the single US regulatory status for anyone who deals in securities as a business. The statute separates two roles. A broker is any person engaged in the business of effecting transactions in securities for the account of others (Securities Exchange Act of 1934, section 3(a)(4)). A dealer is any person engaged in the business of buying and selling securities for its own account; an investor trading for itself, not as part of a regular business, is not a dealer (section 3(a)(5)). Most firms combine both roles and hold one registration.

Why registration is needed

The status exists because intermediation without it is prohibited. Section 15(a) of the Exchange Act makes it unlawful for a broker or dealer to use the mails or any means of interstate commerce to effect, or to induce or attempt to induce, securities transactions unless it is registered with the SEC. The carve-outs are narrow: an exclusively intrastate business that does not use a national securities exchange, exempted securities and commercial paper. An online platform that matches US investors with issuers and is paid per transaction falls inside the prohibition from day one.

The statute carves out two narrow exceptions for platforms. A platform for Rule 506 offerings need not register as a broker if neither it nor its associated persons receive compensation in connection with the purchase or sale of the securities or hold customer funds or securities (15 U.S.C. 77d(c)). An intermediary in Regulation Crowdfunding offerings registers either as a broker or as a funding portal and in both cases joins the national securities association, that is FINRA (17 CFR 227.300).

Three admissions

The US status is built from several sequential admissions, each granted by a different body. SEC registration on Form BD is only the first step: the SEC order does not take effect until the firm joins a registered securities association, which in practice means FINRA (sections 15(b)(1) and 15(b)(8)). The firm then becomes a SIPC member by operation of law and registers in the states where it does business.

The main practical consequence is that the business model sets the weight of the regime. A firm that only finds investors for private placements and never takes their money needs a few thousand dollars of capital and light reporting. A broker that opens customer accounts and holds their securities carries reserve-account, daily-control and audit obligations. The middle ground is the introducing broker: the firm deals with customers while a clearing firm carries their accounts.

Key parameters

The parameters below come from the Exchange Act, SEC rules and FINRA rules as currently in force.

Capital in the table is the floor under the rules, and the time limits are outer limits. FINRA may raise the capital requirement for a particular applicant, and the actual timeline depends on how complete the application is and how quickly requests are answered.

Who must register

The statute defines a broker by activity; the firm's label is irrelevant. In its Guide to Broker-Dealer Registration the Division of Trading and Markets lists the indicators that may make a person a broker. The main ones are participation in key stages of a transaction (solicitation, negotiation, execution) and compensation that depends on the outcome or size of the deal. Handling other people's funds or securities in connection with a transaction is another.

Transaction-based compensation is the strongest of these indicators, and it is where unregulated intermediaries most often stumble. The SEC expressly names "finders" and business brokers as potential brokers: those who find investors for issuers, including in a consultant capacity, find investors for venture or angel rounds, or find buyers and sellers of businesses. Operators of electronic platforms for trading securities are on the same list.

Exclusions and exemptions

Registration can be avoided only within a specific exemption. Four of them come up most often in private-capital work, and each has a condition the regulator watches closely.

The first three rest on the statute or SEC rules; the fourth remains a grey zone decided on the totality of the facts. For private-placement intermediaries FINRA also offers a lighter form of membership, covered below.

The M&A broker exemption entered the Exchange Act on 29 March 2023, 90 days after the enactment of 29 December 2022. It covers an intermediary that sells a private company to a buyer who takes control and actively operates it. The exemption is lost by anyone who receives, holds or transmits the parties' funds or securities, engages in a public offering, finances the deal itself, deals with passive buyers, or assembles a group of buyers. The EBITDA and revenue thresholds are indexed to inflation every five years, starting five years after 29 December 2022.

For finders, the SEC published a proposed conditional exemption in October 2020 for natural persons helping issuers raise capital from accredited investors. It was never adopted; in 2026 a rulemaking petition asked the SEC to revive the effort.

How the status is obtained

Registration is a sequence in which each body acts on its own clock. The order is set by statute and FINRA rules.

1. The firm files Form BD through the Central Registration Depository operated by FINRA (Rule 15b1-1). The SEC charges no filing fee; FINRA and the states do. An applicant outside the United States appoints the SEC as its agent for service of process.
2. Within 45 days the SEC either grants registration or institutes proceedings to deny it. The order does not take effect until the firm joins FINRA.
3. In parallel, the firm files a New Member Application (NMA) with FINRA under Rule 1013. FINRA holds a membership interview and decides under Rule 1014.
4. A registered broker-dealer becomes a SIPC member by operation of law unless it falls within the exclusions of SIPA section 78ccc.
5. The firm registers in the states where it does business; their timelines may differ from the federal ones.
6. Individuals register on Form U4 and pass FINRA qualification exams.

The longest and most substantive stage is the third: the SEC checks the application against the statute, while FINRA tests whether the business itself is viable.

The FINRA application

The NMA includes a business plan, a trial balance and net capital computation as of a date within 30 days before filing, a monthly projection of income and expenses for the first 12 months, an organisational chart and a description of premises. FINRA's clock runs in steps.

The 180 days mark the point at which the applicant gains leverage; they do not guarantee approval by that date. Every document request and every response moves the interview and the decision.

FINRA tests the applicant against the fourteen standards of Rule 1014(a). They include the ability of the firm and its people to comply with the securities laws in light of their disciplinary history, arrangements with banks and clearing firms sufficient to launch the business plan, and supervisory and recordkeeping systems.

A separate standard covers capital: FINRA may set a requirement above the Rule 15c3-1 minimum, taking into account, among other things, expenses net of revenues for the first 12 months. Where the applicant or its people are subject to certain regulatory or criminal events, a presumption of denial applies that the applicant must overcome (Rule 1014(b)). The outcome is approval, approval with restrictions, or denial.

People and exams

A firm cannot operate without qualified people, whatever its capital. Every FINRA member other than a firm with a single associated person must have at least two principals registered as General Securities Principals, or in a category matching a limited business (Rule 1210). Finance is run by a Financial and Operations Principal (FINOP, Rule 1220): a full FINOP is mandatory, among others, for firms that carry customer accounts or use the alternative net capital standard, while others may use an Introducing Broker-Dealer FINOP.

FINRA's exam catalogue is wider; for a typical broker this set is enough. Principal-level exams are taken by persons already associated with a member firm.

Lighter membership: capital acquisition broker

Since 2017 FINRA has offered capital acquisition broker (CAB) status to members that limit themselves to placing unregistered securities with institutional investors, acting as intermediaries in changes of control of privately held companies, and advising companies and private equity funds on capital raising and restructuring. Such a firm does not accept customers' trading orders, carry customer accounts, handle customer funds or securities, or trade for its own account. In return the CAB rules impose fewer restrictions and lighter supervisory requirements; SEC registration and FINRA membership remain.

SEC order 34-104806 of 10 February 2026 widened the CAB perimeter. A CAB may now find investors for placements with an expanded range of institutional investors, act on either side of a change of control of a privately held company and, in limited cases, represent an institutional investor selling or buying unregistered securities. According to FINRA figures cited in the order, 44 firms elected CAB status in 2017 and 65 by the end of 2024.

Buying an existing broker-dealer

The alternative to an NMA is to buy an operating firm. The transaction changes only the form of the application, and FINRA review remains: instead of an NMA, the firm files a Continuing Membership Application (CMA) under Rule 1017. Approval is required for a merger, for an acquisition of 25% or more of assets or business lines, for a change in ownership that leaves one person directly or indirectly owning or controlling 25% or more of the equity, and for a material change in business operations.

CMA timelines follow the new-member pattern: the decision comes within 30 days after the interview or the last filing. Only the path without an interview or document request is shorter. The deal may close before the decision, but FINRA may impose interim restrictions.

Buying saves time only where the buyer continues the seller's business. A new model — moving from private placements to retail customer accounts, for example — is itself a material change in business operations and needs separate approval. The general logic of deals in licensed companies and of vetting new owners is covered in the articles on change of control and qualifying holdings and fit & proper.

Net capital and customer protection

Net capital is the liquid part of the firm's own funds after haircuts on positions. Rule 15c3-1 imposes two requirements at once: an absolute minimum by business model and a ratio to liabilities. The minimum depends on how deeply the firm is involved with customer money and securities.

The rule also has an intermediate tier of $25 000 for firms selling registered fund shares directly with the issuer. Above the minimum, aggregate indebtedness may not exceed 1500% of net capital, or 800% during the first 12 months of business. The alternative standard is the greater of $250 000 or 2% of aggregate debit items under the reserve formula. When net capital falls below 120% of the minimum, the firm must notify the regulator (Rule 17a-11). The general methodology of licensee capital is covered in the article on regulatory capital.

How customer assets are protected

The diagram shows why an introducing broker faces a lower capital minimum: customer assets sit with the clearing firm, and so do the protective obligations.

Protection is built by Rule 15c3-3. A carrying firm must promptly obtain and thereafter maintain physical possession or control of customers' fully paid and excess margin securities. Free customer cash enters the reserve formula: the firm keeps the resulting amount in a special reserve bank account for the exclusive benefit of customers, separate from its own accounts. The computation is weekly, and daily for firms with average total credits of $500 million or more.

SIPC and reporting

If segregation fails, SIPC steps in. Under SIPA section 78fff-3 SIPC advances to the trustee up to $500 000 per customer, including no more than $250 000 for cash claims. The statute allows the SIPC board to index the cash limit every five years, but in 2026 the board decided not to adjust it, and the SEC approved that decision by an order published on 31 March 2026. SIPC does not cover market losses, commodity futures, or digital assets that are unregistered investment contracts. A comparison with European compensation schemes is in the client asset protection map.

Reporting ties it together. Firms file FOCUS reports under Rule 17a-5 — a quarterly Part II within 17 business days of quarter-end for firms that clear transactions or carry customer accounts — and annual reports audited by an independent accountant that meets the PCAOB registration requirement.

Broker-dealer, RIA and ERA

The line between a broker and an investment adviser runs through compensation. The Advisers Act excludes a broker-dealer from the definition of investment adviser where its advice is solely incidental to its brokerage business and it receives no special compensation for it (section 202(a)(11)(C)). A separate fee for advice or portfolio management moves the activity into the registered investment adviser (RIA) regime, while managers of private and venture funds often use the lighter exempt reporting adviser (ERA) status.

A broker still owes duties to its customer. Regulation Best Interest requires it, when recommending a transaction or strategy to a retail customer, to act in that customer's best interest without placing its own interest ahead. Many groups hold both registrations — a broker-dealer for transactions and an RIA for management — and misallocating revenue between them becomes a question of status.

Tokenized securities and crypto

Tokenization does not change the analysis. A statement by three SEC divisions of 28 January 2026 says that the format in which a security is issued, or the method by which holders are recorded, does not affect the application of the federal securities laws. An intermediary in tokenized shares or bonds therefore needs the same broker-dealer status as one in traditional securities. The divisions distinguish issuer-sponsored tokens from third-party tokens: custodial ones, evidencing an indirect interest, and synthetic ones, giving only economic exposure.

Since 2025 the SEC and its staff have steadily removed obstacles for brokers handling such securities and drawn the line with the CFTC.

The interpretation and the Innovation Exemption are acts of the Commission itself; Regulation Crypto Assets remains a proposal. The other three documents are SEC staff positions: they describe what a division will not object to and can be revisited the same way the 2019 position was withdrawn in 2025.

There is no crypto market-structure statute. As of 28 September 2026 the CLARITY Act (H.R. 3633) has not been enacted: on 15 September 2026 the Senate voted 49 to 50, short of the three-fifths needed to invoke cloture on the motion to proceed to the bill. Payment stablecoins have a separate statute, the GENIUS Act. Crypto assets that are not securities sit outside the broker-dealer perimeter; their licensing is covered in the crypto licence map and the US licence map.

Foreign owners and Russian UBOs

Neither the Exchange Act nor FINRA rules impose a nationality requirement on broker-dealer owners; the regulator requires owners to be disclosed and reviews them. Form BD lists in Schedule A direct owners of 5% or more and executive officers, and in Schedule B indirect owners of 25% or more at each level of the chain until a public reporting company is reached. In its review under Rule 1014(a)(3), FINRA takes into account, among other things, actions by foreign regulators and pending investigations.

For owners from Russia, US sanctions law is decisive. Under OFAC's 50 percent rule, the property of an entity owned 50% or more, directly or indirectly, by blocked persons is itself blocked. How these restrictions work in general is covered in the articles on OFAC and sanctions regimes.

Popular, but ends badly

The most frequent problems arise for those who earn income from securities transactions while staying outside registration. They share a consequence: Exchange Act section 29(b) makes a contract made or performed in violation of the Act void as regards the rights of the violator.

All four follow the same logic: an exemption describes a narrow model, and any step outside it makes the activity brokerage.

Place among other regimes

A broker-dealer is closest to a European investment firm but is built differently: the status combines federal registration, mandatory membership of a self-regulatory organisation and state registration, and it carries no passport into other countries.

For comparison with other regimes see the articles on the MiFID II investment firm, the FCA investment firm and SFC licensing in Hong Kong; the overall choice is set out in the Financial Licences hub, and the US context in the US hub. How private-market venues use the status can be seen in the profiles of Hiive, Forge Global and Moonfare; a crypto exchange within the US perimeter is profiled in Kraken.

Risks and limitations

The main limitation of the status is its dependence on the business model. FINRA approval is granted for a specific business plan, and expanding the activity requires fresh approval.

The second limitation concerns customer protection. SIPC makes good shortfalls when a firm fails; market losses and assets that are not securities under SIPA remain outside its cover.