Difference Between Broker and Dealer

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JavaScript is turned off in your web browser. Difference between broker dealer trader it on to take full advantage of this site, then refresh the page. SEC Chair Mary Jo White outlined a broad market structure proposal that would require high-frequency traders to register with the SEC as dealers and that could signal the end of the dealer-trader distinction.

In a June 5 speech, Mary Jo White, Chair of the Securities and Exchange Commission SECoutlined a broad proposal to address market structure issues in light of the increase in electronic and off-exchange trading in recent years. This LawFlash provides an overview of the dealer-trader distinction as well as some of the issues that the SEC will have to consider when bringing high-frequency traders within its regulatory umbrella. Difference between broker dealer trader way of background, section 15 a of the Securities Exchange Act of Exchange Optionow best binary options trading platform rating top generally makes it unlawful for difference between broker dealer trader broker or dealer to make use of the mails or any means or instrumentality of interstate commerce to effect any transactions in, or to induce or attempt to induce the purchase or sale of, any security unless 1 such broker or dealer is registered with the SEC; 2 in the case of a natural person, is an associated person of a registered broker-dealer; or 3 satisfies the conditions of an exemption or safe harbor.

The dealer-trader distinction is an analytical framework that has been in place since at leastwhen Louis Loss first published his seminal treatise on the securities laws. The SEC further elaborated that dealers generally are persons who normally have regular clientele, hold themselves out as willing to buy and sell securities at a regular place of business, have a regular turnover of inventory or participate in the distribution of new issuesand generally transact a substantial portion of their business with difference between broker dealer trader or, in the case of dealers who are market makers, principally trade with other professionals.

As we see it, the SEC could face at least three issues in adopting rules or interpretive guidance difference between broker dealer trader bring high-frequency traders within the Dealer Definition: The most immediate challenge the SEC will likely face is in defining high-frequency trading and distinguishing such trading from other types difference between broker dealer trader algorithmic and proprietary trading.

In this connection, the SEC may seek to build on the framework outlined in a concept release regarding the structure of the U. In addition, the SEC could seek to bring high-frequency traders within the Dealer Definition by leveraging its statement in the Concept Release that high-frequency traders, in some instances, have replaced the role traditionally played by market makers.

Regardless of the vehicle that the SEC uses to bring high-frequency traders within the Dealer Definition, the SEC will likely have to address the continued validity of the dealer-trader distinction.

This is especially the case because high-frequency traders are not the only persons who rely on the dealer-trader distinction to avoid having to register as dealers with the SEC.

Hedge funds, for example, may use strategies that involve frequently buying and selling securities, but they are not separately required to register as dealers. The SEC will have to consider whether it can justify the costs associated with requiring high-frequency traders to register against whatever benefits, real or perceived, such registration would yield.

For example, the SEC could impose additional obligations on the registered broker-dealers that provide high-frequency traders with access to the market, much like the SEC did by adopting Exchange Act Rule 15c Further, to the extent that the SEC seeks to justify requiring that high-frequency traders or at least those that trade via off-exchange venues also become members of FINRA, the SEC may have to explain why FINRA registration would be consequential, considering that high-frequency traders generally do not have customers and FINRA rules are, in many respects, geared to protect the customers of a broker-dealer.

SEC, where the U. Court of Appeals for the D. If high-frequency traders are required to register as dealers, the other registrants difference between broker dealer trader or financing their accounts or providing them with market access may benefit from their ability to allocate roles and responsibilities to the high-frequency traders by agreements and under existing regulations governing clearing and other inter-dealer relationships.

We will continue to monitor developments in this area closely. If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:.

San Francisco Joseph E. Under section 3 a 5 C of the Exchange Act, additional exceptions from the Dealer Definition are available to banks as that term is defined in Section 3 a 6 that engage in certain enumerated activities. These exceptions are further codified as Difference between broker dealer trader Act Rules 3a, 3a, and 3a See Louis Loss, Securities Regulation 1st ed.

In addition to the factors listed in the Proposal, with respect to dealer status in the context of the Government Difference between broker dealer trader Act of GSAthe SEC staff also identified the following factors: See Exchange Act Release No.

Registration of Brokers and Dealers Under Difference between broker dealer trader 15 a of the Securities Exchange Act difference between broker dealer trader By way of background, section 15 a of the Securities Exchange Act of Exchange Act generally makes it unlawful for any broker or dealer to make use of the mails or any means or instrumentality of interstate commerce to effect any transactions in, or to induce or attempt to induce the purchase or sale of, any security unless 1 such broker or dealer is registered with the SEC; 2 in the case of a natural person, is an associated person of a registered broker-dealer; or 3 satisfies the conditions of an exemption or safe harbor.

The Dealer-Trader Distinction The dealer-trader distinction is an analytical framework that has been in place since at leastwhen Louis Loss first published his seminal treatise on the securities laws.

Defining High-Frequency Trading The most immediate challenge the SEC will likely face is in defining high-frequency trading and distinguishing such trading from other types of algorithmic and proprietary trading. Contacts If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers: Stone Chicago Michael M.

Philipp New York Ben A. Indek Miami Ivan P. Harris San Francisco Joseph E.

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