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← Series 63: Regulation of Broker-Dealers & Agents
Series 63 practice questionhardExemptions — Scenario

In a remedial practice session, the fact pattern is framed this way. Prioritize the registration trigger and ignore irrelevant noise. Global Investments, a Canadian broker-dealer with no U.S. office, effects transactions exclusively with U.S. institutional investors. A high-net-worth individual in State C asks Global to execute a trade. If Global complies, what is the consequence?

  1. AGlobal may lose its exemption from registration in State C because it transacted with a non-institutional client✓ Correct answer
  2. BNo consequence, as the individual qualifies as an accredited investor
  3. CGlobal is protected because the client initiated the transaction
  4. DGlobal faces no issue because it is a Canadian firm outside U.S. jurisdiction
Explanation

Why A — Global may lose its exemption from registration in State C because it transacted with a non-institutional client

Under USA Section 401(c), a broker-dealer with no office in a state is exempt only if it deals exclusively with institutional investors, broker-dealers, or issuers in that state. Effecting a transaction with a high-net-worth individual (who is not an institutional investor) would cause Global to lose the exemption and require registration in State C. The governing USA principle is unchanged even though the framing is different.

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