What is a Broker-Dealer? - Davis Polk & Wardwell

§ 1A:2.6 BROKER-DEALER REGULATION
customers under certain conditions. 100 Insurance networking arrangements
are limited to insurance products that are also securities. 101
The networking exemption does not apply to arrangements for the
sales of mutual funds 102 and other non-insurance securities that do
not present the same regulatory difficulties posed by dual state and
federal laws applicable to insurance securities. 103
[D] Issuers and Their Associated Persons
[D][1] Issuers
Issuers generally are not considered “brokers” under the Exchange
Act because they sell securities for their own account and not for the
account of others. 104 Issuers whose activities go beyond selling their
own securities, however, may be required to register as broker-dealers.
The SEC staff has stated that such activities could include, among
others, issuers purchasing their securities from investors, as well as
issuers effectively operating markets in their own securities or in
securities whose features or terms can change or be altered. 105 The
SEC has also asserted that an issuer that operates a dividend reinvestment
and stock purchase plan (DRSPP) 106 may be required to register
as a broker-dealer if it induces or attempts to induce the purchase
or sale of its securities, receives compensation based on securities
transactions, or holds and maintains the funds, securities, and
accounts of DRSPP participants. 107
100. See SEC Guide to Broker-Dealer Registration, supra note 72.
101. See id.
102. See The Wolper Ross Corp., SEC No-Action Letter, n.1 (Oct. 16, 1991).
103. See Lincoln Financial Advisors Corp., SEC No-Action Letter (Feb. 20,
1998).
104. The SEC has stated: “[T]he Act has customarily been interpreted not to
require the issuer itself to register as either a broker or a dealer; the issuer
would not be effecting transactions for the account of others nor, generally,
would it be engaged in the business of both buying and selling securities for
its own account.” SEC Release No. 34-13195 (Jan. 21, 1977).
105. See SEC Guide to Broker-Dealer Registration, supra note 72.
106. A DRSPP is a program offered by a corporation or closed-end fund that
allows participants to accumulate shares of an issuer’s common stock
directly from the issuer by reinvesting dividends and, in many cases, by
making optional cash payments. See Exemption From Rule 10b-6 For
Certain Dividend Reinvestment and Stock Purchase Plans, SEC Release
No. 34-35041 (Dec. 1, 1994).
107. For a more detailed discussion of when the issuer operating a DRSPP
program will need to register, see Exemption From Rule 10b-6 For
Certain Dividend Reinvestment and Stock Purchase Plans, SEC Release
No. 34-35041 (Dec. 1, 1994).
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