Agent Exemptions and Exclusions
While most individuals who effect securities transactions must register as agents, the Uniform Securities Act provides important exclusions for certain individuals. Understanding when registration is NOT required is heavily tested on the Series 63 exam.
Clerical and Administrative Personnel
Who Is Excluded?
| Role | Agent Registration Required? |
|---|---|
| Receptionist | No |
| Administrative assistant (no sales duties) | No |
| Back-office operations staff | No |
| Compliance officer (no sales) | No |
| Secretary who takes customer orders | Yes |
| Assistant who accepts phone orders | Yes |
Critical Distinction: Clerical staff are excluded from the agent definition UNLESS they perform sales-related functions. The moment an administrative employee takes a customer order or effects a transaction, they become an agent and must register.
The "Sales Function" Test
An individual performs a sales function (and must register) if they:
- Accept customer orders
- Solicit securities transactions
- Provide investment recommendations
- Effect or attempt to effect transactions
Exam Tip: A secretary who is "authorized to take orders over the phone" IS an agent and must register, even if their primary job is administrative.
Officers and Directors of Broker-Dealers
When Registration Is NOT Required
Partners, officers, and directors of a broker-dealer are excluded from the agent definition if they:
| Activity | Agent Registration? |
|---|---|
| Corporate governance only | No |
| Administrative/management duties | No |
| Supervision of non-sales functions | No |
| Effecting securities transactions | Yes |
| Supervising agents who effect transactions | Yes |
Key Rule: A director who never touches customer accounts or sales is not an agent. But if that same director makes even ONE trade for a customer, they must register as an agent.
Individuals Representing Issuers
The most complex exclusions involve individuals who represent issuers (not broker-dealers) in securities transactions.
Exclusion for Exempt Securities
An individual representing an issuer is excluded from the agent definition when selling:
| Exempt Security | Example |
|---|---|
| U.S. Government securities | Treasury bonds, T-bills |
| State/municipal securities | State bonds, municipal notes |
| Foreign government securities | With U.S. diplomatic relations |
| Bank securities | Bank stocks and bonds |
| High-rated commercial paper | Top 3 ratings, $50,000+ denomination, 9 months or less maturity |
Important: This exclusion applies ONLY to individuals representing issuers. A broker-dealer employee selling Treasury securities IS an agent and must register.
Exclusion for Exempt Transactions
An individual representing an issuer is excluded when effecting:
| Exempt Transaction | Description |
|---|---|
| Private placements | Sales to limited number of sophisticated investors |
| Institutional transactions | Sales to banks, insurance companies, pension funds |
| Employee transactions | Sales to employees with no transaction-based compensation |
The Compensation Test
For issuer representatives, compensation matters:
| Compensation Type | Agent Registration Required? |
|---|---|
| Salary only (no commission) | Generally No |
| Commission per sale | Yes |
| Bonus based on sales | Yes |
| Transaction-based remuneration | Yes |
Exam Tip: If an individual representing an issuer receives ANY compensation that is directly or indirectly based on securities transactions, they lose the exclusion and must register as an agent.
Employee Stock Plan Transactions
When Excluded
An individual representing an issuer is excluded when selling securities to:
| Recipient | Excluded? | Condition |
|---|---|---|
| Employees of the issuer | Yes | No transaction-based compensation |
| Partners of the issuer | Yes | No transaction-based compensation |
| Directors of the issuer | Yes | No transaction-based compensation |
| Former employees | Depends | Must meet specific conditions |
Example Scenario
A company's HR director helps employees enroll in the company's stock purchase plan:
- Excluded if: HR director receives only salary, no commission or bonus for enrollments
- NOT Excluded if: HR director receives a bonus for each employee who enrolls
Broker-Dealer Representatives vs. Issuer Representatives
The exclusions work DIFFERENTLY based on who the individual represents:
| Representing | Exempt Securities | Exempt Transactions | Employee Sales |
|---|---|---|---|
| Broker-Dealer | Must register | Must register | Must register |
| Issuer | Excluded | Excluded | Excluded (if no commission) |
Critical Point: Individuals representing BROKER-DEALERS have fewer exclusions than those representing ISSUERS. A BD employee must register even when selling exempt securities.
Summary: Agent Exclusion Checklist
An individual is EXCLUDED from the agent definition if:
| Condition | Exclusion Applies? |
|---|---|
| Performs only clerical/administrative duties | Yes |
| Officer/director not involved in sales | Yes |
| Represents issuer selling exempt securities | Yes |
| Represents issuer in exempt transactions | Yes |
| Represents issuer to employees (no commission) | Yes |
| Represents BD selling any securities | No |
| Receives transaction-based compensation | No |
| Takes customer orders (even if "clerical") | No |
Key Takeaways
- Clerical staff are excluded unless they perform sales functions
- Officers and directors are excluded unless they effect transactions
- Issuer representatives have more exclusions than BD representatives
- The compensation test is critical—transaction-based pay eliminates the exclusion
- BD employees have virtually no exclusions and must register
- Employee stock plan facilitators may be excluded if not paid commissions
A secretary at a broker-dealer is authorized to take customer orders over the phone when the registered agents are unavailable. Must this secretary register as an agent?
An individual represents an issuer in selling the company's stock to the company's employees. The individual receives a salary plus a $100 bonus for each employee who purchases stock. Is this individual required to register as an agent?
Which of the following individuals must register as an agent?
A vice president of a broker-dealer spends most of her time on compliance matters but occasionally executes trades for her personal friends who are customers. Must she register as an agent?
2.5 Investment Adviser and IAR Registration
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