Every year, U.S. investors invest billions of dollars in the markets. It is expected to grow as more and more foreign broker/dealers seek to attract U.S. investors. When a foreign company seeks to conduct business in the U.S., it needs someone to help it navigate and understand the local laws, statutes, and regulations.

Certain foreign investment firms (foreign broker/dealers) are subject to certain rules and regulations when conducting securities transactions in the United States. The purpose of these rules is to ensure that all parties involved in a transaction are aware of the risks involved and understand their rights as well as their obligations.

As a government agency, the Securities and Exchange Commission (SEC) regulates the securities market to protect investors, maintain fairness, and facilitate capital formation. These rules apply not only to U.S. broker/dealers, but also to foreign investment firms but also to domestic firms. In addition, separate rules apply specifically to foreign investment firms and other entities engaged in securities transactions with investors.

The US Securities and Exchange Commission (SEC) requires that an SEC-registered broker- dealer chaperone all foreign investment firms. The governing body is governed by SEA Rule 15A-6.

Details about Rule 15A-6

Rule 15A-6 is a rule that was enacted under the Securities Exchange Act of 1934. It defines permissible activities that foreign broker-/dealers may undertake in the United States. The permissible activities which do not require registration under the Securities Exchange Act are:

  • Transactions with U.S. registered broker-/dealers acting as agents for their customers.
  • Unsolicited transactions; Solicitation means inducing transactions like sending research reports or entering into soft dollar arrangements.
  • Transactions with a foreign investor who is temporarily residing in the U.S with whom the broker-dealer has a pre-existing relationship ( before the foreign investor entered the U.S)

Registration Requirements for Broker-/Dealers

In the Exchange Act, a “broker” is anyone who facilitates securities transactions for other people’s accounts. Anyone engaging in effecting securities transactions for their own proprietary account is called a “dealer.” “Effecting securities transactions” involves significant steps in the transactions like solicitation, negotiation of the terms, and execution of the trade.

A foreign broker-/dealer with no offices in the United States and conducting its business entirely outside the U.S. need not register under the Exchange Act.

The registration process includes registering with the SEC and becoming a member of the Financial Industry Regulatory Authority (“FINRA”). Depending on the scope of the U.S. operations, the broker-/dealers must also register with certain states. The process might take six to twelve months to complete.

A violation of the 15a-6 Rule can result in serious penalties. In a recent case where a large European bank failed to comply with Rule 15a-6, it had to pay approximately $200 million as penalties to settle the charges.

The registration process is not straightforward and has many exceptions and regulations; please contact a qualified chaperoning firm for complete details.

Chaperoning is an essential service to foreign broker/dealers engaged in U.S. investment transactions. Only a registered U.S. broker-/dealer like Bridge Capital Associates can provide chaperoning services to foreign broker/dealers. If you are a foreign investment firm looking to do business in the United States, contact us today so we can assist you with your compliance needs! Call (770) 923-9632 or click here for more details.