Are Securities Brokers Exempt From The Corporate Transparency Act?

There are 23 separate exemptions from the CTA's beneficial ownership reporting requirement. The exemptions are listed in order in FinCEN's Final Rule at 31 CFR 1010.380 and take effect on January 1, 2024.

CTA Exemptions Generally

In general, the CTA exempts companies that already report their beneficial ownership to the U.S. government under a separate legal framework. FinCEN's Final Rule addresses each exemption separately in subsection 1010.380(c)(2).

Exemption Number 7 - Broker or Dealer in Securities

Subsection 1010.380(c)(2)(vii) of the Final Rule exempts:

(vii) Broker or dealer in securities. Any broker or dealer, as those terms are defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c), that is registered under section 15 of that Act (15 U.S.C. 78o).

Importantly, this exemption is reserved for entities who fall within the definition of broker or dealer provided in section 3 of the 1934 Act and who are properly registered under section 15 of the 1934 Act.

An entity that is required to be registered, but has not properly registered, will not be exempt.

The term "broker" is defined in the 1934 Act as "any person engaged in the business of effecting transactions in securities for the account of others." Most of the definition in the statute is devote to distinguishing the permissible activities of banks. Banks that effect transactions in securities for others are generally excluded from the definition of "broker" except in specified circumstances.

The term "dealer" is defined as a "person engaged in the business of buying and selling securities . . . for such person's own account through a broker or otherwise."

The registration requirements of the 1934 act that apply to brokers and dealers are complex. The statute permits the Securities Exchange Commission (SEC) to exempt some brokers and dealers from registration, so it is possible for an entity to fall within the definition of "broker" or "dealer" and yet not be registered under section 15 of the 1934. Such an entity would fall outside the CTA exemption in subsection 1010.380(c)(2)(vii) of the Final Rule.

In addition, the SEC requires some entities to register as a broker or dealer even though that entity might fall outside the definition of "broker" or "dealer." For example, some investment advisors and "independent contractors" who are not "associated persons" of a broker may be required to register with the SEC as a broker.

Because of this complexity, brokers, dealers and other participants in securities transactions should engage experienced counsel to review their exemption status under subsection 1010.380(c)(2)(vii) of the Final Rule.