United States

Amendment clarifies single issuer exemption for broker-dealers


Most broker-dealers registered with the SEC must annually file a financial report and either a compliance report or exemption report. In addition, Rule 17a-5 requires the broker-dealer to include, with the annual reports, reports prepared by an independent public accountant covering the financial report and, as applicable, the compliance or exemption report. However, extant paragraph (e)(1)(i)(A) of Rule 17a-5 exempts a broker-dealer from engaging an independent public accountant to provide the accountant’s reports, if:

  • The securities business of the broker-dealer has been limited to acting as broker (agent) for the issuer in soliciting subscriptions for securities of the issuer;
  • The broker has promptly transmitted to the issuer all funds and promptly delivered to the subscriber all securities received in connection with the transaction; and
  • The broker has not otherwise held funds or securities for or owed money or securities to customers.

The SEC recently issued an amendment to the single issuer exemption for broker-dealers, which is effective August 13, 2019. The amendment clarifies that this exemption is available only for a broker-dealer that acts as broker (agent) for a single issuer (i.e., rather than “the issuer”) in soliciting subscriptions for securities of that issuer. The exemption therefore applies only to a broker-dealer that acts as broker (agent) for a single entity – an issuer that is typically affiliated with the broker-dealer.

Given the significance of the verification of a broker-dealer’s financial and operational information by an independent public accountant, the SEC is not broadening the scope of the exemption to include broker-dealers whose securities business is limited to acting as an agent for multiple issuers, including mutual funds in a single family of mutual funds. These issuers may not be in the privileged position of the affiliated issuer in terms of accessing information about the broker-dealer. Consequently, the SEC believes that this type of broker-dealer should continue to be required to have its annual reports covered by reports prepared by an independent public accountant.