Broker Dealer Compliance | Luxor Financial Group

Buying an existing Broker Dealer:

Buying an existing Broker Dealer is a very appealing way of being in business with no down time. This is true to a large extent depending on the following factors:

The lines of business that the existing Broker Dealer is approved for
The current clearing agent
The background of the Firm
The seller's willingness to work with the purchaser
The purchasers expectations
The purchasers qualifications and resources
No restrictions from FINRA.

Process:

1. Find a Broker Dealer for sale. The Broker Dealer should have the lines of business that you use most. (You can add additional lines of business during the process).

2. Conduct due diligence. At a minimum, collect the following:

Current membership agreement
Clearing agreement (if any)
Copy of form BD
Last 4 Focus reports
Current Annual Financial Audit
Copies of the last FINRA and any other regulatory body review and the Firm's response
Copies of the Firm's fidelity bond
Copies of the Firm's SIPC registration
Corporate Formation Documents & Operating Agreement if applicable
Vendor Agreements (Including Leases & personnel/consulting Agreements

3. Enter into a purchase agreement.

4. Be sure that the purchase agreement lists all the items that you expect as a purchaser and conforms to FINRA's rules and regulations.

5. File the Continuing Membership Application (the 1017 application) with FINRA through the CRD system. (This is a detailed application which has too many nuances to go into detail here).

6. Wait for a response from FINRA (This response will have numerous questions regarding the structure, financing and supervision etc, of the proposed ownership).

7. Respond to FINRA. (Answer all of the questions with as much detail as possible).

8. Wait for next response then repeat 5, 6 and 7 until approved or denied.

You will typically need the following for a filing:

General Securities Principal:

Licensed Series 24, with at least one year of direct supervisory experience or 2 years of indirect relating to all the lines of business that the Firm will engage in

Financial Operations Principal:

Licensed Series 27 this is the person that will file the Firm's FOCUS/ financial reports either quarterly or monthly depending on the Firms net capital requirement

Adequate resources in the bank. Usually 12 months' worth of expenses
Ownership Chart
Organizational/Supervisory Chart
Flow of funds chart (Where did the money come from to operate/purchase the Broker Dealer)
Business Plan
Resumes detailing the experience of the proposed supervisors
Continuing Education Plan
An email compliance program
Anti-Money Laundering Procedures
Written Supervisory Procedures
Business Continuity Plan
LOTS of PATIENCE!

The above is designed to give the layman a general overview of the process. Feel free to contact me to discuss your specific situation. Also, be aware that while you may own it and be operating the Firm, at any time the regulators can place an interim restriction on your activities until they clear up any items that they feel are necessary for you to continue.

Filing an application for a new Broker Dealer:

Filing for a new Broker Dealer is essentially the same process except for a) you will have to wait to get approval before conducting any transactions (4-6 months) b) All of the items have to be done from scratch (Fidelity bond, SIPC etc.)

Buying an existing Broker Dealer:

Pros: Operating within 45 days (Or day one depending on the Firm's existing clearing agreement and lines of business).

Cons: Cost around $65,000 & requires due diligence

Filing a new application:

Pros: Save $65,000 no due diligence, fresh Firm with no potential issues and custom tailored to your business.

Cons: Takes 4-6 months to start operations