Securities Law -Registration of Principals

The NASD Continues to Bring Actions Against Individuals Who Act as Principals Without Registration

By Mark J. Astarita, Esq.


Registration of Principals is still a hot topic at the NASD. As we noted in an earlier column, a continuing issue for the NASD is the failure to register indiviuals who act as principals.

In a Winter regulatory release, the NASD again article pointed out that it is the responsibility of both the member firm and the individual who is acting in a registered capacity to determine whether the individual’s responsibilities require him or her to register, and in what capacity such registration is required.

NASD Regulation has sanctioned firms and individuals when registered representatives who have been given management responsibility have failed to register as principals within 90 days following the change in their duties. If a registered representative is given additional duties, such as supervision, hiring and firing, training, or managing a department, the individual is required to register as a principal because he or she is now involved in the management of the firm.

Rule 1021 gives a registered representative 90 days to qualify as a principal, but in no event may a person function as a principal beyond the initial 90-calendar-day period following the change in his or her duties without having successfully passed the appropriate qualification examination.

NASD Regulation has also taken formal disciplinary action against individuals and their firms when an individual associated with the parent of a member who has never been registered with the Association in any capacity becomes an officer or director of the parent’s broker/dealer subsidiary, takes on management responsibilities, and fails to register as a principal. According to the NASD release, in one case, officers of a firm, one of whom was also a board member, were disciplined when they assumed management responsibilities, but failed to register as principals.

Likewise, an unregistered individual employed by a bank parent company, whether foreign or domestic, becomes subject to the requirement to register as a principal if he or she becomes an officer or director of a U.S. broker/dealer subsidiary and takes on management responsibilities, including administrative and back office functions.

An inside director, i.e., an employee of a member who sits on its board of directors, is presumed to be involved in the day-to-day management of the firm’s business and, therefore, is required to be registered as a principal. An outside director who becomes actively engaged in the management of the member’s investment banking or securities must register as a principal within 90 days.

Both individuals and firms are subject to disciplinary action if an individual functions as a principal without having registered as such. NASD Regulation will not consider as mitigation an individual’s claim that he or she did not understand or was not informed by the firm that registration was required, or that the individual was too busy to take the examination. It is imperative that these individuals and their firms analyze a person’s duties and responsibilities at the broker/dealer to determine whether principal registration is required.

If you have registration questions, or wish to have your firm’s registration policies reviewed, please contact Mark Astarita.


Copyright 2010. VGIS Communications LLC. All Rights Reserved. VGIS Communications – 60 Pompton Avenue, Verona, New Jersey 07044- 973-559-5566. Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial adviser before acting upon the information contained in this article. For additional information, contact Mark J. Astarita, Esq., a partner in the law firm of Beam & Astarita, LLC, who represents clients in a wide variety of finance related matters. Mr. Astarita can be contacted by email at mja@sallahlaw.com.


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