Broker-Dealer Services Agreement

Although many broker-dealers are “independent” companies that deal exclusively with broker-dealer services, many other commercial entities or subsidiaries are commercial banks, investment banks or investment firms. The Japanese term used for a broker is “investment firm” (証券, sh-ken-gaisha). Securities companies are regulated by the Financial Services Agency under the Financial Instruments and Exchanges Act. The “big five” are Nomura Securities, Daiwa Securities, SMBC Nikko Securities, Mizuho Securities and Mitsubishi UFJ Securities. Most of Japan`s major commercial banks, as well as many foreign commercial banks and investment banks, have broker-dealer subsidiaries. Although brokers often offer investment advice to their clients, they are exempt, in many situations, from registration under the U.S. Investment Advisors Act of 1940, as long as (i) investment advice for intermediation activities is “incidental”; and (ii) the broker does not receive “special compensation” for investment advice. Both elements of this exemption must be met to qualify. [8] In the United States, brokers are regulated by the Securities Exchange Act of 1934 by the Securities and Exchange Commission (SEC), a U.S. government entity. All sec-registered brokers and traders (in accordance with 15.C.C 78o), with a number of exceptions, must be members of the Securities Investor Protection Corporation (SIPC) (in accordance with 15.C 78ccc) and are subject to regulation. Some regulators will be delegated to the Financial Industry Regulatory Authority (FINRA), a self-regulatory organization. Many states also regulate brokers under separate national securities laws (“blue-sky”).

[4] The 1934 Act defines “brokers” as “any person who deals with securities on behalf of others” and defines “traders” as “anyone who buys and sells securities on his own behalf, through a broker or other means.” Under one of the two definitions, the person must perform these functions as a business; When they conduct similar transactions on a private basis, they are considered traders and are subject to different requirements. [5] When acting on behalf of clients, brokers have a duty to obtain the “best execution” of transactions, which generally means getting the best economic price under the circumstances. [6] In the case of financial services, a broker-dealer is a natural person, a company or other organization that acts on its own behalf or on behalf of its clients.