How to Open a Brokerage Account If You Work for a Dealer Trader

You must advise your employer firm in writing of your wish to open a securities account at another member firm.

According to the U.S. Securities and Exchange Commission (SEC), working for a trader dealer as an associated registered person makes opening a securities account with another member firm fairly simple. In 2009, the Financial Industry Regulatory Authority (FINRA) proposed requirements in Rule 3210 regarding opening an account away from your employer firm that include the employee obtaining prior written permission. Obtaining duplicate confirmations of securities transactions, account statements and other items needed for compliance review is required of the employer after permission is granted.

Things You'll Need

• Letter to existing employer
• Letter to new member firm

Instructions

SEC, FINRA and NYSE Rules

1. 

   As an employed associated person of a member dealer-trader firm, you may open a securities account with another member firm with written permission from your employer.

   Determine whether you are in fact a dealer or an employee of a dealer-trader firm before deciding to open an account with another member firm. If you are employed by the dealer-traider firm, you are probably not a dealer, according to the SEC website, which states, "Unlike a broker, who acts as agent, a dealer acts as principal. Section 3(a)(5)(A) of the Act generally defines a 'dealer' as any person engaged in the business of buying and selling securities for his own account, through a broker or otherwise. The definition of 'dealer' does not include a 'trader,' that is, a person who buys and sells securities for his or her own account, either individually or in a fiduciary capacity, but not as part of a regular business. Individuals who buy and sell securities for themselves generally are considered traders and not dealers."

2. 

   Alert your employer and the member firm in writing of your wish to open a securities account.

   Alert your employer of your request to open a securities account at another member firm. According to FINRA rules, as of 2010, the request must be made in writing and granted in writing by your employer prior to transacting in the new account. You must identify yourself as an associated person of a member firm to the other member when opening an account, also in writing, and on new account and maintenance agreement materials. Failure to take these steps can mean fines, bars or expulsion from registration and the removal of the licenses needed to do your job.

3. 

   You need to communicate with your employer and the member firm at which you propose to open a new account before transacting business.

   Be aware that certain types of accounts do not require these notification steps. For example, mutual funds, variable contracts and unit investment trust accounts made directly with the institution offering them are not included in FINRA 3210. Mutual funds, variable contracts and unit investment trusts are managed by the issuer's portfolio managers.

   Rule 3210 requirements apply to investment adviser, private bank or other bank accounts in which you have some level of control to designate the securities and investments placed within them. Previous and current regulations include offshore accounts for associated persons.

4. 

   Many investment and trading professionals prefer to have another investment adviser manage their personal accounts.

   Review FINRA Rule 3050 regarding the requirements to open accounts at another member firm for associated persons and their families. Many investment professionals prefer not to manage their own or family securities accounts, especially when investment goals differ. A floor broker or trader may prefer the longer term investment perspective of another adviser.

5. 

   Know the rules concerning opening a securities account at a firm other than your employer.

   Review NYSE Rules 407, 472, 476 and others relating to the requirements of certain associated persons seeking to open new accounts away from their employer firm. Financial analysts recommend securities for purchase and sale, and they may have access to confidential information about securities during no-trade periods, such as before securities' public offerings.

Tips & Warnings

• Review recent changes to rules relating to the opening of accounts at firms other than your member firm employer.

• Failure to advise your employer about the decision to open an account at another member firm may cause problems later. Communicate first, and willingly provide account information to your firm's compliance office.

References

• Securities & Exchange Commission: SEC
• Financial Industry Regulatory Authority: Rule 3210
• Financial Industry Regulatory Authority: Rule 3050
• Investopedia: accounts at another member firm
• Financial Industry Regulatory Authority: Rule 3210, NYSE Rule 407

Resources

• "The Securities Enforcement Manual;" Baker, Phillips, et al; 2007
• "U.S. Regulation of the International Securities and Derivative Markets;" Edward F. Greene; 2009
• Standard & Poors: "Standard & Poor's Securities Dealers of North America;" 2009
• "Internal Corporate Investigations;" Barry F. McNeil, Brad D. Brian; 2007
• "A Practical Guide to SEC Proxy;" Amy L. Goodman, John F. Olson; 2007