Clarification of California Broker-Dealer Licensure Requirements

Good news, the California Corporations Commissioner has provided guidance on the broker-dealer licensure requirement for officers and directors of issuers. As you may recall, a recent California case, People v. Cole, dealt with the definition of broker-dealers and agents in connection with officers and directors of issuers under the California Corporate Securities Law of 1968 (the "CSL"). That case held that in order for an officer or director to be excluded from the definition of a broker-dealer as an employee agent, such officer or director must have received commissions for effecting transactions in securities.

In light of People v. Cole, the Commissioner has provided a release which provides that under the CSL an officer or director can be:

• Included in the definition of broker-dealer if he or she engages in the business of effecting transactions in securities.
• Excluded from the definition of broker-dealer if he or she does not engage in the business of effecting transactions in securities.
• An agent, if he/she is included in the definition of broker-dealer, and receives commission specific to effecting transactions in securities.
• Excluded from the definition of broker-dealer if he or she engages in the business of effecting securities transactions, but does not receive commission specific to effecting transactions in securities.

Based on the clarification above, directors and officers need not be concerned with registration as a broker-dealer, provided that they do not receive commissions.

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