The SEC proposed to amend a reporting rule to clarify an exemption for broker-dealers who act for a single issuer. Under the proposed amendment to Rule 17a-5(e), a broker-dealer would not be required to engage an independent public accountant to certify the broker-dealer’s annual reports if, among other things, the securities business of the broker-dealer has been limited to acting as broker (agent) for a single issuer in soliciting subscriptions for securities of that issuer (Amendment to Single Issuer Exemption for Broker-Dealers, Release No. 34-84225).
Single issuer exemption. Under the broker dealer reporting rule 17a-5, broker-dealers’ annual reports generally must include reports prepared by an independent public accountant covering the financial report and, as applicable, the compliance or exemption report. However, there is an exemption for broker-dealers whose securities business is limited to acting as a broker for “the issuer” and several other conditions are met.
In context, it is clear that “the issuer” means “a single issuer,” and the SEC clarified this after the rule was adopted. But in a 2013 drafting error, the original ambiguous language was reinstated. To clarify the exemption, the proposal would amend Rule 17a-5(e) to provide that a broker or dealer would not be required to engage an independent public accountant to certify the broker’s annual reports if:
- the securities business of the broker or dealer has been limited to acting as broker for a single issuer in soliciting subscriptions for securities of that issuer;
- the broker has promptly transmitted to the issuer all funds and promptly delivered to the subscriber all securities received in connection with the transaction, and
- the broker has not otherwise held funds or securities for or owed money or securities to customers.