Starting A Broker Dealer

Starting a Broker Dealer can be a long process. However – if you have the time, it may be well to consider starting a BD rather than purchasing an existing BD. There are several reasons for this – though they may not be the reasons that you expect.

Starting a BD from scratch gives you many months to ease into the regulatory process, and to get to know your local FINRA reps well – before you must actually run the BD. The compliance burden of running a BD is a very serious matter, never to be taken lightly. Having these extra months of preparation may be the key to making sure you start out on the right foot – from day one.

Additionally, if you take the time to find an attorney or Securities Consultant who is reasonably priced, the process may be significantly cheaper than purchasing an existing “shell”.

Time Vs. Money

Keep in mind that the only real value there is to purchasing a “shell” BD is that if structured properly, you can be up and running in several days time. Meaning several days, from the initial call to BD Exchange to actually working at the target firm. NOTE: The regulatory review process for a purchased BD is not terribly different from the process to start a BD; and the regulatory review will take time. And there is no way to speed the regulatory review; it will take as long as it takes. But – if structured properly, you can be working at the BD, with no downtime, in a matter of days. While you are working there, you file all necessary documents for regulatory review, and wait for the authorities to review in due course.

Starting a BD in the current market may take six months or longer from start to end of review. It is important to note that in some jurisdictions, the process takes significantly longer. Often, people starting a BD are under the impression that everything can be done in 90 days. This is a misconception; what can in fact be done in 90 days is the filing of all necessary documents – but the review process will likely take significantly longer – again there is no way to speed the review process, other than to provide a proper filing from the start.

But the length of the review is based not only on your proper filing of all necessary documents, but also upon the time required for the FINRA to review your start up. As all documents are freshly created, and have had no review in the past, this requires significant time and effort. Some districts are quite burdened, and the turnaround time in those districts may be significantly longer than in other districts. It is important to note that change in ownership applications (what you will file, pursuant to rule 1017, when you buy a BD) typically do get reviewed in 90 days. Of course, the very best way to get reviewed quickly is to plan in advance, and provide a complete and comprehensive filing to the FINRA.

So the only real value there is to buying a shell is the time factor. And you will pay a premium for this, in that “shell” companies are often priced higher than what you might pay if starting from scratch.

Liability Misunderstandings

There is the perception that buying a shell always carries significant liabilities. This is a common misunderstanding. While it is well to note that as the new owner of a BD, you will take on all liability for previous transactions – it is important to know that many shell BDs have simply never done business, and so carry no transaction based liability. Often several partners will set up a BD in order to transact certain anticipated business. And during the long process of becoming approved, one or more of the contemplated transactions will simply fall apart.The BD is now approved, but the partners have now given up on that potential business. Often the partners are already registered at another firm, and they simply decide to get rid of the BD, which is of no use to them at this point.

Broker Dealer Exchange specializes in finding “Shell” BDs that have little transactional history, for those very reasons. If, for example, a BD had in the past run several day trading hedge funds that have all gone to zero and closed, and now the owner is attempting to sell the BD, we would likely not be able to help: the liability issues would preclude a sale.

In any case, during the Due Diligence process you should be able to uncover just what sort of business, if any, that the BD has done. Use of professional counsel will help in vetting these firms.

We have seen several of the top five largest financial firms in the world purchase clean shells in order to structure their businesses. Their main concern is always, of course, that any potential target BD has done little or no business.

Where to Begin

BD Exchange does not assist in the formation of new Broker Dealers. However, we do offer a list of non-affiliated securities consultants who do. Please take a look at the “Client Resources” section of this website for a current list of securities/compliance consultants.

There are adavantages and disadvantages to both starting from scratch and purchasing an existing shell. Please call in for more information. We'll do our best to answer any questions you may have - and if we do not know the answer, we will connect you with someone who does.