Buying A "shell" Broker Dealer

“Shell” Broker/Dealer: a broker/dealer in good standing with all relevant regulatory authorities, approved to do business subject to it’s membership agreement, being sold without accounts or production.

Purchasing a clean “Shell” broker dealer is a straightforward process. The following is a general overview of that process.

Why Buy an Existing Broker Dealer?

The only real advantage there is to purchasing a “shell” rather than starting one from scratch is time. In purchasing an existing broker dealer, if the deal is structured properly, you can be up and running in a very short time: often within a week or two of starting the process. It is important to note that there are various purchase structures custom tailored to different situations. BD Exchange can remove the guesswork; our process is comprehensive and will support your specific needs. Our service includes a needs analysis, presentation of various alternatives, full contract sets covering the purchase and management contracts, etc. It is also important to note that all services are provided at no extra charge: the purchase price includes everything necessary.

BD Exchange highly recommends that you utilize the services of a professional advisor in any transaction. You will find that the legal fees and or securities consultant fees are well worth it in the long run. Again, make sure to use a competent lawyer and or securities consultant to make sure all aspects of the purchase are handled correctly. BD Exchange is not a lawyer – and though we will provide boilerplate agreements, etc., we cannot offer any legal advice. Indeed, this is part of Broker Dealer Exchange’s value proposition: we do not specify that you must use our in-house professionals, and then tack on additional fees. You are free to use any professional services you desire.

All “shell” broker/dealer purchases follow the same pattern:

Broker Dealer Exchange performs a needs analysis. Given your specific situation, we will offer as many suitable alternatives as possible, and discuss the relative merits of each. We will work with you and your advisors to eliminate the less suitable targets. Once we have identified a firm which seems to fit your needs (pending in-depth Due Diligence review), the buyer will place a good faith, totally refundable deposit.

Introduction and Due Diligence: Buyer and Seller can determine if there is a “fit”, and finalize any potential terms – subject to DD review. The seller will provide to your counsel any and all documents necessary to make a complete, in-depth review. The seller has prepared in advance a comprehensive package - ready to send.

Once the buyer has decided to go ahead, BDX will provide boilerplate documents for marking-up to the specifics of the deal. Buyer will then submit the documents to BD Exchange, and BD Exchange will pass them along to the seller for signature. Once signed, depending on the structure of the Purchase Agreement, you may begin working at the firm as a rep.

Notification: It is important to note that in every situation, the FINRA will require notification of the proposed transaction no less than thirty (30) days prior to effecting such transaction. At this point, when buyer and seller have reached a meeting of the minds with respect to a purchase/sale of the BD, thirty days advance notice must be given by the BD to the FINRA with regard to the proposed change. This is subject to membership rule 1017 - and there really are no exceptions. There are loopholes, however - and there is many misconceptions with regards to this process. It is BDX's opinion that using any so-called loopholes to avoid notification is extremely counterproductive - and we will not assist in transactions attempting to avoid notification right at the start. As stated above, there really are no exceptions, if you are interested in a smooth transition. There is also the misconception of "easy transfer". Make no mistake, the Continuing Membership Application must not be undertaken casually; it is not unlike starting a membership application from scratch. There are no shortcuts, despite rumors to the contrary. Thankfully the process is not overweeningly difficult - in fact it is rather straightforward. We do, however, strongly reccommend retaining a compliance consultant to guide you through this process - particularly if you have not been through the process before. Please also note that the NASD has informed us that intermediaries often do not assist in this process - despite claims to the contrary. It is important to ask a finder exactly what they do to assist in this process; more often than not, you will find that they really do nothing to assist.

Upon Notification of the proposed transaction, The Buyer will the begin the "CMA" (Continuing Memnbership Application) process immediately, pursuant to NASD membership rule 1017. The NASD will review in due course. It is of vital importance that the CMA process is initiated with a complete filing, if the transaction is to proceed smoothly. As a buyer, you must be ready to provide the firm (and the NASD) all necessary documentation to create a complete filing. Why? Because you must be approved for Membership by the Regulatory Authorities BEFORE you will be able to excersise any control at the firm. Please see the "Client Resources" section of this site, and click on NASD Links, for links to information on what qualifications are necessary to own a broker dealer, as well as a guide to the 1017 (CMA) Filing Process.

Pending regulatory approval, you are done.

Please note that the above description is general and incomplete; for an exact step-by-step understanding, including information on the different purchase structures, please read the “Buyers Instructions” in “Client Resources”.