Broker definition exception for registered representative-owned personal services entity

(a)

In general

Section 3(a)(4) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(4)) is amended by adding at the end the following:

(G)

Exception for registered representative-owned personal services entity

(i)

In general

A personal services entity shall not be considered a broker solely by reason of receiving compensation on behalf of a registered representative from that representative’s registered broker at the direction of such representative, if—(I)the representative’s registered broker instructs or otherwise approves the amount and timing of the payment and maintains records regarding the payment made;(II)the personal services entity does not hold itself out as a broker;(III)the personal services entity does not engage in any other broker activity, other than the receipt of compensation on behalf of the registered representative;(IV)the representative’s registered broker maintains adequate supervision and control over the registered representative and the personal services entity;(V)the representative’s registered broker and the personal services entity have a written agreement governing their relationship and the responsibilities of each party regarding compensation arrangements;(VI)the personal services entity is only owned by—(aa)the registered representative;(bb)if the registered representative is an individual, immediate family members of the registered representative; or(cc)entities wholly owned by—(AA)the registered representative; or(BB)if the registered representative is an individual, immediate family members of the registered representative;(VII)the personal services entity meets such other requirements as the Commission may prescribe, by rule; and(VIII)the personal services entity, with respect solely to the resolution of disputes with, and recovery by, customers—(aa)agrees in writing—(AA)to submit to the jurisdiction of a dispute resolution forum of the applicable self-regulatory organization solely for the purposes of enforcement of any award rendered against the registered representative arising from the securities business of the registered representative; and(BB)to be bound by any such award to the extent of assets held by the personal services entity; and(bb)remains subject to all financial obligations, liabilities, and remedies of the registered representative under applicable Federal securities laws, the rules of the applicable self-regulatory organization, and the securities laws of any State with respect to such securities business.(ii)

Oversight and examination

In order to ensure that a personal services entity that is not considered a broker by reason of this subparagraph continues to meet the requirements for the exception under this subparagraph, the personal services entity shall maintain, and make available upon request to the Commission and the applicable self-regulatory organization, all books and records in the possession of the personal services entity that—(I)the broker from which the personal services entity receives compensation is required to maintain and make available to the Commission and the applicable self-regulatory organization; and(II)the Commission determines necessary and appropriate to demonstrate that the personal services entity continues to meet the requirements for the exception under this subparagraph.(iii)

Definitions

In this subparagraph:(I)

Applicable self-regulatory organization

With respect to a personal services entity or a registered representative of a broker, the term applicable self-regulatory organization means each self-regulatory organization with which the related broker is required to be registered.(II)

Broker activity

The term broker activity means an activity undertaken by a broker or a dealer who is registered, or required to be registered, under this Act.(III)

Immediate family member

With respect to an individual, the term immediate family member means a spouse, child, parent, brother, sister, grandparent, grandchild, stepparent, stepchild, stepbrother, or stepsister of the individual.(IV)

Personal services entity

The term personal services entity means an entity that is established by a registered representative to receive compensation for the services of the registered representative and for other activity that is not securities-related.(V)

Registered representative

With respect to a broker, the term registered representative means a person who is—(aa)an associated person of a broker or dealer with respect to the broker; and(bb)registered with the applicable self-regulatory organization.

(b)

Effective date

Section 3(a)(4)(G) of the Securities Exchange Act of 1934, as added by subsection (a), shall take effect on the date that is 180 days after the date of the enactment of this Act.