Recent SEC Action Reminds Non-US Broker-Dealers of Obligations under U.S. Securities Laws
Compliance with U.S. securities laws is not optional for non-U.S. entities.
In September 2019, the Securities and Exchange Commission ("SEC") charged a non-U.S. financial services firm for providing brokerage services to investors in the United States without being registered as a broker-dealer or acting pursuant to an exemption from registration.
In In the Matter of Outset Global LLP, the SEC found that Outset Global LLP ("Outset Global"), a UK-based broker-dealer, solicited and provided brokerage services to institutional investors located in the United States without registering as a broker-dealer under the Securities Exchange Act of 1934, or meeting the conditions for an exemption from registration for foreign broker-dealers under Exchange Act Rule 15a-6. Specifically, the SEC found that between 2014 and 2016, Outset Global employees used U.S. jurisdictional means to contact U.S. institutional investors and potential firm clients by email, telephone, and in-person visits in the United States to solicit business.
The SEC found that as a result of these activities, Outset Global "engaged in an ongoing securities business relationship with at least 35 U.S. institutional investors," buying and selling securities on their behalf. Outset Global agreed to pay disgorgement of $135,000, prejudgment interest of $22,409, and a $50,000 penalty.
The SEC's charges against Outset Global serve as a reminder to non-U.S. entities seeking to conduct a brokerage business in the United States or with U.S. investors (including identifiable groups of U.S. citizens residing abroad), that compliance with U.S. securities laws and regulations is not optional. The U.S. securities laws apply even if the brokerage services are provided by an entity located outside the United States to existing clients that have permanently relocated to the United States. Similarly, the U.S. securities laws apply where brokerage services are provided by an entity located within the United States to customers located outside the United States.
Non-U.S. broker-dealers can often rely on the exemption from registration under Rule 15a-6, but must adhere to the various requirements under that Rule. For example, provided the firm complies with the conditions of Rule 15a-6 and related SEC guidance (which we have not attempted to summarize here), a non-U.S. broker-dealer generally can:
- Effect unsolicited securities transactions;
- Provide research to major U.S. institutional investors (i.e., an entity with $100 million in aggregate assets) and effect transactions in those securities with or for the investors;
- Solicit and effect transactions with or for U.S. institutional investors or major U.S. institutional investors pursuant to a "chaperoning" arrangement with a registered broker-dealer; and
- Solicit and effect transactions with or for certain classes of investors, including broker-dealers, banks acting in a broker-dealer capacity, foreign persons temporarily in the U.S., and certain international organizations.
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