Securities Industry

Working in the securities industry as a broker-dealer is regulated by the Financial Industry Regulatory Authority (FINRA) and deals with unique issues in employment law and other laws. If you become a licensed, registered representative of a brokerage firm, your brokerage firm will be required to register you with FINRA. This is done by filing a Uniform Application for Securities Industry Registration or Transfer (Form U-4) when you are hired as an employee or independent contractor. Even certain non-licensed personnel have registration requirements. You will be required to undergo a background check. You will also sign a contract with your brokerage firm, it will most likely include restrictive covenants, such as non-competition, non-solicitation, and non-disclosure clauses. The agreement will also require you to arbitrate all disputes between you and your brokerage firm before FINRA, rather than in court. 

As a licensed, registered representative, you will typically work on a commission basis. Your brokerage firms often will offer different incentives to you. For instance, brokerage firms sometimes offer an advance on commission in the form of a promissory note (also called an “up-front forgivable loan,” or UFL) that is forgiven over the time of your registration with them. When you leave a brokerage firm, the brokerage firm will file a Uniform Termination Notice for Securities Industry Registration (Form U-5) with FINRA, which will include a reason for your termination that will stay on file for your entire career. 

All federal, New York State and municipal anti-discrimination laws (i.e., laws that do not allow discrimination on the basis of race, sex, ethnic/national origin, age, disability, sexual orientation) and sexual harassment laws, also apply to the securities industry. If you are a broker and your dispute involves an issue of employment discrimination, including sexual harassment, the dispute is not required to be arbitrated unless the parties agreed to arbitrate it, either before or after the issue arose. 

In addition, there are some issues that are unique to the securities industry: 

  • Your agreement with the brokerage firm probably includes a section requiring that “any and all” claims against your employer be taken to arbitration with FINRA instead of in court. However, depending on how the arbitration section is written, it may or may not be enforceable if you are claiming that your brokerage firm violated a federal, state, or municipal anti-discrimination law; 
  • If you received a UFL but were fired or left your job before it was completely forgiven, you may have to pay all or part of the remaining principal and your brokerage firm can sue you to collect it; 
  • If you are fired or you leave your job, the reason for termination that your brokerage firm gives in a form U-5 may be a lie or defamatory, which could make it hard for you to find a new job in the securities industry. You may be able to get false information removed from your record and you may also have a defamation case against the brokerage firm; 
  • As a commissioned person, New York law that covers unpaid sales commissions applies to you. However, any claim you have to collect non-payment, under-payment of commission, or for unlawful deductions from your commissions is subject to the arbitration clause in your agreement with the brokerage firm; 
  • If you are a broker who makes buying and selling decisions for clients, you are probably exempt from Fair Labor Standards Act (FLSA) overtime provisions. But if you only execute the wishes of clients, you may be non-exempt for purposes of overtime under FLSA. 

Legal Editor: Jenice L. Malecki, January 2015 (updated December 2018)

Changes may occur in this area of law. The information provided is brought to you as a public service with the help and assistance of volunteer legal editors, and is intended to help you better understand the law in general. It is not intended to be legal advice regarding your particular problem or to substitute for the advice of a lawyer.

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