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Securities Compliance Sentinel Analysis of cutting-edge securities industry issues

Section 15(a) Registration And Foreign Transactions

Posted in SEC Compliance

A magistrate judge in the Northern District of Illinois recently ruled that Section 15(a) of the Exchange Act does not apply extraterritorially even if a foreign transaction was facilitated by a broker-dealer in the United States.  In the case, unregistered broker-dealers conducted a foreign stock transaction on a foreign exchange from the United States.  The SEC brought proceedings against the unregistered brokers-dealers and argued that Section 15(a) applies to any person who facilitates a stock transaction in the United States.  The broker-dealers argued that Section 15(a) and Section 10(b) have the same regulatory purpose, and whether a transaction is subject to Section 10(b) depends on whether it was domestic or foreign.  The Court agreed with the broker-dealers and noted that Section 15(a)’s title reveals a focus on national domestic exchanges.  The Court dismissed the SEC’s complaint.

The SEC may be surprised by the Court’s decision.  If the decision is not overturned on appeal, and other Courts throughout the country take a similar approach, it could lead to unregistered and unregulated broker-dealers conducting transactions from within the United States.