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SEC Reverses 15-Year-Old No-Action Letter Regarding Broker-Dealer Registration

The SEC has reconsidered a nearly 15-year-old no-action position with regard to certain financial services offered without registration as a broker-dealer (Dominion Resources, Inc., SEC No-Action Letters Ind. & Summaries (WSB) #0313200016 (March 7, 2000)). The Division of Market Regulation granted the no-action position to Dominion in 1985 without discussion in connection with Dominion's proposal to assist a limited number of corporate and government issuers in structuring and issuing taxable and tax-exempt securities transactions.

Dominion planned to analyze the financial needs of an issuer and to recommend or design financing methods and securities to fit the issuer's needs, according to its 1985 no-action letter. Dominion also planned to recommend a bond lawyer, underwriters or broker-dealers for the distribution or marketing of the issuer's securities in the secondary market and to participate in negotiations.

Dominion explained that it would introduce issuers to commercial banks who would act as initial purchasers of securities and as standby purchasers if the securities could not be readily marketable by a broker-dealer. It would also recommend financial institutions to provide letters of credit or other credit support for the securities. Dominion advised at the time that its only contact with potential purchasers would be the possible introduction of an issuer to a commercial bank as a standby purchaser.

Under its proposal, Dominion would receive a negotiated fee payable only once the financing closed. The fee would not be based on the successful issuance of securities.

In its reconsideration, the staff noted that it has frequently considered the question of when a person is a broker that must register under the 1934 Act and when a person is merely a "finder" that is not subject to registration. Since its 1985 no-action letter, the staff cited technological advances such as the Internet, and other developments in the securities markets that have brought more parties within the realm of securities-related services.

The staff referred to a number of no-action letter requests that have been denied in situations similar to that described by Dominion in the 1985 letter. The staff has ceased to believe that an entity conducting the activities described in Dominion's letter would not have to register as a broker-dealer. When the staff contacted Dominion to notify the company that it no longer could rely on the 1985 no-action letter, Dominion advised that it was no longer engaged in the activities described in the 1985 letter.

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