Section 3(a)(5) of the Securities Exchange Act of 1934 defines the term “dealer” to mean “any person engaged in the business of buying and selling securities . . . for such person’s own account through a broker or otherwise,” but excludes “a person that buys or sells securities . . . for such person’s own account, either individually or in a fiduciary capacity, but not as a part of a regular business.”  In February of this year, the Securities and Exchange Commission adopted a new rule, Rule 3a5-4, to define the phrase "as a part of a regular business" for purposes of Section 3(a)(5)(B).  This is commonly referred to as the "trader exemption".  

The California Corporate Securities Law of 1968 combines the concepts of "broker" and "dealer" and requires registration of "broker-dealers".  Cal. Corp. Code § 25210.  The definition of "broker-dealer" also exempts traders in language similar to Section 3(a)(5).   Interestingly, there appears to be no reported California decisions interpreting or applying the phrase.  However, in a 1975 newsletter, the Commissioner reportedly remarked on the difficulty of drawing a line between those who trade as part of a "regular business" and those who trade for their own account.  Dept. Corp. , Corporate Securities Newsletter No. 18 (July 1975).  

Does the SEC's rulemaking change California law with respect to who qualifies for the trader exemption?   While Rule 3a5-4 does not interpret or purport to interpret the California statute, courts may be influenced by the SEC's position given the similar terminology of the federal and California statutes.  The Department of Financial Protection & Innovation, however, could not adopt the SEC's rule or attempt to apply it generally without completing the formal rulemaking requirements of the California Administrative Procedure Act.  

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