Broker Dealer Selling Agreement Template for England and Wales
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What is a Broker Dealer Selling Agreement?
A broker-dealer selling agreement appoints and governs a broker-dealer's role in distributing securities or investment products in England and Wales. It defines the scope of the distribution, selling restrictions, compensation structure, compliance representations, and liability allocation. Because distribution of regulated products requires FCA authorisation, the agreement must be drafted to reflect both the regulatory framework and the commercial terms agreed between the issuer and the distributing firm.
Frequently Asked Questions
What is a broker-dealer selling agreement used for?
It authorises and governs a broker-dealer's distribution of securities, fund units, or other investment products on behalf of an issuer or fund manager. It sets out the broker-dealer's appointment, permitted selling activities, compensation, compliance obligations, and liability for mis-selling.
What FCA permissions are needed to sell securities under this agreement?
The broker-dealer typically needs permission to arrange or deal in investments, and to communicate financial promotions. The specific permissions depend on the product type. The selling agreement should include a representation from the broker-dealer that it holds and will maintain all required FCA permissions.
Who is liable if a broker-dealer mis-sells an investment product?
The broker-dealer bears primary responsibility to the investor for the suitability of any advice given. The issuer or distributor may also face liability if the product information was defective. The selling agreement typically includes indemnity provisions allocating these risks between the parties.
What restrictions apply to selling activity under this agreement?
Typical restrictions include geographic limits (e.g. no US persons unless SEC-registered), restrictions on who the product may be sold to (retail vs professional clients), and lock-up obligations preventing onward sale of distributed securities. Breach of these restrictions can expose the broker-dealer to significant regulatory risk.
How is the broker-dealer's compensation structured in a selling agreement?
Compensation is usually a selling commission expressed as a percentage of the aggregate value of securities distributed. The agreement should specify when the fee is earned, how it is calculated, whether trail commissions apply, and the FCA disclosure obligations that attach to such remuneration.
What happens if the offering is withdrawn before closing?
The agreement should address liability if the issuer withdraws the offering after the broker-dealer has incurred distribution costs. Provisions for reimbursement of expenses and any break fee protect the broker-dealer from bearing the full cost of an aborted transaction.
Are there restrictions on communications with potential investors?
Yes. Financial promotions must be fair, clear, and not misleading under COBS 4. The selling agreement typically requires the broker-dealer to use only FCA-approved or issuer-approved marketing materials and to comply with any territorial restrictions on who the promotion may be made to.
How should the selling agreement address stabilisation?
If price stabilisation is permitted following the offering, the agreement must comply with the stabilisation rules in UK MAR and the FCA's Price Stabilising Rules. The manager must be clearly appointed, the stabilisation period defined, and public disclosure obligations addressed.
About the Broker Dealer Selling Agreement
A Broker Dealer Selling Agreement is a critical legal contract that governs the relationship between a registered broker-dealer and a selling firm or registered representative in the securities industry. Under United States federal securities law, this agreement establishes the framework for distributing securities and investment products while ensuring compliance with stringent regulatory requirements. The document serves as your roadmap for navigating the complex web of securities regulations while maintaining a profitable and compliant business relationship.
When do you need this document?
You need a Broker Dealer Selling Agreement when establishing any distribution arrangement for securities or investment products. This includes situations where a broker-dealer wants to expand its sales force through independent contractors, when forming partnerships with other financial firms for product distribution, or when registered representatives are transitioning between firms. The agreement is also essential when launching new investment products that require specialized sales expertise or when entering new geographic markets through established local selling firms. Additionally, you'll need this document to formalize relationships with third-party marketers who will be selling your securities products to retail or institutional clients.
Key legal considerations
The agreement must clearly define the scope of authority granted to the selling firm, including specific products they can sell and territorial limitations. Compensation structures require careful drafting to ensure compliance with FINRA rules on reasonable compensation and to avoid conflicts of interest. You must include robust compliance provisions that address supervision requirements, training obligations, and adherence to suitability standards under FINRA Rule 2111. The document should specify anti-money laundering responsibilities under the Bank Secrecy Act and customer identification requirements mandated by the USA PATRIOT Act. Termination clauses must protect both parties while ensuring continued compliance with ongoing regulatory obligations, including customer account transfers and record retention requirements.
Legal requirements in United States
Under the Securities Exchange Act of 1934, all parties must maintain proper registration with the SEC and comply with net capital requirements. The agreement must ensure that selling firms and their representatives are properly licensed through FINRA and hold appropriate state registrations. FINRA Rules 3110 and 3120 mandate specific supervisory procedures that must be incorporated into the agreement's compliance framework. The document must address books and records requirements under FINRA Rule 4511, including how customer information and transaction records will be maintained and shared between parties. State blue sky laws may impose additional registration or notice filing requirements that must be addressed in the agreement's operational provisions. The contract should also specify how both parties will comply with ongoing continuing education requirements and regulatory examinations.
GOVERNING LAW
Applicable law
This Broker Dealer Selling Agreement is drafted to comply with England and Wales law. Key legislation includes:
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