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Are Unregistered Trading Funds And Discretionary Asset Managers Securities Dealers? A Rule Proposal May Treat Them So

Mon 04 Apr, 2022  /  by C. Dirk Peterson   /   Client Alerts


Unregistered trading funds and discretionary asset managers have historically operated in the asset management sector and not as securities dealers subject to the comprehensive broker-dealer regulatory regime of the Securities Exchange Act of 1934 (“Exchange Act”) and rules of self-regulatory organizations (“SROs”). The Securities and Exchange Commission (“SEC” or “Commission”) has proposed rules that, if adopted in their current form, could materially re-shape a portion of the asset management sector by potentially treating unregistered trading funds and some discretionary asset managers as securities or government securities dealers as a result of their trading activity [see Securities Exchange Act Release No. 94524 (March 28, 2022) (“Proposing Release”)].

Last week, the SEC proposed two rules, each of which proposes to define a “regular business” for purposes of the registration requirements of dealers and government securities dealers under the Exchange Act. The Commission acknowledged the proposed rules could extend to private funds (i.e., those organized in reliance on exclusions in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act of 1940 (“1940 Act”)) and to a lesser extent discretionary asset managers (trading for their own accounts and for clients under proposed attribution principles), among others, but was silent as to their application to other unregistered funds. The proposed rules, however, expressly exclude funds registered under the 1940 Act and market participants owning or controlling assets of less than $50 million.  

The Commission’s proposal follows its continued interest in market structure issues and most recently the effects algorithmic and high-frequency trading has on market volatility.


The comment period is open until the later of 30 days from the Federal Register publication date of the Proposing Release or May 27, 2022. We encourage you to contact C. Dirk Peterson at or (202) 659-3905 for more information regarding the regulatory impacts of the Commission’s proposed rules.

For a discussion of the impact of the proposed rules click here [PDF].