Under what circumstance is a broker-dealer required to post a surety bond?

A broker-dealer is required to post a surety bond primarily when they have discretionary authority over client accounts or hold client funds and securities in custody. This requirement exists to provide a financial guarantee that the broker-dealer will adhere to regulatory standards and protect clients' assets against potential fraud or mismanagement.

Discretionary authority allows the broker-dealer to make investment decisions on behalf of the client, which can pose higher risks. Similarly, having custody means the firm has access to client funds or securities, leading to a greater fiduciary responsibility. The surety bond acts as a safeguard for clients in these situations, ensuring that there is a source of financial recovery in case of any wrongdoing.

In contrast, having a branch office does not inherently require a bond, as this is more of an operational aspect rather than a risk factor associated with client assets. Dealing exclusively with accredited investors does not impose additional risks that would necessitate a bond, as these investors are generally presumed to be more sophisticated and capable of understanding and managing investment risks. Regulation by multiple states also does not mandate a surety bond unless the broker-dealer holds discretionary authority or has custody of funds. Thus, the requirement to post a surety bond is closely tied to the level of authority