North Carolina Securities Dealer Bond: A Comprehensive Guide

April 28, 2022

North Carolina Securities Dealer Bond

This guide provides information for insurance agents to help their customers obtain a North Carolina Securities Dealer bond

At a Glance:

  • Average Cost: Between 1% to 7.5% of the bond amount per year based on the applicant’s credit history
  • Bond Amount: Maximum of $100,000 (more on this later)
  • Who Needs it: Certain securities dealers operating in North Carolina
  • Purpose: To ensure the public will receive compensation for financial harm if the dealer violates registration law
  • Who Regulates Securities Brokers in North Carolina: The North Carolina Secretary of State

Background

North Carolina Statute 78A-36 requires all securities dealers operating in the state to register with the Secretary of State. The North Carolina legislature enacted the registration requirement to ensure that securities dealers engage in ethical business practices. To provide financial security for the enforcement of the registration law, certain securities dealers may have to purchase and maintain a surety bond to be eligible for registration.

What is the Purpose of the North Carolina Securities Dealer Bond?

North Carolina requires certain securities dealers to purchase a surety bond as part of the application process to obtain a business registration. The bond ensures that the public will receive compensation for financial harm if the dealer fails to abide by the regulations outlined in North Carolina Statute 78A-56. Specifically, the bond protects the public if the dealer engages in any acts of fraud or breaches any contracts made with consumers. In short, the bond is a type of insurance that protects the public if the securities dealer violates registration law.

North Carolina Securities Dealer Bond Form

North Carolina Securities Dealer Bond Form

How Can an Insurance Agent Obtain a North Carolina Securities Dealer Surety Bond?

BondExchange makes obtaining a North Carolina Securities Dealer bond easy. Simply log in to your account and use our keyword search to find the “dealer” bond in our database. Don’t have a login? Enroll now and let us help you satisfy your customers’ needs. Our friendly underwriting staff is available by phone at (800) 438-1162, email, or chat from 7:30 AM to 7:00 PM EST to assist you.

At BondExchange, our 40 years of experience, leading technology, and access to markets ensures that we have the knowledge and resources to provide your clients with fast and friendly service whether obtaining quotes or issuing bonds.

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How is the Bond Amount Determined?

North Carolina Statute 78A-37 grants the Secretary of State the authority to set the required bond amount on a case by case basis. However, the bond amount may not be greater than $100,000. When determining the bond amount, the Secretary of State will examine factors such as the dealer’s experience and total net capital.

Is a Credit Check Required for the North Carolina Securities Dealer Bond?

Surety companies will run a credit check on the dealer to determine eligibility and pricing for the North Carolina Securities Dealer bond. Dealers with excellent credit and work experience can expect to receive the best rates. Dealers with poor credit may be declined by some surety companies or pay higher rates. The credit check is a “soft hit”, meaning that the credit check will not affect the dealer’s credit.

How Much Does the North Carolina Securities Dealer Bond Cost?

The North Carolina Securities Dealer bond can cost anywhere between 1% to 7.5% of the bond amount per year. Insurance companies determine the rate based on several factors including your customer’s credit score and experience. The chart below offers a quick reference for the bond cost on a $100,000 bond requirement.

$100,000 Securities Dealer Bond Cost

Credit Score Bond Cost (1 year)
680+ $1,000
625 – 679 $1,500
575 – 624 $3,750
550 – 574 $5,000
500 – 549 $7,500

Who is Required to Purchase the Bond?

The North Carolina Secretary of State will determine whether or not a securities dealer needs a surety bond after examining their registration application. Dealers that present a high risk to consumers, i.e. limited professional experience and net capital, will be required to purchase a bond as a prerequisite to obtaining their registration. Dealers with a net capital of at least $100,000 are exempt from the bonding requirement.

North Carolina Statute 78A-2 defines a securities dealer as a person that is “engaged in the business of effecting transactions in securities for the account of others or for his own account.”

Exemptions to this definition include:

  • Securities salespersons
  • Banks, savings institutions, and trust companies
  • Issuers (in certain situations)
  • Business brokers
  • Individuals representing issuers

How do Securities Dealers Apply for a Registration in North Carolina?

Securities dealers in North Carolina must navigate several steps to obtain a registration. Below are the general guidelines, but applicants should refer to the Secretary of State’s registration page for details on the process.

Registration Period – All North Carolina Securities Dealer Registrations expire on December 31 of each year and must be renewed before the expiration date

Step 1 – File Form BD

Securities dealers are required to file Form BD electronically through the Central Registration Depository (CRD) system as well as mail a signed and notarized hard copy of the form to the following address:

Regulatory Review and Disclosure Department
9509 Key West Avenue
Rockville, MD 20850

Dealers must pay a $300 filing fee when submitting their forms through the CRD system.

Step 2 – Purchase a Surety Bond

The Secretary of State will inform the dealer if they need to purchase a surety bond, as well as the required amount, after reviewing the dealer’s registration application (Form BD)

How Do North Carolina Securities Dealers Renew Their Registrations?

Prior to December 31 of each year, securities dealers will receive a renewal notice containing instructions on how to renew their registrations.

What are the Insurance Requirements for Securities Dealers in North Carolina?

North Carolina does not require securities dealers to purchase any form of liability insurance as a prerequisite to obtaining a business registration. Certain dealers may need to purchase a surety bond at the discretion of the Secretary of State.

How Do North Carolina Securities Dealers File Their Bonds?

Securities dealers should mail their completed bond forms, including the power of attorney, to the following address:

NC Department of the Secretary of State
Securities Division
Post Office Box 29622
Raleigh, North Carolina 27626-0622

The surety bond requires signatures from both the surety company that issues the bond and from the dealer. The surety company should include the following information on the bond form:

  • Legal name and address of entity/individual(s) buying the bond
  • Surety company’s name and address
  • Name and address of the entity requiring the bond
  • Bond amount
  • Date the bond is signed

What Can North Carolina Securities Dealers Do to Avoid Claims Against Their Bonds?

To avoid claims on their bonds, securities dealers in North Carolina must follow all registration regulations in the state, including some of the most important issues below that tend to cause claims:

  • Do not engage in any acts of fraud or misrepresentation
  • Do not breach any contracts made with consumers

What Other Insurance Products Can Agents Offer Securities Dealers in North Carolina?

North Carolina does not require securities dealers to purchase any form of liability insurance as a prerequisite to obtaining a business registration. However, some dealers may obtain this insurance anyway. Bonds are our only business at BondExchange, so we do not issue any other types of insurance, but our agents often utilize brokers for this specific line of business. A list of brokers in this space can be found here.

How Can Insurance Agents Prospect for North Carolina Securities Dealer Customers?

North Carolina provides the public with the means of checking individual dealers’ registrations. To obtain a full list of all securities dealers in North Carolina, we suggest contacting the Secretary of State directly. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.

2022-06-06T18:18:01-04:00