What is a Blue Sky Bond?
Before we answer this question, it’s important to understand what blue sky laws are. “Blue sky law” is an umbrella term for legislation in a number of states intended to protect the public from fraud related to investment and the purchase of securities. These laws have varying provisions, but a blue sky bond requirement is usually included in them.
Blue sky bonds are a type of surety bond protection. Claims can be made against them in cases where a securities dealer is engaged in the sale of false securities, or uses other fraudulent business practices. If a claim is proven, the bond offers compensation for the claimants.
Blue sky bonds shouldn’t be confused with investment advisor surety bonds, which are designed to protect consumers if an investment advisor violates applicable rules and regulations in their state. Instead, blue sky bonds can be considered a subcategory of investment advisor bonds.
You can begin your online applicationand get a free bond quote now, or continue reading for commonly-asked questions about blue sky bonds.
Questions about Blue Sky Bond
How much does a blue sky bond cost?
Each state determines the amount of the blue sky bond required. This amount is the maximum coverage claimants can receive if they file a claim. For example, if the total value of the bond is $35,000– as is the case in North Carolina– this means one claimant can receive up to $35,000 in compensation, or multiple claimants can receive smaller amounts not exceeding $35,000.
Securities dealers pay only a percentage of the total, called a premium, to get bonded. It’s normally between 1% and 4% of the bond amount for applicants with good credit. Personal credit score is the most important cost determining factor. However, the information in your credit report can be a key factor. Things like tax liens or civil judgments can negatively affect your premium, while strong financial statements can result in a lower premium.
For more information, consult our What Does a Surety Bond Cost? Page.
Can I get a blue sky bond with bad credit?
Surety bonds are primarily in place to ensure that securities dealers are trustworthy, which means a bad credit score makes it harder for you to get bonded. The main reason for this is that surety bond companies take it as a way to measure the likelihood that an applicant will trigger and/or make good on a claim.
Since bond underwriters are legally and financially responsible for your claims, they adjust for the risk they undertake when signing bad credit surety bonds by asking for higher premiums. Even so, premiums rarely exceed 15%.
How do I become a securities dealer?
The U.S. Securities and Exchange Commission (SEC) has a number of requirements before you can register as a broker or a dealer of securities.
You first need to determine whether you will be classified as a “dealer” or a “broker,” and join a self-regulating organization (SRO) and the Securities Investor Protection Corporation (SIPC). You will have to complete a separate registration for each state you want to do business in, and comply with their specific requirements, which may often include posting a blue sky bond. If all of the states you will be registering with require a blue sky bond, you will need to to obtain a separate one for each of them.
There are a number of other requirements which you must fulfill before you file your Form BD, also known as Uniform Application for Broker-Dealer Registration.
How do I apply for a blue sky bond?
The application process is easy. Lance Surety Bonds offers a secure online application, through which you can get a free bond quote almost instantly.
Our experienced agents will make sure you understand the application process and everything you need to do to complete it. As an industry standard you will have to sign an indemnity agreement with the surety bonds company. After you submit your application and pay for your bond quote, we’ll make sure to issue your bond as fast as possible, normally within 1-2 business days.
If you have any questions regarding blue sky bonds or your application, feel free to contact us at (877) 514-5146.
What happens in case of a bond claim?
A bond claim can be made against a securities dealer who is not adhering to federal and state regulations, or engages in the sale of worthless securities.
If you are facing a bond claim and you have violated the bond agreement, it is best to settle the claim out of court. A bond claim is usually much more expensive and time-consuming than a settlement, and severely reduces the chances of getting bonded again.
If you believe that you haven’t done anything wrong, you can contact your bond underwriter and ask them for advice on how to proceed. Bonding companies can help with legal assistance in court if they believe you have a strong case. This is why it’s important to have impeccable documentation, showing your communication and dealings with the claimant.