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series 65 > Laws and Regulations > Flashcards

Laws and Regulations Flashcards

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Series 65 flashcards
1
Q

Securities Act 1933

A

Full and fair disclosure of new issues through the Prospectus

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2
Q

During the 20 day cooling off period while SEC reviews your IPO prospectus, what are two things you are allowed to do?

A

Tombstone ad: generic notice of sale

Preliminary Prospectus: doesn’t include details like price and number of shares

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3
Q

What are four things included in the Securities Act 1934

A

Regulates the secondary market.

SEC
Credit by FRB
Anti-fraud
Manipulation

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4
Q

Insider Trading Act 1986: is the tipper also responsible?

A

Yes

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5
Q

Insider Trading Act 1986: what’s the civil penalty?

A

$1M or 3X (profits gained or losses avoided), whichever is greater

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6
Q

Insider Trading Act: what’s the Chinese Wall?

A

Can’t tip within the company either

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7
Q

What are the registration requirements and process for B/D (firm)? Ex: alpaca

A

Requirements:
- SEC: must
- State: Office in state OR 1 or more retail clients in that state (institution/issuers don’t count) OR solicit in state (mail)

Process:
- Application (U4 form)
- Filing fees
- Consent to service of process, signed at the time of application
- Admin cleared
- Effective, noon, 30th day of application
- Expires every Dec 31st, and must be renewed

Other requirements:
- Net capital requirements: state can’t require no greater than what SEC requires
- Surety bond: insurance against fraud … needs to be cash or securities
- Successor: if one acquires another, need to refile application but don’t need to repay filing fees
- Books/Records: 3/2

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8
Q

What are the registration requirements and process for Agents? And withdraw process?

A

Requirements:
- Work for B/D and accept, place, or solicit securities for order
- Work for non-exempt issuer (corporations) and sell/solicit securities
- Exclude: sales assistant, interns, work for exempt issuers (US gov, muni)
- Must register in states where you accept, place, or solicit securities for order

Process:
- Application (U4 form)
- Fingerprint (felony conviction over past 10 years or security misdemeanors could be reason for denial)
- Filing fees
- Consent to service of process, signed at the time of application
- Pass the test
- Admin cleared
- Effective, noon, 30th day of application
- Expires every Dec 31st, and must be renewed
- Withdraw (U5): Both agents and B/D have to notify the admin. The new B/D also has to notify the admin.

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9
Q

What are the registration requirements and process for IA (Firm)?

A

If AUM>$110M:
- Register with SEC ONLY
- Still need to pay state filing fees
- State can enforce anti-fraud
- If you drop below $100M AUM, you register with states
- Exclude: private advisor, VC, foreign advisor

If AUM<$100M:
- Register with states only
- Office in state OR more than 5 clients who are residents

Process:
- Application (U4 form)
- Filing fees
- Consent to service of process, signed at the time of application
- Admin cleared
- Effective, noon, 30th day of application
- Expires every Dec 31st, and must be renewed
- Net capital requirements: Must have $10k (if discretionary) and $35k (if firm has custody of customers’ assets)
- Surety bond: insurance against fraud … needs to be cash or securities
- Successor: if one acquires another, need to refile application but don’t need to repay filing fees
- Books/Records: 5/2 (5 years up to end of fiscal year). If IA goes out of business, must maintain records for additional 3 years.
- If falls below min net capital: 1 day to notify, 1 day from notify to plan

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10
Q

What are the registration requirements and process for IAR? And withdraw process?

A

If you work for a Fed-IA:
- Register with any state where you have an office

If you work for a State-IA:
- Register with any state where you have an office OR you have more than 5 clients

Process:
- Application (U4 form)
- Fingerprint (felony conviction over past 10 years or security misdemeanors could be reason for denial)
- Filing fees
- Consent to service of process, signed at the time of application
- Pass the test
- Admin cleared
- Effective, noon, 30th day of application
- Expires every Dec 31st, and must be renewed
- Withdraw (U5): If IA is fed, IAR to admin. If IA is state, firm notifies admin
- * You’re auto registered if you are an officer, director, or partner at an IA. Still have to pass the test, but no need to register.

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11
Q

Who are excluded from the definition of IA?

A

Lawyers
Accountants
Teachers
Engineers

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12
Q

Can banks own a B/D or IA?

A

No, but they can create a holding company

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13
Q

N.S.M.I.A OF 1996

A

Federal and State registrations of B/D and IA

Sounds like a ship name … ships are strict in registration

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14
Q

Are commodities securities

A

No

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15
Q

Are future contracts securities?

A

No

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16
Q

Are life insurance or fixed annuities securities?

A

No

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17
Q

Are variable annuities securities?

A

Yes

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18
Q

Are retirement plans securities?

A

No

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19
Q

Securities Registration Process: state or sec or both? And what are the two state methods called?

A

SEC: must (exception: if the security is issued in only one state)

State:
method 1 (coordination): copy/paste SEC to state. Becomes effective when SEC clears it.

method 2 (qualification): becomes effective when state admin clears it

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20
Q

Do you have to file with the state if you are a fed covered securities and you want to issue new shares?

A

Federally covered securities: means if they issue new shares, they only have to do it with SEC, not state

But still have to pay filing fees with the state

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21
Q

Which 6 security issuers are exempt from registration:

A

US/Canadian governments
Other foreign (only federal)
bank/insurance (exclude variable life/annuity)
non profits / religious
Public utility
Commercial paper if (maturity<270 days and value>$50k)

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22
Q

Are securities offered by banks/insurance companies exempt from registration?

A

Yes

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23
Q

What type of securities from Canada government are exempt from registration?

A

All levels of Canadian government securities

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24
Q

What type of securities from non-US or non-Canada government are exempt from registration?

A

Only federal

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25
Q

What type of commercial paper is exempt from registration?

A

maturity < 270 days and value > $50k

26
Q

You can’t sell unregistered corporate securities unless what?

A
  • Unsolicited
  • Between financial institutions
  • Private placements (accredited investors or institutions)
  • Sheriff/bankruptcy sales (criminal confiscated stuff)
27
Q

Admin’s jurisdiction

A

Originate, Directed, Accepted:

Ex: Agent in Washing talks to a client based in Oregon but currently traveling in CA. While he’s in California, the offer/sales are done. In this case, the sale originates from Washington and is directed in California.

28
Q

Can a state admin subpoena in all states?

A

Yes

29
Q

Can a state admin deny, revoke, or suspend?

A

Yes, if there is a felony conviction or security misdemeanor

30
Q

What is the criminal penalty?

A

Criminal is a crime against the state

3 years in jail or $5000 fine

statue: 5 yrs

31
Q

What is the statue of limitation for civil penalties?

A

Civil is between two private parties

Statue of limitation
3 years from occurrence (when the trade occurred)
2 years from discovery (violation being discovered)
Whichever date occurs first is when that would be the end of the date to take civil action
Ex: occurred at 3/1/11, discovered on 2/1/12, so two dates are 2/1/14 or 3/1/14. 2/1/14 occurs first, so that’s the last date to take civil action.

32
Q

What is right of rescission?

A

Instead of suing us, we can offer customer their principal plus interest back and court cost MINUS any income they already generated (dividends etc).

They have 30 days to respond. If they don’t accept or reject after 30 days, they give up the right to sue.

Think concession

33
Q

For federally covered IAs, you have to submit Form ADV. How many days will it become effective?

A

Effective in 45 days
Withdraw effective in 60 days

34
Q

What are the brochure rules for state advisors?

A

Give the brochure 48 hours prior the advisor contract

Or the customers also have 5 days free look to rescind … to back out of the contract

35
Q

What are the brochure rules for fed advisors?

A

Give the brochure at or prior to contract

36
Q

When must IAs resend the brochure on annual basis?

A

State: only if there are material changes or requested

Federal: 120 days of fiscal year end

37
Q

What is a brochure?

A

Most just use form ADV

38
Q

No Assignment Clause

A

No assignment can be made without the consent

If a minority interest change: must communicate to the client

If a majority interest change: assignment

39
Q

SEC Release IA 1092

A

If you are one of the three, you have to register as an IA:
Financial planners
Sports and entertainment agents
Pension consultants

40
Q

If the firm has partnership changes, you have to

A

notify the customers

If all the partners die and you are the only one left, then there is an ownership change and No Assignment Clause applies

41
Q

IAs can’t charge based on performance except:

A

For individuals with $1M invested and at least $2.1m net worth

Hedge funds

Charges based on a % of net gains in a specific time against the benchmark

42
Q

IAs can receive soft dollar (non financial stuff) as compensation … what’s allowed?

A

Software (analysis tools)
Research (reports)
Seminar fees

43
Q

Is borrowing a conflict between you & customer?

A

Only if it is through normal means, like a bank or B/D

44
Q

Is sharing profits/losses in a customer’s account a conflict?

A

Only if you jointly own it or it’s a family member

45
Q

Is agency cross transaction (you are the b/d between the buyer and seller) a conflict?

A

Allowed: unsolicited on either side and you disclose
Disallowed: solicited

46
Q

What’s considered as custody?

A

If you have partial, full access to customers’ funds and securities

47
Q

What are the capital requirements for BDs and IAs?

A

BD: state can’t ask for more than fed

IA: $10k discretionary, $35k if u have custody.

48
Q

What happens if IA falls below min cap requirement?

A

1 day to notify, 1 day to send plan

49
Q

Which IAs are exempt from registration?

A

No office AND <= 5 retail clients

50
Q

Which BDs are exempt from registration?

A

SEC: intrastate

State: No office AND no retail client

51
Q

Which agents are exempt from registration?

A

Works for exempt issuers

Clerical

52
Q

Which Fed IARs are exempt from registration?

A

No office

53
Q

Which State IARs are exempt from registration?

A

No office AND <=5 retail clients

54
Q

IAs can’t create accounts for which 3 type of people?

A

Minors

Incompetent

Deceased

55
Q

What are 6 that are not securities, under USA?

A

Insurance, endowment, or annuity where you get a fixed amount of money (that doesn’t use the word variable)
Interest in a retirement plan
Collectibles
Commodities including futures/forwards
Condos used as a personal residence
Currency

56
Q

Can agents share commission w/those from other BDs?

A

No

57
Q

Can agents do transactions not on their BD’s books?

A

Not without prior written consent

58
Q

What do IAs need to do to get a client’s custody

A

give notice to state admin

provide balance sheet

send statement every 3 months

59
Q

Can IARs guarantee against loss?

A

No

60
Q

What are the rules for promoters/solicitors?

A

Written agreement unless <$1000 in 12 months payments

Register if gets paid

61
Q

What are prepaid advisory fee rules?

A

include details in contract

if >$500, include in balance sheet

series 65 (6 decks)

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