63 Flashcards
(576 cards)
1
Q
Who must sign a Consent of Service (by the consent to service of process, been appointed as “attorney in fact”)
A
Usually, all persons must sign a consent to service of process,
1.6.2 A consent to service is a formal legal agreement whereby a registrant will be bound by a legal action or subpoena served on the Administrator as if it had been served on the registrant. A consent to service is not an authorization to issue an injunction.
Usually, all persons must sign a consent to service of process, which means that legal papers, such as subpoenas, meant to be served to a registered person, may be served to an Administrator, and will have the same legal force as if served to the individual or company in person. In essence, the Administrator has legally been given power of attorney to receive NON-CRIMINAL grievances on behalf of a registered person by the consent to service of process.
2
Q
injunction
A
A court order that prevents somebody from doing something specific. An injunction is used by a court when monetary restitution isn’t sufficient to remedy the harm. For example, if someone wrecks your car, it’s easy to put a monetary damage amount on that. But if someone is threatening to sell a video of you in a compromising situation, it’s more important to stop the video from getting out than to quantify the damages.
Temporary injunctions are commonly used when a legal issue hasn’t been decided yet. For example, let’s say a married couple owns a baseball team. That couple is going through a divorce and there is a dispute as to who owns and controls the team. If the husband tried to move the team to another city, the wife would be able to get a temporary injunction to prevent the move until the court decided the ownership issue.
3
Q
Understand diff between exempt transactions (Non-issuer transactions, Non-issuer unsolicited) vs exempt securities (Legitimate foreign governments, Banks and depository institutions, Insurance, Govt securities)
A
2.3.2 Remember, an exempt transaction is a verb—there is an “action” taking place, while an exempt security is a noun.
4
Q
exempt transactions: Isolated Non-Issuer Transactions
A
“isolated” means on a local basis but it is specifically non-recurring.
For example: An individual brought stock certificates for PDQ stock to Idaho when he moved from Tennessee. The stock is not registered in Idaho, but he may sell it to his neighbor and the transaction is exempt because the individual is not the issuer and the transaction is “isolated”.
5
Q
exempt transactions: Unsolicited Transactions
A
These transactions may be effected by, or through, a broker-dealer but are only exempt if they are truly unsolicited. The broker-dealer may be required by the Administrator to provide proof - a statement by the customer, for example - demonstrating the nature of the transaction.
6
Q
exempt transactions: Fiduciary Transactions. A transaction by an administrator of an Estate.
A
These include sales by executors, Administrators of Estate, trustees, receivers, etc. For example, if an executor of an estate liquidates securities of a deceased person in accordance with the person’s will, it is an exempt transaction.
7
Q
exempt transactions: Transactions with Financial Institutions
A
This includes sales to banks, savings institutions, and insurance companies. This exemption goes back to the ideas discussed earlier. The Uniform Securities Act does not place as much emphasis on the protection of institutions as it does for individual investors.
8
Q
exempt transactions: Private Placement Transactions
A
Private placements, as the name implies, are not “public” offerings and are not examined as closely by the SEC as a public offering. A private placement may be made to an unlimited number of accredited investors. However, If a private placement offering is to be exempt from registration under the Uniform Securities Act, there are additional requirements.relating to offers to non accredited investors. Any offer to non accredited investors must follow these guidlines:
No more than 10 offers may be made in a twelve-month period to non accredited investors. No commissions may be paid, directly or indirectly. The purchase is for the purpose of investment and not resale.
9
Q
who is the burden of proving the exempt transactions?
Also can administrator deny or revoke exemption?
A
In all cases where an exemption for a security or a transaction is claimed, the burden of proof is on the person requesting the exemption.
The Administrator may, as the USA states, “…by order deny or revoke an exemption …” and specifies the transaction exemptions for institutions and private placements. In other words, the Administrator has the power to require that the party claiming an exemption demonstrate proof.
10
Q
How many private placement offers may be made to an
accredited investors or institutions?
A
unlimited accredited investors or institutions
11
Q
exempt transactions: Private Placement Transactions for non accredited investors.
A
exempt transactions: Private Placement Transactions for non accredited investors.
No more than 10 offers may be made in a twelve-month period. No commissions may be paid, directly or indirectly. The purchase is for the purpose of investment and not resale.
12
Q
exempt transactions: the sale of securities to a closed-end investment company.
A
exempt transactions: the sale of securities to a closed-end investment company.
13
Q
Definition of ‘Closed-End Management Company’
A
In a closed end investment company you have to buy shares from other investors based on demand.
Open end = buy from investment manager
An investment-management company that sells a limited number of shares to investors on an exchange by way of an initial public offering. For investors to sell the shares they purchased from the closed-end management company, there must be buyers willing to buy the shares at a price determined by the market. The most common type of closed-end management company is a closed-end mutual fund.
Investopedia explains ‘Closed-End Management Company’
Closed-end management companies are not required to repurchase the shares that they have sold to investors. Investors in these types of funds sell their own shares at the market price of the security, even if that price is significantly below the net asset value of the portfolio that their shares represent. It is common for the price of closed-end funds to be above or below the actual NAV.
14
Q
2.3.2 pre-organization certificate definition and what it needs to be an exempt transaction.
A
A company planing to incorporate (register) but need to show minimum funding offers these certificates to gauge interest.
To be exempt:
There may be no more than ten subscribers.
No payment may be made by any subscriber.
No commission may be paid to anyone for soliciting potential subscribers.
A pre-organization subscription may be advertised.
15
Q
3.1.1.3 yes or no. The following are considered a sale.
A gift of assessable stock?
A security given as a bonus for purchasing a bong?
A
A gift of an assessable stock. (may require payment made by recipient)
A security given as a bonus for purchasing a bond. (given as bonus because of sale of another security)
16
Q
Define Assessable Stock
A
Assessable Stock: A class of stock in which the issuing company is allowed to impose levies on stockholders for more funds. In the past, there was no restriction on how much additional money a company could demand or on how often a company could impose a levy on its stocks.
These are the opposite of non-assessable stocks.
Investopedia explains ‘Assessable Stock’
Before the twentieth century, assessable stocks were the prevalent type of equity that companies would issue. In order to entice investors into buying this potentially expensive stock, issuers would initially sell the stock at a discount.
For example, an assessable stock has an initial capitalization of $20, but the issuer would sell the stock with a 75% discount ($5). Naturally, seeing how the issuer only received a small fraction of the capitalization, companies would almost always come back to investors for more money. In some cases, companies would eventually take more money than the value of the stock.
However, because all stocks issued today are non-assessable stocks, investors should not have to worry about a company making demands for more money.
17
Q
Non-Assessable Stock?
A
Non-Assessable Stock: A class of stock in which the issuing company is not allowed to impose levies on its shareholders for additional funds for further investment. Non-assessable stocks typically have the words “fully paid and non-assessable” printed on the stock certificate.
Investopedia explains ‘Non-Assessable Stock’
Assessable stocks proved unpopular, and most companies switched over to issuing non-assessable stock in the early 1900s . Although equity was no longer sold at a discount compared to its share price, investors were more confident about buying non-assessable stocks because they no longer had to worry about the possibility that the issuer would force them to make more investments after the initial transaction.
18
Q
1.3.3 An investment adviser would be exempt from registration in a state if?
A
has no place of business if he: had no more than 5 retail clients in that state within the past 12 months.
19
Q
True/False: Options on foreign currencies are considered to be securities under the USA.
A
True: Options on foreign currencies are considered to be securities under the USA.
Options, regardless of the underlying asset, are considered securities under the USA.
Therefore, Joan engaged in a securities transaction by purchasing call options on the Swiss franc. While there is no prohibition against American investors trading in foreign currency options or futures under the USA, acquiring the currency itself, rather than the option, would not have involved a securities transaction; currency is not a security.
20
Q
If A broker/dealer is registered in all 50 states. Regarding maintaining of books and records. He only needs to satisfy:
A
1.6.4.1.1 If A broker/dealer is registered in all 50 states. Regarding maintaining of books and records. He only needs to satisfy SEC requirements.
Administrators are prohibited from setting financial requirements in excess of those required by the SEC. In virtually every question like this, the SEC “rules”.
21
Q
1.6.5 TRUE / FALSE An agent’s registration is considered effective when approval has been granted by the Administrator.
A
TRUE
Although the Administrator doesn’t approve much, it is correct to state that an agent’s registration is not effective until approved by the Administrator.
22
Q
- 3.2.1 An Administrator has the powers: 1: To seek court orders for the payment of restitution against any violators of the act.
2: Administrator may issue cease and desist orders to stop persons from violating the act, with or without a prior hearing, as long as notice is given that a hearing will be granted upon written request within 60 days.
A
Administrator may apply to a court for a temporary or permanent injunction, restitution to investors, or to have the court appoint a receiver for a violator’s assets; or refer charges to the state attorney general or district attorney for prosecution.
The Administrator does not have the power to invoke criminal penalties (three years in jail and/or a $5,000 fine under the Uniform Securities Act); that power is reserved for the courts.
23
Q
RE NEWSPAPERS jurisdiction:
A
An Administrator has NO jurisdiction over an offer to sell securities if it is made in a newspaper published out of state.
The Administrator has jurisdiction if the paper is published in his state EXCEPT where two-thirds or more of the paper’s circulation is out of that state.
If a paper is published out of state, under no circumstances does the admin have jurisdiction over the offer.
24
Q
Bona fide definition:
A
Bona fide: in good faith. and thus sincere or honest. authentic or genuine. A notarized contract is considered to be a bona fide contract.
25
Enjoined: definition
exam may say that the registrant has "been enjoined",
which means (prohibited) that an injunction has been ordered.
26
Can provision of USA be waived, even in writing?
4.2.23 provisions of the Uniform Securities Act cannot be waived. Even if in writing.
27
An agent's license could be revoked if he were any of these:
convicted of a securities-related misdemeanor. (in 10 years)
declared insolvent or in a state of bankruptcy
convicted of a Any felony. (in 10 years)
another Administrator already denied registration, or another suspension or revocation order is already in effect;
court order exists barring the registrant from working in the securities industry
the Administrator deems that the registrant is not qualified for the type of business he/she intends to pursue. However, an Administrator cannot suspend registration if the registrant can materially prove he/she is qualified.
28
1.3.3 If you live in Connecticut and work in NY, where you have a location and give investment advise. Where must you register?
Must Register in NY weather customer live there or not. Because of location
29
4.2.25.4 two requirements that must be met in order for an AGENT to share in the profits and losses in a client's account.
The client must give written permission and the sharing must be approved by the employing broker/dealer.
30
are IARs investment adviser representatives allowed to share in client accounts.
NO, IAR are not allowed to share clients accounts.
31
1.2.1.2.1 Whether is it bonding (surety bond), recordkeeping, or net capital requirements, can the Administrator ever impose a requirement greater than that of the SEC. SEC usually correct answer.
Administrator can NEVER impose a requirement greater than that of the SEC. SEC usually correct answer.
32
exempt from registration: With the exception of Canada, no foreign securities, other than those issued or guaranteed by the sovereign government, are exempt securities.
securities issued by govts that the USA has a diplomatic relationship with are exempt.
If a canadian is visiting the USA a canadian agent can contact canadian for security sale.
33
If you are a BD and charging for advice then you must register as a IA.
Also
Also if your firm is a issuer and you are the agent for the customer Must disclose to customer.
If you are a bd charging a "Wrap Fee" then must must register as IA because wrap fee is a combined for all services fee.
Also
If the sale is a cross sale, must disclose and can not have solicited both customers.
34
when can a non Federal covered security that is unregistered be sold?
If the transaction is exempt. To banketc.
EXAMPLE: Selling unregistered, nonexempt securities that are not federal covered securities in transactions that are exempt.
35
Nonissuer Transaction
A tranasction not directly or indirectly executed for the benefit of the issuer. Nonissuer transactions refer to any disposition of a security that does not confer a benefit to the issuer (company).
Investopedia explains 'Nonissuer Transaction'
Isolated nonissuer transactions are exempt from registration requirements of the SEC. For instance, if Joe sells a hundred of XYZ to his brother, this nonissuer transaction is exempt from registration requirements.
36
is a Transactions between issuers and underwriters exempt?
YES
37
of subscribers max for a pre-organization certificates transaction to be exempt.
As long as there are no more than 10 subscribers to pre-organization certificates, the transaction is exempt.
38
When can an agent do business in a state he is not registered?
if an existing client is visiting in that state or if an existing client has moved to the state within the 60 days. (pending registration). Cant solicit new customers.
39
True/False If a client moved to another state less then 60 days, an agent may transact business. BD must be register in state.
True
40
1.2.1.1.1 there are certain cases when a person in the business of effecting securities transactions for itself or its clients is not considered to be a broker/dealer in the state
What are they
the person must limit its business activities to other broker/dealers or financial institutions.
the person must not have a place of business in the state.
41
Define Subordinated Debentures?
Subordinated Debentures: A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings.
In the case of default, creditors with subordinated debt wouldn't get paid out until after the senior debtholders were paid in full. Therefore, subordinated debt is more risky than unsubordinated debt.
42
TRUE OR FALSE: If Common Stock listed on National Exchange, then state has no registration authority. Except notice filing and fees required.
True, state cant prohibit sale.
43
The Administrator always has the power to enforce anti-fraud statutes.
True
44
promulgates definition
to make known or public the terms. promote or make widely known
45
Define: Non Punitive
Non Punitive: not involving or exerting punishment.
| Not relating to or involving the infliction of punishment
46
Define: Punitive
punitive: inflicting, involving, or aiming at punishment.
Punitive damages are considered punishment and are awarded when the defendant's behavior is found to be especially harmful
47
True/False SEC Rules are above ALL state requirements
True
Under the NSMIA, Administrators can never insist on financial requirements that exceed those of the SEC.
48
True /False: If A registered broker/dealer offers investment advice as an incidental part of its commission business and one of there agents charges investment advice freelance outside scope of employment. The Agent must register as investment adviser and the B/D doesnt need to.
True. The BD does not do this practice and the Agent does so only the agent need to.
49
When Are Higher than average markups or commissions are ok?
If they are justifiable and disclosed. In normal circumstances, they are not.
Cant charge more then normal.
50
Can a broker/dealer may be structured as a corporation, a partnership, or a sole proprietorship.
Yes
51
What is a BD primary business?
A broker/dealer's primary business is effecting securities transactions for clients or for the broker/dealer's own account.
52
Can A person may be registered as both a broker/dealer and an investment adviser at the same time.
YES.
53
Is A person a broker/dealer in this state if there is no office in this state and transactions within this state are limited to issuers, other broker/dealers and institutions.
A person is not a broker/dealer in this state if there is no office in this state and transactions within this state are limited to issuers, other broker/dealers and institutions.
If the broker/dealer wishes to offer securities to individuals, it must register in the state.
54
If the broker/dealer wishes to offer securities to individuals, it must register in the state.
If the broker/dealer wishes to offer securities to individuals, it must register in the state.
55
Are Canadian Government bond is Exempt
Yes, Canadian Government bond is Exempt
56
All Investment Company Acts Federal
All Investment Company Acts Federal
57
For a Canadian Corporation to be federal covered it has to be listed on a recognized exchange. Otherwise Exempt.
True
58
What is it called when a BD put customer funds in same account as BD's
COMMINGLE: Cant commingle customer and B/D's accounts and securities.
59
Can Agents recommend securities without reasonable basis.
No, Agents may not recommend securities without reasonable basis.
60
What is Selling Away?
Conducting securities transactions not reflected on the books of the employing broker/dealer and without the employing broker/dealer's prior written authorization is known as selling away, considered by NASAA to be an unethical practice.
Definition of 'Selling Away'
When a broker solicits you to purchase securities not held or offered by the brokerage firm. As a general rule, such activities are a violation of securities regulations.
Investopedia explains 'Selling Away'
Typically, when a broker is "selling away," the investments are in the form of private placements or other non-public investments.
61
The Administrator may by order permit omission of items of information or documents from a registration statement.
The Administrator may by order permit omission of items of information or documents from a registration statement.
62
2.4.4 registration provisions: The Administrator may, as a condition of registration by qualification or coordination, rule that the securities may only be sold on a specified form of subscription and that a signed copy be filed with the Administrator.
2.4.4 registration provisions: The Administrator may, as a condition of registration by qualification or coordination, rule that the securities may only be sold on a specified form of subscription and that a signed copy be filed with the Administrator.
63
2.4.4 registration provisions: The Administrator may, as a condition of registration by qualification or coordination, require the security to be deposited in escrow and the proceeds to be impounded until the issuer receives a specified amount.
2.4.4 registration provisions: The Administrator may, as a condition of registration by qualification or coordination, require the security to be deposited in escrow and the proceeds to be impounded until the issuer receives a specified amount.
64
2.4.4 registration provisions: Every registration must specify the total amount of securities offered, the states in which offering is to be made, and any adverse order or judgment by a regulatory authority.
2.4.4 registration provisions: Every registration must specify the total amount of securities offered, the states in which offering is to be made, and any adverse order or judgment by a regulatory authority.
65
What is deliberate omission of material facts?
What if done unknowingly?
Deliberate omission are always fraudulent and omission of material facts is a fraudulent practice under the Uniform Securities Act, whether securities are exempt or nonexempt or even if the transaction was exempt.
If done unknowingly, then it is a unethical business practice (fraud requires deliberate action) and is still a violation.
66
What if a client is unsure about financial objective and dosnt give you and personal financial info?
What if they only give you a little information?
You can still take them on as a client but can only accept unsolicited orders.
Without information, how can you possibly make a reasonable recommendation? But, you are permitted to accept orders that are initiated by the client (unsolicited).
If the customer gives you limited information, they you can make recommendation based on that/
67
What is a non punitive method of termination?
What is a punitive method of termination?
Cancellation (because of death of owner, insolvency, non locatable) and withdrawal are nonpunitive methods of termination of a person's registration.
Suspension, revocation, and denial are punitive and considered forms of punishment.
68
4.5.1 Investment Adviser Representatives, and Federal Covered Advisers, requirements of ADVISORY CONTRACTS include:
They must describe the amount and formula of any prepaid fee that will be returned to the client in the event the contract is terminated.
Term of contract.
Amount of advisory fee and formula to calculate.
Wether contract give discretionary power or not?
They must prohibit assignment of the contract without the client's consent.
Assignment and notification information.
There is no requirement that advisory contracts be renewed on an annual basis.
There rules VOIDED if working with registered investment company or a person with 750k under management or network of 1.5 million.
69
When is the USA's anti-fraud provisions apply?
As long as it is a security, the USA's anti-fraud provisions apply.
70
Is Modified Endowment Contract insurance policy a security?
NO, Modified Endowment Contract insurance policy is NOT a security.
71
Who is subject to state security rules and laws?
What do addresses work when dealing with offers and jurisdiction?
Anyone who offers to sell or buy a security in the state is subject to the statutes of the state to which the offer is directed, even if the sale is not completed.
Offers by mail directed to persons in other states are considered to have been made in the other state, if received where originally addressed.
Under the USA, the address that is critical is the one to which the mailing is directed.
If it is forwarded to another state, it is not considered an offer in that state. If address is forwarded to another state then its not an offer that that state.
Only address on letter counts
72
Are securities issued by a commercial exempt?
| What about an officer who sells bonds, is he considered and agent?
1.2.2.2 If U.S. commercial banks are issuers of exempt securities, and an officer who sells the bonds would be excluded from the definition of agent.
Example: An officer of a commercial bank selling the bank's bonds to its banking clients is acting in the capacity of a(n):
73
How can an nonemempt, unregistered securities be sold?
Nonexempt, nonregistered securities cannot be lawfully sold in a state unless in an exempt transaction.
Nonexempt securities must be registered otherwise.
74
Are securities issued by bank holding companies exempt?
No, bank holding companies are not exempt.
They are companies which hold at least 25% ownership of a commercial bank.
75
Nonexempt securities must be registered.
Nonexempt securities must be registered.
76
What is the administrators authority to examine books and records?
The records may be examined at any time for any reason within or outside the state if it is in the public interest to do so.
77
When is a broker deal not included in the definition of Broker Dealer?
1.2.1.1.1 “Broker/dealer” does not include a person who has no place of business in this state if he effects transactions in this state exclusively with or through the issuers of the securities involved in the transactions, other broker/dealers, or banks, savings institutions, trust companies, insurance companies, investment companies as defined in the Investment Company Act of 1940, employee benefit plans with assets of at least $1 million, or other financial institutions or institutional buyers.
78
When is a IA not in the definition of an IA?
Investment Advisers: Out-of-state advisers who have no place of business in the state are not defined as investment advisers if they have no more than 5 noninstitutional (retail) clients in this state in a 12-month perio
79
How do the rules of newspaper, tv commercial and radio advertisements work?
3.1.2.1 The USA provides that a person in State B who makes an offer to buy as a result of an advertisement he sees in a paper published in State S (or a radio or television program originating in State S) may render the statute applicable in a specific state if the seller (CFS) then accepts the offer “in this state” (that is, State B).
For our purposes a radio or television program is considered to originate in the state where the microphone or television camera is (State S) and therefore is typically only under the jurisdiction of that state’s Administrator. However, when as a result of the advertisement, a resident of another state makes an offer, if it is accepted, then, because a transaction is considered to have taken place in that other state (State B in our question), the Administrator now has jurisdiction.
80
Variable annuities are securities while fixed annuities are not. Options contracts, interests in merchandising marketing programs, and common stock are securities under the USA.
Variable annuities are securities while fixed annuities are not. Options contracts, interests in merchandising marketing programs, and common stock are securities under the USA.
81
Is an interest in a merchandising marketing program a security?
2.1.1.1 Interest in a merchandising marketing program is a security.
because you are investing money with the hope of earning more due to the work of others?
82
What is registration by qualification? And how is the effective time determined?
Registration by qualification is effective when determined by the Administrator.
Qualification is the only form of registration where the timing of the effective date is determined by the Administrator.
83
Define Surety in regards to bond?
'Surety'
The guarantee of the debts of one party by another. A surety is the organization or person that assumes the responsibility of paying the debt in case the debtor policy defaults or is unable to make the payments. The party that guarantees the debt is referred to as the surety, or as the guarantor.
Surety is most common in contracts in which one party questions whether the counter party in the contract will be able to fulfill all requirements. The party may require the counter party to come forward with a guarantor in order to reduce risk, with the guarantor entering into a contract of suretyship. This is intended to lower risk to the debtor (or lender), which might lower interest for the borrower. It can be in the form of a "surety bond."
84
What is private placement?
private placement = limited offering transaction: is an offering directed at no more than 10 noninstitutional persons during the previous 12 consecutive months.
no commission can be paid
Has to be purpose of investment.
85
Investment Advisory Contracts, info?
Investment Advisory Contracts: While state laws require that contracts between state-registered IAs and clients be in writing, the Investment Advisers Act of 1940 does not.
Performance-based fees are generally prohibited.
Contract language must not lead clients to believe they have waived rights to take legal action against the adviser.
There must be no provisions that force the client to waive compliance with any of the rights or rules.
The contract must prohibit the IA from assigning the contract without the client's consent.
86
How do guarantees work?
Remember that guaranteeing a client\'s account against loss is a type of performance guarantee.
87
What does the administrator feel about capital gains sharing and fees for IA?
Prohibit the IA from being compensated on the basis of sharing in capital gains or capital appreciation of the client's accounts (however, fees based on the total value of the account, such as an assets under management fee, are allowed)
88
How does the administrator feel about assignment and change in membership for a partnership re IA?
Require the IA (if a partnership) to notify the client of any change in the membership of the partnership
89
What the deal record keeping rules for Brokers Dealers and IA?
broker dealer record keeping requirements: 3 years. Easily accessible for first 2 years.
IA record keeping requirements: 5 years Easily accessible for first 2 years.
Ads (unless for exempt security, ex mutual funds, since fed covered), Sales literature, other communication
90
Can states impose requirements that are more difficult or higher then the SEC?
states cannot impose requirements on broker-dealers that are more difficult or extensive than those already mandated by the SEC.
91
How often can state require a BD or IA to send reports?
A state cannot require an investment adviser or broker-dealer to report MORE FREQUENTLY than quarterly, though in most cases annual reporting is the norm!
92
Definition of Security: Howey Test (define a security)
An Involvement of Money
In common enterprise
With an expectation of profits
Solely from the efforts of others
Has to earn money with effort of others.
93
List some things that are not securities?
```
Life Insurance and Endowment policies
Fixed Annuities
IRAs and Keogh plans
The Four Cs
Commodities (futures contracts)
Collectibles
Currencies (bit-coin)
Condominiums as a place of business or residence (if you live there)
```
94
List some securities?
Is Security
Stocks and bonds
Options (all options (even on commodities and currencies) (call or put) are securities.
Variable Contracts
Keogh plan participation
Limited Partnerships
Multi-Level distributorships
Pre-Organization certificates (stock in a firm that isnt incorporated yet)
Whiskey warehouse receipts (its like a future contracts, but are securities)
Real Estate as in investment
95
Definition of 'Futures Contract'
Definition of 'Futures Contract'
A contractual agreement, generally made on the trading floor of a futures exchange, to buy or sell a particular commodity or financial instrument at a pre-determined price in the future. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset, while others are settled in cash.
Investopedia explains 'Futures Contract'
The terms "futures contract" and "futures" refer to essentially the same thing. For example, you might hear somebody say they bought "oil futures", which means the same thing as "oil futures contract". If you want to get really specific, you could say that a futures contract refers only to the specific characteristics of the underlying asset, while "futures" is more general and can also refer to the overall market as in: "He's a futures trader."
96
Who is registration by coordination for and how does it work?
Register by Coordination: for smaller IPOs
Register by coordination: State registration is coordinated with Fed registration under 33 act.
Copies of SEC docs must be filed with Administrator, including 3 copies of the latest prospectus.
Any amendments must be promptly forwarded
Coordination requires more docs then notification or filings.
*becomes effective at the same time as federal registration
97
Who is registration by Qualification for and how does it work?
Registration by Qualification:
For registering in one state only.
No federal reg required
May be used any any state, for any type of security
Extensive disclosures required by administrators, with correcting amendment sent for inaccuracies.
Becomes effective when determined by administrator. (or whenever)
98
What are some exempt issuers?
Govt entities (federal, state, local, foreign)
Bank, savings, and loans, trust companies, credit unions.
Insurance companies
Non profit organizations such as social, athletics or professional organization or CHURCH (church bonds)
Common Carrier (UPS, Trains)
Companies regulated by the public utility holding company act of 1935 (ex: water money owned by city or govt)
99
What is needed for commercial paper to be exempt?
Short term debt with the following characteristics (commercial Paper):
9 month max maturity (270 days)
rate in one of the 3 highest categories by an NRSRO
Denominations of $50k or more.
100
How does notice filing work?
Notice Filing: (only for federal covered security, only for mutual funds and reg D private placements).
Consent of service of process
Filing Fee
Copies of docs filed with admin for ref registration.
Not filing is not a method of registration that may be taken away by the administrator. Because federal registered.
101
Can the administrator cancel a registration of a federal covered security or prohibit its sale?
Administrator cant cancel the registration of the federal covered security. Or prohibit its sale in the state.
102
When can an administrator investigate fraud?
Administrator can always investigate fraud.
103
What is excluded from the definition of BD?
These are not Broker Dealer
Agents
Issuers
Banks, Savings institutions, trust co.'s
A broker-dealer with NO PLACE OF BUSINESS in a state that only transactions business there with: Financial Institutions, or Existing individual clients who are not residents of the state (eg Students or vacationing)
104
Who do IAR, IA BD and agent register with?
IAR registration w/ state only.
Agent registration w/ Finra and State
BD register w/ SEC or State
IA register w/ SEC or State
105
What is excluded from the definition of IA?
NOT Investment ADVISER IA
IAR
Banks, savings institutions, and trust co.'s
Lawyers, Accountants, Teachers, Engineers (LATE)
Broker-Dealers and their agents (selling securities, advice is incidental)
Newspaper publishers
Federal covered Advisers
Subject to notice filing
Provide advisory services in more then 15 states
$100M or more under management
106
Where do IAR register with?
IAR registration w/ state only.
107
Definition of DE MINIMIS
NOT IMPORTANT
: lacking significance or importance : so minor as to merit disregard
Examples of DE MINIMIS
108
When are filing feed paid?
Filing fees paid annually:
109
When are Material changes filed?
Material changes filed promptly! (usually within 30 days)
110
If a new owner takes of, when are filing feed required to be paid?
If filing fees paid and you get taken over, the new owner dosnt have to paid till it renews.
111
What are some False of misleading statements?
False or misleading statement:
Claiming securities are approved by a regulator
Selling Dividends
referring to a mutual fund as No load if it has 12b-1 fee greater then .25% of average net fund assets per year (even if it has no front end or back end load)
Soliciting order for unregistered non exempt securities (acceptable if unsolicited and client acknowledges through a signed statement.
Churning
Exercising Discretion without written authorization (power of attorney).
IA may exercise oral direction for 10 days, must be written
Cant borrow money from client, unless a company that lends money.
Omitting material facts.
112
When can you split commission with another?
Can only split commission if you work for the same Firm or under the same umbrella firm and same state
113
How does Cross Trade work? Is it Legal?
Selling to two of your clients.
Cross Trade: Obtain the clients written consent prior to effecting the first agency transaction.
For each trade, disclose the trade date and compensation earned.
Disclose potential conflict of interest.
All client statement must include a disclosure that clients may revoke their permission at any time.
Annually send a statement identifying
Total number of agency cross transaction done in clients account
Total commissions received for these transaction.
THEY WANNA MAKE SURE YOUR ARENT DOING THIS TOO MUCH, SCAMMING PEOPLE>
114
Talk about advisory contracts?
Advisory Contracts:
Must be in writing
May not contain exculpatory (waiving rights of customer) provisions or mandatory arbitration clauses.
Generally prohibit performance fees (% of profit)
If customer has $1M assent in management or $2M net worth.
% of performance is ok but NOT capital Gains.
115
In which does the admin have jurisdiction re offer and sale?
Offer and Sale: Admin has jurisdiction if in state.
Offer: do you want to buy
Same: Yes
116
Definition of 'Exculpatory Clause' (relieves one party of liability if damages)
Definition of 'Exculpatory Clause'. NOT OK
A contract provision that relieves one party of liability if damages are caused during the execution of the contract. The party that issues the exculpatory clause is typically the one seeking to be relieved of the potential liability. For example, a venue may print an exculpatory clause on tickets it sells for a concert indicating that it is not responsible for personal injury caused by employees or others during the show.
Investopedia explains 'Exculpatory Clause'
While exculpatory clauses are typically upheld, they can be challenged and overturned in court. The court can determine that the clause is unreasonable if both parties in the contract do not have equal bargaining power or if the clause eliminates liability for negligence.
117
Re TV and Radio, which state has Jurisdiction?
TV or Radio, only state in which the camera or microphone has jurisdiction.
118
Can the administrator issue a Injunction (Enjoined)
Only court may issue Injunction = enjoined
119
Can the administrator levy files or impose prison?
Administrator cant levy fines or impose prison, must as court to do it. Example a cop giving ticket for speeding
120
WIthin how many days does the administrator have to provide a hearing for someone who is denied registration?
If registration is denied a hearing must be held withing 15 days by administrator.
121
How long do you have to appeal if the administrator punished you or denies registration?
If administrator punishing you, you have 60 days to appeal
122
If you sell illegal security, what can you be sued for?
If you sell securities illegally they can sue you for:
The original consideration or any loss due to advice.
Plus Interest
plus court costs and reasonable attorneys fee
minus any income received from the security/advice
123
What is the statue of limitations from an occurrence?
Statute of Limitations: 3 years from the occurrence or two years from the discovery whichever comes first.
124
What is the deal with Letter of Rescission?
How long does the customer have to respond?
If the customer already sold the security, can he still sue?
Civil Liabilities:
Letter of Rescission: If reg person realized he has effected improper sale, he may offer: Buy back the security, plus interest, minus any income received.
If a customer received a letter of rescission after selling the security may still initiate civil action
If a customer has 30 days to respond, if he fails to respond he waives right.
125
Under the Uniform Securities Act, the requirements for filing of advertising and sales literature dealing with an exempt security with the Administrator: Does not apply
Basically if a security is exempt or the transaction is exempt then dont need to file litrature with state. An exempt security or transaction is exempt from the registration requirements and the requirements for filing of advertising and sales literature. It is not exempt from the antifraud provisions of the act.
126
Does a exempt security or transaction retain its exemption?
A exempt transation must be established before each transaction.
A exempt secrity retains its exemption when initially issued and in subsequent trading.
127
What is small-cap stocks
MORE VOLITILE, up or down.
Refers to stocks with a relatively small market capitalization.
The definition of small cap can vary among brokerages, but generally it is a company with a market capitalization of between $300 million and $2 billion. MORE VOLITILE
128
What is high-yield bonds (bonds with a speculative rating) =
Junk Bonds. A high paying bond with a lower credit rating than investment-grade corporate bonds, Treasury bonds and municipal bonds. Because of the higher risk of default, these bonds pay a higher yield than investment grade bonds.
129
if admin feeling like a person is about to violate the USA, he may issued a cease and desist without hearing. Can act when he smells smoke.
Admin dosnt have legal power to force compliance. Has to apply for court to do that.
130
What is Enjoined
The legal term to refer to a person who is subject of an injunction
131
Cease and desist orders not same as STOP orders.
C/D directed to persons requiring to cease activity. Stop orders are directed to appliction regarding registrations.
Stop orders require hearings. C/S dont.
132
How many days must a admin agree to a hearing?
In A cease and desist must, the admin must agree to a hearing within 15 days of receipt.
133
Is making sales trips to a state is considered to be having a place of business in the state.
YES, Under the Uniform Securities Act, making sales trips to a state is considered to be having a place of business in the state.
134
An order ticket must contain :
Name of customer,
account number,
name of agent,
description of security,
the quantity,
time or order entry, excution price and any aplicable conditions
135
If a broker dealer ceases business, how long must a bond be maintained.
If a broker dealer cease to do business a bond bust be maintained for 3 years
136
A Canadian BD with no office in this may effect transaction with person from Canada who is a temp resident, is current customer if.
When dealing with non exempt transitions:
BD must file app for registration with state,
files consent service of process,
provides evidence is in good standing in home juristriction,
is member of SRO or stock exchange.
137
Under the USA, who can be a agent? And who is excluded?
Under the USA, only an individual can be an agent (a person who sells securities for a broker/dealer).
Corporate entities, broker/dealers, and issuers are all excluded from the definition of an agent.
138
If a security is sold by an excutor regardless if its registered or non registered its an:
exempt transaction even in an unregistered, nonexempt security.
139
What needs to happen to be considered Fraud?
Fraud requires the intent to deceive.
140
Is choosing to take a stock dividend rather than a cash dividend a sale?
not a sale.
An offer is also not a sale
141
SIPC is the member owned insurance company that provides protection to clients in the event of a broker/dealer bankruptcy or insolvency.
The clients are entitled to receive the market value of their securities plus any cash in their accounts up to a specified limit.
SIPC does not protect against losses in the market.
SPIC is a per person coverage, not # of account.
142
Who must file consent of service?
All applicants for registration must file a consent to service of process regardless of whether they are in-state or out-of-state advisers.
Consent of service Investment advisers and investment adviser representatives must file a consent to service of process to become registered.
143
Can you can tell clients that a certain stock is so good that you bought shares?
YES, If its true.
its required then if you sell this position, you cant do it without tell al your clients. Otherwise its wrong.
144
a broker/dealer may charge a reasonable fee for:
As long as the charges are fair and reasonable, a broker/dealer may charge for services rendered of most kinds. Including appraisals, transfers, collection of dividends and safekeeping.
145
An individual who represents a broker/dealer selling commercial paper must register under the USA
An individual who sells commercial paper for ABC National Bank would not have to register because the bank is excluded from the definition of broker/dealer, and both the transaction and security are exempt from state registration requirements. An employee of the federal government need not register with the state because he represents an exempt issuer. An individual who is paid a commission to sell certificates of deposit for a commercial bank does not have to register as an agent because he is not selling a security.
146
Does donating a security consider a sale? Talk about what is a sale?
Donating a security does not qualify as a sale.
For a security to be sold, it must be exchanged for value. Fixed annuities and precious metals are not securities, so no security sale took place.
147
Speculation or speculation?
The act of trading in an asset, or conducting a financial transaction, that has a significant risk of losing most or all of the initial outlay, in expectation of a substantial gain.
148
Which facts do you have to disclose?
only have to disclose material facts, NOT all facts
149
What is Arbitrage
is the simultaneous buying and selling of the same security in different markets to take advantage of different prices. IS LEGAL
150
Matched purchases.
occur when one or more broker/dealers engage in buying and selling between themselves for the purpose of creating the misleading appearance of increased activity in a security.
NOT LEGAL
151
Wash sales
A wash sale is an attempt to manipulate a security's price by creating an apparent interest in the security that really does not exist.
A transaction where an investor sells a losing security to claim a capital loss, only to repurchase it again for a bargain.
The effectiveness of this strategy has been greatly diminished with the implementation of the IRS 30-day wash rule, where a taxpayer cannot recognize a loss on an investment if that investment was purchased within 30 days of sale (before or after sale).
152
Which method of securities registration would most likely be used to register an initial public offering that is intended to be offered for sale in several states?
Coordination
Since the offering will be made in more than one state, registration with the SEC is required.
Since the offering will be made in more than one state, registration with the SEC is required.
Required by state:
1: Copies of latest prospects filed with SEC
2: copy of articles of incorporation and bylaws
4: each amendment to the federal prospects prompty after sec filing
5: copies of everythign else filed with sec, if needed
153
it is unlawful to offer or sell any security in the state unless the security is:
it is unlawful to offer or sell any security in the state unless the security is
registered,
exempt from registration,
a federal covered security,
or sold in an exempt transaction.
154
any securities registration statement must include:
1: the amount of securities to be offered in that state.
2: a list of the other states in which the security will be registered.
3: a copy of the prospectus or offering circular.
4: plus any adverse finding by any court, any Administrator, or the SEC.
155
Persons is a very broad definition (including institutions)
Individual is 1 human
156
National Securities Markets Improvement Act of 1996 (NSMIA):
Defined FEDERAL COVERED ADVISOR. Update old rules. Its goal is to provide a federally imposed set of rules, instead of having to deal with each individual state's rules and regulations.
Preempts state registration of covered securities.
State administrators may not impose registration requirements on securities that are subject to federal regulation.
defined the term "federal covered adviser". referring to advisers who must register with the SEC or who are excluded from the definition of investment adviser under the Investment Advisers Act of 1940.
157
An investment adviser may state which of the following in the advisory contract?
The advisory contract may only be assigned to another party with the consent of the client.,
An investment advisory contract may only be assigned to another adviser with the client's consent. Advisers are not allowed to be compensated solely on the basis of capital gains, regardless of how reasonable the share appears to be.
Performance-based compensation is not generally allowed unless the client has a minimum under management (currently $1 million) or a substantial net worth (currently $2 million). Accredited INVESTOR
158
Investment Advisor. Corp vs partnership. Notification vs assignment.
1: Investment partnerships must notify clients of any change in the partnership's membership. Even Small. Death, leaving etc.
2: if corporation, no need to notify clients of change in shareholders.
3: A change in a majority interest in the partnership would be an assignment of the account that requires client consent.
159
if there is a civil suit claiming damages and client dies during proceeding, what happens?
the suit continues by executor of estate or if its a joint account
160
an investment advisor registration becomes effective:
A registration becomes effective at noon, 30 days after the application has been filed, providing the registration is not in the process of denial.,
If amendment is files during registration, process (30 days starts over)
If an amendment to the registration is subsequently filed, the registration becomes effective 30 days, not 15 days, after the amendment is filed; filing the amendment starts the process anew.
161
Open end vs closed end fund
Open end = always can have more share. Buy from fund manager.
Closed end = set amount of shares. Buy from other share holders.
162
A broker/dealer is underwriting an IPO. The issuer is a company under common control with the broker/dealer.
All potential conflicts of interest must be disclosed. A “family” relationship of this type clearly presents the potential for conflict.
A prospectus must be delivered to purchasers whether or not they request one.
163
to split commission with life agent who has client to purchase variable annuity
You must both be licensed in both insurance and securities to sell variable annuities or to split commissions. Commissions on securities transactions may only be split with registered agents of the same or affiliated broker/dealers.
164
Muni Bonds provide what kind of income for which tax bracket
Municipal bonds provide a fixed income, but they are generally suitable only for high tax-bracket individuals.
165
If an offer of rescission is accepted:
the client has been made "whole" and has nothing further to claim.
166
Dodd-Frank Wall Street Reform and Consumer Protection Act, was passed when, by which president?
passed in 2010 by obama.
167
Register of investment advisor based on funds under management
investment advisers with $110 million or more in assets under management must register with the SEC. These advisers are called federal covered advisers. Investment managers who manage less than $100 million must register with the state Administrator. Advisers with at least $100 million but less than $110 million of assets under management have the option to register with either their state Administrator or with the SEC. Once the $110 million level is reached, registration with the SEC is mandatory.
168
How many institutional buyers can private placement be offered to?
soffers can be made to an unlimited number of institutional buyers.
169
1: Is a US Bond a FED covered security? Does it have to register with SEC or State?
2: Do federal covered securities always have to register with State or SEC? Give example?
1: us bond is a fed security that dosnt have to register with sec or state.
2: stock listed on the NYSE, also considered federal covered, is exempt on the state level but must register with the SEC.
Federal covered securities are exempt from registration at the state level and may, or may not, be at the federal level as well.
170
has an agent who sells shares of a Nasdaq Stock Market security to an insurance company engaged in an exempt security or transaction?
Is it bound by the advertising and registering requirements of the USA?
a sale exempt from the registration and advertising provisions of the USA.
that is not bound by the advertising and registration requirements of the USA
Any sale to certain institutional customers, such as banks and insurance companies, is an exempt transaction regardless of where the security is traded.
171
When must an agent register?
An Individual (agent) must always register as agent when selling securities.
172
Must A partner, (or any employee), of a broker/dealer with no securities sales functions need to as an agent?
No, he does not. But anyone supervising sales agents must register.
173
The Uniform Securities Act requires that an administrative order appeal must be requested within how many days after the order has been entered?
60 days
Any person who receives an order from the Administrator can petition the court to change or set aside the order, but an appeal must be filed within 60 days after the order was entered. Then the administrator has 15 days to set hearing.
174
Is a person is excluded form the definition of investment advisor under the IA act of 1940 federal covered advisor?
Does the state have jurisdiction?
Any person excluded from the definition of investment adviser under the Investment Advisers Act of 1940 is considered a federal covered adviser.
Therefore, regardless of the amount of money under management, the state has no jurisdiction.
175
is it ok for A broker/dealer lending money to a client to purchase additional securities?
Can a investment adviser borrow money from an affiliated broker/dealer?
YES, When a client has a margin account, the broker/dealer is lending money to that customer to purchase additional securities.
Yes, not not from a customer.
176
What is agency cross transaction
a transaction where a person acts as both an investment adviser and broker/dealer in the same transaction.
requires prior written approval from the client and special reporting requirements.
The adviser cannot recommend the transaction to both parties, only one side or the other.
177
Does SIPC protect separate customers or accounts:
and
True or False: Jim's joint account with his wife is considered a separate customer by SIPC.
Separate customers. A customer with both a cash and margin account with a BD would be covered once.
Jim's cash and margin account are combined for coverage, but Jim's joint account with his spouse is separate.
178
The Securities Act of 1933 regulates
Created by FDR in 1933, SEC created a year later 1934.
1: Ensured transparency in financial state, so investors can make more informed decisions.
2: Established laws against fraudulent activity, better disclosure and registration and prospectus requirements.
Has to do with new issues.
and
Provide investors with full and fair disclosure regarding new issues (prospectus)
179
List the securities that are exempt from registration?
Government/municipal bonds, commercial paper, bankers' acceptances, bank issues, non-profit and small business issues
180
American Depositary Receipt (ADR)
Is a SECURITY:
A negotiable certificate issued by a U.S. bank representing a specified number of shares (or one share) in a foreign stock that is traded on a U.S. exchange.
181
is voting trust certificate a security?
YES
182
Is a Keogh plan considered a security?
No, but Keogh plan participation is considered a security.
183
Is a certificate of interest in a mining lease a security?
YES
184
Is an endowment life insurance policy a security?
NO
185
Is a variable life insurance policy a security?
Yes, but a term or universal life insurance policy is not considered a security.
186
Is a universal life insurance policy considered a security?
NO
187
401(k) plan considered a security?
NO
188
Is treasury stock considered a security?
Yes. Treasury stock is stock that was issued and subsequently repurchased by the company.
189
Debenture Security?
Yes. A debenture is an unsecured corporate bond.
190
Is a preemptive right considered a security?
Yes
191
Is a warrant a security?
YES
192
Is a preorganization certificate considered a security?
YES
193
Is an IRA account considered a security?
NO
194
Is a futures contract considered a security?
No, but an option on a futures contract is a security.
195
Is a multi-level distributorship considered a security?
Yes
196
Is a limited partnership a security?
Yes
197
Is an interest in oil and gas drilling program considered a security?
Yes
198
Is a whiskey warehouse receipt considered a security?
Yes
199
If a corporation raises capital by selling new shares of its stock to the public, is it considered a BD?
No. The corporation is an issuer and issuers are excluded from the BD definition.
200
Is an individual who represents an issuer in the sale of municipal bonds considered an agent?
or
Is an individual who represents the issuer of a private placement considered an agent?
No, since the individual is involved in the sale of exempt securities.
201
Wrap Account
An account in which a brokerage manages an investor's portfolio for a flat quarterly or annual fee. This fee covers all administrative, commission, and management expenses. Sometimes this also includes funds of funds.
202
domicile
1. To establish (oneself or another person) in a residence.
| 2. To provide with often temporary lodging.
203
Define Retail
Individuals. Retail clients are any clients who are not considered 'wholesale' clients.
204
What does the USA consider a security issued by an investment company that is registered under the Inv. Co. Act of 1940
Federal
205
True or False: Bonds issued by a railroad are exempt from state registration.
True. Securities issued by a railroad, common carrier, or public utility are exempt at the state level.
206
fraternal organization = non-profit
Examples of fraternal organizations include college fraternities which are based on religion, previous members or just common interests.
A fraternal organization is a brotherhood or a type of social organization whose members freely associate for a mutually beneficial purpose such as for social, professional or honorary principles.
207
Registration by Filing (Notification) requires issuers to be in business at least _____ months preceding registration.
36
208
To use Filing (Notification) to register stock, the offering price must be at least $______ per share.
5.00
209
Registration by Filing (Notification) requires that the underwriting commission be no more than ___ %
10%.
210
Registration by Coordination has a minimum cooling-off period of :
10 days.
211
intra-state
occuring within the state
212
Regulation T
Definition of 'Regulation T - Reg T'
The Federal Reserve Board regulation that governs customer cash accounts and the amount of credit that brokerage firms and dealers may extend to customers for the purchase of securities.
Investopedia Says
According to Regulation T, you may borrow up to 50% of the purchase price of securities that can be purchased on margin. This is known as the initial margin.
213
Which of the following persons is included in the term "agent" under the Uniform Securities Act?
1: A person who represents an exempt issuer and sells the issuer's shares to public investors.
2: A person who represents an issuer in an exempt transaction.
3: A broker/dealer who sells registered securities to the general public.
4: An individual employed by a broker/dealer who sells NYSE-listed securities to institutional clients.
4:
An agent under the Uniform Securities Act is a person (an individual) who sells securities to the general public. The term "agent" is not applicable to a person who represents an issuer in exempt transaction or in the sale of an exempt security. The term "agent" specifically excludes broker/dealers.
214
Define Agent
An agent under the Uniform Securities Act is a person (an individual) who sells securities to the general public.
Not someone who represents an issued in exempt transaction or exempt security. Not a BD.
215
Under the USA, the term guaranteed refers to all of these EXCEPT:
A) dividends.
B) principal.
C) interest.
D) capital gains.
D: When a security is guaranteed, that means that someone other than the issuer has guaranteed timely payment of interest and principal on a debt security, or the payment of dividends on an equity security.
No one ever guarantees that the investor will have a capital gain.
216
At a charity ball, you are introduced to someone who, upon hearing your name, exclaims that he has heard that you are doing a magnificent job managing his best friend's investment portfolio. Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, it would NOT be a violation for you to:
A) acknowledge the fact that the friend is a client.
B) indicate that most of the performance was due to the large number of IPOs you were able to place into the account.
C) deny that the friend is your client.
D) accept the compliment and comment on the portfolio's year-to-date return.
A:
It is normally prohibited to tell others who your advisory clients are without their consent. However, under these circumstances, you would be permitted to affirm that this is your client but say nothing more about the account.
217
Under the Uniform Securities Act, an employee of a licensed broker/dealer firm is allowed to sell securities as an unregistered agent when:
A) the employee is not paid any commission or salary.
B) the securities are exempt.
C) under no circumstances.
D) the transactions are exempt.
C:
It is unlawful for a person to transact business as a representative of a broker/dealer unless that person is registered, even if the securities are exempt.
218
An individual who has applied for registration as an investment adviser representative has just passed the Series 66 exam. This individual may begin soliciting advisory clients:
when informed by the investment adviser that the representative's registration is effective.
Passing the Series 66 exam is one of the ways to fulfill NASAA's testing requirement for IARs, but it does not automatically give one an effective investment adviser representative's license. Notice is received by the investment adviser from the appropriate state and/or federal authorities and then, in accordance with that firm's procedures, advisory activity may start. The Administrator does not have direct contact with the individual. The same applies to agents passing the Series 63 exam.
219
Which of the following securities is(are) exempt from state registration and filing of advertising materials?
1: New York City municipal revenue bonds.
2: Montreal bonds guaranteed by the province of Quebec.
3: Preferred stock of the National Bank, N.A., a member of the Federal Reserve System.
4: Preferred stock of Local County Bank, organized and regulated solely by the banking laws of the state of Illinois.
ALL
Any security issued by a bank that is federally regulated is exempt under the USA. State banks are exempt if regulated by that state. Municipal bonds are exempt if issued by a municipality in the United States or Canada.
220
A federal covered investment adviser is a person:
registered, or excluded from the definition of investment adviser, under the Investment Advisers Act of 1940.
A federal covered investment adviser refers to a natural person or entity registered under the Investment Advisers Act of 1940 or excluded from the definition under that act. A person registered under the Investment Advisers Act of 1940 is exempt from state registration or licensing requirements of state securities Administrators under the NSMIA and the Uniform Securities Act. Federal covered investment advisers are not exempt from the antifraud provisions of the USA. Investment advisers, whether state or federal registered, do not register with NASAA.
221
Does the Administrator have the power to require sworn oaths?
Yes, because the Administrator is empowered to administer oaths as provided in the Uniform Securities Act, as enacted in the Administrator's state of jurisdiction.
The USA empowers Administrators to administer oaths, Sworn oaths typically occur in conjunction with hearings.
222
Which of the following transactions would constitute a violation of the Uniform Securities Act?
1: An individual representing the issuer of a non-exempt security in an exempt transaction without registration as an agent.
2: While acting on behalf of an issuer, an individual, who is not registered as an agent, sells shares of an unregistered nonexempt security to fewer than 15 noninstitutional clients.
3: The sale of a Canadian government bond to the resident of a state in which the agent is not registered.
4: Representing an issuer of municipal bonds without being registered as an agent in the issuer's state.
2&3
Representing an issuer of exempt securities (the municipal bond) or of a non-exempt security that is sold in an exempt transaction, (choice I) does not require registration. If the sale is of an unregistered nonexempt security, the only way the individual could sell on behalf of the issuer without being an agent is if it was in an exempt transaction, one of which is the limited offering exemption (private placement). That applies when there is a maximum of 10 offers to retail clients within a 12 month period and choice II uses the term, sells. Without knowing the number of offers, we cannot determine if the individual’s actions qualify as an exempt transaction. In the case of doubt, assume they don’t. Even though the Canadian bond is an exempt security, any agent must be registered in the state(s) in which the security is sold – the exemption applies to the security, not the agent.
223
An agent inflates a client's financial information so that the client will meet the firm's minimum financial requirements to trade on margin. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker/Dealers and Agents, this would be:
Is this: prohibited because it is obvious that if he has to do that, margin trading is not suitable for this client.
or
prohibited because the agent is entering fictitious information on the client account form.
because the agent is entering fictitious information
Even though the agent thinks this action is beneficial for the client, the NASAA policy prohibits entering any fictitious information on a client's account records even when suggested by the customer.
224
A broker/dealer with no place of business in the state would not be required to register if their only clients were:
A broker/dealer with no place of business in a state is not deemed to be a broker/dealer in that state if its only customers are institutions like banks, insurance companies, investment companies employee benefit plans with assets of at least $1 million, or other broker/dealers. There is no de minimis rule for broker/dealers as there is for investment advisers.
Otherwise has to register.
Even if clients are accredited investors, must register.
225
If you are arrested can there be a denial of registration?
No, Conviction, not merely an arrest, for a misdemeanor involving securities within the past ten years, and failure to pay filing fees are grounds for denial.
226
If required by the Administrator, a prospectus for securities registered by qualification must be given to each offeree, when?
The USA specifically states that the Administrator may require delivery prior to the sale.
227
True/False An officer of an issuer not receiving any compensation for sales of the issuer's stock in an exempt transaction is not an agent under the USA.
TRUE
228
Can the administrator issue Subpoena's to witnesses and documents during an investigation?
YES. When conducting an investigation, the Administrator may gather evidence by issuing a subpoena to witnesses. Documents may also be the subject of a subpoena.
229
Under the Uniform Securities Act, what is true regarding registration of agents and how it works
To register, an agent must file an application, a consent to service of process, and a filing fee as described in the correct answer. Registration is not effective during any period when the agent is not employed by a registered broker/dealer, and the Administrator must be notified when an agent's employment begins or ends. Agents must be registered in each state in which they do business.
230
Is securities to an individual investor with a net worth of more than $5 million exempt transaction?
NO, sales to individuals, regardless of their wealth, are not exempt transactions
231
Under the Uniform Securities Act, the Administrator may deny applications only on the basis of the limitations of the law. Such as:
felony convictions, outstanding injunctions, and insolvency.
Although disclosure of methods of analysis is required, the Administrator is not empowered to pass judgment on those methods.
So if the IA says they use palm readers, thats fine.
232
With respect to certificates of interest or participation in oil, gas, mining titles or leases. Are they considered to be an "Issuer"?
NO
233
If a Canadian BR work with Canadian resident temporarily in US state? In what circumstances?
1: BD and Agents registered in home jurisdiction.
2: BD a member of Canadian SRO
3: BD and agent have provided consent to service process.
4: BD and agent renew registration annually before DECEMBER 1st.
5: BD and agent register using the form appropriate to the province where principal office is located.
234
Who administrates the Series 63 Exam?
NASAA North American Securities Administrator Association.
235
Can you share commission with a supervisor?
Yes, as long as he is an agent
236
What is Snowbirding?
Someone moving temporarily from one state to another. Live a bird moving south for the winter.
237
For a BD to do business in a state with even a single non-institutional individual, he must register as a BD.
There is no de minimis exemption for broker/dealers.
238
In 1998, NASAA promulgated (promoted) a Model Rule covering the sales of securities at financial institutions. When is a radio ad exempt from disclosures?
When the ad is less then 30 seconds long and it dosnt mislead the customers from teh disclosures, its ok to skip the disclosures.
239
Is passing the 63 required before agent may sell securities to public as a Agent for a Broker Dealer?
YES, Passing the Series 63 exam (Uniform Securities State Law) is required before an agent may sell securities to the public as a representative of a broker/dealer.
240
IMPORTANT, know when its talking about an exempt transaction or security? What is the difference between and Exempt Transaction and Exempt Security?
Remember, an exempt transaction is a verb—there is an "action" taking place, while an exempt security is a noun.
241
Regarding penalties for violating security act, what is the max fine and jail time?
Also what happens if the person proves he had no knowledge of the rule or order?
Max file is $5,000 and 3 years in Jail.
No person, however, may be imprisoned for violation if he proves that he had no knowledge of the rule or order. Can be fined.
242
Securities issued by a building and loan or similar association are exempt securities...
So if an agent is employed by the issuer of exempt securities to sell the security, he is excluded from agent.
243
Variable annuities are securities while fixed annuities are not.
Options contracts, interests in merchandising marketing programs, and common stock are securities under the USA.
244
A potential client is not very forthcoming with financial information, objectives and goals. In order to be able to make suitable recommendations to a client,
You would also make reasonable inquiry about the client's financial situation, objectives and needs. In the meantime All you can do is unsolicited orders.
Unless otherwise said in the question, always assume its a client of an agent.
245
Talk about who has to notify the administrator if a agent leaves one BD for another.
Also If a IAR leaves on Fed covered adviser for another, who must inform the administrator?
If an agent is hired away from a broker/dealer by another broker/dealer, both broker/dealers and the agent must inform the Administrator.
If an investment adviser representative is hired away from a federal covered adviser by another federal covered adviser, only the investment adviser representative must inform the Administrator.
246
When an issue is registered by coordination, it is also registered under the provisions of which act?
Securities Act of 1933. THATS FEDERAL RELATED.
Registration by coordination coordinates state registration of a security with federal registration of that security. Securities are registered at the federal level under the Securities Act of 1933.
247
If a firm sells you unregistered non-exempt security, they can rectify the situation by offering a:
rescission. Making you whole again.
Buying back the security, plus any losses, interest on original amount minus gains.
248
Since the stock was brought to the attention of the client by the firm's market letter, this could not be considered an unsolicited order. So if its unsuitable:
Therefore, it is upon the agent to emphasize the unsuitable nature of this security, even if the customer is excited about the stock.
249
If a broker/dealer wishes to conduct operations on the premises of a financial institution, it is required to be under common control with the institution?
NO, its not required for the BD and Financial Institution to have any relationship other then a business one
250
Do Investigations of serious violations must be open to the public
NO, they dont need to be open to public.
251
In which situation can an Administrator enforce subpoena from another state?
An Administrator in State A may enforce subpoenas from another state only if the alleged violation would also be a violation in his state as well.
252
Do, the total amount of the security to be offered in other states need to be specified
NO, although identifying those states is required,
253
What generally provides the basis on which the registration fee is calculated.
The amount of the security to be offered in the state of registration is required
254
Under what circumstances is an employee of a licensed broker/dealer in a state allowed to sell exempt securities as an unregistered agent?
Under no circumstances is an employee of a licensed broker/dealer in a state allowed to sell exempt securities as an unregistered agent.
It is unlawful for a person to transact business on behalf of a broker/dealer unless that person is registered as an agent in the state. Only individuals selling on behalf of the issuer may qualify to be exempt from registration as an agent.
255
Must a broker/dealer offering a security for sale be prepared to sell a security at a quote price:
be prepared to sell the security at the quoted price.
A dealer must honor his quotes.
When the offer is to sell, the dealer must be ready to sell at his quoted price. If the quote was to buy, then the dealer must honor the quote to buy. The broker/dealer's cost is not a relevant factor - all quotes are based on the current market.
256
Under the Uniform Securities Act, the Administrator may deny or revoke the exemption from registration for?
The Administrator may deny or revoke any transaction exemption except those involving a federal covered security.
The only security exemptions where the Administrator has this power is in the case of securities issued by non-profit organizations and investment contracts of employee benefit plans. The order must pertain to a specific transaction or security.
257
If an Advisor with discretion of clients assets and charges more then $500 in advance for 6 months or more. He must disclose the following...
1: anything financial related that the advisor has that could prevent contractual obligations.
2: a legal or disciplinary event that is material that questions the integrity.
3: Conviction or pleaded not guilty within 10 years or currently engaged in lawsuit
4: Advisor found to have violated SRO rules, resulting in suspension, expulsion or fine of $2500+
258
Does Invest Advice have to be in writing?
An investment adviser provides advice related to securities for compensation. However, the advice may be given orally or in writing.
259
How long can you continue to exercise discretionary investment authority under an oral agreement with the client?
While it is true that an investment adviser may trade using discretion and with oral approval for up to 10 days, that is only a convenience to be used while awaiting delivery of the written authorization.
260
An interest in which of the following is a security under the Uniform Securities Act?
Merchandising marketing scheme.
Multilevel distributorship arrangement.
Oil and gas drilling program
Cattle feeding program.
The correct answer was: I, II, III and IV.
The USA considers interests in merchandising marketing schemes, multilevel distributorship arrangements, oil and gas drilling programs, and farm animals, whether it is a feeding or a breeding program, to be investment contracts and, therefore, securities. The best strategy is to memorize the short list of things that are not securities rather than try to remember all of the things that are.
261
Is Recommending securities transactions based on third-party research, without disclosing this fact to clients unethical or deceptive?
is not unethical or deceptive.
262
Is The purchase of options through the Internet by a state resident under the administrators jurisdiction?
NO
263
Can the firm deny registration if a foreign securities regulator suspends the firm.
Yes the admin may Deny registration, as any action by a foreign securities regulator may result in a denial by the Administrator
264
The names and addresses of the agents the broker-dealer intends to register is included on the application for registration of a broker-dealer?
TRUE
265
Agents may use their own judgment when effecting transactions by deciding which of the following choices without obtaining the client's written consent?
Price
Security
Time
Price and Time
266
A company is conducting an IPO. Its shares will be listed on Nasdaq. For how long does a broker-dealer that is part of the selling group need to make the prospectus available to investors?
25 days
If the new issue is going to be traded on a public stock exchange, then a prospectus must be available for at least 25 days after the effective date.
267
If a new securities issue is being registered with the Securities and Exchange Commission pursuant to the Securities Act of 1933, the easiest method of state registration is:
Registration by coordination
Explanation: Under registration by coordination, the filing information given to the Securities and Exchange Commission for federal registration is filed with the state. When the federal registration becomes effective, the state registration becomes effective.
268
An agent could sell to a resident of another state if:
Correct Answer: The agent, the dealer, and the security are all properly registered in that state
Explanation: It is only legal to sell to a resident of another state if the broker-dealer, the agent, and the security are all properly registered in that state.
269
T/F
Limited partnership interests securities is not exempt under the Uniform Securities Act?
True
270
T/F
The agent may do business in the state if both he or she and the broker-dealer are registered in the state.
True
If an agent is going to solicit securities transactions in a state, he or she must be registered in that state. In addition, an agent may not be registered in the state unless his or her broker-dealer is also registered in the state.
271
T/F
The broker-dealer may solicit the customer in State B without registering in State B.
True
If a broker-dealer effects a transaction in a state (unless an exemption is available), the broker-dealer must be registered in that state. One of the exemptions available, however, covers the instance where an existing customer of a registered broker-dealer is vacationing in another state. That customer may be contacted while on vacation in the other state without the broker-dealer being required to register in that state.
272
Inspectorial Powers
A state administrator's or other regulatory entity's power to initiate investigations to determine whether provisions of the Uniform Securities Act have been violated or are about to be violated.
273
Definition of 'Retail Investor'
Individual investors who buy and sell securities for their personal account, and not for another company or organization.
Also known as an "individual investor" or "small investor".
274
What can An Administrator who requires the posting of a bond accept in lue of a bond?
The state Administrator may accept a deposit of cash or securities in lieu of a bond. The Administrator may determine the type of securities acceptable for deposit but may not altogether disallow deposits of securities in lieu of a bond.
275
An applicant for registration as an investment adviser indicates that the firm will base its investment decisions on psychic readings and other nonfinancial criteria. According to the Uniform Securities Act:
The Administrator can only deny/postpone registration only for those reasons specified in the law. Otherwise this is ok.
The state Administrator only may cite reasons found in state law to disqualify a person from registration (i.e., the felony conviction, violation of commodities laws, misleading statements, etc.). The law does not say anything about methods of analysis for advisers, except that it is a disclosure item. (75485)
276
Is A broker-dealer permitted to publish or display quotes (bid and ask prices) on behalf of its clients or for its own account?
eg: A client requests that her agent display a quote in a thinly traded security. The client is the majority shareholder in this security and the broker-dealer honors the request and displays the quote. Which of the following statements is TRUE?
YES: This would be permissible if the broker-dealer believed the quote was bona fide.
The broker-dealer must believe the quotes are bona fide and not intended to manipulate the market price of a security.
277
Definition of 'Regulation T - Reg T'
Definition of 'Regulation T - Reg T'
The Federal Reserve Board regulation that governs customer cash accounts and the amount of credit that brokerage firms and dealers may extend to customers for the purchase of securities.
.
According to Regulation T, you may borrow up to 50% of the purchase price of securities that can be purchased on margin. This is known as the initial margin.
278
hypothecation
The established practice of a borrower pledging an asset as collateral for a loan, while retaining ownership of the assets and enjoying the benefits therefrom. With hypothecation, the lender has the right to seize the asset if the borrower cannot service the loan as stipulated by the terms in the loan agreement. Hypothecation also refers to securities in a margin account that an investor uses as collateral to borrow funds from a brokerage.
279
According to the Investment Advisers Act of 1940, an advisory fee that increases and decreases proportionately with the investment record of an appropriate securities index is called a(n):
Fulcrum fee
A fulcrum fee is averaged over a specific period. It increases and decreases proportionately with the investment performance of a client's account, in relation to the investment record of an appropriate index of securities. If the client's account outperformed the index, the adviser would be entitled to an additional fee. If the client's account underperformed the index, the fee would be reduced. (75723)
280
Fulcrum fee
According to the Investment Advisers Act of 1940, an advisory fee that increases and decreases proportionately with the investment record of an appropriate securities index is called a(n):
A fulcrum fee is averaged over a specific period. It increases and decreases proportionately with the investment performance of a client's account, in relation to the investment record of an appropriate index of securities. If the client's account outperformed the index, the adviser would be entitled to an additional fee. If the client's account underperformed the index, the fee would be reduced. (75723)
281
Your client is planning a two-week fishing expedition. His friend appears at your office with a handwritten note from the client, giving the friend trading authorization over the account. According to the Uniform Securities Act:
Because the authorization is in writing, it is acceptable
This arrangement would be referred to as a third-party trading authorization. The standard requirement is that it be in written form. The handwritten note from the client would be acceptable. (75699)
282
Which of the following choices is a custodian's primary goal under the Uniform Prudent Investor Act?
Investing with an eye toward the risk/reward profile of the entire account.
No class or type of investment is specifically banned under the Uniform Prudent Investor Act (UPIA). The Act looks at the portfolio as a whole and assesses the risk/reward composition of the account when determining if an asset mix is acceptable. The standard of prudence is applied to the entire portfolio as opposed to individual investments. (75768)
283
An investment adviser is in charge of managing the assets of a large charitable trust. The income generated by the portfolio is used to support schools for disadvantaged children. Given the nature of the trust and the Uniform Prudent Investor Act (UPIA), which of the following investments should the adviser NOT recommend for the trust's portfolio?
Tax-exempt municipal securities
One of the main reasons for purchasing municipal securities is that they generate tax-exempt income. The trade-off for investors is that municipal securities usually have lower yields. Charities and nonprofit organizations do not pay income taxes. Their income is already tax-exempt. Therefore, the trust would get lower yields without corresponding tax benefits if it purchased tax-exempt municipal securities. (75847)
284
Investment advisers should consider all relevant information about a customer when making specific investment recommendations. Including client investment experience
IAs may not consider information that was not provided to them directly by the client.
285
True or False: Principals must approve discretionary orders prior to entry.
False. The orders must be approved promptly afterward.
286
What triggers a BD’s filing of a Suspicious Activity Report (SAR)?
Any suspicious transactions of $5,000 or more
287
Define painting the tape.
Traders effecting transactions back and forth to create a misleading appearance of activity
288
Does the payment date requirement of Regulation T apply to cash or margin accounts?
Payment is required within 5 business days for both (100% in a cash account, 50% in a margin account).
289
Is an individual who represents the issuer of a private placement considered an agent?
No, since the individual is involved in an exempt transaction.
290
Is an organization that provides ratings of securities and is nationally known considered an IA under the USA?
No
291
True or False: The USA defines a bank providing investment recommendations to its clients as an IA.
False. Banks are excluded from the IA definition.
292
True or False: A firm producing investment research for BDs to deliver to clients is considered an IA under the USA.
True. Since advice is being provided, as a business, and compensation is received, the ABC test is met.
293
True or False: The USA classifies an agent of a BD who also manages wrap accounts as an IA.
No. IAs are firms, not individuals.
The question is asking about a BD.
294
Is an adviser to a mutual fund considered an IA under the USA?
No, mutual funds advisers are federally covered and are excluded from the IA definition at the state level.
295
T/F mutual funds advisers are federally covered and are excluded from the IA definition at the state level.
True
296
True or False: The CEO of an advisory firm who establishes investment policy for the firm must register as an IA.
False. The CEO would be considered an IAR, not an IA.
The question is trying to trick between IA and IAr
297
An individual employed by an IA to manage the research dept. would be required to register as an ______ under the USA.
IAR
because he is developing the research that the firm will give to customers.
298
True or False: Securities issued by provinces and municipalities of Canada are subject to state registration.
False. Securities issued by Canadian provinces or municipalities are exempt from registration.
Securities are exempt, they dont have to register with state.
299
Are bonds issued by the City of New York exempt from state registration?
YES
300
True or False: Securities issued by the states and municipalities of Mexico are exempt from registration under the USA.
True. An exemption is provided to securities issued by foreign governments with whom the U.S. has diplomatic relations.
301
Securities issued by any government with whom the U.S. has _____________ relations are exempt from state registration.
diplomatic
302
________ issued by insurance companies are exempt from state registration.
Bonds
303
Are bonds issued by a charitable organization subject to state registration?
No. Securities issued by non-profit organizations are exempt from registration.
304
What criteria must be met for commercial paper to be exempt from registration?
A 270-day maximum life, minimum denomination of $50,000, rated in one of the top-three categories according to an NRSRO
305
Would securities that are traded on the Toronto Stock Exchange be subject to state registration requirements?
No. These secondary market transactions are considered exempt from registration according to the USA.
306
What are Bankers' Acceptances similar to?
Short Term Debt, sometimes call Commercial Paper.
307
What does the USA consider a security issued by an investment company that is registered under the Inv. Co. Act of 1940?
The securities are considered federal covered.
308
True or False: Agents selling unregistered, non-exempt securities to banks and trust companies are violating the USA.
False. Transactions with banks and trust companies are considered exempt transactions.
309
If a Nasdaq stock trades in the secondary market, does the USA consider it an exempt security or exempt transaction?
Exempt security
310
True or False: According to the USA, debt issued by a fraternal organization would NOT be considered exempt.
False. Securities issued by non-profit organizations are exempt from state registration.
311
True or False: Occasional, secondary market transactions in an OTCBB stock are considered exempt transactions.
False. Only non-recurring isolated secondary market transactions are considered exempt transactions.
312
An intra-state offering would use which method of state securities registration?
Qualification
Intra-state mean in state
313
To use Filing (Notification) to register stock, the offering price must be at least $______ per share.
$5
314
Which method of state securities registration would likely be used for an IPO being offered in several states?
Coordination
as securities are being registered with the SEC and any States where they are to be offered and/or sold. This is by far the most common method of registration.
is for a "security for which a registration statement has been filed under the Securities Act of 1933 in connection with the same offering ..."
315
Registration by Coordination requires issuers to meet requirements of the USA as well as what other Act?
The Securities Act of 1933
Coordination is for a "security for which a registration statement has been filed under the Securities Act of 1933 in connection with the same offering ..."
316
An electronic system used to register investment advisers is called _____
Investment Adviser Registration Depository (IARD).
317
A surety bond may be required if an investment adviser has _____________ or __________ of client assets.
discretion or custody
318
In place of a surety bond, the Administrator will accept a deposit of _______ or _____________.
Securities or Cash
319
True or False: A Consent to Service of Process must be filed by BDs, but not their agents.
False, everyone who registers must file consent of service
320
The application for registration of an agent or IAR becomes effective in _____ days.
30
321
BD records must be kept for at least ____ years.
3
322
BD records must be kept for at least ____ years.
5
323
True or False: A state may require a registration fee from the issuer of a Nasdaq security.
False. Nasdaq securities are federal covered securities.
324
True or False: An Administrator may not require a sales report from the issuer of an OTC security.
False, the administrator can require any sales report they want
325
What form is used to notify Administrators that an IA is maintaining custody of client assets?
ADV, is used to notify administrators that the IA has custody or clients assets.
326
What document, regularly provided to clients, will IAs use to notify clients of the location of their securities?
The client's account statement
327
Investment advisers with custody must have an annual audit done by a(n) ____________________.
independent CPA.
328
An IAR has no place of business in State A, but has 6 or more individual clients in State A. Where must she register?
She must register in any state where she has 6 or more individual clients (even if she has no office in the state).
Basically if you have more then 5 individual clients even with no location, must register with state.
329
An IAR of a federal covered adviser has no office in NY, but has 6 or more clients living in NY. Must he register in NY?
No. IARs of federal covered advisers are only required to register in states in which they have an office.
330
If an agent has withdrawn registration, the Administrator may still take action for ___ year(s) after the withdrawal.
1 year,
331
For an agent to exercise discretion over a client's account, the client must have signed a ________________________.
Power of attorney or discretionary agreement.
332
Accepting orders for unregistered, non-exempt securities is allowed if clients attest that the trade was _____________.
unsolicited
333
True or False: An IA that has full discretion over a client's account at a separate BD is considered to have custody.
True
334
An IAR may exercise discretion over a client's account based on oral authorization from the client for up to _____ days.
10
335
May a cash account be opened without the customer's signature?
Yes, can be opened without a signature. (ex online account, no signature needed)
336
May a margin account be opened without the customer's signature?
No. Margin account is like a loan account, u need to sign to open.
337
Before an IA may assign a client's contract to another advisory firm, it must obtain _________________________.
the client's consent.
338
An IA that is also a BD may execute agency cross trades, earning commission on both sides, if one side is_____.
unsolicited
339
Is the payment of a stock dividend considered an offer or sale?
No, a payment or dividend is never considered an offer or sale
340
Is the conversion of a bond into stock considered an offer or sale?
No, a conversion of a bond into stock not an offer or sale.
341
Under the Uniform Securities Act, the statute of limitations for fraud is ____ years.
5
342
_____________ is an organization consisting of state Administrators.
The North American Securities Administrators Association (NASAA)
343
True or False: Securities issued by registered investment companies are considered federal covered securities.
True
344
Administrative cease-and-desist orders may be appealed in a state court if application is made within _____ days.
60 days, then if its appealed the administrator has 15 days to comply.
345
When must BDs provide payment of customer free credit balances resulting from completed transactions?
and what is a Free Credit Balance
Upon customer request.
free credit balances is the cash in a brokerage account that can be withdrawn when the customer wants. It originates from paid dividends, interest payments and security sales.
346
List some important considerations when determining the suitability of recommendations made to customers.
Investment objectives, financial situation, risk tolerance, tax status, investment experience
347
Joe places an order to sell 10,000 shares of ABC whenever it's best. Is written discretionary authority required?
No. Since discretion is limited to time and/or price, written authority is not required.
348
Define the word discretion
the right to choose what should be done in a particular situation
the quality of being careful about what you do and say so that people will not be embarrassed or offended : the quality of being discreet
349
Can a clients fund be co-mingled with other client funds?
Yes, they must not be co-mingled with firms funds but its ok to co-mingle with other clients. Dont have to be segregated
350
What 3 details must be provided by a client so a BD may accept a discretionary order without written authorization?
Action (buy/sell), asset, and amount. Time and/or price may remain the BD's discretion without written authorization.
351
True or False: The initial transaction in a margin account requires a written margin agreement promptly after the trade.
True
352
True or False: Charging an unreasonably high commission is acceptable provided disclosure is made to client.
Even when providing disclosure, charging unreasonable high commission is un acceptable
353
What is required of a BD controlled by/affiliated with an issuer of a security being sold to/purchased by a customer?
Both oral and written disclosure of the relationship.
When a BD is also affiliated with the issuer. You must give the customer oral and then written disclosure.
354
If a client gives little information when opening an account, what securities may an agent recommend to the client?
Only securities that are suitable based on the information the client did provide or NONE
355
After receiving an effective date, what information may an issuer change by amending its registration statement?
The number of shares being offered. A new registration is required to change offering price or underwriter compensation.
356
An IA directs transactions to a BD who rebates 15% of the commissions to the IA for the business. Is this acceptable?
Yes, provided the IA provides written disclosure (often in Form ADV) to clients.
Its ok for a IA to get commission from a BD for a refereed transaction as long as its disclosed to customer.
357
Does a registered principal approve all orders prior to execution?
Nope, dont have to approve all orders prior to excecution, but is required to review promptly afterwards
358
A BD located and licensed in Canada may contact what types of individuals in the U.S.?
Existing clients who are temporarily in the U.S.
359
Identify 2 significant creations that are credited to the National Securities Markets Improvement Act (NSMIA). 1996.
Federal Covered Advisers and Federal Covered Securities
360
When selling mutual funds, an agent must adequately disclose the _____________.
Sales Charge.
361
Is it acceptable to recommend that a client sell a mutual fund in order to buy another fund with the same objective?
No. This is a prohibited practice and would be considered an unsuitable recommendation.
No this can be considered churning because there is no benefit to the customer for this.
362
List some of the exclusions from the definition of a BD.
Agent, issuer, bank, or a BD with no office in the state that only deals with institutions or its existing clients
363
What type of advice may lawyers, accountants, teachers and engineers provide and not be considered an IA?
Advice that is incidental to their profession. If a separate fee is charged for the advice, the exclusion is lost.
364
May the Administrator set minimum net capital requirements for BDs?
Yes, but the requirement on BDs may not exceed the federal (SEC) requirement.
365
May the Administrator set minimum net worth requirements for IAs?
Yes, but no state may impose a requirement that exceeds the requirement of the IA's home state.
366
True or False: An administrator may cancel a registration without the opportunity for a hearing.
True. Cancellation may be due to the death of an agent, or a firm no longer being in business.
367
According to the USA, all investment advisory contracts must be in __________ form.
written
368
Firms must keep client information confidential unless disclosure is authorized by the _______ or a ___________________.
client or a regulatory authority.
369
If an IA maintains custody of a client's funds or securities, how often must account statements be provided to clients?
Statements must be sent quarterly.
370
If an IA maintains custody of client funds, are unannounced audits required?
Yes. IAs must arrange for unannounced audits on an annual basis.
371
True or False: An IA maintaining custody of client assets need not notify the Administrator.
False. The Administrator must be notified in writing using Form ADV.
372
When an IA has custody, with whom are the assets held?
Assets are held by a qualified custodian. Clients must be notified of custodian's name, address, and manner of holding.
373
As it applies to a BD or IA, what does the term "exclusion" mean in the USA?
Exclusion signifies that a person does not meet the definition of a BD or IA in the state.
374
What are the 3 components that must be met for a firm to be defined as an IA?
1) Provide advice regarding securities, 2) Do so as a business 3) Receive specific compensation (the ABC test)
375
Define "assignment" as it relates to IA contracts.
The transfer of ownership of a client's account from one advisory firm to another. Client consent is required.
376
What may an investment adviser do with full discretion, but not with limited discretion?
Withdraw money from the account
377
When may the Administrator cancel a registrant's registration?
If the registrant has died, ceased doing business, been declared mentally incompetent or cannot be located
378
Regardless of assets under management, IAs must register with the SEC if any client is a __________.
registered investment company.
379
True or False: A stock dividend is considered a sale
False
380
True or False: The exercise of convertible securities would constitute a sale under the USA.
False, convertible securities are not a sale because you already own them
381
True or False: Two friends, anticipating a rise in value, purchase property. The property is considered a security.
False
382
Identify the three forms of state securities registration.
Notification (filing), coordination, qualification
383
How would a well-established corporation register a subsequent offering to be sold in multiple states?
Notification (filing)
384
True or False: Paperwork related to coordination is filed with the Administrator at the same time as the SEC filing.
False. Registration will become effective simultaneously with SEC registration, but need not be filed at the same time.
385
What is the minimum cooling-off period for registration by notification?
5 days
386
The rule governing the disclosure requirement of an IA to its clients is called the __________ Rule.
Brochure
387
May the Administrator levy fines on a registrant?
No, administrator can levy fines but can ask court do to do
388
May the Administrator initiate criminal or civil liability action against a registrant?
Yes, administrator can initiate but enforce, the court has to do that.
389
If a firm meets the BD definition in the state, are there any exemptions from registration under the USA?
No. Firms that meet the BD definition are required to register in the state.
If you are a BD you must register with state no matter what.
390
If an IA meets the IA definition in a state, are there any exemptions from registration under the USA?
Yes, no office in the state and a) its clients are institutions or b) 5 or fewer retail clients in the last 12 months
391
Is there an exemption for agents conducting business in a state? If so, what are the guidelines?
Yes, no place of business in state and a client visits the state or existing client moves to the state (regist. pending)
392
Is there a registration exemption for IARs doing business in a state if employed by an IA registered in another state?
Yes, if the IAR has no office in the state and has 5 or fewer retail clients in the state in the past 12 months.
393
May an adviser borrow money from a client?
Yes, if the client is in the business of lending money, or if the client is an affiliate of the adviser, or is a BD.
Otherwise no
394
May an adviser or BD lend money to a client?
Yes, if the adviser or BD is in the business of lending money.
395
What is required of an IA that uses third-party research?
The IA must disclose the source of the research to its client.
396
Is an adviser required to disclose the source of raw data used to determine the recommendations to its customers?
No. Disclosure is not required if the IA's recommendations are based on its own independent conclusions.
397
Under the USA, all IA contracts must be __________ and must disclose __________ provided and related ______.
Under the USA, all IA contracts must be in writing and must disclose services provided and related fees.
398
What is required of an IA if the firm goes through a majority change in ownership?
The firm must obtain written permission of its clients to assign the contracts. If not, the contracts will be voided.
399
An IAR leaves his firm and his clients are distributed to other IARs. Is this an assignment of the contracts?
No. The contracts are still with the original IA firm. The change of IAR does not constitute an assignment.
400
How are advisory fees most commonly charged?
As a percentage of assets under management over a specific period of time
401
How are advisory fees most commonly charged?
As a percentage of assets under management over a specific period of time
402
When will an offer fall under an Administrator's jurisdiction?
If the offer originated in, was directed in, or was accepted in the Administrator's state
403
If the Administrator believes a person has violated or is about to violate the USA, may a stop order be issued?
Yes
404
Does the Administrator require proof of wrongdoing to initiate an investigation?
No, but she does need to be able to refer to a rule or order when starting the investigation.
405
If found civilly liable for violating the USA, what is the penalty?
The original amount paid, plus the legal rate of interest, attorney fees, and court costs, minus any cash received
406
Under the USA, are banks and bank holding companies excluded from the IA definition?
No. Banks, savings institutions and trust companies are excluded, but bank holding companies are not.
407
Who is the official that monitors and administers a state's securities laws?
The Administrator or Commissioner
408
Is an IAR who is employed by a federal covered adviser required to register in the state?
Yes. IARs of federal covered advisers must register in any state in which they have a place of business.
409
If registering an IPO, an issuer would most likely use what form of state registration?
Coordination
410
What form of state registration is not available in all states?
Notification (filing)
411
What is selling away?
An agent executes securities transactions for compensation and does not record the trades on the BD's books and records.
412
May an agent share in the profits of a client's account?
Yes, in a joint account with proportionate sharing. Permission is required from both the client and the firm.
413
If an agent has been given time and price discretion on a client order, is written power of attorney required?
No. Provided the client determines the action (buy/sell), amount, and asset, power of attorney is not required.
414
If an adviser exercises full discretionary control over a client's account, does this constitute custody?
Yes. Full discretionary control (having the ability to remove funds from the client's account) is considered custody.
415
When does a durable power of attorney become automatically cancelled?
Upon the death of the grantor of the POA
416
If the Administrator believes a person has violated or is about to violate the USA, may an injunction be issued?
No. The Administrator may not issue an injunction. Injunctions may only be issued by a court of competent jurisdiction.
417
The appeal of an administrative order is made before a court of _____________.
competent jurisdiction (state court).
418
Does the appeal of an administrative order act as a stay of the order?
No. The order remains in effect until the outcome of the hearing.
419
The maximum criminal penalty for violations of the USA is ____ years in prison and/or up to a $______ fine.
3 years in prison and/or up to a $5,000 fine.
420
What is a letter of rescission?
An offer to buy back a security from a client when that security was sold in violation of the USA
421
A customer must respond to a letter of rescission within _____ days or lose the right to sue.
30
422
What is soft-dollar compensation?
Non cash compensation paid by a BD to an IA for directing securities transactions.
423
What forms of soft-dollar compensation are NOT acceptable?
Rent, travel expense reimbursement, hardware, furniture, entertainment, meals
424
True or False: Under the UPIA, an adviser should never recommend speculative investments to conservative investors.
False. The management of risk is what is important. Investments such as options or commodities may reduce overall risk.
425
May a state prevent the sale of a federal covered security in its state?
No. Federal covered securities are not regulated by the state.
426
True or False: An IA with fewer than 15 retail clients in the past 12 months is exempt from registering under the USA.
False. The USA de minimis exemption for advisers is 5 or fewer individual clients.
427
What type of information will be found in an investment adviser's ADV Part I?
Firm name, # of employees, nature of business, history of officers/directors, legal/disciplinary action in past 10 years
428
Any material changes to Form ADV must be filed ___________.
promptly (within 30 days).
429
When are non-material (routine) changes to Form ADV required to be filed?
Routine items require an amendment within 90 days after the end of the IA's fiscal year.
430
When is Form ADV-W filed?
When an adviser withdraws its registration
431
ADV Part I is a disclosure document for use by the _____ and the ________________.
SEC and the Administrator.
432
What types of changes would be considered significant changes to the adviser's ADV?
Change in fees, custody, and the name or location of adviser
433
Identify the acronym: USA
Uniform Securities Act
434
Identify the acronym: NSMIA
National Securities Markets Improvement Act 1996
435
Identify the acronym: POA
Power of Attorney
436
To be allowed, a soft-dollar arrangement must benefit ____________.
The Client
437
Identify some permissible uses of soft-dollar arrangements.
Soft dollars are permitted for obtaining research reports, software, and fees for attending conferences/seminars.
438
What are some of the examples of items that cannot be covered by a soft-dollar arrangement?
Advertising, travel expense reimbursement, meals and entertainment, and computers
439
Who enforces the Uniform Securities Act?
The Administrator
440
What's notice filing?
The process in which information that is filed with the SEC is also filed or shared with the Administrator.
441
True or False: The Administrator may bring a case in a civil court.
True. Both the Administrator and a private citizen may bring a case in civil court.
442
What is the general definition of an issuer?
Any person who issues or proposes to issue a security, such as government entities and corporations.
443
An _______of an ________ is an individual who represents an issuer in effecting transactions with the general public.
agent of an issuer
444
What's an issuer transaction?
A transaction in which the issuer receives the proceeds.
445
Can a BD punish one of its agents for responding to a subpoena?
No. This is a prohibited action.
446
What form do IAs file to register?
ADV
447
Define the term custody.
The legal responsibility for, or control over, someone’s assets
448
What are some reasons for the Administrator denying a securities' registration statement?
Filing false registration documents, issuer's business is illegal, spread is unfair, or failing to pay the filing fee.
449
Define conversion.
The prohibited act of an agent using client funds for personal use.
450
True or False: The Administrator may issue an injunction.
False. Only a court may issue an injunction, however, the Administrator may issue a cease and desist order.
451
May the Administrator revoke the registration of a federally covered adviser?
No. However, she may require the IA to notice file.
452
May an IA use testimonials in its promotional material?
No
453
An newly hired investment adviser representative wants to put the initials "IAR" on her business card. Is this allowed?
No. However, she may spell out "Investment Adviser Representative."
454
May an agent and a client share in an account?
Yes, with firm & customer's approval provided the sharing in gains & losses is proportionate to each party's investment.
455
List the entities that make up NASAA.
All 50 U.S. states, the U.S. Virgin Islands, Puerto Rico and the District of Coloumbia
456
True or False: Washington D.C. is a member of NASAA.
TRUE
457
Under the USA, is stock issued by an electric company an exempt security or an exempt transaction?
Securities issued by public utilities are considered exempt securities.
458
NSMIA indicates that securities listed on the NYSE, NASDAQ and Toronto Exchange are ________ securities.
federal covered
459
Is an individual who represents an issuer in the sale of registered stock considered an agent?
Yes. An individual who represents an issuer of securities being offered publicly must register as an agent.
460
Under the USA, when must a balance sheet be provided to a client?
A balance sheet must be provided if the IA collects prepaid fees of $500 or more, 6 months or more in advance.
461
An IA's brochure must have the same information that appears in what part of Form ADV?
Part 2 of Form ADV
462
True or False: If an IA's clients are institutions (e.g., banks and BDs), it is exempt from registration under the USA.
True. However, this is provided that it has no place of business in the state.
463
Is an IA always required to include a balance sheet in Part 2 of its Form ADV?
No. A balance sheet is required only if the IA collects prepaid fees.
464
What is Part 2 of Form ADV?
The portion of an IA's application that may be used to satisfy the Brochure Rule (disclosure requirement)
465
Administrators may take action within ___ days if a judgment is disclosed prior to a registration's effective date.
90
466
Is a bank holding company that occasionally executes securities transactions considered a BD?
Yes. Under the USA, bank holding companies are not excluded from the BD definition
467
True or False: A BD who promotes wrap accounts to its clients would have to register as an IA under the USA.
True. Since the wrap account involves a fee for advice, the BD must register as an IA.
468
An investment adviser with more than $___________ under management must register with the SEC.
An investment adviser with more than $110 million under management must register with the SEC.
469
True or False: Federal covered securities issuers may be required to pay a filing fee to an Administrator.
True. Certain types of federal covered securities issuers may be required to pay a filing fee.
470
What is the purpose of an annual updating amendment.
To determine if an IA is eligible for continued SEC registration; it is filed within 90 days of its fiscal year end
471
Name some of the federal covered securities
Securities listed on an exchange, issued by an investment company, and sold as a private placement (Reg. D Rule 506)
472
True or False: A state Administrator may require notice filing by an issuer of an NYSE security.
False. Notice filing is required for mutual funds and Reg D (Rule 506) offerings, but not exchange listed securities.
473
In lieu of a final prospectus, what may an RR send to clients?
Clients may be sent a preliminary prospectus along with additional documents containing the required information.
474
True or False: BDs must file retail communication with the Administrator.
True
475
Is an employee of a BD who solicits new customers for an IA considered an IAR?
Yes. According to the USA, any person who solicits investment advisory service is considered an IAR
476
For certain federal covered securities, may an Administrator require the issuer to complete the notice filing?
Yes. Notice filing is the process by which information filed with the SEC is also filed/shared with the Administrator.
477
True or False: A partner, officer, or director of a BD is always considered an agent of the BD.
False. A partner, officer, or director is deemed an agent of a BD if she is involved in the purchase/sale of securities.
478
If an IA is in possession of checks drawn by its client and made payable to third parties, how many custody be avoided?
By ensuring that it forwards the check within three business days
479
Definition of 'Regulation D - Reg D'
Definition of 'Regulation D - Reg D'
A Securities and Exchange Commission (SEC) regulation governing private placement exemptions. Reg D allows usually smaller companies to raise capital through the sale of equity or debt securities without having to register their securities with the SEC.
Investopedia Says
Investopedia explains 'Regulation D - Reg D'
Reg D offerings are advantageous to any private company or entrepreneur because they allow an entity to obtain funding faster and to avoid the costs associated with a public offering.
Even if the transaction only involves one or two investors, the company or entrepreneur wanting to raise capital still needs to provide the proper framework and disclosure documentation; however, these requirements are significantly less than what is required for a public offering.
480
Definition of 'Regulation T - Reg T'
Definition of 'Regulation T - Reg T'
The Federal Reserve Board regulation that governs customer cash accounts and the amount of credit that brokerage firms and dealers may extend to customers for the purchase of securities.
Investopedia Says
Investopedia explains 'Regulation T - Reg T'
According to Regulation T, you may borrow up to 50% of the purchase price of securities that can be purchased on margin. This is known as the initial margin.
481
summarily
in a prompt or direct manner; immediately; straightaway.
482
What is an offer to sell?
Any activity in an effort to dispose security for value.
483
Is stock acquired through a merger an offer to sell?
No stock dividends, mergers, and bona fide loans are not offers to sell?
484
is the issuance of warrants or convertible securities /or/ the issuance of stock rights to existing shareholders offers to sell?
Yes The issuance of warrants or convertible securities to anyone or stock rights to existing shareholders is considered an offer to sell the underlying security because they involve the payment of money to aquire stock.
485
Securities traded in Toronto Stock Exchange would be excluded from the definition of federal covered securities?
Yes. Federal covered securities include those on the NYSE, the AMEX, and all tiers of the Nasdaq Stock Market as well as investment companies registered under the Investment Company Act of 1940.
486
Can the Administrator require using a state sanctioned legend on the offering documents for federal covered securities?
No, The state may require a specific legend on registrations, but not on federal covered security offerings.
487
Is recommending securities transactions based on research supplied and not disclosing this fact to a customer unethical or fraualant?
No, this is ok because its just part of you doing research to find whats best for the customer.
488
Can an IA lend money to a client with full and fair disclosure?
No, this is unethical but not fraualant.
489
Supplying to his clients research reports prepared by a third-party firm without disclosing the source of the reports. Is this ok?
No, if you are supplying the customer with a report you have to disclose the source.
490
Which of the following are exempt securities under the Uniform Securities Act?
1: Common stock, not listed on any regulated exchange, purchased by an open-end investment company.
2: Preferred stock issued by an insurance company authorized to do business in this state.
3: Municipal bonds issued by Toronto, ON.
4: Private placements.
2 and 3. The questions is asking about exempt securities not exempt transactions.
491
Exclusions from Offer, offer to Sell, Sale or Sell. List all 5?
1: Gift of non assessable securities.
2: A Bona Fide pledge or loan.
3: Stock dividend or split.
4: Class vote by stockholders re merger or consolidation.
5: Act to judicially approve reorganization in which a security is issued in exchange for one or more outstanding shares.
492
If a customer insists on a trade that is not suitable for her what should you do?
Advise the customer that it isnt suitable, then if the customer really wants place the order. Its a good idea to get it in writing that the order was not solicited.
493
What states does a administrator have jurisdiction?
Where offer was made, received and accepted.
| The state where the confirmation or certificate was mailed dosnt matter.
494
List all 10 exempt securities from state registration or state filing of literature?
1: US and Canadian govt and municipal securities.
2: Foreign govt securities
3: Depository institutions (banks, trusts, saving institutions)
4: Insurance company securities (stocks and bonds, not veriable policies)
5: Public Utility Companies
6: Federal covered securities
7: Securities issued by non profits
8: Securrities issued by cooperatives (co-ops)
9: Securities of employee benifit plans
10: Certain money market instuments (commercial paper)
495
If on a visit to a company an agent overhears unreleased news that something bad is about to happen to a stock he has been recommending to customer, what does he do?
whenever something concerning regarding customers comes up the agent should share with supervisor and it is also appropriate that he stop recommending the stock.
496
Contract to dispose of a security. Is this an offer or a sale?
Sale. Sales involve any contract or disposition for value.
497
Under the USA what 6 items are not securities:
1: Insurance or endowment policies
2: Interest in retirement plan such as IRA or Keough.
3: Collectibles
4: Commodities
5: Condo used as personal residence
6: Currency
498
Are Variable annuities issued by an insurance company authorized to do business in this state exempt?
No, Variable annuities are not exempt from state registration because the payments from the annuity are dependent on the performance of a segregated fund invested in securities.
499
Are retirement plans are not considered securities.
No
500
As long as there are no more than 10 SUBSCRIBERS to pre-organization certificates, the transaction is ____.
exempt. Can make presentation to as many as you want, just cant have more then 10 subscribers.
501
Unisolated brokerage transaction. What are they?
Exempt transactions initiated by the client.
502
Only broker/dealers and investment advisers are required to maintain FINANCIAL RECORDS. The admin can examine financial records with prior notice.
Agents must maintain sales records and but there are no financial inspections of agents or investment adviser representatives as there are with broker/dealers and advisers.
503
If an IA has less then 5 retail customers during the year in a state and no place of business, does he have to register?
No. this is the de minimis exemption which applies to IA.
504
For private placement to individuals how many OFFERS can be made?
10 OFFERS (not sales) can be made in 12 month period.
505
Project Notes
Definition of 'Project Notes'
A short-term debt obligation issued to finance a project or endeavor past a specified milestone, or to fund multiple small projects on a short-term basis. Project notes are often used by municipalities to fund urban renewal programs and are guaranteed by the U.S Department of Housing and Urban Development.
Investopedia Says
Investopedia explains 'Project Notes'
Occasionally, organizations need funding for short-term projects that require one-time injections of cash to finance. Rather than issue long-term debt or seek alternative financing arrangements, short-term notes can be issued with the specific project written into the indenture so that the funds must be used for that purpose.
506
A newly registered agent agrees to share losses in customers' accounts in order to get more business. Under NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, this is:
Permitted with the authorization of the customer and the agent's broker-dealer
507
ABC Inc. wants to sell new stock to the public. Six of ABC's full-time employees sell the stock for ABC and receive a commission. These people would be considered:
Agents of the issuer
508
An attorney who advertises his or her advisory services in the yellow pages would have to register as a(n):
Investment adviser
509
A broker-dealer firm who receives a written complaint about an agent from a customer must:
Respond to it
510
An agent of a broker-dealer takes the Series 65 investment adviser exam and registers with the state as a sole proprietor IA firm. If he or she then resigns from the broker-dealer, he or she must:
Amend his or her Form ADV
If an agent of a broker-dealer firm who also operates his or her own IA firm terminates his or her registration with the broker-dealer, he or she would have to amend Form ADV. Remember, although IA firms do not have to be dually registered as agents with broker-dealer firms, most are. Since this dual registration is a conflict of interest, changes in status must be properly disclosed to customers on the IA's Form ADV.
511
Under the Uniform Securities Act, which of the following are required for an agent to lawfully share in the profits of a customer's account?
I. The customer's written approval
II. The written approval of the broker-dealer
III. The agent may share only in proportion to his or her own financial contribution to the account
Correct Answer:
I, II, & III
Explanation: To share in a customer's account, all three of the choices provided are required.
512
is Stock trading on the national stock exchange of Canada an exempt security?
No, Securities issued by Canadian corporations, whether they are listed on the Canadian exchange or not, are not exempt.
513
Can and agent Lend or borrow money or securities from a customer?
Agents may never engage in the practice of lending or borrowing money or securities from a customer.
514
Broker-dealers must keep their records in accordance with the:
Broker-dealers must keep their records in accordance with the Administrator's orders or rules in their home state.
515
Are solicitation of 'Tender Offer' a sale, offer or neither?
Neither.
Under the Uniform Securities Act, the solicitation of tender offers by corporations are not sales.
516
True/False A transaction of a guardian is exempt.
True, a guardian, bankruptcy or conservator transaction is exempt. Including administrator, marshal, sheriff, trustee etc are also exempt.
517
T/F Although the term trustee is found in the list of persons engaged in exempt transaction, the USA limits it to trustees in bankruptcy
True
518
The Administrator may require broker/dealers to keep and maintain account ledgers, correspondence, papers and memoranda, and blotters and books provided the state requirements do not exceed federal requirements under the Securities Exchange Act of 1934.
True
519
Does a BD or Agent need to register in a state if the security or transaction they are selling is exempt?
YES, Both the broker/dealer and the agent must be registered in the state where business is to be transacted, even if the securities or the transactions are exempt from registration.
520
Which people working for a BD, that act as agents, are automatically registered as agents
registered, officers, directors, or partners of the firm who act as agents will be automatically registered as agents.
521
an investment adviser who has custody of or discretionary authority over client assets or who charges fees of more than $500, six or more months in advance, is required to disclose what?
any condition that might affect its ability to carry out contractual obligations to its clients.
and almost any legal or disciplinary proceeding that would involve its integrity.
522
the following are excluded from the definition of an investment adviser
1: a federal covered adviser.
2: broker/dealers and their agents
523
What licenses do you have to have to sell variable annuities?
both insurance and securities.
If you split the comission with another agent, he/she must also have both licenses with same BD
524
Is Purchase of shares through the exercise of a warrant considered a sale? Why?
Yes, Upon the exercise of a warrant, the holder of the warrant purchases stock and the issuing corporation sells the stock.
525
Are IA excluded from the definition of BD.
NO, investment advisers frequently also carry registration as a broker/dealer
526
when/is it ok for a agent to register with two BD?
Multiple registrations are permitted if the broker/dealers are affiliated by direct or indirect common control, OR, an exception is made by the Administrator. In either case, each registration requires the filing of a separate Form U-4.
527
Is A Keogh plan, or any other retirement plan defined as a security under the USA
No. A Keogh plan, or any other retirement plan, is not defined as a security under the USA
528
Which of the following is considered a security:
A right or warrant, whiskey warehouse receipts, or debentures
A right or warrant, whiskey warehouse receipts, or debentures are defined as securities.
529
is A sale of stock through a rights offering to existing shareholders of the issuing corporation if no commission is paid, an exempt transaction?
YES
530
Can any customer who can prove a violation is entitled to collect against the bond?
YES
Under the USA, every bond shall provide for suit thereon by any person who has a cause of action under the provisions of the Act.
531
How often must Form ADV Part 2 be delivered to clients? How many days before the end of the advisors fiscal year?
It must be delivered to clients annually.
| 120 days of the end of the adviser's fiscal year
532
Another word for the Form ADV Part 2 is...
Brochure
533
If the Administrator wishes to conduct an examination of an investment adviser's books and records, how much advance notice must be given?
None, but it has to be during normal business hours.
534
What is the statue of limitations for criminal prosecution?
and
What is the statue of limitations for civil liability?
the statute of limitations for criminal prosecution (5 years) with the statute of limitations for civil liability (3 years from the date of the event or 2 years from discovery, whichever occurs first)
535
If you pay restitution to a client, can the administrator still prosecute you for violations of act?
Payment of restitution to a client does not prevent the Administrator from prosecution for violating the provisions of the act.
The admin can still prosecute you..
536
Can A lawsuit against a broker/dealer or adviser be avoided if restitution, costs, and interest are paid to a client.
A lawsuit against a broker/dealer or adviser can be avoided if restitution, costs, and interest are paid to a client.
537
a broker-dealer firm who is underwriting an initial public offering of a hot issue of stock could sell shares to who?
new issues of stock may not be withheld from the public regardless of whether they are hot issues or not. A "hot issue" is a new issue of stock whose price is expected to immediately go up in the secondary market.
Cant be sole to
II. Other broker-dealers
III. An agent of the firm
IV. An immediate family member supported by an agent of the firm
538
Under the Uniform Securities Act, a general circulation business or financial newspaper does not have to register as an investment adviser because:
It is a bona fide newspaper
Explanation: Under the USA, bona fide newspapers of regular and general circulation need not register as investment advisers.
539
Under the USA, applicants for registration as agents must disclose all misdemeanors they have ever been convicted of if they involved any aspect of the:
I. Securities business
II. Investment business
III. Banking business
IV. Insurance business
applicants for registration as agents must disclose all misdemeanors they have been convicted of if they involve any aspect of the securities, investment, banking, or insurance business as these are all considered to be 'investment-related businesses.'
540
When a broker-dealer firm acts as a dealer, its bid and ask prices for a security should be based upon:
The current market
Explanation: It is risky to act as a securities dealer in the secondary market since the bid and ask prices for securities must be based upon current market prices.
541
If an agent tells his or her clients that he or she has inside information but does not use it to execute trades.
Is he or she in violation of the Uniform Securities Act?
He or she is in violation of the Uniform Securities Act
Although the agent is not guilty of using inside information, he or she is guilty of making a misleading or untrue statement of a material fact in connection with the purchase or sale of a security.
542
Prior to a firm holding a securities seminar, one of the firm's telemarketers is directed to call invitees to gather more information. Which of the following questions could the telemarketer ask the invitees without being licensed as an agent?
I. Do you plan to attend the seminar?
II. What types of investments do you currently have?
III. What is your investment objective?
IV. After the seminar is over, would you be willing to submit an order if you are interested?
I, II, & III
Explanation: A telemarketer cannot solicit an order for securities unless he or she is registered as an agent of the broker-dealer firm.
543
can the Administrator require Investment adviser representatives to post a surety bond?
NO
the Administrator may require registered broker-dealers, agents, and investment advisers who have custody of or discretionary authority over client funds or securities to post surety bonds.
544
Under the USA, the Administrator may by order deny, suspend, or revoke any registration if he or she finds that the registrant has:
I. Been convicted within the past 10 years of a misdemeanor involving a security or any felony
II. Been the subject of an action of a securities regulator of a foreign jurisdiction within the past five years, revoking or suspending his or her right to engage in the securities business
III. Willfully violated or willfully failed to comply with any provision of the USA, Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, or the Investment Company Act of 1940
IV. Violated any Financial Industry Regulatory Authority (FINRA) rule
I, II, & III
Explanation: Although FINRA has broad powers, it is not a government agency. FINRA is the self-regulatory organization for the OTC market.
545
Do Advertising and sales literature need to filed on exempt securities or on securities sold in exempt transactions.
NO. Advertising and sales literature need not be filed on exempt securities or on securities sold in exempt transactions.
546
Can an agent sell an exempt security to a wealthy individual through private placement without stability information?
This is not permitted because an agent is required to make reasonable and suitable recommendations.
Investment recommendations must be suitable NO MATTER WHAT. to the client whether the client is a wealthy investor or not and whether the securities or transactions are exempt from registration or not.
547
What is the smallest order that can be placed for an institutional account?
There is no limit on institutional order sizes.,
There is no upper or lower limit on the size of an order executed in an institutional account, although institutional investors typically trade very large blocks of securities.
548
FOR the order to be considered discretionary, the firm must choose at least one of the following: size of the trade, whether to buy or sell, or the security.
Choosing time and price is not considered to be an exercise of discretion.
549
Talk to me about how discretionary authority works?
If a customer lets the agency choose time & price, agent dosnt have discretionary authority.
If the customer lets the agent or firm choose Size of trade, weather to buy or sell or which security. Then agent has discretionary authority.
550
Absent any disciplinary proceedings, withdrawal is effective ___ days after application.
The Administrator may institute a revocation or suspension proceeding within __ year(s) after an agent's withdrawal has become effective.
30 days, unless a disciplinary action is instituted.
| within 1 year the admin may institute a revocation or suspension preceding .
551
What is selling away or transactions "off the books"
doing a transaction with clients without getting authorization consent.
552
Investment advisers who have discretionary powers but NOT custody of customer funds are usually required to have a net worth in the amount of
$10k for if they discretionary powers. and 35k if you also have custody of funds or securities.
553
When an issue is registered by coordination, it is also registered under the provisions of the:
Securities Act of 1933.
Coordination = 1933
Securities are registered at the federal level under the Securities Act of 1933.
554
is An endorsement on radio or TV from a celebrity who is a client of the firm ok?
NO, no endorsements on tv or radio
555
If the adviser uses charts or formulas, any mention of them must always include a statement to the effect...
that they have limitations and may be difficult to use.
556
If a nonexempt company has authorized a stock split that will give each shareholder 2 shares for every 1 share owned without charge, this transaction:
need not be registered because it is an exempt transaction.
Shares issued as a result of a stock split need not be registered because transactions between issuers and existing shareholders are exempt if no consideration is involved.
557
If the ceo of a company says that his company is issuing exempt transaction in its home state. Who has teh burden of proving its issue is exempt?
The company (not the ceo), he is part of the company.
558
Is Transactions that are excessively large considering the customer's financial situation churning?
Yes, transactions that are excessively large for a customer is still churning.
559
what is the difference between large cap and small cap stocks
Small cap is up to 1billion market cap. They are more volatile.
Large cap are mroe stable larger company stocks.
560
Over-The-Counter - OTC
A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc.
In general, the reason for which a stock is traded over-the-counter is usually because the company is small, making it unable to meet exchange listing requirements. Also known as "unlisted stock", these securities are traded by broker-dealers who negotiate directly with one another over computer networks and by phone.
Although Nasdaq operates as a dealer network, Nasdaq stocks are generally not classified as OTC because the Nasdaq is considered a stock exchange.
561
Are nasdaq stocks considered Over the Counter (OTC)?
Nasdaq stocks are generally not classified as OTC because the Nasdaq is considered a stock exchange.
562
are Non-NASDAQ OTC securities exempt or non exempt?
Non Exempt
563
Is Shares of a corporation whose stock trades on the non-NASDAQ OTC market considered federal covered?
NO
564
When can the state administrator use an agent's lack of experience as the only grounds for the denial of registration?
When it is in the public interest
565
what should a broker-dealer do if the customer will not return a signed margin agreement?
Make no further trades
566
Can the administrator file a security statement in the state?
NO
567
T/F Broker Dealers need to keep A list of all customers who were sent promotional materials?
False
568
T/F an insurance company could be required to register as a IA?
True, because they sell securities and Variable products
569
T/F The agent, on his or her own initiative, may request a withdrawal of registration.
can the agent withdraw his registration anytime he wants?
An agent may request a withdrawal of registration only if there are no revocation or suspension proceedings in progress against him or her.
570
Can the Admin deny registration because of lack of experience if The agent is under the supervision and training of a broker-dealer
NO, It would not be in the public interest to deny, refuse to renew, or terminate an agent for lack of experience as long as that agent is under the training and supervision of a broker-dealer firm.
571
Are Investment contracts considered securities?
YES. Although commodity futures contracts are not considered to be securities, options on commodity futures contracts are.
572
Who has to notify the Administrator when an investment advisor representative terminates employment with his or her investment advisory firm?
Either the investment advisory firm or the investment advisor representative
If an investment advisor representative terminates employment with an investment advisor (IA), who must notify the Administrator depends upon how the IA firm is registered. If the firm is a state registered advisor, then the firm has to notify the Administrator; if the firm is a federal registered advisor, then the IAR has to notify the Administrator.
573
Is a mutual fund considered an issuer?
Yes. A mutual fund
574
Are Titles to mineral leases considered an issuer?
No
575
Do Agents have to register as individuals?
They must register as individuals. Cant register as corporation.
576
when is the latest time that a prospectus may be furnished to a customer?
With the confirmation
Explanation: The NASAA Statement of Policy states that agents may not fail to furnish a final prospectus, no later than the due date of the confirmation, to a customer purchasing securities in an offering. The confirmation normally goes out the next business day after the trade date.
