Ch 1 Laws, Regulations and Guidelines Overview

Question 1

How is a firm acting if it effects trades on behalf of its customers, without taking the other side of the trade?

Answer 1

Agent or broker

Question 2

According to the USA, who is included under the term “person?”

Answer 2

Any legal entity, including individuals (clients/agents/IARs), BDs, IAs, issuers, corporations, and partnerships

Question 3

What is the general definition of an issuer?

Answer 3

Any person who issues or proposes to issue a security, such as government entities and corporations.

Question 4

Identify two significant creations that are credited to the National Securities Markets Improvement Act (NSMIA).

Answer 4

Federal Covered Advisers and Federal Covered Securities

Question 5

Identify who IS NOT considered a person under the USA.

Answer 5

Minors, incompetents, securities, and the deceased are NOT considered persons.

Question 6

True or False: Blue-Sky Laws apply to broker-dealers and agents operating within a state.

Answer 6

True

Question 7

True or False: The U.S. Virgin Islands are a member of NASAA.

Answer 7

True

Question 8

Identify the acronym: IA

Answer 8

Investment Adviser

Question 9

Identify who is considered a person under the USA.

Answer 9

Business entities, issuers, estates, governments, individuals (e.g., clients, IARs and agents)

Question 10

What are the three components that must be met for a firm to be defined as an IA?

Answer 10

1) Provide advice regarding securities, 2) Do so as a business 3) Receive specific compensation (the ABC test)

Question 11

What is the general definition of an investment adviser?

Answer 11

A firm that provides advice/analyses regarding securities, as part of a business, and for compensation

Question 12

True or False: A firm producing investment research for BDs to deliver to clients is considered an IA under the USA.

Answer 12

True. Since advice is being provided, as a business, and compensation is received, the ABC test is met.

Question 13

A securities firm that executes trades for its own account or the accounts of others is deemed a _______________.

Answer 13

broker-dealer (BD).

Question 14

True or False: The Uniform Securities Act is exactly the same law in every state.

Answer 14

False. The USA is a model law, not the actual law of any state.

Question 15

What is a principal trade?

Answer 15

A trade involving a firm (BD or IA) buying or selling securities for its own account at its own risk.

Question 16

Identify the acronym: NSMIA

Answer 16

National Securities Markets Improvement Act

Question 17

When acting in an ________ capacity, firms assist customers, but do not assume risk.

Answer 17

agency capacity,

(e.g., a best-efforts underwriting).

Question 18

Under the provisions of the USA, how is the institutional investor designation made?

Answer 18

An institutional investor is any person designated by rule or order of the Administrator.

Question 19

True or False: The District of Columbia is a member of NASAA.

Answer 19

True. Washington D.C. is a member of NASAA.

Question 20

True or False: Puerto Rico is a member of NASAA.

Answer 20

True

Question 21

What is the ABC Test for investment advisers?

Answer 21

The test that defines an IA as a firm that provides Advice as part of a Business for Compensation

Question 22

How is a firm acting if it is trading for, or from, its own inventory?

Answer 22

As a principal / dealer

Question 23

When acting in a ____________ capacity, a firm is assuming risk.

Answer 23

principal capacity,

(e.g., a firm-commitment underwriting).

Question 24

Who is the official that monitors and administers a state’s securities laws?

Answer 24

The Administrator or Commissioner

Question 25

List the entities that make up NASAA.

Answer 25

All 50 U.S. states, the U.S. Virgin Islands, Puerto Rico, the District of Columbia, Canada and Mexico

Question 26

Identify the acronym: USA

Answer 26

Uniform Securities Act

Question 27

The _____ _________ _________ ______________ __________________ is an organization consisting of state Administrators.

Answer 27

North American Securities Administrators Association (NASAA)

Question 28

What is the three-pronged test for determining whether a firm meets the IA definition?

Answer 28

A-B-C. A = advice/analyses, B = business, C = compensation

Question 29

Who enforces the Uniform Securities Act?

Answer 29

The Administrator

Question 30

True or False: States may make rules that are more restrictive than SEC (federal) rules.

Answer 30

False. NSMIA prohibits states from making laws that are more restrictive than existing federal requirements.

Question 31

According to the USA, who is included under the term person?

Answer 31

Any legal entity, including individuals (clients/agents/IARs), BDs, IAs, issuers, corporations, and partnerships

Question 32

Identify the acronym: NASAA

Answer 32

North American Securities Administrators Association

Question 33

What rules govern the registration of an issue in any state in which it will be offered?

Answer 33

Blue-Sky Laws