Ch 1: Registration and Licensing Flashcards

Question

Proprietary Trading

Answer 1

The business of trading for your own account

Answer 2

* A firm is acting in an "agency" capacity when it effects trades for the account of others (it is a middleman) * The firm is considered to be as acting as a broker

Answer 3

* A firm is acting in a "principal" capacity when it trades out of its own account * The firm is considered to be acting as a dealer

Answer 4

These firms are required under the Act to register in any state in which they solicit or conduct business

Answer 5

* Mergers and Acquisitions advisers and Finders can be defined as being in the business of engaging in securities transactions, IF * One company buys the securities of the other in the deal, and compensation is paid based on closing the deal

Answer 6

* Agents * Depository Institutions (Banks, Trust Companies, and Savings Institutions) * Issuers who only effect transactions with respect to its own securities

Answer 7

* Most states say that if an individual spends more than 30 days in that state they are a resident * The Act does not specify a time frame for when a vacation becomes a temporary residence

Answer 8

* When existing Canadian customers are temporarily residing in the US for 1/2 year or less, and intends to return to Canada

Answer 9

* When a BD has no office in a state and only a "few" clients in that state (only doing "minimal business") * Only some states have it

Answer 10

* An individual who effects trades for a BD or Issuer * Also known as Sales Representatives for a BD

Answer 11

Securities registered with the SEC that cannot be required to be registered with the State * The State can require a "notice" filing * Essentially exchange and Nasdaq listed issues

Answer 12

Investment advisers registered with the SEC, EXCLUDED from the IA definition for the State (the State can require a "notice filing" and State filing fee) * Investment advisers to registered investment companies, OR * Advisers with $100,000,000 or more of assets under management * OR any person NOT an IA under the Investment Advisers Act of 1940

Answer 13

* To require notice filings * To require registration of BD and their agents * To require registration of advisers with less than $100,000,000 of assets under management * To require registration of All investment adviser representatives

Answer 14

State is empowered to investigate and bring enforcement actions with respect to fraud or deceit; or any unlawful conduct by a broker or dealer or investment adviser; in connection with securities or securities transactions.

Answer 15

* Anyone who cannot issue or trade a security, including: * Minors - no legal capacity * Administrator - the State securities commissioner who enforces the Uniform Securities Act * Trusts - where the interests of the beneficiaries of the trust are not evidenced by a security

Answer 16

An An agent who effects securities trades that the BD does not know about and are not recorded by the BD

Answer 17

Persons who have NO place of business in the State AND only transact business with: * Issuers of the involved securities involved in the transaction * Other broker-dealers * Banks, Trust Companies, Savings Institutions * Insurance Companies *Investment Companies * Institutional Buyers * Pension or Profit Sharing Trusts, OR * Other Financial Institutions

Answer 18

Any person who offers or sells securities for a commission or fee in a State

Answer 19

All of the equity securities of one company are being "purchased" by another company

Answer 20

A firm that assist in mergers and acquisitions, as long as compensation is being paid

Answer 21

Individuals or firms that are paid to "find" companies for sale that could be acquired. * If they receive a retainer fee or flat compensation they are NOT BDs. * If they receive transaction-based compensation (ex: contingent upon closing a deal) they can be considered statutory BDs

Answer 22

* When a bank offers securities on its premises it is a BD under State law * Therefore, banks only offer securities in a designated area of the office that is registered as its own BD in the State, and only the relevant employees will be registered as agents in the State

Answer 23

A firm is EXEMPT from registering in the State IF the firm offers and sells a security to a person who is an Existing customer, AND the firm's does NOT have an office in the State (customer is on vacation, or traveling through another state)

Answer 24

A BD can set up an investment adviser entity (or vice-versa_ and each must be separately registered in the State

Answer 25

BDs can be established as corporations, partnerships, or sole proprietorships

Answer 26

* Banks * Investment Advisors * Investment Companies * Insurance Companies

Answer 27

Agent for Broker- Dealer * Not defined in the Act

Answer 28

May be compensated on either a salary or commission basis

Answer 29

Since they do not effect trades with the public, the following are not agents and do not have to register: * Clerical Employees * Managerial Employees

Answer 30

* Only considered to be sales representatives if they represent the BD or an issuer in effecting securities transactions * Otherwise, NOT agents

Answer 31

When a BD application to register in a State is filed, the persons who were named as officers with (or supervising) a sales function are automatically registered as agents * As long as they have passed the Series 63/65/66

Answer 32

The Act EXCLUDED individuals from the definition of an agent who represent issuers in: * Sales of specified exempt securities * Exempt transactions * Sales of specified covered securities *Sales of securities to employees of that issuer if no remuneration is paid

Answer 33

Issued by (the): * US Government * Foreign Governments * Municipal Governments * Canadian Government * Bank and Savings Institutions (ex: Bank CDs) * Trust Companies Also exempt are: * Promissory Notes that will mature in 9 months or less, that are rated in one of the 3 highest rating categories, issued in amounts of at least $50,000 (ex: corporate commercial paper) * Securities issued in connection with Savings, Pension, Profit Sharing Plans, and Employee Stock Option Plans

Answer 34

Generally trades that do not involve the public * Isolated non-issuer transactions (occasional or casual sale by an individual) * Transactions between issuers and underwriters * Transactions with financial or institutional investors

Answer 35

* Federal Private Placement - conducted under Rule 506 of Reg D * Sales to Qualified Purchasers, such as: - Natural persons (humans) or family owned companies who own investments of at least $5,000,000 - Pre-existing trusts for the persons listed above as qualified purchasers - Any other person, acting for its own account or for other qualified purchasers, who owns and invests on a discretionary basis at least $25,000,000

Answer 36

Individuals who represent issuers effecting trades with employees, partners, officers, and directors of the issuer are EXCLUDED from the definition of an agent * As long as no commissions or compensation is given to the sales representative for soliciting these persons

Answer 37

* Trainees can perform clerical or ministerial duties and can deal with other industry professionals * Prior to Registration they CANNOT accept customer orders, or be compensated based on commissions from the sales of securities nor on accounts opened

Answer 38

* Both the BD and the Agent must be registered in the State where the agent resides and the State where the customer resides * Agent must register Through their BD, they cannot register on their own * Registration is required regardless of whether securities are exempt or non-exempt, or if a commission is being paid

Answer 39

* Unregistered Agents can perform clerical or ministerial duties and can deal with other industry professionals * They can sell bank products (since these are not securities) * They can sell insurance products (if they have a State insurance license) * Prior to Registration they CANNOT accept customer orders, or be compensated based on commissions from the sales of securities nor on accounts opened

Answer 40

* Clerical and managerial employees who do not effect trades with the public * Partners, directors, or officers of a broker-dealer - unless otherwise qualified * Agents of issuers in transactions that do not involve the general public * An individual representing an issuer selling exempt securities * An individual representing an issuer in selling securities of that issuer to that issuer's employees (as long as no commission is paid)

Answer 41

A person who renders advice about securities for a fee * Must register with the State under the Act

Answer 42

An individual that solicits advisory business for the investment adviser

Answer 43

A person, who for compensation: * Advises others, directly or indirectly, about the value or advisability of buying or selling securities * Regularly issues or promulgates analyses concerning securities * Provides investment advisory services to others in a financial planning practice

Answer 44

* Investment Adviser Representatives * Depository Institutions * Professionals * Broker-Dealers * Publishers of Newsletters that do NOT give advice based upon specific investment situations * Federal Covered Advisers * Any other person designated by the State Administrator

Answer 45

* Banks * Savings and Loans * Trusts

Answer 46

Individuals whose performance of these services is solely incidental to their professional practice, ex: * Lawyers * Accountants * Engineers * Teachers

Answer 47

* Advisers that have between $100 and $110 mission of assets under management have the choice of registering at either the Federal or State level * An SEC-registered adviser only has to de-register if its assets under management fall below $90 million * Thus there is a $90-$110 mission buffer where an IA can be Federal Covered

Answer 48

* Mid-Size Advisors have $25 million or more of assets under management * If a State does not require registration, mid-size advisers in that state must register with the SEC * A mid-size advisor that is required to be registered in 15 or more States may choose to register with the SEC instead

Answer 49

* IA Representatives (they register as IARs not IAs) * Depository Institutions (banks or bank holding companies, savings and loans, trusts) * Professionals: Individuals whose performance of these services is incidental to their professional practice (Lawyers, Accountants, Engineers, Teachers) * BDs and their RRs whose advisory services are solely incidental to the securities business and who receive no special compensation for recommendations * Publishers of bona fide newspapers, magazines, or financial publications of a general and regular circulation * Federal Covered Advisers: Any person who advises solely about US Government guaranteed obligations

Answer 50

Any IA partner, officer, director, or employee who: * Makes recommendations or renders advice regarding securities * Manages accounts or portfolios of clients Determines which recommendations or advice regarding securities should be given * Solicits, offers, or negotiates for the sale of investment advisory services, OR * Supervises employees who perform any of the functions listed above

Answer 51

Individuals who solely perform clerical or ministerial duties

Answer 52

* Each State still has jurisdiction to require the registration of the individuals associated with Federal Covered Advisers

Answer 53

* Performs any of the defined activities of an IAR * Has a place of business in the State, AND * Is employed by a Federal Covered Adviser

Answer 54

* If the firm has no place of business in a State and transacts solely with issuers, other BDs, and institutional investors * If the firm has no place of business in a State where an existing customer is vacationing or traveling though, and the firm contacts that customer

Answer 55

* Canadian BD with no place of business in a State, where existing customers are temporarily residing for less than 1/2 a year and they intend to return to Canada

Answer 56

Agents who act for excluded or exempt BDs are also EXEMPT and do not have to be registered in the State

Answer 57

No place of business in the State, whose clients solely consist of: * Other IAs and Federal Covered Advisers * Broker-Dealers * Banks, Trust Companies, and Savings and Loans * Insurance Companies * Investment Companies * Employee Benefit Plans with Assets of at least $1,000,000 * Government Agencies * Anyone so designated by the Administrator

Answer 58

* BD are EXCLUDED from the definition of a BD * IA are EXEMPTED from the definition of an IA

Answer 59

No place of business in the State AND no more than 5 clients in the state (other than financial or institutional investors) within a 12 month period * Adopted by almost every state, but the number of clients isn't always 5

Answer 60

Canadian Advisers with no place of business in a State, where existing customers are temporarily residing for less than 1/2 a year and they intend to return to Canada

Answer 61

ALL IARs must be registered in the State, whether they are associated with a state registered IA or a Federal Covered Adviser (Unless an exemption or exclusion is available)

Answer 62

Must register in the State (and the IA must file notice) if: * The IAR is physically present in that State * If the IAR is not physically in the State but solicits business there

Answer 63

* Solicitors refer clients * They are required to be registered in the State, even if they are not employees of that Adviser

Answer 64

The IA must promptly notify the Administrator

Answer 65

Both the agent and the BD must notify the Administrator

Answer 66

The IAR is required to give the Administrator prompt notice * Since the Advisory firm is not registered in the State, the Administrator cannot require them to give notice

Answer 67

IAs are prohibited from employing, directly or indirectly, any person who has been suspended or barred by the Administrator from association with a BD or IA

Answer 68

* Fill out a Registration Application with the State Administrator, AND * Fill out a Consent to Service of Process form along with it (only needed for initial applications, not for renewals)

Answer 69

Appoints the State Administrator to be the "attorney" for the registrant * This allows the State Administrator to receive orders for any lawful process or proceedings against a person arising in a non-criminal suit (if sued, the Administrator would receive the summons and notify the person)

Answer 70

* Form of business organization (corporation, partnership, sole proprietorship) * Place of business and proposed method of doing business * Qualifications and business history of applicant (including that of any partners, officers or directors of BDs and IAs) * Fingerprints of partners, directors, officers of BDs and IAs, and their representative (unless FINRA already has on file) * Listing of any injunctions, administrative orders, or convictions for misdemeanors or felonies in the securities business * Applicant's financial condition and history * Only for IAs, any info required to be furnished to any client or prospective client

Answer 71

* Required to file notice with the State * File the same documents that as filed with the SEC for Federal registration (Form ADV) * A Consent to Service of Process must be filed * Initial notice fee required, not pro-rated if filed mid year * Filing is "complete" when the State has received both the documents and fee * Annual notice renewal fee required

Answer 72

Every registration or notice filing expires on Dec 31st of that year unless renewed * There may be some states that don't follow this and have a bi-annual renewal

Answer 73

If an individual is registered with the SEC via FINRA Gateway, the info required in the State application is satisfied * Only requirement is the State Administrator is notified of the registration, and appropriate filing fees are paid

Answer 74

Investment Adviser Registration Depository

Answer 75

IAs and IARs register or give notice via the IARD system (instead of FINRA). It handles: * Registration of State registered advisers and Federal covered advisers * Notice requirements for Federal covered advisers * Registration of all IARs (using Form ADV plus fee)

Answer 76

* By SEC and NASAA rules, ALL IAs must file an annual updating amendment to Form ADV in IARD within 90 days of fiscal year end

Answer 77

* Annual registration in State renewed and fee paid by updating Agent's or IA's U4 within 30 day of calendar end-of-year renewal date

Answer 78

* U5 Industry termination form filed by former employing firm via FINRA Gateway or IARD within 30 days of termination

Answer 79

* If individual or firm is subject to disciplinary action by a State or Federal regulator, the regulator files a U6 Form via FINRA Gateway or IARD which is publicly viewable on their individual record. Must be filed promptly, max 30 days after action is taken * If a written customer complaint alleges a felony, the same thing happens but it is noted that there has been no proof of the claim made in complaint - if the complaint is cleared without action taken, by reporting this through a U6 amendment the record is cleared

Answer 80

* Any required payment can now be made electronically by credit or debit card * Any signature requirement for electronic filing systems is simply met by that individual or an officer of the firm typing in the name in the required field * States are moving towards full electronic filing of documents, and many states will only allow paper forms for reasons of "hardship"

Answer 81

State Administrator can require: * Minimum Dollar Amounts of Net Capital (liquid net worth) * Surety Bond Coverage * The Passing of a Qualification Examination

Answer 82

* A deposit of cash, securities (Administrator decides which securities are acceptable) or an insurance "bond" * Amount set by each Administrator (the old law called for a $10,000 min) * State gets to seize the assets, deposit, or gets the insurance proceeds if the registrant violates state law * For IAs, Surety Bond only required if the IA will take custody of a client's funds

Answer 83

The State Administrator can require: * Minimum Dollar Amounts of Net Worth * Surety Bond Coverage * The Passing of a Qualification Examination

Answer 84

Administrator can require different minimum financial and bonding requirements for IAs depending on: * If they do or don't take custody of customer funds * If they do or don't have discretionary authority

Answer 85

* Net Worth or Net Capital = All Assets - All liabilities - Intangibles (goodwill, trademarks, copyrights) * If the adviser is an individual, value of all personal property is deducted (home, car, furnishings) * If the adviser is a partnership or corporation, these items used in the business are included and not deducted * Net Worth Requirement only applies in State where Adviser has principal business

Answer 86

* To register, State Administrator typically requires a Balance Sheet for the applicant, along with an oath or affirmation that it is true and accurate * The Act requires every BD and IA file any financial reports required by the Administrator

Answer 87

* As soon as a BD or IA has reason to know it is not meeting the net Capital or Net Worth Requirements, they are obligated to promptly (by the next business day) notify the Administrator of its financial condition * No later than the day after notice is given, a report must be filed with the Administrator detailing the adviser's financial condition

Answer 88

The State Administrator can require: * Surety Bond Coverage (if the agent will have custody of, or discretionary power over, client funds) * Passing a Qualification Examination (if this is not required, they can require certification that the individual has reviewed the State's Blue Sky laws and understands their responsibilities)

Answer 89

The State Administrator can require: * Passing a Qualification Examination (if this is not required, they can require certification that the individual has reviewed the State's Blue Sky laws and understands their responsibilities)

Answer 90

* If an individual maintains in good standing a CFP or CFA designation, the Series 65 exam requirement is waived (NOT the 63 or 66) * Individual must still register in the State and pay annual renewal fees

Answer 91

* The Act does not require filing of fingerprints for State registration of Agents or IARs, but may States require them anyway * Generally, if they have been filed via FINRA Gateway, the State does not require them. And if FINRA does not have them, then the State requires a fingerprint filing

Answer 92

* Require examinations for officers of IAs and IARs * Set different passing grades for exams administered to officers of IAs and IARs * Waive an exam requirement under specified circumstances * Give either oral or written exams * (probably empowered to do more also)

Answer 93

* For registered BDs: Securities Exchange Act of 1934 requirements overrule requirements prescribed by the State Administrator * For registered IAs: Investment Advisers Act of 1940 requirements overrule requirements prescribed by the State Administrator

Answer 94

* Set by Act of 1934 * Customer Emails and Correspondence: 3 yrs * Customer Trade Confirmations: 3 yrs * Customer Account Statements: 6 yrs

Answer 95

* Set by Act of 1934 * All records must be kept for 5 yrs

Answer 96

* Set by NASAA * Requires (in detail) for them to keep EVERYTHING including copies of many records

Answer 97

* Set by NASAA * Defined as Communication to more than one person * It can include recommendations of the purchase or sale of a specific security - if it does not state the reason, a memo must be retained indicating the reasons for the recommendation

Ch 1: Registration and Licensing Flashcards

(122 cards)