Flashcards in Chapter 3 Part 2 Deck (20):
The following persons arc excluded from the definition of a broker-dealer
• Agents • Issuers • Banks, savings and loan companies, savings institutions, and trust companies (bank holding companies or bank subsidiaries are not excluded from the definition.)
another exclusion from BD
A person that has no place of business in the state AND only transacts business with issuers, other broker-dealers, financial institutions, or institutional buyers. Institutional investors are considered sophisticated and as having the expertise and ability to make independent investment decisions. Most often, institutions are able to assume greater risks and have a better understanding of those risks than individual, noninstitutional investors
another exclusion from BD 2
A person that has no place of business in the state AND is registered where the person maintains her place of business and only conducts business with existing clients who are not residents of the state (e.g., clients on vacation, or working there but not living there, or attending school)
In other words, if a broker-dealer has an office in the slate, it must register in the state. If the broker-dealer does not have an office in the state and its noninstitutional clients do not live in the state, then
it is not required to register. Registration is not required in states where clients are visiting temporarily
If asked to identify whether a firm is considered a broker-dealer in a state:
"(1) Identify the activity in which the firm is involved (2) Determine if the firm has an office in the state If YES, the firm must register If NO, note who its clients are + If the only clients are institutional clients, the firm is NOT required to register. + If one or more clients are retail clients, then the firm must register.
The Administrator may require broker-dealers to maintain
at least a specified minimum amount of net capital (essentially the broker-dealer's liquid net worth). However, the state Administrator may not set a level that exceeds the requirement established by federal (SEC) rules.
All advertising, sales literature, as well as other written materials (prospectuses, pamphlets, circulars, form letters, etc.) intended for distribution to current or potential clients must be
filed with the Administrator. however, filing is not required for materials relating to exempt securities, exempt transactions, or federal covered securities.
Broker-dealer records must be preserved for
Account records, correspondence, and books must be maintained as required by the Administrator. Broker-dealer records must be preserved for three years, with the first two years in an easily accessible location, unless otherwise directed by the Administrator
Financial reports must be filed with
the Administrator quarterly, annually, or as often as determined by rule or order.
All required records of a broker-dealer, whether located within or outside the state, are subject to periodic or special
examination as determined by the Administrator. The Administrator will cooperate with the Administrators of other states, the SEC, national securities exchanges, and national securities associations to avoid duplicate records inspections
the individual is required to register as an agent
If the individual (1) is specifically hired to effect securities transactions, (2) will be compensated based on these transactions, and (3) this activity is a regular part of the individual's business
Exclusion from the definition of an agent of an issuer exists when the individual effects securities transactions:
On behalf of an exempt issuer, When the security is exempt, When the sale is made through an exempt transaction
In order to avoid registration as an agent of an issuer, the individual may not
receive a commission, remuneration, or transactional compensation for the sale of the security
When an agent effects securities transactions for compensation, that person
"must be registered, even if the security is exempt from registration
agent of the bd
An individual who represents a broker-dealer in effecting transactions in securities
If an individual wishes to solicit business in a state as an agent, he must
be registered under the Uniform Securities Act, by filing Form U4 through the Central Registration Depository (CrD).
The registration of an agent is in effect only while
the agent is associated with a registered broker-dealer
When no longer affiliated with a broker-dealer
a Form U5 (Uniform Termination Notice) is filed with the broker-dealer's self· regulatory organization evidencing the termination of the relationship
Dual registration of an agent is allowed only if
the Administrator's direct authorization is received