Chapter Summary - Series 66

Question 1

What is a State?

Answer 1

A US state. commonwealth, territory, or possesion fo the US (includes DC, puerto rico, ect)

Question 2

What is a Security?

Answer 2

Stock, bond, options contract, varible annuity, etc

Question 3

What is a Person?

Answer 3

Anyone who is not a minor, not deceased, or mentally incompetent. (Couple be a corporation, partnership, individual)

Question 4

What is an Issuer?

Answer 4

Issues or proposes to issue any security

Question 5

What is a BD?

Answer 5

effects transactions for thei rown account or others

• Broker =On behalf of clients, commission
• Dealer = From own account, markups

Question 6

What is an Agent?

Answer 6

Non-clerical invidual who represents an issuer or a BD

Question 7

What is an IA?

Answer 7

A person (usually a firm), who for compensation, engages in busiess of providing others with security related advice, reports, or analysis

Question 8

What is an IAR?

Answer 8

Ind asscoiated with IA and:
- Make recs or gives advise
- Manages account sor portfolios
- determines recs ot what advice to give
- solicites or negociated sale of IA services
- supervises IAR’s

Question 9

What is the difference between state and federal laws? Name them.

Answer 9

• State laws are govn’d for the USA (Blue-Sky)
• Federal are Securites act of 1933
• SEA act of 1934
• IA act of 1940
• IC company act 1940
• SEC Release ia-1092
• National sec markets improvment act 1996
• Dodd frank act (cnsumer protection act)

Question 10

Who are the regulators at state and federal level?

Answer 10

State = NASAA
Federal = USA

Question 11

What is the 4-part Howey Test to define a security?

Answer 11

1 - An Investment of Money
2 - In a Common Enterprise
3 - With Expectation of Profit
4 - Soley from the Effort of Others

Question 12

What is a viatial investment and the risks associated with it?

Answer 12

A purchase to the rights of someones death benefit from their life insurance policy, may only be made to suitible investors
- Reg D accredited investor (1M, 200k)
- Officer, director, etc
- Natural person, NW 150k & 100k income. OR NW 250K

Question 13

Who pays filing fees and when are the required?

Answer 13

Issuers pay filing fees at initial registrationa nd annual renewal

Question 14

What is an effective date for an issuer and who declared the effective date?

Answer 14

Regulator releases security for public distribution declared by SEC or Admin

Question 15

When do state registration of securities expire?

Answer 15

One year after effctive date

Question 16

What is registration by Notification (Filing) ?

Answer 16

Reserved for larger issues w/ securities that trade on national exchange adn previosly registered with SEC

Question 17

What is registration by Coordination?

Answer 17

Registered with both the state and SEC

Question 18

What is registration by Qualification?

Answer 18

Used when it doesnt need to be filed with the SEC or already has been

Question 19

Why would a administration issue a stop order to deny, suspend, or revoke registrattion of a security?

Answer 19

• Incomplete, false
• Violates USA
• Security crime
• already subject to stop order or injunction
• illegal
• frad
• commision too large
• no filing fee

Question 20

What securities are exempt under USA?

Answer 20

• Issued by US Gov’t or Mnicipality
• Issued by CAN giv’t or municiplaity
• Issued by forgein Gov’t that US has diplomation relations with
• Issued by Bank, Savings int., trust company
• Issued by credit union
• Issued by insurance company
• Issued by common carrier
• Issued by non-profit
• Notes, drafts, bills.w/ less than 50k, 9 month maturty, rated in 1 or the 3 highest catagories
• Employee stock or benefit plan
• Federal covered sec

Question 21

What are the identifying factors of federal covered securities and which are required to notice file?

Answer 21

• Exchange listed
• Sold to qualified purchasers ($5M)
• Investment companies stock - NF
• Securities under Reg D - NF

Question 22

What is notice filing?

Answer 22

Required by state admit for some federal securities, sign concent to service, pay filing fee, and possibly file copies of material w admin

Question 23

What transactions are exempt under the USA?

Answer 23

Non-issuer, fiduciary, isolated, private, or unsolicite
- trades between issuer and underwriter
- trades with institutional investors,
- directed to no more than 10 retail clients
- not involving the public.

Question 24

When must each application form must be filed with the CRD or IARD?
- Form BD for broker-dealers
- Form U4 for agents and investment adviser representatives (IARs)
- Form ADV for investment advisers

Question 25

What are the exclusion of a BD?

Answer 25

- Agents - Issuers - Banks, Savings Inst., Trust Companies - No place of business in a state and only transacts with issuers, other BD's, fin inst. or inst buyers - No place of businness in state and clients are vacationng or visting

Question 26

What is the different between an agent of a BD and an agant of an issuer? exclusions?

Question 27

When are partners, officers, and directors of a broker-dealer are automatically registered as agents?

Answer 27

Only when they first is initially being registered in the state

Question 28

What is the consent to service of process, when is it filed, adn when is it renewed?

Question 29

What is a surety bond, when is it required and when is it not?

Question 30

When does a person registration beome effective and when does it expire?

Question 31

What is the minimum net capital requirment for BD under the USA?

Question 32

What advertisments and other written material filind with the administratior and which are not?

Question 33

What are the record keeping requirments of a BD?

Question 34

What is the limited registration of a canadian BD and its agents, and who may they solicit?

Question 35

What is the definition of an Investmant Advisor and th ABC test?

Question 36

What is form ADV pt. 1?

Answer 36

General disclosures about adviser’s business, clients, and disciplinary events

Question 37

What is form ADC pt. 2?

Answer 37

- Requred disclosure for new clients - Disclosures about services offered by the adviser and related fees - may use a seperate disclosure document (brochure) instead

Question 38

When must an Investment Advisor deliver a brochure to a client?

Question 39

When must an audited balance sheet be provided by an IA? (4)

Answer 39

1 - Full custody of funds 2- Full discresionary authority over a clients account 3 - For Federal IA - If they require prepayment of fees in excess of $1200, 6 months or more in advance 4 - For State IA - If they require prepayment of fees in excess of $500, 6 months or more in advance

Question 40

What is the difference between limited and full discresion?

Question 41

When must power of attorney be received to maintain discresion?

Question 42

When does an IA have custody, and what are the required discloseres to the Admin and customers?

Question 43

what is NASAA's min financial requirment for IA's?

Question 44

What are the recordkeeping requirments for IA's under the USA?

Question 45

Wha are the exclusions from state registration as an IA?

Question 46

What is an IA excempt from state registration?

Answer 46

1 - IA has no place of business in the state and only institutional investors 2 - IA has no place of business in the state and no more than 5 non-istitutional investors

Question 47

What are the registration requirments for an IAR of a state registered IA?

Question 48

What is the definition of a federal covered IA and ABC test?

Answer 48

- AUM greater than 110M (100M) - Advises pention funds and private funds - Advisor to clients in more than 15 states

Question 49

How did the SEC Release IA-1092 change the IA Definition?

Question 50

What is the registration requirment for Federal IA?

Question 51

What are the exclusions from an IA under the IA act of 1940?

Question 52

What firms qualify as exempt reporting advisors?

Question 53

What is a wrap account and the special brochure required for these accts?

Question 54

What is permitted/prohibited in an advisory contract?

Answer 54

- Performace based fees

Question 55

What are the record keeping requirments for federal IA and acceptable storage methods?

Question 56

What are the benefits of bunched orders and how does trade allocation be made to customers?

Question 57

What are acceptable methods of maintaining custody and the required disclosures that the IA must provide if ti does?

Question 58

What is a solicitor, and what are the registration ad disclosure requirments if: - affiliated with an IA - Unaffiliated with an IA (3rd party)

Question 59

What is the definition and regulations associated with advertisements? ‒ General standards and prohibitions ‒ Performance advertising restrictions and disclosure requirements ‒ Permitted and prohibited terms and abbreviations

Question 60

When can BD vs IA exercise discretin in a customers account?

Answer 60

BD msut be written IA may take verbal for 10 days, then needs written

Question 61

What is a fiduciary and how does it apply to IA and IAR?

Question 62

What is the UPIA and how does it impact fiduciaries and advisors?

Question 63

What obligatiosn does anadvisor assume as a fiduciary?

Question 64

What is a soft dollar arrangment? - understand the benefits to each party - Identify permitted and prohibited uses of soft-dollars - Understand the disclosure requirements

Question 65

What are the suitibility obligations and duties of Investmetn advisors?

Question 66

When may other professionals may be consulted by an investment adviser and an adviser’s confidentiality requirements when consulting other professionals

Question 67

What is the difference between fradulent and unethical business practices? ex?

Question 68

What are NASAA's standards and prohibitions that apply to communication wth clients?

Question 69

What is the pay-to play rule and what are the punishments for IA's that violate the rule?

Question 70

What records msut be maintained by BD and IA's under USA?

Question 71

Compare and contrast principal and agency cross trades. What are the required disclosures for IA's to engage in these trades?

Question 72

What are the requirments for cyber preparedness and how doe sone comply?

Question 73

What are industry guidlines for use of social media including standards and approals?

Question 74

What is the difference between an offer and a sale?

Question 75

What offers and sales do adminitrators have jurisdiction over?

Question 76

When is a gift considered an offer and a sale?

Question 77

What administrative actions can an admin/cannot take over a registered person?

Question 78

What are the reasons an admin may take administrative action over a registered person?

Question 79

What are the inspectorial powers of the administratior?

Question 80

What is aletter of recission and when is it issued?

Question 81

Difference between civil/criminal proceedings. Parties involved, penalties, an statue of limitations?

Question 82

What are exempt securities and transactions under the Securities Act of 1933?

Question 83

What are civil and crimal penalties under federal law?

Question 84

What is the difference between Forms filed w SEC. - 10-Q - 10-K - 8-K - 13D - 13G

Question 85

What is an insider? what are prohibited practices and the civila and criminal penalties?

Question 86

What are AML laws, what are the requirments and penalties for violations?

Question 87

What are the different type of investment companies under IC act of 1940?

Question 88

What are NASAA's interpretation of rules in connections with the sale of investment company shares? What are the comm disclosures regarding sales charge breakpoints, and LOI?