Laws, Regulations, and Guidelines

Question 1

What is a Security?

Answer 1

• Investment of money
• In a common enterprise
• With expectation of profits
• Soley from the efforts of others

Question 2

Who is a Suitible Investor?

Answer 2

• Accredited investor under Reg D (1M, 200k)
• Executive officer, director, or partner of issuer
• Natural person w/ 150k NW and 100k income or 250k NW

Question 3

Who is an Accredited Investor?

Answer 3

• Has a NW greater than $1M and annual income over $200k

Question 4

Under State Reg. When must outdated/inaccurate info be admended?

Answer 4

• Promptly, typically within 30 days

Question 5

Under State Reg. How long is a Surety Bond maintained for?

Answer 5

• For the life of the business and 3 years after

Question 6

Under State Reg. When does a person registration become effective?

Answer 6

• At noon, 30 days after filing, but may be grated by the adminitration prior to this

Question 7

Under State Reg. What is the maintainance requirments for records created by BD’s? (Give examples of these records (4))

Answer 7

• Maintained for 3 years, with the first two in an easily assesible location
• Advertising, correspondence, confirmations, trade tickets

Question 8

Who is excluded from the definition of Broker Dealers?

Answer 8

• Agents
• Issuers
• Banks
• A person w/ no place of business and only transacts with issuers, BD’s, Fin Institutions, and Institutional buyers
• A person w/ no office and retial clients dont live in the state (vacationing)

Question 9

Under State Reg. What is the definision of an Agent of an Issuer?

Answer 9

• Effects or attempted to effect transactions for their own securities

Question 10

Under State Reg. When is an agent excluded from the definition?

Answer 10

• Effect transactions in securities that are exempt
• Effect excempt transactions

*Not exempt if an indiv. represents a BD for commission, person must be registered as an agent even if security is exempt

Question 11

Under State Reg. What securities are exempt?

Answer 11

• US Govt and Municipal Securities
• CAN Govt or toher specific forgien govt securities
• Bank, trust companies, and saving institution securities
• Commercial paper w/ initial maturity of less than 9 months, denomination of at least 50k, and rated in one of three highest rating catagoeries
• Investment contracts for employess such as savings plans, profit-sharing, pension plans, ans stock purchase plans

Question 12

Under State Reg. What transactions are exempt?

Answer 12

• Private placements
• Sales to qualified purchasers
• Transaction between issuer and underwriter
• Transaction with trust company or saving institutions
• Invidual selling his compnay stock to employees for not compensation

Question 13

Under State Reg, What is an agent of a BD?

Answer 13

• Individual represents a BD in effecting security transactions

Question 14

Who is notified if an agent’s employment is terminated or chooses to leave his employing BD?

Answer 14

• Both BD and Agent must update U5 and notify finra and admin

Question 15

When is Dual Registration of an Agent Allowed?

Answer 15

• Receives direct authorization from an Admin

Question 16

When is splitting commission allowed?

Answer 16

• Both agents msut be registered in the same state and employed by same BD or under common control

Question 17

When is an agent exempt from state registration?

Answer 17

• Application is pending, and an existing client moves to a new state, may transact business for 60 days
• Existing Client is temporarily visiting a state

Question 18

Who is a Finder?

Answer 18

• Bring together issuers and investors in a private transaction
• Exempt from registration as an agent if they do not receive transaction-based commission

Question 19

What are some post-registration requirements for Agents?

Answer 19

• Update form U4 for any material changes within 30 days
• Both BD and Agent notify FINRA and Admin of termiantion or leaving BD

Question 20

Who is automatically registered as an agent?

Answer 20

• All original partners, officers, directors of a BD who effect transactions when initially registering w/ the state

Question 21

What is the registration process of a BD?

Answer 21

• Register at both state and federal level
• File Form BD through CRD
• File Consent to service fee
• Pay filing fee
• Meet federal net capital
• Post surety bond if net capital not met

Question 22

When must a State IA provide a Brochure or Form ADV pt. 2 to a client?

Answer 22

• 48 Hours prior to contract
• If not, but allow 5 days to cancell

Question 23

When must an advisor give existing clients an updated brochure or summery of changes and file?

Answer 23

• Must file admendment within 90 days of end of fiscal year
• Must provide clients with updated 120 days after end of fiscal year

Question 24

When must an audited balance sheet be provided?

Answer 24

• Has custody of funds
• Full discresioary authority over funds
• Fed IA, > $1200 in fees prepayed 6 months or more in advance
• State IA, > $500 in fees prepayed 6 months or more in advance

Question 25

What is Form ADV-A Form ADV-E Form ADV-W Form ADV-NR Form ADV-H

Answer 25

- Initial registration, direct owners > 5% equity - Custody of funds - Full or partial withdraw of registration - Non US-Residends - "Help" cant file electronically, extends deadline for 7 days

Question 26

What does Form ADV-E need to be submitted?

Answer 26

- 120 Days after in independent audit

Question 27

When must form ADV-W be filed?

Answer 27

- Increasign AUM, 90 days to register at the federal level end of fiscal year - Decreasing AUM, 180 days to register with state at end of fiscal year

Question 28

When must material changes to a brochure be updated?

Answer 28

- Promptly, 30 days

Question 29

What is the difference between discretionary authority for an IA v a BD? | -

Answer 29

- IA, 10 days oral before needed written - BD, Must receive written

Question 30

What is defined as having custody of funds?

Answer 30

- Legal ownership or access to fudn within a partnership, corp, inv. pool - Having Full discression - Indavertantly receiving fund and not returning withing 3 days - Accepting a 3rd party check and not forwaridng within 3 days

Question 31

What must be done if you ahve custoy of client funds?

Answer 31

- Notify admin in wirrtin of custody using form ADV - Must use a qualified custodian to hold funds in a seperate acct - Provide written notification to all clients who the custodian is - Send quarterly account statements to custodian and have resonable belife their were provided

Question 32

What are the minimum financial requirments when having custody of funds? What if you fall below this minimum?

Answer 32

- Full/Custody fo assets = $35k - Limited Discrescion = $10K - Prepaid fees, need positive net worth - 1 BD to notify - Then 1 BD to file

Question 33

# Federal How long after an advisor files form ADV with the SEC grant or deny?

Answer 33

- 45 Days

Question 34

# Federal What is an exempt reporting advisor?

Answer 34

- Exempt from regitration but msut still file reports and filing fees - Private Fund Advisor - Venture Capital Advisor

Question 35

What is the private funds advisor exemption?

Answer 35

- Private Funds w less than $150MM in AUM - Section 3c1 - No Public securities, < 100 investors - Section 3c7 - No Public securities, Only qualified purchasers

Question 36

Who is a qualified client? Qualified purchaser?

Answer 36

- > $1.1M in AUM or $2.2M in Net Worth - May pay performace fee $5M in Inv, Entities w $25M

Question 37

When must Private fudn advisor and venture capital advisor file form ADV pt 1A?

Answer 37

With SEC within 60 days and admend within 90 days end of fiscal year