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Series 65 - March 2024 > Laws, Regulations, and Guidelines (30%) > Flashcards

Laws, Regulations, and Guidelines (30%) Flashcards

1
Q

State Definition

A

50 States + Puerto Rico, American Samoa, Guam, Virgin Islands, DC

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2
Q

Administrator

A

Office or Agency that has complete respect for administering the securities laws of a state. Administrator has jurisdiction over the registration of securities professionals and securities. Power to make rules and issue orders. Can deny, suspend or revoke registration

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3
Q

Security is defined by

A
  • an investment of money
  • in a common enterprise
  • expectations of profits
  • derived by someone other than investor
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4
Q

What is not a Security

A
  • Insurance or Endowment Policy or Annuity contract under which a fixed sum of money is promised
  • Interest in a retirement plan
  • Collectibles
  • Commodities such as precious metals and grains and forwards/futures
  • Condos for personal residence
  • Currency
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5
Q

Non-issuer Transactions (Exempt)

A

Sales do not go directly to issuer. Think secondary trading (Unsolicited)

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6
Q

Exempt Securities (USA 1956)

A
  • US/Canada government and municipal securities
  • Foreign government securities (US maintains diplomatic relations)
  • Depository Institutions (interest in or debt of, or guaranteed by any bank under law of US. or bank, savings institution, or trust company organized under the laws of any state.)
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7
Q

Pre organization certificates (USA)

A
  • before incorporation (promise to send money)
  • maximum of 10 subscribers and no funds paid in
  • no sale just agreement
  • exempt no need to register
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8
Q

Private Placement (USA)

A
  • restricted to 10 offers (not buyers) in any 12 consecutive months other than to institutional clients.
  • no immediate resale except for institutions
  • no compensation paid on sales to non-institutional buyers
  • no registration needed, it is exempt
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9
Q

USA Exempt Transactions

A
  • issuer transactions [between issuer and underwriters (going public)]
  • with financial institutions (sophisticated/professional investors): investment companies, insurance companies, banks and trust companies, Employer benefit plan with not less than $1m in assets (pension or profit sharing trusts), Broker dealers, Investment Advisers,
  • SEC definition of accredited investor NOT considered institutional investors for purposes of exemption.
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10
Q

Fiduciary Transactions

A
  • those made by an executor, administrator, trustee, sheriff, and so forth
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11
Q

Isolated Nonissuer Transactions (Exempt)

A

Transactions that are private between 2 nonissuer parties

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12
Q

Coordination (Securities Registration)

A
  • coordination of state and federal regulations
  • accomplished by filing a registration statement with the administrator that includes: 3 copies of latest prospectus filed with SEC, copies of articles of indenture, incorporation, and agreements, and amendments to prospectus filed with SEC
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13
Q

Individuals meet definition of IAR if:

A
  • make any recommendations or otherwise renders advice regarding securities
  • manages accounts or portfolios of clients
  • determines recommendations and advice to be given
  • solicits, offers, negotiates sale of advisory services
  • supervises employees who do the above
  • can only be an individual
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14
Q

Impersonal Investment Advice

A
  • investment advisory services provided by means of written material or oral statements that do not purport to meet objective and needed of specific individuals
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15
Q

Investment Advisers Representative Exemptions

A
  • de minimis exemption - if no place of business for preceding 12 months, no more than 5 retail clients then registration in state in not required.
  • special exemption 203a of 1940 act- required registration in states where there is a place of business.
  • snowbird exemption
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16
Q

IAR Termination Processes

A
  • if state = FIRM tells administrator
  • if federal = IAR tells administrator
  • if 2 firms involved (state) each must notify administrator
17
Q

Material changes (ie change of address, disciplinary)

A

Must amend U4 within 30 days

18
Q

What is a Broker Dealer

A
  • defined in Securities Exchange Act of 1934 and USA
  • defined as any person engaged in the business effecting the transactions in securities for the account of others or own account
  • any person in an established place of business in the state of business buying and selling securities for account of others or own account.
  • agents work (only individuals can be agents)
19
Q

Exclusions from Definition of Broker Dealer

A
  • agents
  • issuers
  • banks, savings institutions, trusts
20
Q

States Exclude Definition of Broker Dealer

A
  • have no place of business in state and deal with issuers of securities for institutions
  • no business in state but licensed in state of business and offer to only existing customers
  • snowbird rule
21
Q

Does Broker Dealers get De Minimis exemption?

A

No

22
Q

Under the USA, you are a broker dealer if:

A
  1. You have place if business in state regardless of clients or
  2. You have even one retail client
23
Q

Under the USA, you are not a broker dealer if:

A
  1. You have no place of business in the state AND
  2. Your only clients are other institutions ir issuers or
  3. You are registered in a state and only do business in the state with nonresidents (snowbirds)
24
Q

Exempt Securities USA (BD)

A
  • Securities guaranteed by US or Canadian government or foreign governments the US has diplomatic relations
  • securities backed by banks organized under US laws
  • commercial papers rated with $500k+ with maturities less than 9 months
  • any investment contract issued with employer plans
25
Q

Submitting Application as Broker Dealer

A
  • Form BD includes and must be submitted to state administrator
  • form and place of business
  • method of business
  • all jurisdictions that applicant is registering
  • qualifications and business history
  • court issued injunctions
  • adjudication by the sec or any security SRO within last 10 years.
  • convictions of misdemeanors involving securities
  • felony convictions
  • financial condition and history
  • current unsatisfied liens and judgments
26
Q

Books and Records

A
  • easily accessible for minimum of 3 years from end of fiscal year
  • first 2 years in principal office
  • must file amendments promptly
  • must keep electronic communication, personal nature emails don’t have to be kept.
  • no requirement to keep tax returns
27
Q

Statutory Disqualification

A
  • has been expelled or suspended from membership or association
  • subject to the order of the SEC
  • by conduct while associated with BD.
  • convicted with past 10 years of a security violation or misdemeanor involving finance
  • subject to temporary or permanent judgment from competent court
  • willfully violated federal security laws
  • has made false or misleading statements
28
Q

Registration

A
  • IA’s on federal or state level never both
  • IAR’s only on state level
  • BD’s on federal and state level
  • Agents on federal and state level
29
Q

Renewal for Canadian Broker Dealers

A

Must be filed by December 1

30
Q

Exclusions from the definition of Sale/Sell and Offer to sell

A
  • bona fide pledge or loan (collateral)
  • gift of non-assessable stock
  • stock dividend
  • class vote by stockholders
  • act incident to a judicially approved reorganization which a security is issued in exchange for one or more outstanding securities
31
Q

Administrator Powers to Enforce

A
  • make, amend, or rescind riles and orders and require specific forms
  • conduct investigations and issue subpoenas
  • issue cease and desist orders and seek injunctions
  • deny, suspend and cancel or revoke registrations
32
Q

Rights if Recovery from Improper Sale of Securities

A
  • if purchaser thinks sale violates USA they file complaint with administrator.
    -if proven client can recover: original purchase price, interest at a rate determined by the admin, reasonable attorney fees, any income received while the securities were held
33
Q

SEC Enforcement Powers

A
  • subpoena witness
  • acquire evidence
  • subpoena books and records
  • administer oaths
  • go to a competent court
  • refer to appropriate court
34
Q

Penalties

A
  • Federal = $10k and 5 years
  • State = $5k and 3 years (5-5-3, 5 yr statute)
35
Q

Not included in fee disclosures are:

A
  • commissions
  • markups and markdowns
  • advisory fees
36
Q

Performance Fee Prohibitions Exemptions

A
  • has $1.1m or more immediately under management
  • has net worth of $2.2m or more prior to under management
  • person who is officer or director of investment adviser employed in industry for 12 months
37
Q

Form ADV-E

A

Surprise examination. Required only when investment advisers maintain custody.

Series 65 - March 2024 (8 decks)

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