STC Cards Flashcards
Does SIPC protect separate customers or separate accounts?
Separate customers. A customer with both a cash and margin account with a BD would be covered once.
True or False: Jim’s joint account with his wife is considered a separate customer by SIPC.
True. E.g. Jim’s cash and margin account are combined for coverage, but Jim’s joint account with his spouse is separate.
If a BD goes bankrupt, what happens to securities registered in the customer’s name?
They are returned to the customer without regard to SIPC limitations.
The Securities Act of 1933 regulates _____________.
The Securities Act of 1933 regulates new issues.
What is the primary purpose of the Securities Act of 1933?
Provide investors with full and fair disclosure regarding new issues (prospectus)
True or False: The SEC judges an offering’s investment merit and provides approval.
FALSE
List the securities that are exempt from registration.
Government/municipal bonds, commercial paper, bankers’ acceptances, bank issues, non-profit and small business issues
Though some securities are exempt from registration, nothing is exempt from the ____________ provisions of the Act.
Though some securities are exempt from registration, nothing is exempt from the anti-fraud provisions of the Act.
What are the justifiable reasons for denying an individual’s registration?
Conviction for any felony or securities-related misdemeanor within the last 10 years
True or False: An American Depositary Receipt (ADR) is a security.
TRUE
Is an option on a commodity futures contract a security?
Yes. The futures contract is not, but the option is a security. Options could be based on an equity, index, or currency.
Would an interest in a real estate condominium development be considered a security?
Yes
True or False: Precious metals are not considered securities.
TRUE
Is a voting trust certificate a security?
Yes
Is a Keogh plan considered a security?
No, but Keogh plan participation is considered a security.
Is an investment interest in livestock considered a security?
Yes
Is a certificate of interest in a mining lease a security?
Yes
Is a fixed annuity a security?
No, but variable contracts (e.g., variable annuities or variable life insurance) are considered securities.
Is an endowment life insurance policy a security?
No
Is a variable life insurance policy a security?
Yes, but a term or universal life insurance policy is not considered a security.
Is a universal life insurance policy considered a security?
No
Is Keogh plan participation considered a security?
Yes, but the Keogh plan itself is not a security.
Is a 401(k) plan considered a security?
No
Is treasury stock considered a security?
Yes. Treasury stock is stock that was issued and subsequently repurchased by the company.
Is a debenture considered a security?
Yes. A debenture is an unsecured corporate bond.
Is a preemptive right considered a security?
Yes
Is a warrant a security?
Yes. Warrants are financial instruments that allow investors to acquire stock at a preset price.
Is a preorganization certificate considered a security?
Yes
Is an IRA account considered a security?
No
Is a futures contract considered a security?
No, but an option on a futures contract is a security.
Is a multi-level distributorship considered a security?
Yes
Is a limited partnership a security?
Yes
Is an interest in oil and gas drilling program considered a security?
Yes
Is a whiskey warehouse receipt considered a security?
Yes
Is a firm that has an office in a state, but only deals with institutional clients in the state, considered a BD?
Yes, because the firm established an office in the state.
Is a bank whose trust department occasionally executes securities transactions considered a BD?
No. Banks are excluded from the BD definition.
If a corporation raises capital by selling new shares of its stock to the public, is it considered a BD?
No. The corporation is an issuer and issuers are excluded from the BD definition.
Is a bank holding company that occasionally executes securities transactions considered a BD?
Yes. Bank holding companies are not excluded from the BD definition.
Is a firm with no office in a state that only deals with institutional clients in the state considered a BD?
No. The firm is excluded from the BD definition.
Is a firm with no office in Ohio that effects trades in Ohio with 6 clients residing in Iowa considered a BD?
No. The firm is excluded from the BD definition in OH (no office in OH and only deals with existing Iowa clients).
Is an individual who represents a BD in the sale of Treasury bonds considered an agent?
Yes, since anyone representing a BD in the sale of securities is an agent.
Is a sales assistant for a BD who accepts unsolicited orders from clients considered an agent?
Yes, since anyone representing a BD in the sale of securities is an agent.
Is an individual who represents an issuer in the sale of municipal bonds considered an agent?
No, since the individual is involved in the sale of exempt securities.
Is an individual who represents the issuer of a private placement considered an agent?
No, since the individual is involved in an exempt transaction.
Is an individual who represents a BD in the sale of municipal bond considered an agent?
Yes, since anyone representing a BD in the sale of securities is an agent.
Is an individual who represents the issuer in the sale of Treasury bonds considered an agent?
No, since the individual is involved in the sale of exempt securities.
Is an individual who represents a BD in the sale of a private placement considered an agent?
Yes, since anyone representing a BD in the sale of securities is an agent.
Is an individual who represents a bank in the sale of the bank’s stock considered an agent?
No, since the individual is representing the issuer in the sale of exempt securities.
Is an individual who represents a BD in the sale of a bank’s stock considered an agent?
Yes, since anyone representing a BD in the sale of securities is an agent.
Is an individual who represents a BD in the sale of stock to a bank considered an agent?
Yes, since anyone representing a BD in the sale of securities is an agent.
Is an individual who represents an issuer in the sale of stock to a bank considered an agent?
No, since the individual is involved in an exempt transaction.
Is an individual who represents an issuer in the sale of the issuer’s stock to its underwriter considered an agent?
No, since the individual is involved in an exempt transaction.
Is Jim an agent if he works in ABC’s retirement dept. and, once a year, places ABC stock in employees’ accounts?
No, Jim is representing the issuer in an exempt transaction.
Is a certified public accountant who provides tax advice considered an IA under the USA?
No, CPAs are excluded from the IA definition.
True or False: A publisher of a financial magazine is considered an IA under the USA.
False. Publishers of newspapers/magazines are excluded from the IA definition.
Is an organization that provides ratings of securities and is nationally known considered an IA under the USA?
No
Is an attorney who exclusively provides estate planning services considered an IA under the USA?
No. Provided the attorney’s advice is incidental to his profession, he is excluded from the IA definition.
True or False: A BD who promotes wrap accounts to its clients would have to register as an IA under the USA.
True. Since the wrap account involves management, the BD must register as an IA.
True or False: A BD making recommendations about investing in various securities is an IA under the USA.
False. Since the BD is not charging a fee for the advice, it is excluded from the IA definition.
True or False: According to the USA, a BD providing asset allocation plans to its clients for a fee is an IA.
True. Since the BD is receiving specific compensation for its advice, it is considered an IA.
True or False: The USA defines a bank providing investment recommendations to its clients as an IA.
False. Banks are excluded from the IA definition.
True or False: A firm producing investment research for BDs to deliver to clients is considered an IA under the USA.
True. Since advice is being provided, as a business, and compensation is received, the ABC test is met.
True or False: The USA classifies an agent of a BD who also manages wrap accounts as an IA.
No. IAs are firms, not individuals.
Is an adviser to a mutual fund considered an IA under the USA?
No, mutual funds advisers are federally covered and are excluded from the IA definition at the state level.
True or False: An adviser to a mutual fund would register in the state where the fund is domiciled.
False. The IA must be registered with the SEC, not a state.
True or False: The CEO of an advisory firm who establishes investment policy for the firm must register as an IA.
False. The CEO would be considered an IAR, not an IA.
Is an employee of a securities firm who manages accounts for a fee considered an IAR?
Yes
Is an employee of a BD who solicits new customers for an IA considered an IAR?
Yes. Anyone who solicits investment advisory service is considered an IAR.
True or False: An agent for a BD who solicits client trades would not be considered an IAR under the USA.
True. There is no indication that the agent is managing accounts and charging a fee.
Idividuals employed by an IA who only perform ____________________ duties are excluded from registration under the USA.
Individuals employed by an IA who only perform clerical/ministerial duties are excluded from registration under the USA.
An individual employed by an IA to manage the research dept. would be required to register as an ______ under the USA.
An individual employed by an IA to manage the research dept. would be required to register as an IAR under the USA.
Is an employee of an IA who answers the telephone and does clerical work considered an IAR?
No
True or False: Securities issued by provinces and municipalities of Canada are subject to state registration.
False. Securities issued by Canadian provinces or municipalities are exempt from registration.
Are bonds issued by the City of New York exempt from state registration?
Yes
True or False: Securities issued by the states and municipalities of Mexico are exempt from registration under the USA.
True. An exemption is provided to securities issued by foreign governments with whom the U.S. has diplomatic relations.
Securities issued by any government with whom the U.S. has _____________ relations are exempt from state registration.
Securities issued by any government with whom the U.S. has diplomatic relations are exempt from state registration.
True or False: Securities issued by the U.S. Treasury and U.S. agencies are deemed exempt securities under the USA.
TRUE
________ issued by insurance companies are exempt from state registration.
Bonds issued by insurance companies are exempt from state registration.
List some securities that are considered federal covered and exempt from registration.
Those listed on national exchanges (NYSE, AMEX, NASDAQ) and investment company securities (e.g., mutual fund shares)
True or False: Securities of a Canadian company, but listed on the NYSE, are exempt from state registration.
TRUE
Are bonds issued by a charitable organization subject to state registration?
No. Securities issued by non-profit organizations are exempt from registration.
What criteria must be met for commercial paper to be exempt from registration?
A 270-day maximum life, minimum denomination of $50,000, rated in one of the top-three categories according to an NRSRO
An executor of an estate sells a block of securities that are not registered. Is this a violation?
No. This is an example of an exempt transaction.
Would securities that are traded on the Toronto Stock Exchange be subject to state registration requirements?
No. These secondary market transactions are considered exempt from registration according to the USA.
True or False: Bankers’ Acceptances rated AAA, maturing in 6-months, and issued in $25,000 denominations are exempt
False. Because the BAs were not issued in at least $50,000 denominations, registration is required.
Is a private placement defined as an exempt transaction or as an exempt security under the USA?
Exempt transaction
Under the USA, private placements are exempt if securities are offered to ____ or fewer retail clients over ____ months.
Under the USA, private placements are exempt if securities are offered to 10 or fewer retail clients over 12 months.
What does the USA consider a security issued by an investment company that is registered under the Inv. Co. Act of 1940?
The securities are considered federal covered.
True or False: Agents selling unregistered, non-exempt securities to banks and trust companies are violating the USA.
False. Transactions with banks and trust companies are considered exempt transactions.
If a Nasdaq stock trades in the secondary market, does the USA consider it an exempt security or exempt transaction?
Exempt security
Are securities traded on the OTCBB or the Pink Sheets exempt?
No
True or False: Bonds issued by a railroad are exempt from state registration.
True. Securities issued by a railroad, common carrier, or public utility are exempt at the state level.
Are securities issued by a software company exempt from state registration?
No
True or False: According to the USA, debt issued by a fraternal organization would NOT be considered exempt.
False. Securities issued by non-profit organizations are exempt from state registration.
Non-issuer trading of securities subject to reporting requirements of the Act of 1934 are _________ transactions.
Non-issuer trading of securities subject to reporting requirements of the Act of 1934 are exempt transactions.
True or False: Occasional, secondary market transactions in an OTCBB stock are considered exempt transactions.
False. Only non-recurring secondary market transactions are considered exempt transactions.
Is an isolated, non-recurring, non-issuer transaction in OTCBB or Pink Sheets stock subject to registration?
No. It is considered an exempt transaction.
Is an unsolicited, non-issuer transaction in an OTC stock exempt from state registration?
Yes, because it is unsolicited.
True or False: The sale of securities to a pension plan is considered an exempt transaction under the USA.
TRUE
Registration by Filing (Notification) requires issuers to be in business at least _____ months preceding registration.
Registration by Filing (Notification) requires issuers to be in business at least 36 months preceding registration.
An intra-state offering would use which method of state securities registration?
Qualification
What method of state securities registration requires issuers to wait to hear from the Administrator before selling?
Qualification
To use Filing (Notification) to register stock, the offering price must be at least $______ per share.
To use Filing (Notification) to register stock, the offering price must be at least $5.00 per share.
Registration by Filing (Notification) requires that the underwriting commission be no more than _____%.
Registration by Filing (Notification) requires that the underwriting commission be no more than 10%.
Registration by Coordination has a minimum cooling-off period of _____ days.
Registration by Coordination has a minimum cooling-off period of 10 days.
Which method of state securities registration would likely be used for an IPO being offered in several states?
Coordination
Registration by Coordination requires issuers to meet requirements of the USA as well as what other Act?
The Securities Act of 1933
An electronic system used to register investment advisers is called ___________________________________________.
An electronic system used to register investment advisers is called Investment Adviser Registration Depository (IARD).
True or False: A Consent to Service of Process is an example of an exculpatory clause.
False. Exculpatory clauses are waivers absolving agents from wrongdoing. The waivers are null and void under the USA.
A surety bond may be required if an investment adviser has _____________ or __________ of client assets.
A surety bond may be required if an investment adviser has discretion or custody of client assets.
In place of a surety bond, the Administrator will accept a deposit of _______ or _____________.
In place of a surety bond, the Administrator will accept a deposit of cash or securities.
True or False: A Consent to Service of Process must be filed by BDs, but not their agents.
False. A Consent to Service of Process is required of all registrants.
True or False: A successor advisory firm must pay a new filing fee, but need not file a new application.
False. The successor firm must update its application, but not pay a new filing fee.
The application for registration of an agent or IAR becomes effective in _____ days.
The application for registration of an agent or IAR becomes effective in 30 days.
The application for withdrawal of registration of an agent or IAR becomes effective in _____ days.
The application for withdrawal of registration of an agent or IAR becomes effective in 30 days.
BD records must be kept for at least ____ years.
BD records must be kept for at least 3 years.
IA records must be kept for at least ____ years.
IA records must be kept for at least 5 years.
True or False: A state may require a registration fee from the issuer of a Nasdaq security.
False. Nasdaq securities are federal covered securities.
True or False: A state may require notice filing by an issuer of an NYSE security.
True. Notice filing is the requirement to provide the state with the same information that was filed with the SEC.
True or False: An Administrator may not require a sales report from the issuer of an OTC security.
FALSE
What form is used to notify Administrators that an IA is maintaining custody of client assets?
Form ADV
What document, regularly provided to clients, will IAs use to notify clients of the location of their securities?
The client’s account statement
Investment advisers with custody must have an annual audit done by a(n) ____________________.
Investment advisers with custody must have an annual audit done by a(n) independent CPA.
If a BD’s net capital falls below the required minimum, it must notify the Administrator within ___ business day(s).
If a BD’s net capital falls below the required minimum, it must notify the Administrator within 1 business day.
If an IA has custody or discretion, it must include a _________________ with their Form ADV and brochure.
If an IA has custody or discretion, it must include a balance sheet with their Form ADV and brochure.
True or False: An agent whose client moves to a new state may not contact the client until registered in the new state.
False. The agent may engage in transactions with the client for 60 days if registration is pending in the new state.
May an agent whose client is visiting another state sell securities to the client without being registered in the state?
Yes, provided the client is in the state temporarily.
True or False: Canadian agents are not permitted to effect trades with existing Canadian clients temporarily in the U.S.
False. Provided the relationship with the client existed prior to entering the U.S., trades may be effected.
An IAR has an office in State A and has 4 clients who reside in the state. Is the IAR required to register in State A?
Yes, since the IAR has an office in State A. The client number is not relevant because of the office location.
An IAR of a federal covered adviser has an office in State B with 4 clients who live in State B. Where must he register?
He must register in State B since he has an office in the state. The number of clients is not relevant.
An IAR has no place of business in State A, but has 6 or more individual clients in State A. Where must she register?
She must register in any state where she has 6 or more individual clients (even if she has no office in the state).
An IAR of a federal covered adviser has no office in NY, but has 6 or more clients living in NY. Must he register in NY?
No. IARs of federal covered advisers are only required to register in states in which they have an office.
An IAR of a state-registered IA has no office in NJ, but has 6 or more clients living in NJ. Must she register in NJ?
Yes. IARs of state-regulated IAs register where they have an office and where they have 6 or more individual clients.
An agent whose registration has been revoked must be granted a hearing, if requested, within _____ days of the request.
An agent whose registration has been revoked must be granted a hearing, if requested, within 15 days of the request.
If an agent has withdrawn registration, the Administrator may still take action for ___ year(s) after the withdrawal.
If an agent has withdrawn registration, the Administrator may still take action for 1 year after the withdrawal.
Define an investment contract (according to the Howey Test).
An investment of money, in a common enterprise, with expectation of a profit due to efforts of third-party management.
A prospectus mailed by an agent in one state to a client in another state is considered an offer in which state(s)?
Both states
True or False: A gift of assessable stock is considered both an offer and sale.
TRUE
True or False: A gift of non-assessable stock is considered both an offer and sale.
FALSE
Is the payment of a stock dividend considered an offer or sale?
No
Is the conversion of a bond into stock considered an offer or sale?
No
If shares of stock are freely given with the purchase of a bond, is this considered an offer and sale?
Yes
True or False: An Administrator may issue a cease-and-desist order before a violation has occurred.
TRUE
True or False: An Administrator may issue an injunction.
False. An injunction may only by issued by a court.
Under the Uniform Securities Act, the statute of limitations for fraud is ____ years.
Under the Uniform Securities Act, the statute of limitations for fraud is 5 years.
The statute of limitations for criminal violations of the Uniform Securities Act is ____ years.
The statute of limitations for criminal violations of the Uniform Securities Act is 5 years.
Statue of limitations for USA civil violations is ____ yrs. of occurrence or ____ yrs. of discovery, whichever is first.
Statue of limitations for USA civil violations is 3 yrs. of occurrence or 2 yrs. of discovery, whichever is first.
Maximum criminal penalties under the USA are a $________ fine and/or ____ years in prison.
Maximum criminal penalties under the USA are a $5,000 fine and/or 3 years in prison.
May an Administrator enter other states to investigate potential violations that occurred in his own state?
Yes, the Administrator has broad inspectorial power, which stretches beyond his own state.
True or False: The Uniform Securities Act is exactly the same law in every state.
False. The USA is a model law, not the actual law of any state.
_______________________________________________________ is an organization consisting of state Administrators.
The North American Securities Administrators Association (NASAA) is an organization consisting of state Administrators.
True or False: Securities issued by registered investment companies are considered federal covered securities.
TRUE
True or False: Securities traded on the NYSE may be required to pay a registration fee to a state Administrator.
FALSE
Administrative cease-and-desist orders may be appealed in a state court if application is made within _____ days.
Administrative cease-and-desist orders may be appealed in a state court if application is made within 60 days.
Next week ABC plans to announce its earnings. If ABC’s CEO wants to sell some of her shares now, is the sale restricted?
Yes. Insiders are required to wait until an earnings report is released publicly before selling shares.
After receiving an effective date, what information may an issuer change by amending its registration statement?
The number of shares being offered. A new registration is required to change offering price or underwriter compensation.
The Telephone Consumer Protection Act (TCPA) allows calls from ________ to ________ local time of the called party.
The Telephone Consumer Protection Act (TCPA) allows calls from 8:00 a.m. to 9:00 p.m. local time of the called party.
A BD located and licensed in Canada may contact what types of individuals in the U.S.?
Existing clients who are temporarily in the U.S.
Identify 2 significant creations that are credited to the National Securities Markets Improvement Act (NSMIA).
Federal Covered Advisers and Federal Covered Securities
The ________________ is responsible for administering and enforcing the securities laws of a state.
The Administrator is responsible for administering and enforcing the securities laws of a state.
According to the USA, who is included under the term “person?”
Any legal entity, including individuals (clients/agents/IARs), BDs, IAs, issuers, corporations, and partnerships
In state law, individuals representing BDs in effecting securities transactions are referred to as ________.
In state law, individuals representing BDs or issuers in effecting securities transactions are referred to as agents.
True or False: In state law, individuals representing issuers in effecting securities trades are ALWAYS deemed agents.
False. Individuals are not deemed agents if representing issuers of exempt securities or effecting exempt transactions.
What restrictions exist in describing a fund as no-load?
It may have no front-end or deferred sales charge, and a 12b-1 fee may not exceed .25%.
List some of the exclusions from the definition of a BD.
Agent, issuer, bank, or a BD with no office in the state that only deals with institutions or its existing clients
What type of advice may lawyers, accountants, teachers and engineers provide and not be considered an IA?
Advice that is incidental to their profession. If a separate fee is charged for the advice, the exclusion is lost.
List the 4 categories of professionals who are excluded from the IA definition.
Lawyers, accountants, teachers, and engineers (remember L A T E)
An ________ is any attempt or solicitation to acquire or dispose of a security for value.
An offer is any attempt or solicitation to acquire or dispose of a security for value.
A _______ is any agreement or contract to dispose of a security for value.
A sale is any agreement or contract to dispose of a security for value.
Regarding federal covered securities, may an Administrator cancel a registration?
No
Regarding federal covered securities, may an Administrator prohibit the sale of the security in his state?
No
Regarding federal covered securities, may an Administrator require the issuer to complete the notice filing?
Yes. Notice filing is the process by which information filed with the SEC is also filed/shared with the Administrator.
True or False: Registration may be denied due to ANY misdemeanor convictions.
False. Registration may be denied for ANY felony conviction or securities-related misdemeanor conviction.
How may the failure to pay the proper filing fee be corrected?
By paying the appropriate amount
May the Administrator set minimum net capital requirements for BDs?
Yes, but the requirement on BDs may not exceed the federal (SEC) requirement.
Is there a limit to the amount of net capital the Administrator may require of a BD?
Yes. The Administrator may not set a requirement that exceeds the federal (SEC) requirement.
May the Administrator set minimum net worth requirements for IAs?
Yes, but no state may impose a requirement that exceeds the requirement of the IA’s home state.
May federal covered adviser’s books and records be subject to inspection by an Administrator?
Yes
