Test Bank

Question 1

What is a Broker Dealer?

Answer 1

Any person effecting transactions in securites for the accounts of others or through their own inventory.

Question 2

Broker definition and type of capacity (what side of the transaction)

Answer 2

• Agent capacity
• Buying and selling securities for the accounts of customers
• charges a commission

Question 3

Dealer definition
And what capacity

Answer 3

• Principal capacity
• buying and selling securities for or from its own inventory
• charges markup buys and markdowns for sells

Question 4

What is an Agent?

Answer 4

Individuals who represent a BD(Broker-Dealer) or issuer in effecting or attempting to effect purchases or sales of securities

Question 5

Who is an agent?

Answer 5

• Registered Reps
• individual who represents an issuer in a sale
• those who “help” effect a sale for a BD(Broker-Dealer)

Question 6

Who is NOT a BD(Broker-Dealer)

Answer 6

• Agents
  -Banks, Savings institution, trust companies
• person who has no place of business and deals EXCLUSIVELY with
  Issuers
  Other BDs
  Banks, insurance companies, investment companies
  Institutional buyers

Question 7

What transactions in EXEMPT SECURITIES exclude individuals from registering as an AGENT

Answer 7

Transactions in
-US Government Securities
- municipal Securities
- Canadian gov securites
- banks
- promissory notes & Investment. contracts

Question 8

What EXEMPT TRANSACTION exclude individuals from registering as AGENTS?

Answer 8

• isolated non-issuer transactions (secondary transactions)
• certain “covered securites”, sold to qualified buyers and private placement
• transactions with investing employees, partners, directors of the issuer with no commission paid

Question 9

How are BDs compensated

Answer 9

commissions and mark up/downs charged per trade
(Agents share in that compensation)

Question 10

What is an Investment Adviser(IA)

Answer 10

a person FOR COMPENSATION engages in the business of advising either directly or through publications/writing, to the value of securities and the advisability of investing in/buying/selling securities. includes those who issue or promulgate reports about securities.

Question 11

Who falls under the LATE exemption

Answer 11

Lawyers
Accountants
Teachers
Engineers
(provided advice is INCIDENTAL)

Question 12

Who falls under the category Investment Adviser (IA)

Answer 12

Portfolio Managers, Financial Planners

Question 13

what is the ABCs of Investment Advisers(IAs)

Answer 13

provide ADVICE on securities directly/indirectly
as a BUSINESS
for COMPENSATION in any form

Question 14

Who is NOT an investment Adviser(IA)

Answer 14

Investment Adviser Representatives(IARs)

Banks, Savings institutions, Trust companies, investment companies

BDs and their agents if advice is incidental and no extra compensation charged

publishers who give GENERAL advice about securities (not specific, does not respond to specific reader questions)

Federal Covered Advisers

Employee Benefit Plans (i.e.. 401k plans)

Question 15

What is an Investment Adviser Representative (IARs)

Answer 15

individual partner, officer, director, employee, or associate of an IA who:

a. makes re3commendations/gives advice on any securities
b. manages client accounts/portfolios
c. determines suitability
d. solicits, sells, negotiates investment advisory services
e. supervises employees who do above roles

Question 16

Who is NOT an Investment Adviser Representative(IARs)

Answer 16

employees who
a. perform only clerical tasks (receptionist)
b. solicit sales of fixed annuities

Question 17

What is a Federal Covered Adviser

Answer 17

an IA that falls under the Investment Advisers Act of 1940. They register with SEC ONLY.
May be required to NOTICE FILE within states in which there are 6 or more clients doing business.

Question 18

Who is EXCLUDED from Federal Covered Adviser registration

Answer 18

IAs who give advice on US Government securities only
Banks and Bank holding companies
Publishers of general advice about securities
the LATE professions

Question 19

What is an Administrator

Answer 19

Designated state official who administers the Uniform Securites Act and enforces security regulation in said state.

Question 20

The following are EXCLUDED from the definition of a “security”

Answer 20

Fixed life Insurance

Endowment Policies

Fixed annuity contracts

commodity futures contracts

collectibles, including antiques

precious metals

real estate

Question 21

What is a Federal Covered Security

Answer 21

a security “covered” by FEDERAL LAW under the Securities Act of 1933. Must be registered with the SEC OR exempt from SEC registration. States cannot require registration.

Question 22

What falls under federal EXEMPTION

Answer 22

US GOV securities
Municipal bonds offered OUTSIDE of state of issue (interstate)
securities that are unregistered and issued as private placements under SEC rules (i.e. Regulation D Offerings)

Question 23

What is EXCLUDED from Federal Covered Securities

Answer 23

securities by non-profit organizations
municipal bonds offered only in state of issue
intrastate offerings
security issued with a guarantee by another entity for the principal, interest, OR dividends.

Question 24

any attempt to solicit a purchase or sale of a security for value

Answer 24

offer
offer to buy
offer to sell

Question 25

What form are terminations reported on?

Answer 25

Form U-5

Question 26

When must notice of termination be given to Administrators?

Answer 26

Prompt notification

Question 27

When do registrations renew in the US?

Answer 27

December 31st Annually

Question 28

What is in the INITIAL registration

Answer 28

Application, Registration fee, Consent to Service of Process Surety Bonds ( if custody of customer funds or discretion is had)

Question 29

What is an EXEMPT Security?

Answer 29

Securities exempt from State registration and advertising filing requirements

Question 30

Which securities are EXEMPT

Answer 30

US Gov Securities Municipal Securities Securities issued by the country of Canada or its provinces securities issued rom US Banks, savings institutions, trust companies securities from federal savings and loans associations Credit unions security listed on registered stock exchanges or listed on NASDAQ non profit issues promissory notes, commercial paper public utility & common carrier securities investment contracts for employees

Question 31

What is an EXEMPT Transaction?

Answer 31

Transactions that do not involve the underwriter or issuer involved in a public offering and exempt from registration and advertising filing requirements

Question 32

what falls under an EXEMPT transaction?

Answer 32

Isolated non-issuer transaction unsolicited orders to buy/sell fiduciary transactions - (executors or administrator of trusts, estates, etc. bona fide pledges of security underwriter transactions - (no sale to public) transactions to financial institutions private placements sold to not more than 10 persons other than institutional buyers rights, warrantsm converable securities transactions with employees if no compensation is made

Question 33

What is proper disclosure?

Answer 33

delivery of WRITTEN disclosure BEFORE completion of transaction

Question 34

The Administrator has authority over a person when the person is

Answer 34

Registered in the State Transactions were done in the State actions affect a person in the State

Question 35

The Administrato has the power to: A. Administer Oaths B. Subpeona Witnesses C. Arrest individuals D. Take evidence

Answer 35

A.B.D the Administrator does NOT have the power to arrest people

Question 36

What are the CRIMINAL penalties for violating Anti-Fraud provisions

Answer 36

no more than $5000 fine, no more than 3 years imprisonment or both

Question 37

What are the CIVIL liabilities for violating the Anti-Fraud provisions

Answer 37

no person may sue more than 3 years after the contract of sale or advice or 2 years after discovery of fraud, whichever comes first the buyer may sue for recoverable consideration paid plus interest and reasonable attorney fees

Question 38

How long do you have to appeal an administrator order?

Answer 38

60 days

Question 39

What records do Broker Dealers have to maintain?

Answer 39

Order Tickets Ledger of assets, liabilities, income/expense accounts blotters and original entry including records of all purchases and sales of securities

Question 40

How long do BDs keep records of blotters

Answer 40

6 years

Question 41

What do financial professionals need to consideri when recommending securities to be classified as "suitable"

Answer 41

investment objectives financial situation and needs character of accounts

Question 42

What is churning?

Answer 42

Excessive trading to generate commission or fees

Question 43

What are the 3 consideration for "churning"

Answer 43

Turnover ratio - total annual purchase / avg monthly balance Cost to Equity ratio - How expensive the trading has been IN and Out Trading - buying same security repeatedly in a short time

Question 44

How does NASAA define "Custody"

Answer 44

Actual possession authority to obtain possession i.e. able to write checks or trustee of client accounts

Question 45

How does NASAA NOT define "Custody"

Answer 45

Inadvertent funds or securities sent to IAs as long as they're returned within 3 business days receipt of checks by client payable to a 3rd party if forwarded within 3 business days prepayment of advisory fees.

Question 46

How often must accounts statements be sent to clients?

Answer 46

Quarterly

Question 47

What Form issued by an IA who has custody of client funds/securities?

Answer 47

ADV-E

Question 48

How often do IAs need to review their Physical Security and Cybersecurity Policies and Procedures?

Answer 48

Annually