BDs

Question 1

Five exemptions from state registration as a BD?

Answer 1

1. Agents
2. Issuers
3. Banks / S&Ls / Trust Companies
4. No place of business in state and transacting only with institutional clients, issuers and banks
5. No place of business, registered elsewhere and only transacts with non-residents (e.g. On vacation there)

Question 2

Is there an exemption from registration for agents of BDs?

Answer 2

If representing a registered BD in a securities transaction in a state, MUST ALWAYS REGISTER

(If client moves there, can service them for 60 days while registration pending)

Question 3

What’s registration requirement if desiring to do business with a client temporarily in State A?

Answer 3

Both firm and agent are exempt

Question 4

What are requirements of registered BDs?

Answer 4

• Net capital requirement
• Surety bond if custody of assets or discretionary authority
• File advertising except for Federal Covered or exempt securities/transactions
• Record keeping of three years

Question 5

When might a BD have to register as an IA?

Answer 5

If it receives separate compensation for providing advice

Question 6

Four circumstances under which BD agents may loan/borrow money or securities?

Answer 6

1. Immediate family member
2. Financial institution in that business
3. Another agent at same BD (with written permission)
4. Based on existing outside personal or business relationship (with written permission)

Question 7

Can an agent solicit / accept an on order for unregistered non-exempt security?

Answer 7

Cannot solicit.

CAN accept UNSOLICITED order (may need to provide signed confirmation)

Question 8

When must affiliation with an issuer be disclosed?

Answer 8

Before trade. If verbal before trade, must be in writing by completion.

Question 9

When can they exercise discretion?

Answer 9

If holding discretionary authority in writing

Question 10

Is a not-held order discretionary?

Answer 10

No - security and quantity are given and the agent’s discretion on time and price does not make the order discretionary

Question 11

What are requirements for BD operating on bank premises?

Answer 11

• clearly separated and signed
• written networking arrangements
• disclose not FDIC insured, not bank deposit and principal at risk
• reasonable effort to get client acknowledgement in writing
• inform bank of agent termination

Question 12

What’s the inspection schedule for offices and what is an effective visit?

Answer 12

OSJs and branch offices which supervise other offices: annually
Other branch offices: every 3 years

Unannounced, method for feedback and follow up of deficiencies

Question 13

How long must account info be kept?

Answer 13

Six years after last update or account closed.

Question 14

Who must approve an account for options trading?

Answer 14

Registered Options Principal

Question 15

When must client verified Options Account Agreement be received?

Answer 15

Within 15 days or ROP approving account.

If not, no new positions can be opened.

Question 16

When must client be given Options Disclosure Document?

Answer 16

No later than moment account is approved for options trading.

Question 17

Can BD agents split commissions?

Answer 17

Only if both at same BD and both registered in state of transaction

Question 18

Whether a BD is required to maintain a bond depends on net capital or net worth?

Answer 18

Net capital

For IAs it’s net worth

Question 19

When do registrations expire?

Answer 19

December 31 - even if BD has change of ownership during year

Question 20

Examples of records BDs must retain for three years?

Answer 20

• Advertising
• Correspondence
• Conformations
• Trade tickets

Question 21

An agent must disclose what within 30 days on U4?

Answer 21

Tax liens and unsatisfied judgements

Question 22

Form U4 must disclose felonies and securities misdemeanours from what timeframe?

Answer 22

Unlimited.

Disqualification will be statutory if within last 10 years.

Question 23

Can a BD in State A accept an order from an IA, registered in States A and B, to purchase a security for a customer resident in State B?

Answer 23

Yes, as the BDs client is the IA.

BD not a BD in State B as has no place of business and transacts business with or through an institutional buyer

Question 24

What does NASAA Statement of Policy say on selling away?

Answer 24

Agent may sell away if authorised in writing, and don’t have to be recorded on the books

Question 25

New customer info:
4 required
3 others
2 records

Answer 25

1. Name
2. Address not a PO
3. Tax ID #
4. DoB

Then: occupation / associated with another BD / financial suitability info
Record: agent who opened account and principal who approved

Question 26

What does client signature of Options Account Agreement cover?

Answer 26

• Verifies info correct
• Agrees to abide by rules of Options Clearing Corp, options exchanges and BD
• Not violate exercise or position limits

Question 27

Exception to normal rules on opening account for agent of another BD?

Answer 27

Account is limited to transactions in mutual India, UITs and variable contracts

Question 28

Can an agent take custody of a client’s money or securities?

Answer 28

No - a BD can but not an agent

Question 29

If an agent inadvertently sells an unregistered security what should they do?

Answer 29

Offer to repurchase with interest, less gains through letter of rescission

Do NOT attempt to fix by registering the stock

Question 30

What cannot be commingled?

Answer 30

Client securities with other client securities.

Remember that client securities mixed with BD securities is commingling and is forbidden