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Vi > Brian Lee - Laws, Regulations, Ethics > Flashcards

Brian Lee - Laws, Regulations, Ethics Flashcards

1
Q

Underwriters and investment banker

A

Means broker dealer - think about mom and pop shop example who want to IPO –> underwriter and investment banker are known in the primary market (I.e. IPO)

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2
Q

Securities act of 1933

A

“Full & Fair Disclosure Act”
“New Issues Act”
“Prospectus Act”

Requires full and fair disclosure of all NEW issues, through use of prospectus.

20 day cooling off period
Tombstone ad
Red herring
Final prospectus vs prelim
Indication of interest

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3
Q

Full & Fair Disclosure Act mean?

A

Means we have to register the securities with SEC.

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4
Q

What is the ‘cooling off period’ from Securities Act 1933

A

20 days prohibited from soliciting

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5
Q

What is red herring

A

Pre lim prospectus

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6
Q

Tombstone ad

A

Generic notice of sale, not advertising

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7
Q

What is allowed during cooling off

A

Red herring and tombstone to take indication of interest

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8
Q

What is indication of interest

A

No commitment upon customer or broker dealer

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9
Q

What if we don’t hear back SEC 20 days

A

Good to go, reg has been CLEARED by SEC

NEVER USE WORDS guarantee OR APPROVES - they don’t approve dis approve or guarantee

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10
Q

Final prospectus vs prelim

A

Offer price is the only difference

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11
Q

Securities exchange act of 34

A

Regulates 2nd market
Prevent lying, cheating, stealing
SCAMS

S - SEC
C - REDIT (federal reserve oversees)
A - NTI FRUAD PROVISION
M - ANIPULATION

33 1st market
34 second market

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12
Q

Who oversees extension of CREDIT in market?
What regulation?

A

Federal Reserve Bank (RFB)
Specifically the FRB - REG T

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13
Q

Who is exempt from Anti Fraud act

A

No one

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14
Q

Insider trading enforcement act ‘86 & what are the criminal penalties

A

In ‘86 expanded rules - who may be held liable? ALL of them instead of just the person taking the action who acted upon it, but EVEN though who information provided. (TIPPER TIPPEE)

These are CIVIL PENALTIES - $1M or 3x profits made, GREATER OF THE TWO.

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15
Q

CHINESE WALL

A

Still is liable for insider trading, cannot provide material notification even within the firm.

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16
Q

6 main persons

A

Broker Dealer - person - effects securities transactions for benefits of others or for themselves.

Broker charge a commission.

Dealer part of it (not many firms do this only largest of large) will buy & sell from their OWN inventory. Dealer transaction / principal transaction, MARK UP for $$.

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17
Q

What is ABC

A

Agency Broker Commission (how they’re paid)

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18
Q

USA Uniform Securities Act

A

Created in 50’s to standardize definition.

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19
Q

When does a broker deal have to register in the state?

A

Office in state or has a RETAIL client in that state. Doesn’t matter what type of client.

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20
Q

What kind of entity typically means Non exempt

A

Company

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20
Q

When does a broker deal not have to register in the state?

A

No office or no client in state. Snowbirds. If your clients are not residents but traveling somewhere. Or if clients or institutions or issuers only.

Office and clients - registor
No office and no clients - no register

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21
Q

Who works for broker dealers & what do they do.

A

Agents - they accept or places orders for securities. Solicits is the same thing.

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22
Q

When do Agents have to register or not register

A

Placing orders.

To not register - sales assistant, or intern, and the test will ask you WHERE do they cross the line.

When they accept or placing an order for SECURITIES. Remember it has to be a security. Futures aren’t a security, so if they order a future, they did not cross a line.

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23
Q

Agents can be working for

A

Broker dealer or issuer. You have to register as an Agent. Files as U10 for issuer and U4 for Broker Dealer.

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24
Q

U4 vs U5 vs U10

A

U4 have to broker dealer register, U5 to withdraw, and U 10 for agents to register with issuer

25
Q

What if an Agent works for exempt issuer?

A

Accept or place order for them, you are exempt as an Agent to register.

26
Q

What is an investment advisor

A

A firm, not person, in the business of providing investment advice and holds themself as an investment advisor. Holding yourself means advertise. And you receive compensation for the advice. Will also then invest the money and charge based on AUM.

HUGE difference between IA and BD - they are considered fiduciaries where BD are NOT. Bank, AIR, BD - no one is fiduciary, only the IA is

27
Q

Special professions excluded from IA

A

Lawyer/attorney, accountant/CPA, teacher/professor, engineers - advice they give is incidental and part of their profession.

28
Q

NSMIA ‘96
National Securities Market Improvement Act ‘96

A

Important because IA are unique because of NSMIA - separated advisors into 2 groups - federal & state advisor - register with ONE or the OTHER, NEVER BOTH

Federal - 110M AUM - SEC but STILL pay state filing fees & state can still force anti fraud provisions. Authority state admin have over fed advisors- none except ability to enforce anti fraud provisions.

State - less than 100M AUM - state only

29
Q

Federally covered advisor are

A

Required to register w/ SEC ONLY 110M AUM +

30
Q

Who doesn’t have to register as an investment advisor?

A

Private advisors (wealthy families, etc)
Foreign advisors
Advisors who advise on VC funds only

31
Q

State advisors have to register if

A

Have an office, or a client who is a resident of that state.

32
Q

IA’s are not required to register if

A

They have no office OR no more than 5 retail clients.

33
Q

XYZ advisor has 160M AUM, home office in State A, 32 clients in state B, and holds a seminar in state C - which states do they have to register in?

A

None, because they have 160M AUM, they would need to register with the SEC

34
Q

What about IAR registration for federal (firm is federal registered)

A

Well, even if the FIRM registers with the SEC, you would register with the state, the state you maintain a physical office. It is where your office is LOCATED, NOT WHERE YOUR CLIENTS ARE.

35
Q

What about if you are a STATE IAR

A

Register if you have an office, client resident in that state, and no office / no more than 5 clients)

36
Q

Registration procedures for Firm (BD, IA, Issuer, etc)

A
37
Q

Registration procedures for agents / IAR, when is it effective, and when does it expire?

A
  • Application fingerprints - innocent until CONVICTED - 10 year felony & misdemeanor for denial
  • Filing fee
  • Consent to service & signed time at application - once signed all good
  • Pass test
  • Admin - cleared
  • Effective NOON 30th day application as long as all things have been satisfied.
  • EXPIRES every DECEMBER 31st, renewed each year
38
Q

Agent and IAR Withdraw registration

A

Agent notify - BD, Agent, and new BD
IAR - depends on federal or state (never the SEC)
—- if state - IA to notify Admin
—- if federal - IAR to Admin (think IAR registers with Admin of state, not SEC like the firm)

39
Q

Registration procedures for FIRMS (IA, BD)

A
  • Filing fee
  • Consent to service & signed time at application - once signed all good
  • Admin - cleared
  • Effective NOON 30th day application as long as all things have been satisfied.
  • EXPIRES every DECEMBER 31st, renewed each year

Net capital worth
- IA - 10k or 35k if has custody
- BD - none - state can’t impose, only federal, can’t be greater than what SEC has

40
Q

Surety bonds

A

Can put up cash or securities instead if they want.

41
Q

Successor firm
Do they have to refile?
Who pays?

A

If one firm acquires another - refile application - but does NOT repay filing fees

42
Q

IA and BD Maintain books and records for how long? What about minimum capital requirements? What if you fall below?

A

IA - 5 years up to end of fiscal year / 2
BD - 3/2

IA goes out of business must maintain records for additional years

IA falls below minimum net capital, you have 1 day to notify admin, then 1 day from notification to submit a plan on how to meet net capital requirement.

43
Q

What is not a security

A

Remember what is NOT a security
- commodities, future contracts on commodities,
- fixed insurance contracts (life, fixed annuity)
- retirement plans

Variable ARE
Call / put on commodities ARE

44
Q

If they are a security, they have to

A

REGISTER

45
Q

Methods of state registration for securities

A

2 methods
1 - coordination - most common - coordinating state registration with federal registration - reg EFFECTIVE - when cleared by SEC
2 - if intrastate (in one state) qualification - if no registration w/ SEC - admin has to take a fine tooth comb through - reg EFFECTIVE when Admin

46
Q

When a company offers ‘additional securities’ it registers with the SEC, federally covered if

A
  • on exchange
  • included in NASDAQ
  • Investment co.

Pay through NOTICE FILING - merely a method for paying filing fee for federally covered securities.

47
Q

Notice filing

A

Method for paying a filing fee for federally covered securities

48
Q

Registration security exemptions

A

US gov’t
Muni
Bank / Insurance
Non profit
Religious org
Canadian gov’t (ALL levels)
Foreign gov’t (FED ONLY)
Commercial Paper - maturity less than 270 days and value is greater than 50k is exempt

49
Q

What do we call securities that ARE REQUIRED to be registered..

Unless what..? (4 answers)

A

Non-exempt securities, I.e. COMPANY / CORPORATE
Non-exempt = COMPANY / CORPORATE
MUST REGISTER

Unless…
- unsolicited
- between financial firms
- private placements (private offering not public and only to accredited investors and institutions)
- sheriff or bankruptcy sales
-

50
Q

Jurisdiction of admin over offer or sale

A
  • originated in state, accepted in state, directed in state (doesn’t matter where they live, or where the money comes from - it is ALL about solicitation - originated, directed to, accepted)
  • Subpoena - compel testimony - yes in ALL states
  • Deny or revoke or suspend registration due to: felony CONVICTIONS, misdemeanor involving securities,
  • Criminal penalties - up to 3 years in jail and/or 5k fine
  • Civil penalties - statue of limitations 3 yr occurrence / 2 year discovery (which ever is occurs first)
  • Right of recision
51
Q

Right of recision

A

All original principal + commission + interest + incurred costs (any dividends taken will be subtracted)

OR

Keep the stock and go your marry way

30 days to make up your mind - and if accepted the client cannot sue anymore.

52
Q

What is on form ADV
Who are the affiliates?
When is registration effective?
Withdraw effective?

A

FOR FEDERAL

Name
Form
Affliates - director, officers, partners (who remember, are automatically registered under IA as IAR)
Registation is effective 45 days, withdraw 60 days

53
Q

Where to find brochure disclosure rule

A

Form ADV pt 2

54
Q

State vs federal advisor requires brochure?

When do each have to resend out brochures?

A

State - 48 hours prior to contract, or at time of contract but then the customer has ‘free look’ 5 day to recind to back out of the contract

Federal - @ or prior to contract

RESEND
State - Annually ONLY IF material changes or requested
Federal - MUST re send within 120 days of THEIR FISCAL year end

55
Q

Advisor Contracts

A

No Assignment Clause, prohibited to assign contracts WITHOUT client consent

(think a firm acquires another firm and wants to assign the client contracts)

56
Q

If the IA is owned by 3 dudes, and 1 of them 87 years old passes away, then…

If a majority of partnership changes

A

Notify customers of partnership change.

It would be a new entity

57
Q

SEC release IA 1092

A

Financial planners
Sports and entertainment agents
Pension consultants

If you are 1 of these people, you have to register as IA

58
Q

IA compensation

What are the ‘soft dollar’ (3 answers)

When can it be performance based?

A
  • Fees
  • Commissions
  • Discount fees to diff customers
  • Wrap account - fixed fee even if it grows YoY
  • Soft dollar - software, research, seminar fees (CANNOT accept travel, rent, licensing fee, anything other than those three ^)

AS long as disclosed in brochure

CANNOT BE PERFORMANCE BASED
Exept:
- Individuals have 1.1M invested (or) 2.2M net worth
- Hedge funds
= % of net gains (winner vs losers) over a specific time period against a benchmark

59
Q

Agency cross transactions are OK if

A

unsolicited & disclosed

60
Q

IAR to withdraw FED vs STATE

A

FED covered IAR - IAR lets admin know
State covered IAR - firm (IA) lets admin know

61
Q
A

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