Ch 3 State Reg Of BDs

Question 1

When does an issuer rep NOT have to register as agent?

Answer 1

Exempt security
Exempt transaction
Federal covered security
Transaction with employees, partners for no commission (eg works in HR)

Question 2

What are finders and must they register?

Answer 2

Individuals that search for investors for private placements (ie not listed on exchange). Must register as agent if commission is paid. Finders can receive comp for a list of prospects for example but can’t negotiate securities prices or attempt to convince people to buy it

Question 3

Do issuers, banks, savings institutions and trust companies have to register as broker dealer?

Answer 3

No

Question 4

Which state does broker dealer have to register in if client is a student or snow bird with multiple states or vacationing out of state?

Answer 4

Based on home state (eg student or vacationer)
Snowbirds is both

Question 5

If client moves, does BD have to register in new state?

Answer 5

The BD must be registered before the client moves but if BD is already register in that state, agent can engage in trans for 60 days

Question 6

Can Canadian BDs sell to clients in the US?

Answer 6

Only if:
client is in US temporarily
BD is a member of an SRO (eg FINRA) or Canadian stock exchange
They file an application and “consent to service of process” with admin
They don’t solicit new clients in the state

Question 7

When do Canadian state registrations expire?

Answer 7

Dec 1 of each year with 30 day grace period

Question 8

How to register as BD

Answer 8

BD: form BD with central registration depository (CRD)
Agent: form U4 with CRD

Question 9

How to register as IA

Answer 9

IA: form ADV parts 1 and 2 with investment advisor registration depository (IARD)
IAR: form U4 with IARD

Question 10

What are CRD and IARD?

Answer 10

Central registration depository- Computerized database of BDs and agents, including which states registered and discipline/complaints. Investment advisor registration depository - electronic filing system of IAs.

Question 11

When do applications become effective?

Answer 11

30 days from filing or earlier if the admin chooses

Question 12

When do registrations expire?

Answer 12

Dec 31

Question 13

When are registrations updated?

Answer 13

Annual at time of renewal

Question 14

When must registration changes be filed?

Answer 14

Within 30 days
Eg agent name change, ownership change

Question 15

What is consent to service of process?

Answer 15

Grants admin POA to receive and process non-criminal (civil) complaints so client that wants to sue BD doesn’t have to track down the BD and can go right to the admin
Once filed, irreversible (ie no renewal)

Question 16

When is filing fee due?

Answer 16

Paid annually on Dec 31 for BD and agents

Question 17

What are bonding requirements?

Answer 17

Bonds posted by BDs, agents, IAs and reps to cover the costs of lawsuits (like a savings account)
Not required for BD/IA under certain net capital (BD) or net worth (IA) thresholds
Must be maintained 3 years after business
In lieu of bond, cash or securities may be deposited as determined by admin. personal property can NOT be posted

Question 18

Who determines minimum financial requirements for BD, how much is it and when must a deficiency be reported?

Answer 18

Set by SEC, amount varies based on activity and report deficiency within 1 business day to SEC, the state and probably FINRA and obtain a surety bond to make it up

Question 19

BD record keeping requirements (how long and what must be provided to admin)

Answer 19

Ads, order tickets and confirmations: 3 years with first 2 being easily accessible.
GL, statements and bloggers: 6 years
Partner agreements, stock certificates, board meeting notes: lifetime
File financial reports with admin and amend material changes within 30 days

Question 20

Do agents selling only exempt securities have to register?

Answer 20

Yes if agent of BD; likely no if agent of issuer

Question 21

Which states must a BD register in?

Answer 21

Those where it holds an office or where clients live. If no office and the only clients who live there are institutional, no registration needed.

Question 22

Do BD subsidies of banks need to register?

Answer 22

Yes. While the bank is exempt, a subsidy of the bank is still required to register as a BD