Chapter 1 Flashcards
Exempt vs non-exempt securities
Exempt: Securities not required to be registered w/ a regulator.
Non-exempt: Securities may be required to be registered w/ a regulator.
True or false: Securities professionals can sell non-exempt, unregistered securities?
False, that’s prohibited
Difference between registration at the state level vs federal level
Once it’s been established that registration is required at the state level, then the rules, regs, & guidelines of the Uniform Securities Act (USA) must be followed. Federal registration requires documents be filed w/ the SEC.
Broker-Dealer
A person (usually a firm) that’s in the business of effecting transactions in securities for the accounts of others or for its own account. They are compensated w/ commissions.
Definition of “a person”
Any legal entity that’s not deceased, is not a minor, and is not mentally incompetent. Under the Uniform Securities Act, the term person may include individuals, corporations, partnerships, sole proprietorships, issuers, and state Administrators (both the office and the individual).
Broker vs dealer
Broker/Agent/registered representative: Any person that engages in the business of effecting agency transactions in securities for the account of others. Essentially, brokers match up buyers and sellers and earn a commission. Brokers charge commission.
Dealer/Principal: Any person that engages in the business of buying and selling securities for its own account
Two types of agents:
- One who represents a broker-dealer (BD): a non-clerical individual who represents a broker-dealer in effecting securities transactions. Without exception, salespersons of BDs who effect securities transactions are considered agents and MUST BE REGISTERED.
- One who represents an issuer: A non-clerical individual who represents an issuer in effecting securities transactions with the public involving the issuer’s securities. An individual is excluded from this definition if they are involved in transactions in securities that are exempt AND if they don’t receive compensation. If securities or transactions that the agent is selling are exempt, the agent DOESN’T HAVE TO BE REGISTERED.
True or false: A key characteristic of an agent is that they are compensated for sales of securities?
True
Investment advisory (IA)/registered investment advisors (RIAs)
Any person (usually a firm, rather than an individual) that, for compensation, engages in the business of providing others with securities-related advice, reports, or analysis. There is a 3 part test to determine if a person is an IA, and they must check all three boxes:
- They provide advice about securities
- They provide services as a business
- They receive compensation for these services
Recall, IAs charge fees. They DO NOT receive commissions.
Investment Adviser Representative (IAR)/registered investment adviser representatives (RIARs)
Anyone who is associated w/ an IA that:
- makes recommendations or gives advice regarding securities.
- manages accounts or portfolios of clients
- Determines which recommendations or what advice should be given
- Solicits, offers, or negotiates the sale of investment advisory services
- Supervises employees who performs any of these functions
Uniform Securities Act (USA)/Blue-sky laws
What state securities rules and regs are based on. USA is not the actual law of any one state, but rather a blueprint or template that each state may customize to suit its own needs.
USA states that any transaction involving <= 10 persons is considered a pvt placement and thus exempt. USA also states that commissions may not be paid if the buyers noninstitutional customers.
Administrator
The state regulator responsible for administering and enforcing securities laws in a state, and also educating investors. The fundamental mission of a state securities regulator is to protect the consumers who purchase securities or pay for investment advice within the state. The administrators of states enforce USA.
North American Securities Administrators Association (NASAA) **
An organization that is comprised of all state regulators and responsible for updating the USA (act), along w/ updating the content of this exam. NASAA was formed in 1919 and is the oldest international organization devoted to investor protection. It currently has 67 members.
NASAA includes 50 states, Puerto Rico, US Virgin Islands, Canada, and Mexico.
How to tell whether a law is state is federal relating to securities?
Federal laws have #s in them (ex: Securities Act of 1933). A question might also refer to the SEC as the regulator, which tips off that it’s regarding a federal law.
Securities Act of 1933
Created after the stock market crash of 1929. This Act requires certain securities to be registered w/ the SEC in order to be offered/sold to the public. This Act mostly deals w/ IPOs. Act requires an issuer to file a registration statement w/ the SEC, which provides disclosure of all material info about the issuer and offering. Issuers are also required to provide a prospectus, essentially an abbreviated version of the registration statement.
