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Series 66 > Chapter 1 > Flashcards

Chapter 1 Flashcards

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Series 66 flashcards
1
Q

What are purported gifts?

A

Purported gifts are not bona fide gifts.

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2
Q

For an I/A to enter into any I/A contract, what must the contract state?

A

1) The advisor will not be compensated on the basis of a share of capital gains or capital appreciation of funds (performance fees)
2) That no assignment of the contract may be made by the advisor without the consent of the client.

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3
Q

Would changing from a sole proprietorship to a partnership be considered a “change of assignment” where the investment advisory contract is concerned?

A

Yes, this would be considered a change of assignment. If I/A is in a partnership, no assignment of an investment advisory contract is considered to result from the death, withdrawal, or admission to the IA of a minority of members having only a minority interest in the business.

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4
Q

Would the client have to sign if terms of the I/A contract are changed?

A

Yes, and the COA or telephone number would be considered a change.

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5
Q

Commingling customer funds and backdating order tickets would be examples of what?

A

fraudulent practices under the USA.

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6
Q

Selling shares of a new corporate issue without providing a prospectus to purchasers would be considered what?

A

An example of intentional misrepresentations and omissions according the USA.

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7
Q

It is unlawful for any person to transact business in a state as an I/A or IAR unless what?

A

1) They are registered under the 1933 Act.
2) They have no PLACE of business in the state and their only clients in the state are:
Investment Companies, Other I/A’s, Federal covered advisors, B/D’s, Banks, Trust Companies, Savings and Loan Associations, Insurance Companies, Employee benefit plans with assets of not less than 1mm, Government agencies, and other institutional investors as designated by rule or order of the administrator. (none of these clients are members of the public)

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8
Q

Is it unlawful for any B/D and/or agent of a B/D to solicit or transact business in a statue unless both the agent and B/D are registered in the state?

A

Yes. (The 5 client exemption is for I/A’s)

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9
Q

When an I/A is registered under the 1933 Act, who would be automatically be registered?

A

Any IAR who is a partner, officer, or director, or a person occupying a similar status or performing similar functions.

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10
Q

When a B/D or IAR first files for registration, how is the registration fee calculated?

A

Pro-rata for the remainder of the current year and annually at year-end thereafter.

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11
Q

When must changes of material fact (change in ownership) be reported to the administrators?

A

Promptly

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12
Q

B/D’s who have custody of client funds or securities or have discretion over client accounts may be required to have what 3 things?

A

1) Minimum capital (set by the administrator)
2) Surety bond (determined by the administrator) (May vary from state to state or an appropriate deposit of cash or securities if a surety bond isn’t posted)
3) Examinations of books and records (as determined by the administrator).

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13
Q

Do agents have minimum capital requirements to have discretionary authority over client funds?

A

No, agents are people. B/D’s (firms) have minimum capital requirements.

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14
Q

When an agent begins or terminates employment, who must notify the administrator?

A

Both the agent and B/D must notify the administrator promptly.

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15
Q

Per the U.S.A., every application for registration must contain?

A

1) Qualification history
2) Any injunction of a misdemeanor involving securities business and any conviction of a felony.
3) Financial condition and history.
4) Any information to be furnished to clients (if the applicant is an I/A).

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16
Q

What happens if a B/A or I/A reorganize in the middle of a registration period?

A

They can file an application to register the successor firm whether in existence or not for the unused portion of the year.

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17
Q

What are some of the main reasons why an administrator may by order deny, suspend, or revoke any registration or bar or censure any registrant from employment with a registered B/D or I/A.

A

1) Been convicted within the past 10 years of any misdemeanor involving securities.
2) Is permanently or temporarily enjoined by and any court involving the securities or commodities business.
3) Is insolvent (liabilities exceed assets).
4) Violated the law of a foreign jurisdiction within the past 5 years. (Foreign = 5).

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18
Q

Under the U.S.A., what are the registration requirements for securities to be “lawfully sold” in that state?

A

1) Be engaged in business operations in the U.S. for a period of at least 36 months.
2) Must have a class of securities held by 500 or more persons.
3) Have a total NW of 4mm or have a total NW of 2mm and net pretax income from operations before allowances for extraordinary items for at least 2 of the 3 preceding years.

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19
Q

What is coordination?

A

It’s a method generally used for new issues whose registration is pending with the SEC. Any security for which a registration statement has been filed with the SEC may be registered by coordination.

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20
Q

For a security to be registered by qualification (not with the SEC, but only in the state if issuance), when would a prospectus need to be distributed and when would registration become effective?

A

Prospectus must be delivered before the sale of a security and such registration becomes effective when the administrator so orders.

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21
Q

Would a fixed annuity be subject to the anti-fraud provision of securities law?

A

No, because it’s not considered a security (All securities are subject to anti-fraud provisions)

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22
Q

Is nasdaq exempt from state registration and advertising filing requirements?

A

No, but US Govt. Securities, Muni’s, Canadian Securities, and securities issued by banks, savings and loan, trust companies, Insurance companies, listed on a national stock exchange, non-profit issues, promissory notes, public utility , commercial paper (50k or greater), and Investment contracts in connection with employee stock purchase plans.

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23
Q

Does the exempt security, promissory notes, need to be issued by a federally chartered bank?

A

No.

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24
Q

Please name 2 exempt transactions under the U.S.A.

A

1) Isolated non-issuer transactions.

2) Private placements sold to not more than 10 persons other than institutional investors during a 12 month period.

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25
Q

Can an order to deny or revoke an exemption be made retroactive?

A

No.

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26
Q

For investigations and subpoenas, what can/can’t an administrator do?

A

Can: administer oaths, subpoena witnesses, take evidence.

Can’t: arrest, enjoin, indict individuals, or confiscate property.

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27
Q

What are two other methods that administrators can issue and apply to enforce subpoenas?

A

At the request of a securities agency and administrator of another state if it occurred in that state.

28
Q

According to the U.S.A., what can the buyer sue to recover for?

A

Consideration paid for the security plus interest from the date of payment as well as costs and reasonable attorney’s fees.

29
Q

When do rules and forms of the administrator need to be published and amended?

A

Only when changed.

30
Q

When do orders by administrators need to be appealed in court?

A

Within 60 days after the order has been issued.

31
Q

Can the administrator institute a suspension or revocation proceeding based solely on lack of experience if the applicant or registrant is qualified by training knowledge?

A

No.

32
Q

When would a security or transaction not be required to file sales and advertising literature?

A

If it’s a exempt (for example, a federal covered security).

33
Q

Would websites and UIT’s be required to file sales and advertising literature?

A

Yes

34
Q

When can a B/D or I/A store records electronically?

A

1) stored in a manner in which they cannot be altered.
2) Must be readily accessible.
3) Must be able to be copied as needed.
4) A duplicate copy must be stored in a separate location.

35
Q

What are the 2 main purposes of the U.S.A.?

A

State securities laws are based on the U.S.A. To minimize duplication of federal and state registration requirements and to prevent fraud.

36
Q

Per the U.S.A., the term broker-dealer does not include a person who doesn’t have place of business in a state if he effects transactions in the state exclusively with or through what?

A

1) The issuers of the securities involved in the transactions.
2) Other broker-dealers.
3) Banks, savings institutions, trust companies, insurance companies, investment companies, as defined in the 1940 Act.
4) Pension or profit sharing trusts.
5) Other financial institutions or institutional buyers, whether acting from themselves or as trustees.

37
Q

What does the U.S.A. consider a person?

A

Individual or legal entity

38
Q

Under the U.S.A., what are exempt securities?

A

1) US Government Securities
2) Muni securities
3) Canadian Govt. Securities
4) Banks
5) Promissory notes and investment contracts

39
Q

Describe an I/A.

A

According to the U.S.A., it is a person who, for compensation, engages in the business of advising other either directly or through publications or writings, as to the value of securities as to the advisability of investing , purchasing or selling securities.

40
Q

Under the U.S.A., who would be excluded through the definition of I/A?

A

IAR’s, banks, savings institutions, trust companies, investment companies, and other financial, intermediaries, even if they charge a fee for advisory services.

41
Q

Would the publisher of a newsletter, which contains a column that answers questions from individual investors regarding their personal investing strategies be considered an I/A?

A

Yes, because it isn’t general advice.

42
Q

Can an I/A also be registered as a B/D and be paid an advisory fee separate from any commissions it earns on securities transactions?

A

Yes, acting in both capacities on the same transaction requires disclosure to the client.

43
Q

The term agent doesn’t include an individual who represents an issuer in effecting which 5 exempt securities?

A

1) U.S. Govt. Securities
2) Municipal Securities
3) Canadian Govt. Securities
4) Banks
5) Promissory Notes and Investment Contracts.

44
Q

Under the U.S.A., what are two exempt securities where an agent would still need to register if they were going to effect issuer transactions for?

A

Insurance products and Federal savings and loan.

45
Q

Under the U.S.A., what 4 people would be excluded from being a “Federal Covered Advisor?”

A

Banks, L.A.T.E, I/A’s who only give advice on U.S. Govt. Securities, and Publishers of general advice about securities.

46
Q

Under the U.S.A., when certificates of interest in oil, gas, or mining titles or leases are issued, would the companies issuing them be considered issuers?

A

No, even though certificates of interest are considered securities.

47
Q

Under the U.S.A., what are 4 elements that make up an investment contract?

A

Investment of money, common enterprise, expectation of profits, and management by a third party.

48
Q

Under the U.S.A., what 4 transactions would not be considered a sale?

A

A bona fide pledge or loan of securities, a stock dividend, shares acquired as a result of a merger or re-org, and converting a bond to a stock.

49
Q

Under the U.S.A., what two things are not considered to be solicitations?

A

Proxy statement and report to shareholders.

50
Q

What 2 territories or possessions of the U.S. would be considered “states”?

A

Puerto Rico, District of Columbia

51
Q

Under the U.S.A, would the “5 client exemption” apply to B/D’s and agents?

A

No. It only applies to Investment Advisors.

52
Q

Under the U.S.A., when must applications for renewal for Canadian B/D’s and their agents be filed by?

A

December 1st.

53
Q

Under the U.S.A., how long must a registrant keep a surety bond?

A

The entire time they are in business and 3 years thereafter. B/D’s, agents, and I/A’s are required to have Surety Bonds, not IAR’s.

54
Q

When an agent or IAR are terminated, which form is it reported on?

A

Form U-5

55
Q

Under the U.S.A., Securities must always be registered in a state unless what?

A

The security is registered under the act, exempt from registration, or a federal covered security.

56
Q

When satisfying registration by coordination, when will the registration become effective?

A

When the federal registration becomes effective.

57
Q

Under the U.S.A., would the administrator be able to issue a stop order just because the security is new with no operating history?

A

No.

58
Q

Under the U.S.A., what 2 things are exempt securities exempt from?

A

Registration requirements and filing of sales and advertising literature.

59
Q

Under the U.S.A., would a “blind pool transaction” qualify as an exempt transaction?

A

No, because these types of investments have no stated investment objective and no intended investments upon formation.

60
Q

Under the U.S.A., pre-organization subscription agreements are exempt from registration if what 4 criteria are met?

A

Subscribers cannot exceed 10, no commission may be paid, Payments can be made only after registration becomes effective, and advertising is acceptable.

61
Q

Under the U.S.A., what 4 exemptions may an administrator deny or revoke?

A

Exempt transactions, exchange listed securities, non-profit organizations, and investment contracts listed by employee benefit plans.

62
Q

Under the U.S.A., when an administrator, by rule or order, prescribes the content of financial statements, how must those statements be prepared?

A

In accordance with generally accepted account principals.

63
Q

Under the U.S.A., would a B/D need to keep the names of people receiving sales literature or promotional information?

A

No.

64
Q

Under the U.S.A., when determining if an I/A must register in a state or not, what 3 entities would not count towards the client count?

A

Financial institutions (trust company), other investment advisors (investment council), and investment companies.

65
Q

Under the Uniform Securities Act, does an I/A need to register when giving advice on any security, exempt or not.

A

Yes.

Series 66 (8 decks)

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