Chapter 3 - Regulation of Broker-Dealers

Question 1

Broker-dealers and their agents get paid when ______ is completed

Answer 1

A transaction

Question 2

A broker acts as a go-between for two parties interested in making a __________ for their accounts

Answer 2

transaction

Question 3

A dealer sells clients securities from their _________

Answer 3

own account

Question 4

Exceptions to registering as a broker or dealer

Answer 4

• an agent (employee of a broker-dealer)
• an issuer
• a bank, savings institution or trust company
• the issuer of securities involved in the transaction
• other broker-dealers (people only dealing with other broker-dealers)
• institutional investors

Question 5

Broker-dealer registration quick facts

Answer 5

• if you have an office in that state you must register
• don’t have to register if you don’t have an office in that state and only have institutional clients
• do have to register if you don’t have an office in the state but do have even one non-institutional client

Question 6

An institutional investor must fit into one of the following categories:

Answer 6

• bank, savings institution, or trust company
• insurance company
• investment company
• broker-dealer
• pension or profit-sharing trust
• another financial institution or institutional buyer

Question 7

Subsidiaries of bank holding companies that effect securities transactions with the public must _________ as broker-dealers

Answer 7

register

Question 8

Commercial banks are ________ from having to register as broker-dealers

Answer 8

Exempt

Question 9

Canadian broker-dealers do not have to register if they don’t have an office in the state and:

Answer 9

• client is from Canada, had previous relationship with the firm and is just visiting the state
• client is engaging in transactions for a self-directed tax advantaged retirement plan held in Canada
• client is an institutional investor

Question 10

Agents can use a limited registration if from a Canadian broker-dealer, would have to:

Answer 10

• file application
• file consent to service of process
• provide evidence of good standing
• proof of membership in a Canadian SRO
• make records available
• inform admin of any criminal history
• disclose Canadian origin to clients
• pay a filing fee

Question 11

Broker-dealers are almost ______ required to file federally

Answer 11

Always. Only exception is when all transactions will be made within one state (which is rarely the case)

Question 12

To register, a broker-dealer uses Form _____

Answer 12

Form BD.

Question 13

Registration of a broker-dealer becomes effective at _____ on the ______ after application is filed.

Answer 13

Noon on the 30th

Question 14

Admin has _____ days to initiate a hearing

Answer 14

90 days

Question 15

Broker-dealer must also register with the appropriate _______ and ________

Answer 15

SRO and Securities Investor Protection Corporation (SIPC)

Question 16

Broker-dealers are subject to net capital requirements. T/F

Answer 16

True and state cannot make them meet requirements that are above the SEC requirements

Question 17

Post-registration requirements for broker-dealers are:

Answer 17

• financial reports, must update inaccurate reports
• record keeping (client records and marketing lit for 3 years, first two in a an easily accessible place / some records for 6 years)
• audits can happen at any time
• bond or insurance required for broker-dealers with custody or authority

Question 18

NSMIA says that a state cannot require net capital requirements, bonding, custody or reporting/record keeping above that of the ______ requirements

Answer 18

SEC

Question 19

Termination of a broker-dealer for the following reasons:

Answer 19

• denial in the public interest
• revocation for public harm
• suspension for less serious infractions
• withdrawal (use Form BDW, effective after 30 days but under jurisdiction for the next year)
• restriction/limitation to operate only in certain capacities