Chapter 6-10 flashcards
Under the Uniform Securities Act, all of the following are exempt transactions except
a sale of a primary offering registered with the SEC. In almost every instance, an issuer transaction—that is, one for the benefit of the issuer—will not be considered an exempt transaction.
Exempt transactions include isolated nonissuer transactions; transactions between an issuer and an underwriter; transactions by an executor, Administrator, sheriff, marshal, trustee in bankruptcy, guardian, or conservator; any sale or offer to a bank, savings institution, investment company, or other financial institution; and private placements.
Long-Term Financial Solutions, Inc., (LTFSI) an investment adviser registered in five states, files Form ADV-W indicating the business is closing. It is being acquired by another federal covered adviser, Gold and Sylver Advisers, LLC. Which of the following statements is correct?
When an investment adviser ceases to exist, either through going out of business or being succeeded by another firm (as is the case here), it is their responsibility to ensure that articles of incorporation, charters, minute books, and stock certificate books of the investment adviser and of any predecessor be preserved until at least three years after termination of the enterprise. Although it is true the contracts have been assigned to the successor firm (Gold and Sylver), the consent for that had to be obtained by LTFSI. A change of this nature requires prompt amendment to Form ADV Part 1.
Under SEC Release IA-1092, who of the following would be considered to be in the business of rendering investment advice?
A financial planner who takes commissions from a broker-dealer on recommended trades is considered to be compensated for giving advice and is therefore in the business of rendering investment advice. Agents and broker-dealers who do not charge separately for advice are excluded from the definition of investment adviser. Lawyers, accountants, teachers, and engineers are not considered to be in the business of rendering investment advice, as long as any advice given is incidental to the practice of the profession.
Net worth is
Owners equity
An investment adviser (IA) has its primary office in State A. It has branches in States B and C, and it advertises in States D, E, and F. What net capital requirements must it meet
Where its principal office is located
What is a covered security
Covered Securities generally means stocks, bonds and options, including warrants and rights.
Stocks are considered noncovered if sold by foreign intermediaries and foreigners (i.e., individuals absent from the country for at least 183 days of the calendar year).
Investment sales are also divided into covered and noncovered securities using Form 8949.
Transactions between issuers and broker-dealers
Transactions between issuers and broker-dealers (but not investment advisers) are exempt transactions.
As long as the sale is to the public, regardless of commissions charged (or not charged), the transaction is nonexempt.
Form 8-k
Form 8-K is known as a “current report” and it is the report that companies must file with the SEC to announce major events that shareholders should know about.
These include: a change in the external CPA firm engaged to perform the annual audit, a change in top management, acquisition of a major asset.
The SEC does not consider relocation of a subsidiary to be of significant magnitude.
Which of the following terms pertains to registration with the Administrator of a mutual fund, closed-end investment company, or unit investment trust that is registered under the Securities Act of 1933 and also registered as an investment company under the Investment Company Act of 1940?
Notice filing
Examples of exempt transaction(s)
The term” exempt transaction” includes sales by fiduciaries, private placements and isolated nonissuer transactions. Any solicited sale to an individual client, even of a properly registered security, is not an exempt transaction.
The final responsibility for ensuring that investment adviser representatives are adequately supervised is that of
It is the CCO who has the ultimate responsibility for ensuring that the firm has, and properly implements, adequate supervisory procedures. The immediate supervisor has the “first-line” responsibility, but the “buck stops” with the CCO.
Cash flow from operations
Cash flow from operations is computed by adding the year’s depreciation deduction to the net income.
A consent to service of process required by an Administrator is
an agreement whereby a registrant will be bound by any legal action or subpoena served on the Administrator as if it had been served on the registrant.
An exemption from state registration is granted under the specific authority of the Uniform Securities Act to securities issued by which of the following entities?
State of Georgia
City of London, Ontario
City of London, England
Kapco Income Fund, an open-end investment company registered with the SEC
Any state, Canadian province, or political subdivision thereof is considered an issuer of exempt securities. The exemption also applies to securities issued by foreign governments with whom the United States has diplomatic relations—but not their political subdivisions, such as the City of London, England. Although securities issued by investment companies registered with the SEC are exempt from state registration, the authority for that exemption is found in the NSMIA of 1996 (federal covered securities) rather than the Uniform Securities Act.
Preorganization certificates are limited
to a maximum of 10 subscribers, whether individuals or institutions.
Fiduciary transactions and unsolicited orders
regardless of the security being purchased or sold, are always exempt transactions under the USA.
Administrator is not empowered to deny an exemption from state registration to which of these?
Other than in a transaction involving a federal covered security, the Uniform Securities Act gives the power to the Administrator to deny an exemption to any exempt transaction, such as private placements or transactions with professional investors (e.g., insurance companies or bank trust departments). However, when it comes to a security’s exemption, the Administrator may only deny exempt security status to an issue of a nonprofit organization or an investment contract issued in connection with an employee benefit plan, never a U.S. government security or one issued by another state.
Under the SEC’s release, the rendering of advice as an investment advisor
it must be a regular activity, and compensation may be received directly or indirectly.
Overnight loans between banks are made at
Federal funds rate.
Under the Investment Advisers Act of 1940, which of the following is considered an investment adviser?
A)
A person who publishes a regular newsletter of advice on U.S. Treasury bonds and other U.S. government securities
Incorrect Answer
B)
A syndicated columnist who gives weekly reports and recommendations on investments
Incorrect Answer
C)
The trust officer of a commercial bank who manages investment accounts for clients
Incorrect Answer
D)
A lawyer who specializes in consulting on investing in securities
A lawyer who specializes in consulting on investing in securities
Publishers and writers of general, regular, paid circulation publications (newspapers and magazines) are excluded from the definition of investment adviser.
Under the federal law, anyone giving advice dealing only with U.S. government securities is excluded from the definition, as are those who work for banks and trust companies.
The lawyer is not excluded because the advice provided is not incidental to the profession; it is the lawyer’s specialty.
An economic condition where the rate of price increases reaches a stable equilibrium and stays there until a shock to the system occurs—at which time, the rate of inflation changes—is known as
This is a definition of inertial inflation. Just like it sometimes takes a shock to get people moving (lack of inertia), it can require a shock to move the economy. It is unlikely that any of the other terms shown here will appear as a correct answer on your exam.
What generally happens to outstanding fixed-income securities when the rate of inflation slows?
Prices go up.
When the rate of inflation slows and is expected to remain stable, coupons on new issue bonds will often decline to offer lower yields. The prices of outstanding bonds will go up to adjust to the lower yields on bonds of similar quality.
Exempt transactions are typically between
Transactions between broker-dealers and issuers, between banks, and between banks and insurance companies are exempt because they occur between financial institutions. Exempt transactions are most often identified by the transaction’s parties, rather than the type of security involved.
I.e. The purchase of securities from a broker-dealer by an employee of a bank is a nonexempt transaction because it is a sale of a security by a broker-dealer to a member of the public
lawyers, accountants, teachers, and engineers (LATE) giving investment advice
that is incidental to their professions are not considered investment advisers. If they receive a fee for the advice, hold themselves out to the public as doing so, or offer excessive advice that is no longer incidental to their practice (as 30% of the practice would indicate), they lose this exclusion and must register as investment advisers.
