Chapter one Flashcards
Uniform Securities Act Definitions
Two purposes of the USA
Minimize duplication of federal and state registration requirements and to prevent fraud (blue sky laws)
Broker (Agent capacity)
buy and sell security and charge commisison
Dealer (principal capacity)
Buy and sell securities from own inventory , charge mark up/down
Exclusion of term Broker dealer
- Agents
- issuers
- banks, savings institutions and trust companies,
- person who has no place of biz in a state and works EXCLUSIVELY with institutional clients (non retail)
ie. BD in state A only biz is working with BD in state B not be defined as BD b/c only customer is a financial institutions - If BD in state A has client vacation in state B, BD not required to register in state B- snowbird rule
Agent (Register)
Individual who represents a BD OR an issuer in affecting securities
An agent must be registered in all states where they act within the scope of an agent. ,
Receipt of commission not requirement to be agent
If worked with two BD, registration and supervision required by both firms (dual registration atypical but theoretically possible)
* Individual that represents the sale of an interest in an LP is an agent and must be registered as such
Issuer exclusion in definition of an agent ( some exempt Securites)
- US gov securities,
- Municipal securities
- CAD gov securities,
- Banks,
- promissory notes and investment contracts
* Insurance company and Fed Savings/Loans are exempt securities but NOT included in this list
Issuer exclusion in definition of an agent (Exempt transactions)
- non issuer transaction (secondary),
- covered secuirities sold in private placement
- Transaction with investing employees partners or directors of issuer if no commission is paid (ie. HR public stock in 401k plan)
BD exclusions from agent definition
- BD in one state who servicing client temporarily in another state
- Partner, officer or director of BD (only would be agent if personally effect transaction)
Unregistered assistant of an agent
okay if post and update account records,
May NOT handle trades or make recommendations
Investment Advisor (IA)
For compensation, engages in biz of advising others, PM and financial planner
“ABC”
Advise about securities, for thier busines, for compensation
No requirement that client implement the advise
Acting as an IA and BD on same transaction requires written disclosure to the client
A person hired by an investment adviser to perform solicitation activities on behalf of the IA must be registered in each state in which it solicits or transacts business.
Exclusions from definition of IA- Investment Advisor
- IAR
- banks, savings, institutions, trust companies (but not insurance companies), investment companies (all even if they charge a fee for advisory service),
- LATE (Lawyers, accountants, teachers, and engineer) if advise lNCIDENTAL to practice profession
- BD and agents if advise is INCIDENTAL to normal brokerage and no extra comp
- Publishers of newspapers etc general advise
- Federal covered advisors
- Employee benefit plans (401k plans)
IAR
makes recommendations, determines suitability etc, supervises employees who perform function
Must actually give the advise
Include solicitors for fee, must be registered
USA rules define an IAR as one who makes recommendations or gives advice regarding securities, manages clients’ accounts or portfolios, determines suitability of recommendations, solicits, sells, or negotiates investment advisory services, or supervises employees performing such functions. The issuing of securities to the public would be performed by an issuer and an underwriter, not an IA. Effecting securities transactions for other people’s accounts would fall under the actions of a broker/dealer.
Exclusion from IAR
only perform clerical tasks
Only solicit sales of fixed annuities
Even if registration not required, subject to ant-fraud
Federal covered advisor
Register with SEC ONLY- must actually register
1940 act require
May require file a notice with states in which 6 or more clients do biz
Advisor to registered investment company or
Manages investment portfolio >$110M must register with SEC (90 days)
Old state number was $25M
Exclusion from Fed covered advisor
IA who give advise on US gov only
Banks and Bank holding companies
Publishers of general advice about secuirites
LATE professions
Issuer exclusion
Issuing certificates of interest in oil, gas, or mining titles or leases
Four basic elements of investment contracts (type of security)
Investment of money
Common enterprise
expectation of profit
Management by a third party (Howey)
Exclusion of security definition
- Fixed life insurance policies
- Endowment policies
- Fixed annuity contracts
4, Commodity future contracts - Collectibles (antiques)
- precious metals
- Real estate
Federal covered security: “Covered security” - Examples that must be registered with SEC
Must be registered with the SEC OR exempt from registration with the SEC
- Securities listed or authorized on national stock exchange (must be SEC)
- Investment company or pooled investment fund shares (mutual funds) (Must be SEC)
- Securities sold to qualified purchasers (wealthy) (Must be SEC)
Exemptions from Fed Covered Security registration but still fed covered securities
- US Gov securities,
- muni bonds only if offered outside of state of issue
- unregistered private placements
Excluded from Fed def of covered secuity
state may or may not require registration
- securities issued by non profit
- muni bonds only in state where issuer issued
- intrastate offerings
- security with guarantee from another entity as to principal, interest or dividend
Offer
solicit purchase a sale when
Originates in the state, directed to state, or accepted in state
No offer is published in state but > 66% readers outside of state
Sell/Sale
Strings attached, sell secuirty for value, includes assessable stock (issuer can impose future levies on stockholders for additional fund)
Purported girls are not bona fide gifts, They are sales which appear as gift such as assesable stock
Not a sale (exceptions)
- Bona fide pledge or loan securities
- Stock dividend
- Shares acquired as a result of merger or reorganization
- Converting a bond to a stock
Guarantee (not a sale)
Guaranteed as to payment of principal, interest OR dividends, issued by someone other than issuer . (guaranteeing interest, principal, AND dividends is wrong!!!)
Exclusions of solicitation definition (Not a sale)
- Proxy statement
2. Report to shareholders, or other disclosures related to 1933 act
State
State, territory, or possession in the US, disctrict of Columbia, and Puerto Rico
Individual person
The definition of an individual is an important distinction. Generally, firms and individuals need not register if they are only doing business with financial institutions. However, if a firm or individual is doing business with individual investors, generally that firm or individual will be required to register in all states where they do business. Any firm or agent working with individuals, which would include public and private sector employees, would be required to register in states where they do business unless the firm or agent qualifies for an exemption.
Offer or solicitation of securities
Advertisements would be considered solicitations and/or offers to sell the securities in question. Filing of registration statements and publication of an annual report for distribution to existing shareholders would NOT be considered offers or solicitations, rather these are likely requirements.
Assesable stock
Assessable stock is a class of stock in which the issuing company can impose levies on stockholders for more funds. Historically, there were no restrictions on how much additional money a company could demand or on how frequently a company could impose a levy on its stocks. Since levies can be imposed on stockholders a gift of assessable stock would be considered to be a “sale”
Five client exemption rule
Applies only to investment advisors
Federally covered securities
Include muni bonds issued outisde of state
Individual that represents an issuer in the sale of an interest in a LP
Yes agent and must be registered as such
Agent definition (included/not included)
A person representing an issuer in effecting transactions that are exempt or exempt transactions, is not considered an “agent.” All of the other people listed would be considered agents because they either work for a broker-dealer effecting transactions, or because they conduct commissions-based transactions for the public.
“Gift”
Under the Uniform Securities Act, the “gift” listed would technically be considered an offer or sale of the warrants because the company received value. The gift of the warrants is contingent upon the purchase of the debenture. As well, the warrants themselves are an offer for a security, that security being common stock.
BD definition
If a person, which includes individuals, is engaged in the business of effecting transactions in securities for their account or for the accounts of others, that person or individual would fall under the definition of a broker/dealer under the Uniform Securities Act.
Insurance company securities and Fed savings and loans
Exempt securities but not on issuer exclusion list
Yes need to register as an agent
Fed Covered IA included in def
- Advisor to registered investment company OR
2. Manages investment portfolio of >$100M (used to be $25M) may register with SEC, >$110M must register with the SEC
Exclusion from Fed Covered IA definition (and registering with the SEC)
- IA who give advise on US gov securities only
- Banks and Bank holding companies
- Publishers of general advise about securities
- LATE professions
Issuing certificates of interest in oil, gas or mining titles or leases
Company NOT considered an issuer, even though USA definition of “security” includes such certificates of interest
Gift vs. sales
For this question, make sure to make the distinction between a gift and a sale. A Gift is given willingly without payment. A Sale, is not a gift, but an exchange of value. Answer I, is a true gift of regular stock. There are no strings attached (A “Gift” of Assessable stock is not a true gift. Assessable Stock was abolished over 50 years ago, but you may see that term on the exam. Assessable stock is a purported “gift” which is not a gift at all. When I give away the assessable stock, I am getting rid of a huge liability. It is not a true gift of stock.) Today’s common stock does not have additional liabilities attached.
Some IA exclusions
Institutions like bank, saving institutions trust companies, investment companies, even if they charge a fee for advisory services
Acting as both IA and BD on same trade
Requires written disclosure to the client
Offer NOT made when
- radio or TV signal originates outsides of a state is received or heard in state (normal airwaves)
- Newspaper is not published in a state but sold in a state (ie. WSJ sold all over US)
- Newspaper published in a state but has more than 2/3 of its circulation outside of the state TTM
Offer to buy/sell
Attempt to solicit purchase/sale of secuirty for value. Made in state when:
- Originates in state
- Directed to state
- Accepted in the state
Examples of a sale
“strings attached”
- Receiving security as bonus for buying another security
- Receiving rights or warrants to buy security (exercising premptive stock included)
- Receiving “gift” assessable stock (issuing company has ability to impose future levies on stockholders for additional funds)
Purported gift
“strings attached”
Sales which appear as gifts such as assessable stock
NOT bona fide gifts
Definition of a state
state in the US, District of Columbia, and Puerto Rico
Person exclusion
Minor, deceased individuals, mentally incompetenat
