Chapter two Flashcards
IAR registration
Only at the state level
IA registration
either SEC or states where they have a place of biz or have six or more retail clients
Five client exemption to register
Does NOT apply to BD or agents
To work as IAR or IA:
- Registered
- Exempt from registration exempt b/c no place of biz in state AND only clients are institutional OR IA/IAR do biz with 5 or less retail clients (6 or more clients require registration)
- Federally covered advisers
When agent Begins/Terminates connection
Agent and BD must prompty notify adminstrator when agent terminated
IAR begin or termination, prompt notifican
if IA registered with state, IA responsbile for notifcaiton
Fed Cov advisor: IAR responsible
Termination of agent and IAR on U-5
BD and agent to do biz
Both need to be registered in the state
CAD BD and agents renewal time
December 1st, filed annual
surety bonds
BD amount must not exceed fed law. Bond must be kept in force for as long as registrant is in biz and 3 years after
IAR no surety bonds
Formal proof of loss required to support
Agents discretionary authority MAY
Surety bonds, qualifications exams
No minimum capital requirements
Min capital requirements
Apply at firm level. BD and inv adivisory firms may need.
Agents and IAR would NOT have minimum capital requirements
Amount determined by administrator
Examinations
Administrator can authorize
May be written, oral or both
Initial Registration included in filing
Application for registration, registration fee, consent to service of process, bond or surety bond
Does not have to be disclosed on application for registration
Salaries of officers, partners as well aneams and SSNs of all empolyes (fingerpitnts not automatically required)
Reasons administrator may deny, suspend or revoke registration
In public interest and:
- convicted within ten years of any misdemeanor involving securities
- convicted any felony at any time,
- willfully violated any security or commodity law within the last ten years
- willfully violated foreign laws over 5 years
- insolvent (applies to firm, NOT principal)
- Failed to pay proper fees
- Subject by order of administrator
Registration requirement
Registered under act, security or transaction exempt, fed covered security
3 Ways to satisfy state requirements
Notice Filing (Fed covered) , Coordination (new issues, state registration effective when fed effective, IPO new NASDAQ stock )or Qualification (only in the state of issuance, distribution of prospectus may be required by adminstiror, effective when administrator orders ie. small company making intrastate offering) Registration effective for a year
Conditions for filing (notice filing)
Means satisfying state registration requirements
Engaged in biz in US at least 36 months
Class of securites held by >= 500 people
Must have net worth of $4M OR
Net worth $2M and net pretax income from operations for at least 2 of 3 proceeding fiscal years
Generally used federally covered employees, registration on file wit hSEC
Used for established companies
Administrator stop order
According to the Uniform Securities Act, “No stop order may be entered … without:
1. Appropriate prior notice to the applicant or registrant, the issuer, and the person on whose behalf the securities are to be or have been offered,
2. Opportunity for a hearing, and
3. Written findings of fact and conclusions of law.
The Uniform Securities Act does NOT require the Administrator to provide appropriate prior notice to Federal Regulators and SROs such as FINRA.
May not issue stop orders
Fact known to advminstrator, simply b/c company is new company and has no operating history
Amendment after registration effective
Can change # of securities offered or sold, (price syndication cannot be changed)
Timing of final prospectus
Not later than their purchase confirmation
Pending underwriting
Agent cannot sell securities in this situation
Exemption limitations (securities and transactions)
registration requirements and filing of advertising and sales literature (not anti fraud security. If security, subject to)
Exempt securities from state registration requirements AND filing of advertising and sales literature
- US Gov securities, (agencies too),
- Muni securities,
- Securities issued or guaranteed by CAD (CAD exchange and insurance NOT part of exclusion)
- US banks/savings institutions or trust companies (NOT bank holding companies)
- Securities issued by fed savings and loan association, 6. credit unions
- Insurance companies (US only)
- security listed on registered stock exchange (or secured bonds, preferred, etc)
- , non profit issues
- promissory note (paid within 9 months, does NOT have to to be issued by federally chartered bank)
- Public utility and common carrier (railroad)
- , investment contracts in connection with employee stock purchase option (savings, pension or profit sharing)
Exempt transactions state registration requirements AND filing of advertising and sales literature
- Isolated non issuer transaction (secondary market with no benefit to issuer
- Non issuer by registered agents at registered BD if: not: organizational stage, in bankruptcy, blank check blind pool or shell company,
Must be senior security - Non issuer transaction unsolicited orders
- fiduciary transactions
- Bona fide pledges,
- underwriter transactions
- Transactions with financial institutions
- , private placements (not sold to more than 10 retail), 9. mortgage transactions issued at unit
- , Preorganizational subscription transactions (certain requirements)
- Rights warrants and convertible securities,
Preorganization subscription transactions conditions to be exempt transaction from state registration and filing of advertising
- Subscriber cannot exceed 10,
- no commissions may be paid
- Payments only made after security registered
- advertising is acceptable
Administrator ability to revoke exemptions
- Exempt transactions
- exempt listed securities
3, securities of non profit organization - investments contracts issued by employee benefit plan
No denying or revoking an exemption retroactively
Exempt securities and transactions (what exempt from)
Exempt from registration requirements and filing of advertising and sales literature but ALL securities subject to anti-fraud provisions
BD renewal time for registration
Annually
Agent begins or terminates relationship with BD
Whenever an agent begins or terminates a relationship with an issuer or broker/dealer, the Uniform Securities Act requires that the agent as well as the issuer or broker/dealer firm, promptly notify the Administrator. Notification should be filed by each entity (broker/dealer firm, issuer, and agent). If agent joins other BD, old and new BD must notify administrato
Limitation on administrator power
An Administrator is not permitted to revoke a registration without providing appropriate prior notice, the opportunity for a hearing, and written findings, facts, and conclusions related to the alleged violation.
Admin may ask issuer on prospectus
The administrator may require that an issuer deliver a prospectus with every offer, rather than the usual requirement of no later than the completion of the purchase. (prior to sale of security)
Agent registration
Under the Uniform Securities Act, an Administrator may deny an Agent’s registration if the Administrator finds that it would be in the best interest of the public. An Agent’s registration must be renewed by December 31st each year.
Amendments to registration statement
Amendments to a registration statement that is beyond its effective date are generally limited to modifications to the amount of securities that are to be sold/offered to the public. Generally-speaking, other amendments are not permitted, such as amendments to syndicate fees, discounts, organization, as well as changes to the actual pricing of the security to the public.
Consent to service / automatic registration
The consent to service is a permanent document that remains on file with the Administrator; it need not be resubmitted for yearly renewal. The initial application for registration must include a consent to service of process along with a completed application and the appropriate fees. If the investment adviser is not an individual, all officers or partners of the business entity that play an active role in the giving or supervision of giving advice (IARs)are automatically registered as IARs.
BD or IA firms registration
Must renew by Dec 31
BD fee schedule
Disclosed time opening account
When registration becomes effective
If no denials or stop orders are in effect and no proceedings are pending to do so, registration automatically takes effect at noon on the 30th day after the application was filed.
BD/IA automatic registration
BD- Agent partner officer or director
IA: IAR whos is partner officer or directo
Limitation of CAD BD and agnets
CAD work with snowbirds okay
CAD with in US with self directed tax advantaged retiremetn plan and keep in CAD okay
Agent beings or terminates employment
Agent and BD must notify adminstrator promplty
When IAR begins or terminates employement
if IA registerede iwht state, IA must promptly tell admin
for fed cover advisro: IAR responsbile
How termination of agent and IAR reported
form U-5
Registration may be canceled
- Person no longer in existancfe/cannot be located
- Ceased doing biz as IA, BD or agent
- Individual found mentally competent
Withdrawl from registration
30 days after reiver
When registration become effective
- When determined by adminstrator
2. If no denial in effect no proceedingp enindg, at noon on 30th day after applicaiton filed
Advisory contracts
Written advisory contracts must disclose services provided; the term of the contract; the amount of the fee or the formula used to compute it; the amount of fee to be refunded, if any, if the advisory fee is prepaid and the contract is terminated; and provisions as to whether the adviser has discretionary authority and to what extent.
Margin account
Written approval promptly after the initial transaction
limitation on adiminstrator
No injunctions
Criminal penalites
5-5-3
5 year statue of limitation
$5,000 max fine
Can’t be imprisoned more than 3 years
Successor Firm
Application may be made to register a successor firm whether or not the firm is then in existence. The filing fee is waived. The successor firm’s registration will be effective for the unexpired portion of the year.
