Chp1 Flashcards
An ______ sells its own securities in order to raise capital (i.e., obtain funds). They include corporations that sell stock and bonds, as well as government entities (e.g., the U.S. Treasury) that sell bonds to investors
Issuer
___ ______securities must be registered with the state Administrator before being sold in a state. On the other hand, __________securities are not required to be registered with the state Administrator. However, ________securities are still subject to the anti-fraud provisions of the Uniform Securities Act (USA). Exemptions are established in the USA and not defined by the state Administrator.
Non-exempt; Exempt; Exempt
True or False: Investment adviser representatives (IARs) either provide advice or solicit advisory services for an investment adviser (IA). In addition, IA employees that supervise other IARs are also defined as IARs. Executing transactions is an activity of a broker-dealer and its agents.
True
The ___________________ Act was created to eliminate the duplication of state and federal regulations.
National Securities Markets Improvement Act of 1996 (NSMIA)
A _________ is defined as any legal entity that’s not deceased, is not a minor, and is not mentally incompetent. Since minors are not considered persons, they’re not able to enter into legal contracts without a parent or legal guardian.
Person
Congress enacted _______________ to eliminate the duplication of state and federal regulation of securities and investment advisers. Specifically, it created two definitions - federal covered securities and federal covered advisers - which eliminated the need to simultaneously register with the SEC and state Administrator. Note that broker-dealers were not included and are generally required to register with both the SEC and state Administrator.
the National Securities Markets Improvement Act (NSMIA)
The ____________ established the Securities Exchange Commission (SEC), requires the registration of certain financial professionals, and governs the secondary market for securities in the United States.
Securities Exchange Act of 1934
The A-B-C Test has three parts for determining whether a firm meets the definition of an investment adviser. The three parts are (A) providing _________ about securities (B) providing these services as a __________ and (C) receiving __________ for these services.
Advice, Business and receiving Compensation
Federal covered investment advisers must register with the SEC under the___________________ . The Uniform Securities Act is a model law that’s used to create state laws. Advisers that are registered with the state(s) register under the provisions of the Uniform Securities Act.
Investment Advisers Act of 1940
The________________ established the Securities Exchange Commission (SEC), requires the registration of certain financial professionals, and governs the secondary market for securities in the United States.
Securities Exchange Act of 1934
An_______________ is a non-clerical individual who represents an issuer in effecting securities transactions that involve the issuer’s securities with the public.
agent of an issuer
The______________________ is responsible for writing and updating the Uniform Securities Act (USA). The SEC enforces federal securities laws, while FINRA is a self-regulatory organization (SRO) that regulates broker-dealers.
North American Securities Administrators Association (NASAA)
An_____________________ is any partner, officer, director, or other individual who’s associated with an investment adviser and makes recommendations or gives advice regarding securities.
Investment Adviser Representative (IAR)
An________________________ is a non-clerical individual who represents an issuer in effecting securities transactions with the public involving the issuer’s securities.
Agent of an issuer
______________________ either provide advice or solicit advisory services for an investment adviser (IA). In addition, IA employees that supervise other IARs are also defined as IARs. Executing transactions is an activity of a broker-dealer and its agents.
Investment adviser representatives (IARs)
An__________________ effects securities transactions on behalf of a broker-dealer. Investment advisor representatives (IARs) provide investment advice or solicit advisory services.
agent of a broker-dealer
By buying and selling securities for the accounts of customers and charging commissions the broker is acting in an ___________.
Agency Capacity
A_______ ________ is any person engaged in the business of effecting transactions in securities for the accounts of others or for the firm’s own account.
Broker-Dealer
By buying and selling securities for or from the firm’s own inventory and charging a mark-up or a mark-down they are considered to be acting in a ________.
Principal Capacity
The term Broker-Dealer does not include the following persons:
Agents, Issuers, Banks, Savings Institutions, and Trust Companies
True or False: A firm with a place of business in state A that only effects transactions in securities for financial institutions in state A would be defined as a broker-dealer under the USA.
True
True or False: A firm with no place of business in state B that only effects transactions in securities for financial institutions in state B would be excluded from the definition of a broker-dealer under the USA.
True
An ________ is any individual who represents a broker-dealer or an issuer in effecting or attempting to effect purchases or sales of securities.
Agent
True or False: An individual that represents an issuer in the sale of an interest in a limited partnership is not an agent and does not need to be registered as such?
False. An individual who represents an issuer in the sale of an interest in a limited partnership is considered an agent and must be registered as such. This is because they are involved in effecting transactions in securities, which requires registration to ensure compliance with securities laws and to protect investors.
_______ refer to specific circumstances under which individuals who represent issuers of securities are not required to register as agents.
Agent-Issuer Exclusions
Give some examples of an agent-issuer exclusion.
Individuals representing issuers in transactions involving exempt securities, such as government or municipal bonds, Canadian Govt securities, banks, promissory notes and investment contracts
What are some exempt transactions under agent-issuer exclusions?
Isolated non-issuer transactions, certain covered securities (sold to qualified purchasers), private placements, transactions with existing employees, partners, or directors are exempt from agent registration if no commission or remuneration is paid for soliciting the transactions.
Are intrastate offerings exempt transactions?
Yes
What are Regulation D offerings?
Regulation D offerings are specific exemptions under Regulation D, such as Rule 506(b) and Rule 506©, which allow for private placements to accredited investors.
A ___________________ is a transaction involving the sale of securities to a limited number of sophisticated investors without a public offering.
Private Placement
True or False: An individual who represents a BD in one state and is servicing an existing client who is temporarily in another state on vacation or business would not be considered a broker-dealer exclusion.
False
True or False: A partner, officer, or director of a BD or issuer would be considered an agent if they effected transactions.
True
True or False: Assistants or interns who are registered are permitted to act as an Agent.
True
An ____________ is a person who, for compensation, engages in the business of advising others, either directly or through publications, or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities.
Investment Advisor (IA)
True or False: Institutions such as banks, savings institutions, trust companies, investment companies, and other financial intermediaries, even if they charge a fee for advisory services are excluded from the definition of an IA.
True
LATE professions include:
Lawyers, Accountants, Teachers and Engineers
When are broker-dealers excluded from the definition of an investment advisor?
When their advisory services are solely incidental to their brokerage business, and they receive no special compensation for the advice.
What type of publishers are excluded from being considered investment advisors?
Publishers of bona fide newspapers, news magazines, or business or financial publications of general and regular circulation.
Are pension or profit-sharing trusts excluded from being considered investment advisors?
Yes, pension or profit-sharing trusts are excluded when their advisory services are incidental to their primary business.
Can an investment adviser also be registered as a broker-dealer?
Yes
What must an investment adviser disclose when acting as both an adviser and a broker-dealer on the same transaction?
The adviser must clearly disclose their dual role to the client and manage any potential conflicts of interest appropriately.
An _______ is a licensed professional who works for an investment advisory firm and provides personalized investment advice and financial planning services to clients.
Investment Adviser Representative (IAR)
An IAR would also include ______ who must be registered as IARs under the USA.
Solicitors
A ____________ is an investment adviser who comes within the definition of an IA under federal Investment Advisers Act of 1940.
Federal Covered Adviser
FCA register with the _____ only.
SEC
True or False: An FCA is not exempt from state registration.
False
True or False: An FCA may be required to File a Notice with the states in which 6 or more clients transact business.
True
True or False: When issuing certificates of interest in oil, gas, or mining titles or leases, the company is not considered to be an issuer, even though the USA’s definition of a security includes certificates of interest.
True
An individual investor selling stock that he or she owns to another investor would be a ____ ________ transaction.
non-issuer
An _____________ is the designated state official who administers the USA and enforces other securities regulations in a given state.
Administrator
True or False: An administrator may not make public or private investigations outside of it’s own state at any time.
False
_____________ are organizations that trade large volumes of securities. Examples would include banks, insurance companies, employee benefit plans, and any other persons who are designated as such by rule or order of the administrator.
Institutional Investors
A _______________ is any evidence of an interest in a common enterprise in which the investor expects a profit from the promotor’s managerial efforts.
Security
True or False: A treasury stock is considered a security.
True
List the four basic elements of an investment contract.
Investment of Money, Common Enterprise, Expectation of Profits, and Efforts of others
Are endowment policies considered a security?
No
True or False: Commodity futures contracts are considered a security.
False
Are certificates in an oil, gas or mining title or lease considered a security?
Yes
Precious metals are considered a security?
False
A security that is exempt from state regulations and is primarily regulated at the federal level is called a
Federal Covered Security which include the following:
Stocks: Most stocks traded on major U.S. exchanges like the New York Stock Exchange (NYSE) and Nasdaq.
Mutual Funds: Shares of mutual funds registered under the Investment Company Act of 1940.
Exchange-Traded Funds (ETFs): Similar to mutual funds, ETFs that are registered with the SEC.
Bonds: Certain types of bonds, including those issued by registered investment companies.
Options: Options listed on national exchanges such as the Chicago Board Options Exchange (CBOE).
American Depositary Receipts (ADRs): These are securities representing shares in foreign companies, traded on U.S. exchanges.
Name the types of federal covered securities.
- Securities listed on national exchanges such as the NYSE or NASDAQ
- Investment company or pooled investment fund shares (mutual funds)
- securities sold to qualified purchasers
True or False: U.S. Government securities are considered Federal Covered Securities because an exemption exists from registration under the 1933 act.
True
True or False: Muni bonds are considered a federal covered security because an exemption exists from registration at the federal level under the 1933 Act, but only if they are offered outside the state of issue.
True. Municipal bonds are generally considered federal covered securities due to an exemption from registration under the Securities Act of 1933. However, this exemption does not apply if the bonds are issued and sold within the same state. In other words, municipal bonds are not considered federal covered securities when sold to residents of the state where they are issued.
True or False: Regulation D offerings are not considered exempt under the 1933 act.
False. Reg D offerings are considered exempt under the Securities Act of 1933. Reg D provides exemptions from the registration requirements for certain private offerings of securities.
Certain types of securities are excluded from the definition of federal covered securities. These include:
- Securities issued by non-profit organizations
- Securities traded on foreign exchanges (i.e. Toronto stock exchange)
- Muni bonds offered “interstate”, or outside of the state of issue
True or False: A security issued with a guarantee from another entity as to principal, interest, AND dividends is excluded from the definition of a Federal Covered Security.
False; A security issued with a guarantee from another entity as to principal, interest, OR dividends is excluded from the definition of a Federal Covered Security.
An offer is considered to have been made in a state when:
It originates in the state, it is directed to the state OR is accepted in the state.
True or False: An offer to buy or offer to sell is NOT made when a radio or television program originating outside of a state is received or heard in the state.
True
True or False: An offer to buy or sell is not made if a newspaper is sold in a state but not published there, or if it is published in a state but has more than two-thirds of its circulation outside that state in the past 12 months
True
A transaction of assessable stock would be considered a sale?
Yes
True or False: Receiving a gift of right or warrants to buy another security would be considered a sale?
True. Receiving a gift of rights or warrants to buy another security is considered a sale. This is because the transfer of rights or warrants involves the potential to acquire additional securities, which falls under the definition of a sale in securities law. The transaction implies an offer to sell the underlying security, even if no immediate exchange of value occurs.
Receiving a security as a bonus for buying another security would not be considered a sale?
False. It would be considered a sale.
True or False: A bona fide pledge, loan of securities, a stock dividend, shares acquired as a result of a merger and converting a bond to stock are all considered to be a sale.
False. Not all of these transactions are considered sales.
- Bona fide pledge and loan of securities are generally not considered sales because they involve temporary transfers with the expectation of return.
- Stock dividends are also not considered sales as they are distributions of additional shares to existing shareholders.
- Shares acquired as a result of a merger and converting a bond to stock can be considered sales because they involve a change in the form of ownership or the acquisition of new ownership interests.
True or False: Purported gifts are not bona fide gifts. Purported gifts are sales which appear to be a gift such as assessable stock.
True
