Definitions Flashcards
(Not exhaustive)
Who is a person?
An individual (except a minor), group, or organization
What is NASAA?
North American Securities Administration
Who is the administrator?
An enforcer of rules and regulations of the securities industry within a state
Who is the commissioner?
An enforcer of rules and regulations of the securities industry within a state
What is an issuer?
A corporation or government who issues or plans to issue securities
What is an offer?
The indication of a person of a willingness to sell a security for value (recommendation of a security where money is requested.)
AKA offer to, offer of
What is a sale?
The actual trade of a security for value (transferring ownership with one person paying another person)
What does in-the-state mean?
A person will be considered “in-the-state” if any offer or sale occurs in the state
What is a natural person?
A human or group of humans
What is an administrative order?
Command from the Administrator that applies to one person or a group of specific individuals
What is a rule?
Interpretation of state law that applies to all persons involved in securities
Why would a deny order be issued?
A person or security wishing to register did not satisfy state law requirements
Why would a suspend order be issued?
A registered person violates state law and is suspended from the state for a limited period of time
Why would a revoke order be issued?
A registered person violates state law and is indefinitely banned from registration in the state
Why would a cancel order be issued?
A registered person has died, been judged mentally incompetent, or is no longer in business.
If a person’s registration has been canceled, no violation has been committed.
What are the USA recordkeeping requirements?
BD – 3 years, accessable for 2
IA – 5 years, accessable for 2
Home State requirements cannot exceed Federal
Does NOT apply to Agents or IARs
What are the most common exempt money market instruments?
- Commercial paper
- Banker’s acceptances
What is the purpose of NSMIA?
National Securities Markets Improvement Act of 1996
To simplify securities regulation in the U.S. by apportioning more regulatory power to the federal government.
What is notice of effectiveness filing?
The date when the SEC announces a specific registration statement to be effective
What is a qualified client?
An individual or company meeting the minimum financial requirements to enter into a performance-based compensation contract with an IA.
- A natural person or company that immediately after entering into the contract has at least $1.1M or more under management of an IA
- A natural person or company that the IA has reason to believe that immediately before entering into the contract has a net worth exclusive of the primary residence (in the case of individuals, assets held jointly with a spouse, but no one else, can be used) in excess of $2.2M.
Hint: Most Clients buy less than Purchasers
Automatically an Accredited Invester
What is a qualified purchaser?
- An individual or a family business that has over $5M in investments
or - an individual/entity that invests over $25M on their own account or on others’ behalf.
Hint: Most Purchasers buy more than Clients
What is an accredited investor
A term found in Rule 501 of the Federal Securities Act of 1933, referring to a person who is not counted when computing the number of investors purchasing a private placement under Reg D of that act.
- Net worth > $1M on date of purchase
or - Earnings > $200,000 per year ($300,000 including spouse) in each of previous 2 years with a reasonable exectation of reaching it in the current year.
NOTE: This is a federal term not found in the USA, just used to confused takers of the S63 exam. It will probably never be the correct answer.
Hints: “Rule 501”,”private placement,”
“high risk”
What does the acronym L.A.T.E mean?
- Lawyers
- Accountants
- Teachers
- Engineers
What is a solicitor?
Persons who refer business to IAs
What is the purpose of the
Dual Registration Elimination Act of 2001
No such legislation
What is the purpose of the
Securities and Exchange Act of 1934
Regulates securities transactions on the secondary market
What is the purpose of the
Uniform Securities Act of 1956
To bring uniformity in securities laws among the states.
Model legislation for the separate states to adopt.
Note: Not actual legislation
When must an options account agreement be received?
Within 15 days after the customer’s account is approved
Hint: immediate delivery is optional
When must a margin account agreement be received?
Before the first margin trade in the account
Hint: immediate delivery is mandatory
When must the options disclosure document be delivered?
At or before the time the option account is approved
Who approves an account for options trading?
The registered options principal
Does a discretionary order need approval prior to being entered?
No
Each discretionary order shall be approved and initialed on the day entered by the branch office manager or other Registered Options Principal,
Overview of Form ADV
- Part 1A: Information about the IA
- Part 1B: Not completed by federal covered advisors. Not required by most states.
- Part 2A: The IA Brochure
- Part 2B: Supplement describing advisery personnel on whom clients relay on investment advice
Part 1B not tested
Form ADV Part 1A
- location of principal office
- location of books and records
- form of business organization
- types of advisory activities provided
- other business activities
- maintaining custody of assets
- exrcising discretion
- details of all control persons
- disciplinary history
- states in which IA intends to or is already registered
Form ADV Part 2A
Customer-related information such as
* compensation arrangements
* types of clients
* types of investments recommended
* types of strategies employed
* methods of analysis used
* the consent to service process
* educational and business background of those formulating investment advise, have direct client contact, have discretionary authority
* audited balance sheet if IA requires or solicits substantial prepayment of fees or maintains custody
Form ADV Part 2B
- cover page identifying supervised person(s) covered by the supplement as well as the IA
- educational background and business experience
- disciplinary information
- other business activities
- additional compensation
- supervision details
Test tip: B for “bodies”
Form ADV Part 3
Rule 204-5 under the Invesment Advisors Act of 1940
* requires IAs to prepare a Customer Relationship Survey (CRS) as ADV Form Part 3
* applies only to federal covered IAs who deal with retail clients
Rule 501 of the federal Securities Act of 1933 defines certain investors who are capable of making investments involving higher risk than normal.
What term used to describe them?
Accredited investors
Who can purchase private placements?
Accredited investors
Are variable insurance products such as variable life and variable annuities securities?
Yes
Who must supply a consent to service process with a state registration application?
Every legal or natural person seeking registration or making a notice filing.
What is a comprehensive financial plan?
A financial plan that always contains securities
What is a fraudulent activity?
A misrepresentation or misleading
Ex. Disclosing a rumor to make an offer, as a rumor may be false. This is a fradulant activity.
What is an unethical activity?
Any behavior that is widely accepted as being morally wrong and leads to the mistreatment of people, animals, or the environment
Ex. Using insider information to make an offer. it is not fraud but is certainly unethical.
Where is The SEC’s Customer Protection Rule found?
Securities Exchange Act of 1934
What is a covered account?
An account used mostly for personal, family, or household purposes, and that involves multiple payments or transactions
Insider information
Possession of insider information is not illegal in and of itself. However, acting on the material information to attempt to gain from the knowledge is a violation.
It is imprudent to disseminate the information, but it is not actually insider trading when not using it.
Can fiduciary investment discretion be delegated?
Yes
To qualified persons.
Define: Enjoin
To have the court issue an injunction
Surety bond
May be required by Administrator when minimum net capital (liquid net worth) requirements not met
1. IA has custody of client funds or securities
2. IA has discretion over client’s account
2. or both
Net capital requirements for BA
1. as set by administrator
2. if BA’s net capital exceeds SEC requirements, no bond may be required by the state
3. Requirement at initial registration is usually $10,000
4. In lieu of a bond, deposits of cash and/or securities accepted
Net capital requirements for IA
1. $10,000 for discretionary authority
2. $35,000 for taking custody
3. $35,000 for both
4. In lieu of a bond, deposits of cash and/or securities accepted
No financial requirements for Agents or IARs
Customer
vs.
Consumer
- Consumer: a person who has a one-time experience
- Customer: a person who has a continuing relationship
Adjustment bond
A new security issued for the outstanding debt of a corporation facing bankruptcy that needs to recapitalize its debt structure. Adjustment bonds have a structure where interest payments happen only when the company has earnings, though there may be provisions for the accrual of missed payments.
Is a separate account considered a security?
Yes
What happens if an agent executes transactions that are not on the records of the employing broker-dealer?
The agent must register as a broker-dealer
May notices be given to the Administrator orally?
No
Only in writing
