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iCCCAN S63 > Definitions > Flashcards

Definitions Flashcards

(Not exhaustive)

1
Q

Who is a person?

A

An individual (except a minor), group, or organization

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2
Q

What is NASAA?

A

North American Securities Administration

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3
Q

Who is the administrator?

A

An enforcer of rules and regulations of the securities industry within a state

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4
Q

Who is the commissioner?

A

An enforcer of rules and regulations of the securities industry within a state

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5
Q

What is an issuer?

A

A corporation or government who issues or plans to issue securities

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6
Q

What is an offer?

A

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

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7
Q

What is a sale?

A

The actual trade of a security for value (transferring ownership with one person paying another person)

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8
Q

What does in-the-state mean?

A

A person will be considered “in-the-state” if any offer or sale occurs in the state

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9
Q

What is a natural person?

A

A human or group of humans

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10
Q

What is an administrative order?

A

Command from the Administrator that applies to one person or a group of specific individuals

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11
Q

What is a rule?

A

Interpretation of state law that applies to all persons involved in securities

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12
Q

Why would a deny order be issued?

A

A person or security wishing to register did not satisfy state law requirements

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13
Q

Why would a suspend order be issued?

A

A registered person violates state law and is suspended from the state for a limited period of time

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14
Q

Why would a revoke order be issued?

A

A registered person violates state law and is indefinitely banned from registration in the state

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15
Q

Why would a cancel order be issued?

A

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.

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16
Q

What are the USA recordkeeping requirements?

A

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

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17
Q

What are the most common exempt money market instruments?

A
  1. Commercial paper
  2. Banker’s acceptances
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18
Q

What is the purpose of NSMIA?

A

National Securities Markets Improvement Act of 1996

To simplify securities regulation in the U.S. by apportioning more regulatory power to the federal government.

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19
Q

What is notice of effectiveness filing?

A

The date when the SEC announces a specific registration statement to be effective

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20
Q

What is a qualified client?

A

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

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21
Q

What is a qualified purchaser?

A
  • 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

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22
Q

What is an accredited investor

A

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”

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23
Q

What does the acronym L.A.T.E mean?

A
  • Lawyers
  • Accountants
  • Teachers
  • Engineers
24
Q

What is a solicitor?

A

Persons who refer business to IAs

25
Q

What is the purpose of the
Dual Registration Elimination Act of 2001

A

No such legislation

26
Q

What is the purpose of the
Securities and Exchange Act of 1934

A

Regulates securities transactions on the secondary market

27
Q

What is the purpose of the
Uniform Securities Act of 1956

A

To bring uniformity in securities laws among the states.

Model legislation for the separate states to adopt.

Note: Not actual legislation

28
Q

When must an options account agreement be received?

A

Within 15 days after the customer’s account is approved

Hint: immediate delivery is optional

29
Q

When must a margin account agreement be received?

A

Before the first margin trade in the account

Hint: immediate delivery is mandatory

30
Q

When must the options disclosure document be delivered?

A

At or before the time the option account is approved

31
Q

Who approves an account for options trading?

A

The registered options principal

32
Q

Does a discretionary order need approval prior to being entered?

A

No

Each discretionary order shall be approved and initialed on the day entered by the branch office manager or other Registered Options Principal,

33
Q

Overview of Form ADV

A
  • 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

34
Q

Form ADV Part 1A

A
  • 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
35
Q

Form ADV Part 2A

A

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

36
Q

Form ADV Part 2B

A
  • 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”

37
Q

Form ADV Part 3

A

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

38
Q

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?

A

Accredited investors

39
Q

Who can purchase private placements?

A

Accredited investors

40
Q

Are variable insurance products such as variable life and variable annuities securities?

A

Yes

41
Q

Who must supply a consent to service process with a state registration application?

A

Every legal or natural person seeking registration or making a notice filing.

42
Q

What is a comprehensive financial plan?

A

A financial plan that always contains securities

43
Q

What is a fraudulent activity?

A

A misrepresentation or misleading

Ex. Disclosing a rumor to make an offer, as a rumor may be false. This is a fradulant activity.

44
Q

What is an unethical activity?

A

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.

45
Q

Where is The SEC’s Customer Protection Rule found?

A

Securities Exchange Act of 1934

46
Q

What is a covered account?

A

An account used mostly for personal, family, or household purposes, and that involves multiple payments or transactions

47
Q

Insider information

A

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.

48
Q

Can fiduciary investment discretion be delegated?

A

Yes

To qualified persons.

49
Q

Define: Enjoin

A

To have the court issue an injunction

50
Q

Surety bond

A

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

51
Q

Customer
vs.
Consumer

A
  • Consumer: a person who has a one-time experience
  • Customer: a person who has a continuing relationship
52
Q

Adjustment bond

A

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.

53
Q

Is a separate account considered a security?

A

Yes

54
Q

What happens if an agent executes transactions that are not on the records of the employing broker-dealer?

A

The agent must register as a broker-dealer

55
Q

May notices be given to the Administrator orally?

A

No

Only in writing

iCCCAN S63 (7 decks)

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