Definitions 40% Of Exam Flashcards
What is the definition of an issuer?
Any person who issues or proposes to issue a security.
Example
Acme corporation is proposing to sell a new bond. They are an issuer.
Who is defined as a person?
Any legal entity who can issue or trade securities. Terminology allows them to be human or non human. Examples include: Individuals Corporations Partnerships Business trusts Estates Trusts Associations Joint stock companies Joint ventures Government and agency subdivisions Unincorporated organizations
Who is the issuer for a collateral trust certificate?
The manager or person doing the depositing is the issuer in a trust
Who is the issuer for an equipment trust certificate?
The person to whom the equipment will be leased. Typically the corporation. For example delta airlines sells equipment trust certificates to lease new airplanes. Delta is the issuer
Who is the issuer for fractional oil and gas programs?
Under the uniform securities act ther is no issuer for oil and gas fractional participation programs.
This forces these ppl to register them by the hardest way possible, qualification, the easier methods are not available to non issuer securities.
The reason being these issues are highly susceptible to fraud. This forces securities to undergo a stringent examination before they can be sold in a state.
What is an issuer transaction?
When an issuer sells or redeems a security. This means the sale of the security benefits the issuer.
Another example would be when a mutual fund redeems securities making payment from the issuer (the fund) to the shareholder.
What is a primary transaction?
Another name for an issuer transaction because it takes place in the primary market
What is the definition of a non issuer?
Simple! Any person who is NOT the issuer.
Example: a purchaser of acme bonds wishes to sell those bonds in the secondary market this is a non issuer transaction
What is a non issuer transaction?
Any transaction where the proceeds do not benefit the issuer.
Customer sells acme bond on the secondary market and receives $ that does not benefit acme.
What is a secondary transaction?
Another term for a non issuer transaction. This is termed a secondary transaction because it’s being sold in the secondary market by somone besides the issuer
What is the definition of an institutional buyer?
Considered to be the big boys that can watch out for themselves. Examples Banks Savings and loans Trust companies Insurance companies Investment companies Pension and profit sharing plans Anyone else that the state administrator decides is one
What is the definition of a broker-dealer?
A broker-dealer is anyone who engages in the business of effecting securities transactions for the accounts of others
Or
Engages in the business of trading for his own account known as proprietary trading.
When must a broker-dealer be registered in a state?
Whenever a broker dealer effects trades in a state and an exemption is not available
Who is explicitly names as NOT a broker-dealer according to the act?
Agents representing a broker dealer
Banks, savings institutions, and trust companies (specifically regulated by federal banking laws)
Issuers (except when they effect other securities transactions outside of their own)
Firms that trade exclusively with professional investors with no place of business in that state including (issuers, institutional buyers, and other broker-dealers) basically an out of state broker dealer who is not dealing with the public in your state.
What is the de minimus rule?
Broker-dealers with no office in a state who have less than 5 customers in that state within the proceeding 12 months do not have to be registered. Not uniform across the country most likely not tested.
Do investment advisor representatives of federal covered advisers need to be registered in the state?
Yes if they are effecting trades of securities in that state they must be registered with the state
If an agent works for an investment advisor that has no office in a state or has five or fewer clients in that state in the last 12 months does the agent need to be registered in the state?
Correct answer is no the agent does not need to
If a representative begins or terminates employment with an investment advisor who is responsible for notifying the administrator?
The investment advisor must notify the administrator
If an agent working for a broker-dealer begins or terminates employment who is responsible to notify the administrator?
Both the agent and the broker-dealer must notify the administrator
When a representative begins or terminates employment with a federal covered advisor, who is responsible to notify the administrator of the change?
The investment advisor Rep. is responsible to notify the administrator because the firm is not registered in the state so the administrator cannot require the advisory firm to give the notice
What things can the state administrator require in order to register as a broker dealer in that state?
Minimum dollar amount of net capital
Surety bond coverage
The passing of a qualification examination
What is the purpose of the Surety bond requirement for a broker dealer?
The purpose is to encourage the broker-dealer not to violate state laws
What can the state administrator required to register as an investment advisor?
Minimum net worth
Surety bond coverage
The passing of a qualification examination
Under NASAA rule investment advisors the take custody of customer funds must have a minimum net worth of how much?
$35,000
Under NASAA rule, investment advisors that do not take custody of customer funds bought that have discretionary power must maintain a minimum net worth of how much?
$10,000
Under NASAA rule, investment advisors that have either custody or discretionary authority over customer accounts must maintain a minimum Surty bond coverage of how much if there are reported net worth is less then $35,000
$35,000 and Surty bond coverage
The minimum net worth or net capital requirement for investment advisors is equal to what?
All assets - all liabilities - intangibles
Intangibles are equal to Goodwill, trademarks, and copyrights
In addition if the advisor is an individual, the value of all personal property home, furnishings, automobile is deducted but if the adviser is a partnership or corporation these items used in the business are included and are not deducted this will be tested
If a broker-dealer or investment advisor knows or has reason to know that it is not meeting the net capital or net worth requirements how soon is the broker-dealer or investment advisor required to notify the administrator?
Promptly. Notice is required by the next business day. No later then the day after notice is given, a report must be filed with the administrator detailing the advisers financial condition
What can the state administrator require for registration of an agent of a broker-dealer?
Surty bond coverage if the agent will have custody of or discretionary power over client funds
The passing of a qualification examination
Filing of fingerprints
What can the state administrator require to maintain registration?
Books and financial records
NAS AAA requires that state registered advisers maintain what records?
Journals of original entry
General ledger and trial balances
Order tickets
Regarding federal covered advisers the investment advisor act of 1940 requires that all records be kept for how long
Five years
Regarding specific records that must be known for the exam, the SEC and the state retention periods for broker-dealer records are what?
Customer correspondences and emails three years
Customer trade confirmations three years
Customer account statements six years
What is the definition of advertising under NASAA rule
Communication to more than one person
True or false advertising that includes recommendations of the purchase or sale of a specific security may be sent under NASAA rule
True. However if the communication does not state the reason for the recommendation, a memo must be retained indicating the reason for the recommendation
True or false retention of emails both personal and work must be retained by the broker-dealer?
True
What must be retained by a broker-dealer under the uniform securities act if that broker-dealer takes custody of clients funds and how long must to be retained in its principal office?
Client purchase and sale history and current client securities positions must be held for five years
Of the following persons are excluded from the definition of a broker-dealer or are exempt from registration as a broker-dealer under the uniform securities act except a firm:
A. Effecting securities trades with no office in the state the deals exclusively with trust companies and other financial institutions
B. With no place of business in the state who has no more than five clients in the state in the preceding 12 months
C. Effecting securities trades with an office in the state that deals exclusively with other broker dealers
D. That is a trust company with an office in that state that deals with the public
Correct answer is C
A firm is not defined as a broker-dealer if it has no place of business in the state and transact solely with issuers other broker dealers and financial institutions. However if a firm that affects securities trades has an office in a state it is defined as a broker dealer and must registered in the state
When it comes to post registration requirements of the uniform securities act who is required to maintain these requirements?
Broker-dealers an investment advisers are required
Agents however are not required!!!!!!!!!
The registration of a broker-dealer may be revoked for all of the following reasons except the firm:
A. Does not maintain required records
B. Does not file financial reports with the administrator
C. Effects short sales in non-exempt securities
D. Does not file advertising with the administrator
The correct answer is C
A broker-dealers registration may be revoked if the firm fails to maintain required records, fails to file financial reports for the administrator or fails to file advertising with the administrator, if required to do so. Broker-dealers are allowed to sell security short this is a normal trading practice
Registration by coordination permit simultaneous state registration of securities win the SEC registration is filed under which act?
Securities act of 1933
As soon as the SEC registration becomes effective is when registration by coordination is allowed
How is a broker-dealer allowed to be compensated?
Commissions
If a broker-dealer takes fixed fees what does that make that broker-dealer?
Is statutory investment advisor
How may and investment advisor be compensated?
An investment advisor earns fixed fees
If an investment advisor takes commissions what is that make that investment advisor?
A statutory broker-dealer
Is a broker-dealer or investment advisor held to a fiduciary standard?
Investment advisor must always act in the customers best interest a broker-dealer only must comply with suitability rules so the correct answer is an investment advisor
When must a broker-dealer disclose conflict of interest?
When must an investment advisor disclose a conflict of interest
Only when making a recommendation to a client
Every conflict of interest is disclosed in the brochure given to client at account opening
Is a broker-dealer allowed to borrow money from a client?
Only if The client is a relative
Is an investment advisor allowed to borrow from a client?
Never. without exception
Is a broker-dealer able to take custody of client funds
Yes without regulation
Is an investment advisor allowed to take custody of client funds
Not in less the firm notifies the administrator
Is a broker-dealer or investment advisor allowed to take verbal discretion of power of attorney for 10 days before receiving a written power of attorney?
Investment advisor is allowed to take verbal discretion for 10 days before written power of attorney
Is a broker-dealer allowed to pay referral fees?
No because commissions can only be shared with other registered individuals from the same firm
Is an investment advisor allowed to pay referral fees?
Yes as long as the individual is registered as an investment advisor Rep.
What are the requirements for a promissory note to be exempt from state registration?
Must be sold in a minimum increments of $50,000, must have maturities of nine months or less
