Flashcard 1
Does SIPC protect separate customers or separate accounts?
Separate customers. A customer with both a cash and margin account with a BD would be covered once.
True or False: Jim’s joint account with his wife is considered a separate customer by SIPC.
True. E.g. Jim’s cash and margin account are combined for coverage, but Jim’s joint account with his spouse is separate.
If a BD goes bankrupt, what happens to securities registered in the customer’s name?
They are returned to the customer without regard to SIPC limitations.
The Securities Act of 1933 regulates _____________.
new issues. (The primary market)
What is the primary purpose of the Securities Act of 1933?
Provide investors with full and fair disclosure regarding new issues (prospectus)
True or False: The SEC judges an offering’s investment merit and provides approval.
False
List the securities that are exempt from registration.
Government/municipal bonds, commercial paper, bankers’ acceptances, bank issues, non-profit and small business issues
Though some securities are exempt from registration, nothing is exempt from the ____________ provisions of the Act.
anti-fraud
What are the justifiable reasons for denying an individual’s registration?
Conviction for any felony or securities-related misdemeanor within the last 10 years
True or False: An American Depositary Receipt (ADR) is a security.
True
Is an option on a commodity futures contract a security?
Yes. The futures contract is not, but the option is a security. Options could be based on an equity, index, or currency.
Would an interest in a real estate condominium development be considered a security?
Yes
True or False: Precious metals are not considered securities.
True
Is a voting trust certificate a security?
Yes
Is a Keogh plan considered a security?
No, but Keogh plan participation is considered a security.
Is an investment interest in livestock considered a security?
Yes
Is a certificate of interest in a mining lease a security?
Yes
Is a fixed annuity a security?
No, but variable contracts (e.g., variable annuities or variable life insurance) are considered securities.
Is an endowment life insurance policy a security?
No
Is a variable life insurance policy a security?
Yes, but a term or universal life insurance policy is not considered a security
Is a universal life insurance policy considered a security?
No
Is Keogh plan participation considered a security?
Yes, but the Keogh plan itself is not a security.
Is a 401(k) plan considered a security?
No
Is treasury stock considered a security?
Yes. Treasury stock is stock that was issued and subsequently repurchased by the company.
Is a debenture considered a security?
Yes. A debenture is an unsecured corporate bond.
Is a preemptive right considered a security?
Yes
Is a warrant a security?
Yes. Warrants are financial instruments that allow investors to acquire stock at a preset price.
Is a preorganization certificate considered a security?
Yes
Is an IRA account considered a security?
No
Is a futures contract considered a security?
No, but an option on a futures contract is a security.
Is a multi-level distributorship considered a security?
Yes
Is a limited partnership a security?
Yes
Is an interest in oil and gas drilling program considered a security
Yes
Is a whiskey warehouse receipt considered a security?
Yes
Is a firm that has an office in a state, but only deals with institutional clients in the state, considered a BD?
Yes, because the firm established an office in the state.
Is a bank whose trust department occasionally executes securities transactions considered a BD?
No. Banks are excluded from the BD definition.
If a corporation raises capital by selling new shares of its stock to the public, is it considered a BD?
No. The corporation is an issuer and issuers are excluded from the BD definition.
Is a bank holding company that occasionally executes securities transactions considered a BD?
Yes. Bank holding companies are not excluded from the BD definition.
Is a firm with no office in a state that only deals with institutional clients in the state considered a BD?
No. The firm is excluded from the BD definition.
Is a firm with no office in Ohio that effects trades in Ohio with 6 clients residing in Iowa considered a BD?
No. The firm is excluded from the BD definition in OH (no office in OH and only deals with existing Iowa clients).
Is an individual who represents a BD in the sale of Treasury bonds considered an agent?
Yes, since anyone representing a BD in the sale of securities is an agent.
Is a sales assistant for a BD who accepts unsolicited orders from clients considered an agent?
Yes, since anyone representing a BD in the sale of securities is an agent.
Is an individual who represents an issuer in the sale of municipal bonds considered an agent?
No, since the individual is involved in the sale of exempt securities.
Is an individual who represents the issuer of a private placement considered an agent?
No, since the individual is involved in an exempt transaction.
Is an individual who represents a BD in the sale of municipal bond considered an agent?
Yes, since anyone representing a BD in the sale of securities is an agent.
Is an individual who represents the issuer in the sale of Treasury bonds considered an agent?
No, since the individual is involved in the sale of exempt securities.
Is an individual who represents a BD in the sale of a private placement considered an agent?
Yes, since anyone representing a BD in the sale of securities is an agent.
Is an individual who represents a bank in the sale of the bank’s stock considered an agent?
No, since the individual is representing the issuer in the sale of exempt securities.
Is an individual who represents a BD in the sale of a bank’s stock considered an agent?
Yes, since anyone representing a BD in the sale of securities is an agent.
Is an individual who represents a BD in the sale of stock to a bank considered an agent?
Yes, since anyone representing a BD in the sale of securities is an agent.
Is an individual who represents an issuer in the sale of stock to a bank considered an agent?
No, since the individual is involved in an exempt transaction.
Is an individual who represents an issuer in the sale of the issuer’s stock to its underwriter considered an agent?
No, since the individual is involved in an exempt transaction.
Is Jim an agent if he works in ABC’s retirement dept. and, once a year, places ABC stock in employees’ accounts?
No, Jim is representing the issuer in an exempt transaction.
Is a certified public accountant who provides tax advice considered an IA under the USA?
No, CPAs are excluded from the IA definition.
True or False: A publisher of a financial magazine is considered an IA under the USA.
False. Publishers of newspapers/magazines are excluded from the IA definition.
True or False: A BD making recommendations about investing in various securities is an IA under the USA.
False. Since the BD is not charging a fee for the advice, it is excluded from the IA definition.
True or False: According to the USA, a BD providing asset allocation plans to its clients for a fee is an IA.
True. Since the BD is receiving specific compensation for its advice, it is considered an IA.
True or False: The USA defines a bank providing investment recommendations to its clients as an IA.
False. Banks are excluded from the IA definition.
True or False: A firm producing investment research for BDs to deliver to clients is considered an IA under the USA.
True. Since advice is being provided, as a business, and compensation is received, the ABC test is met.
True or False: The USA classifies an agent of a BD who also manages wrap accounts as an IA.
No. IAs are firms, not individuals.
Is an adviser to a mutual fund considered an IA under the USA?
No, mutual funds advisers are federally covered and are excluded from the IA definition at the state level.
Since ABC Advisers has $32 million under management, it must register with the ______.
SEC.
True or False: An adviser to a mutual fund would register in the state where the fund is domiciled.
False. The IA must be registered with the SEC, not a state.
True or False: The CEO of an advisory firm who establishes investment policy for the firm must register as an IA.
False. The CEO would be considered an IAR, not an IA.
Is an employee of a securities firm who manages accounts for a fee considered an IAR?Is an employee of a securities firm who manages accounts for a fee considered an IAR?
Yes
Is an employee of a BD who solicits new customers for an IA considered an IAR?
Yes. Anyone who solicits investment advisory service is considered an IAR.
True or False: An agent for a BD who solicits client trades would not be considered an IAR under the USA.
True. There is no indication that the agent is managing accounts and charging a fee
Individuals employed by an IA who only perform ____________________ duties are excluded from registration under the USA.
clerical/ministerial
True or False: The manager of an IA’s human resources department is considered an IAR.
No. The manager’s responsibilities do not include providing advice about securities or managing accounts.
An individual employed by an IA to manage the research dept. would be required to register as an ______ under the USA.
IAR
Is an employee of an IA who answers the telephone and does clerical work considered an IAR?
no
True or False: Securities issued by provinces and municipalities of Canada are subject to state registration.
False. Securities issued by Canadian provinces or municipalities are exempt from registration.
Are bonds issued by the City of New York exempt from state registration?
Yes
True or False: Securities issued by the states and municipalities of Mexico are exempt from registration under the USA.
True. An exemption is provided to securities issued by foreign governments with whom the U.S. has diplomatic relations.
Securities issued by any government with whom the U.S. has _____________ relations are exempt from state registration.
diplomatic
True or False: Securities issued by the U.S. Treasury and U.S. agencies are deemed exempt securities under the USA.
True
________ issued by insurance companies are exempt from state registration.
Bonds
List some securities that are considered federal covered and exempt from registration.
Those listed on national exchanges (NYSE, AMEX, NASDAQ) and investment company securities (e.g., mutual fund shares)
True or False: Securities listed on the AMEX are exempt from state registration
True
True or False: Securities of a Canadian company, but listed on the NYSE, are exempt from state registration.
True
Are bonds issued by a charitable organization subject to state registration?
No. Securities issued by non-profit organizations are exempt from registration.
What criteria must be met for commercial paper to be exempt from registration?
A 270-day maximum life, minimum denomination of $50,000, rated in one of the top-three categories according to an NRSRO
An executor of an estate sells a block of securities that are not registered. Is this a violation?
No. This is an example of an exempt transaction.
Would securities that are traded on the Toronto Stock Exchange be subject to state registration requirements?
No. These secondary market transactions are considered exempt from registration according to the USA.
True or False: Bankers’ Acceptances rated AAA, maturing in 6-months, and issued in $25,000 denominations are exempt.
False. Because the BAs were not issued in at least $50,000 denominations, registration is required.
Is a private placement defined as an exempt transaction or as an exempt security under the USA?
Exempt transaction
Under the USA, private placements are exempt if securities are offered to ____ or fewer retail clients over ____ months.
10, 12 months
What does the USA consider a security issued by an investment company that is registered under the Inv. Co. Act of 1940?
The securities are considered federal covered.
True or False: Agents selling unregistered, non-exempt securities to banks and trust companies are violating the USA.
False. Transactions with banks and trust companies are considered exempt transactions.
If an NYSE stock trades in the secondary market, does the USA consider it an exempt security or exempt transaction?
Exempt security
If a Nasdaq stock trades in the secondary market, does the USA consider it an exempt security or exempt transaction?
Exempt security
Are securities traded on the OTCBB or the Pink Sheets exempt?
No
True or False: Bonds issued by a railroad are exempt from state registration.
True. Securities issued by a railroad, common carrier, or public utility are exempt at the state level.
Under the USA, is stock issued by a telephone company an exempt security or an exempt transaction?
Securities issued by public utilities are considered exempt securities.
Are securities issued by a software company exempt from state registration?
No
True or False: According to the USA, debt issued by a fraternal organization would NOT be considered exempt.
False. Securities issued by non-profit organizations are exempt from state registration.
Non-issuer trading of securities subject to reporting requirements of the Act of 1934 are _________ transactions.
exempt
True or False: Occasional, secondary market transactions in an OTCBB stock are considered exempt transactions.
False. Only non-recurring secondary market transactions are considered exempt transactions.
Is an isolated, non-recurring, non-issuer transaction in OTCBB or Pink Sheets stock subject to registration?
No. It is considered an exempt transaction.
Is an unsolicited, non-issuer transaction in an OTC stock exempt from state registration?
Yes, because it is unsolicited.
