flashcards tres
An ___________________________________ is to an investment adviser what an ________ is to a BD.
investment adviser representative (IAR), Agent
Identify who IS NOT considered a person under the USA.
Minors, incompetents, securities, and the deceased
True or False: A gift of assessable stock would not be considered a sale.
False. A gift of assessable stock is considered both an offer and a sale and is regulated by the USA.
True or False: The tendering of a convertible bond is considered a sale according to the USA.
False
True or False: Variable annuities are not securities and are, therefore, not subject to registration.
False. Any variable products are considered securities. However, fixed insurance products are not securities.
True or False: IRAs and Keogh plans are considered securities.
False. The participation in these plans (what goes in the plan) is considered a security, but the plan itself is NOT.
True or False: Options on commodities are securities.
True. Options are always considered securities (e.g., options on futures, a currency, an index, or equities).
May an agent continue to do business in a state if his BD has gone out of business?
No. An agent’s registration is only in effect while associated with a BD or issuer.
When an agent ends her association with a BD, who must notify the Administrator?
Both the agent and the BD
True or False: A partner, officer, or director of a BD is always considered an agent of the BBD
False. A partner, officer, or director is an agent of the BD if she is involved in the purchase/sale of securities.
If a BD is not registered in a state, may an agent of the BD do business in the state without being registered there?
Yes, if the agent is dealing with an existing client that is temporarily in the state.
If a client moves to a new state, may the agent continue to do business while applying for registration in the state?
Yes, as long as the agent is registered in at least one other state and is not subject to disqualification.
A client of a Canadian BD is visiting the U.S. May the agent do business with her without registering in the state?
Yes. Since she is an existing client of the Canadian BD, business may continue in the state.
May an agent of a BD located in Mexico do business with a client in the U.S. without registering in the state?
No. BDs of Mexico are required to register in the U.S. to effect securities transactions in a state.
When does the de minimis exemption from registration apply for an IA that has no place of business in a state?
When an IA has no more than 5 non-institutional clients in the state in the previous 12 months
Does the de minimis exemption apply to investment adviser representatives?
Yes
Does the de minimis exemption apply to BDs that have no place of business in a state?
No. The de minimis exemption only applies to IAs and IARs.
IAs with no place of business in a state, and whose clients are ____________ are not required to register in that state.
institutions
List some of the different types of institutional clients.
IAs, BDs, investment, insurance, or trust companies, banks, savings and loan associations, and pension plans
What is the purpose of a Consent to Service of Process?
To appoint the Administrator as the applicant’s attorney to receive and process any non-criminal legal complaints
Who must sign a Consent to Service of Process?
Any issuer, BD, IA, IAR, or agent initially registering to engage in business within a state
Must the Consent to Service of Process be renewed each year?
No. It is only required at initial registration.
State registration remains in effect for ___ year(s)
1
State registration expires annually on ______________.
December 31
When does state registration become effective?
At noon on the 30th day after filing an application, provided there are no proceedings pending
What requirements may states impose on IAs that are registered with the SEC?
- File with the state any documents that were filed with SEC, 2. File Consent to Service of Process, 3. Pay state fees
If a BD is registered with the SEC, is registration required in any state in which it intends to do business?
Yes. There are no exemptions from registration in the state as a BD.
If an IA is registered with the SEC, is registration required in any state in which it intends to do business?
No. The National Securities Markets Improvement Act (NSMIA) exempts federal covered advisers from state registration.
Is being charged with a felony or securities-related misdemeanor grounds for statutory disqualification?
No. Statutory disqualification includes conviction for any felony or securities-related misdemeanor in the past 10 yrs.
When may the Administrator cancel a registrant’s registration?
If the registrant has died, ceased doing business, been declared mentally incompetent or cannot be located
Regardless of assets under management, IAs must register with the SEC if any client is a _____________
registered investment company.
Under the USA, the de minimis exemption limits an IA to no more than ____ clients within the previous _____ months.
5, 12
True or False: A stock dividend is considered a sale.
False
True or False: The exercise of convertible securities would constitute a sale under the USA.
False
True or False: A warrant attached to the sale of a bond would constitute a sale of the warrant.
True
True or False: Two friends, anticipating a rise in value, purchase property. The property is considered a security.
False
Identify the three forms of state securities registration.
Notification (filing), coordination, qualification
How would a well-established corporation register a subsequent offering to be sold in multiple states?
Notification (filing)
True or False: Paperwork related to coordination is filed with the Administrator at the same time as the SEC filing.
False. Registration will become effective simultaneously with SEC registration, but need not be filed at the same time.
What is the minimum cooling-off period for registration by notification?
5 days
Do the anti-fraud provisions of the USA apply to exempt securities?
Yes. Nothing is exempt from fraud.
True or False: A trade of unregistered, non-exempt securities between two BDs would be a violation of the USA.
False. This is an exempt transaction.
True or False: If a BD registers in a state on March 3, it must pay a registration fee for the full year.
True
The rule governing the disclosure requirement of an IA to its clients is called the __________ Rule.
Brochure
May the Administrator levy fines on a registrant?
No
May the Administrator initiate criminal or civil liability action against a registrant?
Yes
If a firm meets the BD definition in the state, are there any exemptions from registration under the USA?
No. Firms that meet the BD definition are required to register in the state.
If an IA meets the IA definition in a state, are there any exemptions from registration under the USA?
Yes, no office in the state and a) its clients are institutions or b) 5 or fewer retail clients in the last 12 months
Is there an exemption for agents conducting business in a state? If so, what are the guidelines?
Yes, no place of business in state and a client visits the state or existing client moves to the state (regist. pending)
Is there a registration exemption for IARs doing business in a state if employed by an IA registered in another state?
Yes, if the IAR has no office in the state and has 5 or fewer retail clients in the state in the past 12 months.
Does an IA have custody when it is in possession of checks drawn by its client and made out to third parties?
No
When will an offer fall under an Administrator’s jurisdiction?
If the offer originated in, was directed in, or was accepted in the Administrator’s state
If the Administrator believes a person has violated or is about to violate the USA, may a stop order be issued?
Yes
Does the Administrator require proof of wrongdoing to initiate an investigation?
No, but she does need to be able to refer to a rule or order when starting the investigation.
When conducting an investigation of wrongdoing, is the Administrator limited to state boundaries?
No. The Administrator may subpoena books, records, and witnesses from inside and outside the state.
If found civilly liable for violating the USA, what is the penalty?
The original amount paid, plus the legal rate of interest, attorney fees, and court costs, minus any cash received
NSMIA indicates that securities listed on the NYSE, AMEX, NASDAQ and Toronto Exchange are _________________ securities.
federal covered securities
True or False: An IA with 5 or fewer retail clients in the state in the past 12 months need not register under the USA.
True
True or False: If an IA’s clients are institutions (e.g., banks, BDs), it is exempt from registration under the USA.
True
Under the USA, are banks and bank holding companies excluded from the IA definition?
No. Banks, savings institutions and trust companies are excluded, but bank holding companies are not.
For how long does the registration of a state-registered adviser remain in effect?
Until December 31, unless renewed by the adviser
Who is the official that monitors and administers a state’s securities laws?
The Administrator or Commissioner
The USA refers to an individual who represents a BD in the sale of securities as an ________.
agent.
Identify who is considered a person under the USA.
Business entities, issuers, estates, governments, individuals (e.g., clients, IARs and agents)
Is there a limit to the amount of net worth the Administrator may require of an IA?
Yes. The Administrator may not set a requirement that exceeds the IA’s home state.
s an IAR who is employed by a federal covered adviser required to register in the state?
Yes. IARs of federal covered advisers must register in any state in which they have a place of business.
What is the 3 pronged test for determining whether a firm meets the IA definition?
A-B-C. A = advice/analyses, B = business, C = compensation
What type of advice may lawyers, accountants, teachers, and engineers provide and not be considered an IA?
Advice that is incidental to their profession. If a separate fee is charged for the advice, the exclusion is lost.
True or False: A gift of non-assessable stock would constitute a sale.
False. However, the gift of assessable stock IS considered both an offer and a sale.
If registering an IPO, an issuer would most likely use what form of state registration?
Coordination
What form of state registration is not available in all states?
Notification (filing)
True or False: Securities issued by municipalities of Mexico are exempt under the USA.
True. An exemption applies to securities issued by foreign governments with whom the U.S. has diplomatic relations.
True or False: Securities issued by municipalities of Canada are exempt under the USA.
True
Transactions between the issuer and its underwriter are considered ________ transactions.
exempt
A BD must maintain its books and records for a minimum of ____ years.
3
An IA must maintain its books and records for a minimum of ____ years.
5
If employed by a federal covered IA, is an IAR required to register in all states in which she is conducting business?
No. If the IAR has no place of business in the state, no state registration is required.
If the Administrator believes a person has violated or is about to violate the USA, may an injunction be issued?
No. The Administrator may not issue an injunction. Injunctions may only be issued by a court of competent jurisdiction.
The appeal of an administrative order is made before a court of __________________
competent jurisdiction (state court).
Does the appeal of an administrative order act as a stay of the order?
No. The order remains in effect until the outcome of the hearing.
The maximum criminal penalty for violations of the USA is ____ years in prison and/or up to a $______ fine.
3 years, $5,000 fine
What is a letter of rescission?
An offer to buy back a security from a client when that security was sold in violation of the USA
A customer must respond to a letter of rescission within _____ days or lose the right to sue.
30
May a state prevent the sale of a federal covered security in its state?
No. Federal covered securities are not regulated by the state.
True or False: An IA with fewer than 15 retail clients in the past 12 months is exempt from registering under the USA.
False. The USA de minimis exemption for advisers is 5 or fewer individual clients.
What type of information will be found in an investment adviser’s ADV Part I?
Firm name, # of employees, nature of business, history of officers/directors, legal/disciplinary action in past 10 years
Is an IA always required to include a balance sheet in its ADV Part II?
No. A balance sheet is required if the IA has custody of the client’s funds or if the IA requires prepayment of fees.
Any material changes to Form ADV must be filed ___________.
promptly (within 30 days).
What types of changes would be considered material changes that require prompt amendment of an adviser’s ADV?
Significant items, such as a name or location change
When are non-material (routine) changes to Form ADV required to be filed?
Routine items require an amendment within 90 days after the end of the IA’s fiscal year.
What is the purpose of Schedule I of Form ADV and when is it filed?
Used to determine if IA is eligible for continued SEC registration; filed 90 days from the end of the IA’s fiscal year.
When is Form ADV-W filed?
When an adviser withdraws its registration
What is the general definition of an investment adviser?
A firm that provides advice/analyses regarding securities, as part of a business, and for compensation
According to the USA, who is included under the term person?
Any legal entity, including individuals (clients/agents/IARs), BDs, IAs, issuers, corporations, and partnerships
With what system do IAs file their registration applications?
The Investment Adviser Registration Depository (IARD)
ADV Part I is a disclosure document for use by the _____ and the ________________.
SEC and the Administrator.
What types of changes would be considered significant changes to the adviser’s ADV?
Change in fees, custody, and the name or location of adviser
What is a consent to service of process?
A document appointing the Administrator as attorney for any non-criminal legal complaints issued against a registrant
What is Part II of Form ADV?
The portion of an IA’s application that may be used to satisfy the Brochure Rule
Identify the acronym: USA
Uniform Securities Act
