Laws, Regulations, and Guidelines (30%) Flashcards
1
Q
State Definition
A
50 States + Puerto Rico, American Samoa, Guam, Virgin Islands, DC
2
Q
Administrator
A
Office or Agency that has complete respect for administering the securities laws of a state. Administrator has jurisdiction over the registration of securities professionals and securities. Power to make rules and issue orders. Can deny, suspend or revoke registration
3
Q
Security is defined by
A
- an investment of money
- in a common enterprise
- expectations of profits
- derived by someone other than investor
4
Q
What is not a Security
A
- Insurance or Endowment Policy or Annuity contract under which a fixed sum of money is promised
- Interest in a retirement plan
- Collectibles
- Commodities such as precious metals and grains and forwards/futures
- Condos for personal residence
- Currency
5
Q
Non-issuer Transactions (Exempt)
A
Sales do not go directly to issuer. Think secondary trading (Unsolicited)
6
Q
Exempt Securities (USA 1956)
A
- US/Canada government and municipal securities
- Foreign government securities (US maintains diplomatic relations)
- Depository Institutions (interest in or debt of, or guaranteed by any bank under law of US. or bank, savings institution, or trust company organized under the laws of any state.)
7
Q
Pre organization certificates (USA)
A
- before incorporation (promise to send money)
- maximum of 10 subscribers and no funds paid in
- no sale just agreement
- exempt no need to register
8
Q
Private Placement (USA)
A
- restricted to 10 offers (not buyers) in any 12 consecutive months other than to institutional clients.
- no immediate resale except for institutions
- no compensation paid on sales to non-institutional buyers
- no registration needed, it is exempt
9
Q
USA Exempt Transactions
A
- issuer transactions [between issuer and underwriters (going public)]
- with financial institutions (sophisticated/professional investors): investment companies, insurance companies, banks and trust companies, Employer benefit plan with not less than $1m in assets (pension or profit sharing trusts), Broker dealers, Investment Advisers,
- SEC definition of accredited investor NOT considered institutional investors for purposes of exemption.
10
Q
Fiduciary Transactions
A
- those made by an executor, administrator, trustee, sheriff, and so forth
11
Q
Isolated Nonissuer Transactions (Exempt)
A
Transactions that are private between 2 nonissuer parties
12
Q
Coordination (Securities Registration)
A
- coordination of state and federal regulations
- accomplished by filing a registration statement with the administrator that includes: 3 copies of latest prospectus filed with SEC, copies of articles of indenture, incorporation, and agreements, and amendments to prospectus filed with SEC
13
Q
Individuals meet definition of IAR if:
A
- make any recommendations or otherwise renders advice regarding securities
- manages accounts or portfolios of clients
- determines recommendations and advice to be given
- solicits, offers, negotiates sale of advisory services
- supervises employees who do the above
- can only be an individual
14
Q
Impersonal Investment Advice
A
- investment advisory services provided by means of written material or oral statements that do not purport to meet objective and needed of specific individuals
15
Q
Investment Advisers Representative Exemptions
A
- de minimis exemption - if no place of business for preceding 12 months, no more than 5 retail clients then registration in state in not required.
- special exemption 203a of 1940 act- required registration in states where there is a place of business.
- snowbird exemption
16
Q
IAR Termination Processes
A
- if state = FIRM tells administrator
- if federal = IAR tells administrator
- if 2 firms involved (state) each must notify administrator
17
Q
Material changes (ie change of address, disciplinary)
A
Must amend U4 within 30 days
18
Q
What is a Broker Dealer
A
- defined in Securities Exchange Act of 1934 and USA
- defined as any person engaged in the business effecting the transactions in securities for the account of others or own account
- any person in an established place of business in the state of business buying and selling securities for account of others or own account.
- agents work (only individuals can be agents)
19
Q
Exclusions from Definition of Broker Dealer
A
- agents
- issuers
- banks, savings institutions, trusts
20
Q
States Exclude Definition of Broker Dealer
A
- have no place of business in state and deal with issuers of securities for institutions
- no business in state but licensed in state of business and offer to only existing customers
- snowbird rule
21
Q
Does Broker Dealers get De Minimis exemption?
A
No
22
Q
Under the USA, you are a broker dealer if:
A
- You have place if business in state regardless of clients or
- You have even one retail client
23
Q
Under the USA, you are not a broker dealer if:
A
- You have no place of business in the state AND
- Your only clients are other institutions ir issuers or
- You are registered in a state and only do business in the state with nonresidents (snowbirds)
24
Q
Exempt Securities USA (BD)
A
- Securities guaranteed by US or Canadian government or foreign governments the US has diplomatic relations
- securities backed by banks organized under US laws
- commercial papers rated with $500k+ with maturities less than 9 months
- any investment contract issued with employer plans
25
Submitting Application as Broker Dealer
- Form BD includes and must be submitted to state administrator
- form and place of business
- method of business
- all jurisdictions that applicant is registering
- qualifications and business history
- court issued injunctions
- adjudication by the sec or any security SRO within last 10 years.
- convictions of misdemeanors involving securities
- felony convictions
- financial condition and history
- current unsatisfied liens and judgments
26
Books and Records
- easily accessible for minimum of 3 years from end of fiscal year
- first 2 years in principal office
- must file amendments promptly
- must keep electronic communication, personal nature emails don’t have to be kept.
- no requirement to keep tax returns
27
Statutory Disqualification
- has been expelled or suspended from membership or association
- subject to the order of the SEC
- by conduct while associated with BD.
- convicted with past 10 years of a security violation or misdemeanor involving finance
- subject to temporary or permanent judgment from competent court
- willfully violated federal security laws
- has made false or misleading statements
28
Registration
- IA’s on federal or state level never both
- IAR’s only on state level
- BD’s on federal and state level
- Agents on federal and state level
29
Renewal for Canadian Broker Dealers
Must be filed by December 1
30
Exclusions from the definition of Sale/Sell and Offer to sell
- bona fide pledge or loan (collateral)
- gift of non-assessable stock
- stock dividend
- class vote by stockholders
- act incident to a judicially approved reorganization which a security is issued in exchange for one or more outstanding securities
31
Administrator Powers to Enforce
- make, amend, or rescind riles and orders and require specific forms
- conduct investigations and issue subpoenas
- issue cease and desist orders and seek injunctions
- deny, suspend and cancel or revoke registrations
32
Rights if Recovery from Improper Sale of Securities
- if purchaser thinks sale violates USA they file complaint with administrator.
-if proven client can recover: original purchase price, interest at a rate determined by the admin, reasonable attorney fees, any income received while the securities were held
33
SEC Enforcement Powers
- subpoena witness
- acquire evidence
- subpoena books and records
- administer oaths
- go to a competent court
- refer to appropriate court
34
Penalties
- Federal = $10k and 5 years
- State = $5k and 3 years (5-5-3, 5 yr statute)
35
Not included in fee disclosures are:
- commissions
- markups and markdowns
- advisory fees
36
Performance Fee Prohibitions Exemptions
- has $1.1m or more immediately under management
- has net worth of $2.2m or more prior to under management
- person who is officer or director of investment adviser employed in industry for 12 months
37
Form ADV-E
Surprise examination. Required only when investment advisers maintain custody.
