Laws, Regulations and Guidelines Overview

Question 1

What rules govern the registration of an issue in any state in which it will be offered?

Answer 1

Blue-Sky Laws

Question 2

True or False: Blue-Sky Laws apply to broker-dealers and agents operating within a state.

Answer 2

True

Question 3

How is a firm acting if it is trading for, or from, its own inventory?

Answer 3

As a principal / dealer

Question 4

How is a firm acting if it effects trades on behalf of its customers, without taking the other side of the trade?

Answer 4

Agent or broker

Question 5

True or False: A firm producing investment research for BDs to deliver to clients is considered an IA under the USA.

Answer 5

True. Since advice is being provided, as a business, and compensation is received, the ABC test is met.

Question 6

True or False: The Uniform Securities Act is exactly the same law in every state.

Answer 6

False. The USA is a model law, not the actual law of any state.

Question 7

According to the USA, who is included under the term “person?” 6

Answer 7

Any legal entity, including

1. individuals (clients/agents/IARs),
2. BDs,
3. IAs,
4. issuers,
5. corporations, and
6. partnerships

Question 8

A securities firm that executes trades for its own account or the accounts of others is deemed a _______________.

Answer 8

A securities firm that executes trades for its own account or the accounts of others is deemed a broker-dealer (BD).

Question 9

Who is the official that monitors and administers a state’s securities laws?

Answer 9

The Administrator or Commissioner

Question 10

Identify who is considered a person under the USA.

Answer 10

Business entities, issuers, estates, governments, individuals (e.g., clients, IARs and agents)

Question 11

What is the general definition of an investment adviser?

Answer 11

A firm that provides advice/analyses regarding securities, as part of a business, and for compensation

Question 12

According to the USA, who is included under the term person?

Answer 12

Any legal entity, including individuals (clients/agents/IARs), BDs, IAs, issuers, corporations, and partnerships

Question 13

When acting in a ____________ capacity, a firm is assuming risk.

Answer 13

When acting in a principal capacity, a firm is assuming risk (e.g., a firm-commitment underwriting).

Question 14

When acting in an ________ capacity, firms assist customers, but do not assume risk.

Answer 14

When acting in an agency capacity, firms assist customers, but do not assume risk (e.g., a best-efforts underwriting).

Question 15

Identify the acronym: USA

Answer 15

Uniform Securities Act

Question 16

Identify the acronym: IA

Answer 16

Investment Adviser

Question 17

Identify the acronym: NSMIA

Answer 17

National Securities Markets Improvement Act

Question 18

Identify the acronym: NASAA

Answer 18

North American Securities Administrators Association

Question 19

What is the ABC Test for investment advisers?

Answer 19

The test that defines an IA as a firm that provides Advice as part of a Business for Compensation

Question 20

Who enforces the Uniform Securities Act?

Answer 20

The Administrator

Question 21

What is the general definition of an issuer?

Answer 21

Any person who issues or proposes to issue a security, such as government entities and corporations.

Question 22

What is a principal trade?

Answer 22

A trade involving a firm (BD or IA) buying or selling securities for its own account at its own risk.

Question 23

True or False: The U.S. Virgin Islands are a member of NASAA.

Answer 23

True

Question 24

True or False: Puerto Rico is a member of NASAA.

Answer 24

True

Question 25

Under the provisions of the USA, how is the institutional investor designation made?

Answer 25

Under the USA, an institutional investor is any person designated by rule or order of the Administrator.

Question 26

True or False: States may make rules that are more restrictive than SEC (federal) rules.

Answer 26

False. NSMIA prohibits states from making laws that are more restrictive than existing federal requirements.

Question 27

List the entities that make up NASAA. 6

Answer 27

1. All 50 U.S. states,
2. the U.S. Virgin Islands,
3. Puerto Rico,
4. the District of Coloumbia,
5. Canada and
6. Mexico

Question 28

What are the three components that must be met for a firm to be defined as an IA?

Answer 28

1) Provide advice regarding securities,
2) Do so as a business
3) Receive specific compensation (the ABC test)

Question 29

Identify who IS NOT considered a person under the USA. 4

Answer 29

1. Minors,
2. incompetents,
3. securities, and
4. the deceased are NOT considered persons.

Question 30

What is the three-pronged test for determining whether a firm meets the IA definition?

Answer 30

A-B-C. A = advice/analyses, B = business, C = compensation

Question 31

True or False: The District of Columbia is a member of NASAA.

Answer 31

True. Washington D.C. is a member of NASAA.

Question 32

Identify two significant creations that are credited to the National Securities Markets Improvement Act (NSMIA).

Answer 32

Federal Covered Advisers and Federal Covered Securities

Question 33

The _____ _________ _________ ______________ __________________ is an organization consisting of state Administrators.

Answer 33

The North American Securities Administrators Association (NASAA) is an organization consisting of state Administrators.

Question 34

What are some examples of federally covered sercurities? 4

Answer 34

1. Securities listed on the U.S. exchanges (NYSE, Nasdaw, etc)
2. Certain Regulation D offerings (private placements)
3. Municipal securities issued outside the state
4. Securities issued by registered investment companies (e.g. mutual funds)