Part II: Chapter 2 - The Uniform Securities Act

Question 1

Broker Dealers and Agents register with ___________ and are regulated by __________ and _________. In addition, they must register ____________ their ___________.

What is this type of registration known as?

Answer 1

FINRA

SEC [and] FINRA

within [their] state

Dual Registration

Question 2

Broker Dealers register with ______________

IAs register with _____________ or ______________.
What determines where an IA registers?

IARs register with ___________ ONLY.

Answer 2

FINRA

SEC [or] State
AUM

State

Question 3

When registering, what TWO things stipulate states in which IAs must register?

Answer 3

The state where they have an office.

And any state where they have 6 or more retails clients.

Question 4

Does “Dual Registration” apply to BDs and Agents or IAs and IARs?

Why?

Answer 4

BDs and Agents
- HINT: B = 2nd Letter = Dual

Because they register FINRA but also register in states where they do business.

Question 5

BDs register with … ?

IAs register with … ?

Answer 5

FINRA and State

SEC or State

Question 6

What form does an IA file to register?

Answer 6

ADV

Question 7

If an IA registers with the SEC, then what do they submit in the state(s) where they office?

If registered with the state, what do they submit to the SEC?

Answer 7

Notice Filing

Nothing

Question 8

Do IARs register with the State or SEC?

Answer 8

State (ONLY)

Question 9

What is the number AND type of clients that determines if an IA or IAR must register in a state?

Answer 9

6 or more RETAIL clients

Question 10

What stipulation regarding clients exempts an IA from registering in a state?

Answer 10

If their clients are institutional (banks, other investment companies, insurance companies, employee benefit plans, etc).

Pg 60

Question 11

What TWO criteria make it lawful for an IA or IAR to operate in a state?

Answer 11

Registered with State or SEC
Exempt (i.e. only have institutional clients)

Question 12

Does the client exemption (5 or less) apply to Broker Dealers?

What does this mean for Broker Dealers operating in a state?

Does this apply to both the BD and RR?

Answer 12

No

They must register in any state where conduct or solicit business.

Yes

Question 13

When an IA or BD registers, what does this mean for the partners, officers or directors?

What’s the purpose of this?

Answer 13

They are automatically registered.

Because the partners, officers and directors’ info is included in the filing documents so it’d be redundant.

Question 14

When does registration for United States BDs and IAs renew?

Canadian?

Answer 14

Dec 31

Dec 1

Question 15

Does registration of a BD or IA mean they are “approved” or “qualified?”

Answer 15

No

Question 16

When can an applicant (BD or IA) start practicing after filing for registration?

Answer 16

When registration is effective.

Question 17

What TWO stipulations allow Canadian BDs and Agents to work with a customer in the United States?

Answer 17

1) Customer is in the US temporarily

2) They’re assisting a customer with a self-directed, tax-advantaged plan.

Question 18

Can states impose additional requirements and regulations on BDs above what’s outlined in the Securities Exchange Act of 1934?

Answer 18

No. Nothing that differs from or adds to what’s outlined by the Securities Exchange Act of 1934.

pg 63

Question 19

Why does USA require BDs and IAs to file surety bonds if they have possession of client assets?

How long must the surety bond remain in force?

What can exempt a BD or IA from posting a bond?

Answer 19

To ensure they have sufficient funds to cover losses resulting from theft or dishonesty.

As long as they are business and for three years after.

If they have sufficient capital.

Question 20

IAs who have custody and discretion of client assets are subject to what three things by the Administrator?

How does this differ from the things an IA WITHOUT custody or discretion are subject to?

Answer 20

Minimum capital
Examination of books
Surety bond

No Surety bond

Question 21

Who does minimal capital requirements apply to?

Who do they NOT apply to?

Answer 21

BDs and IAs

Agents and IARs

Question 22

What two types of exams is the Administrator permitted to conduct?

Answer 22

Written AND oral

Question 23

What 4 “FACS” are required for BD or IA registration?

Are the salaries of Officers and partners and the names and SSNs of all employees required?

Answer 23

registration FEE
APPLICATION
CONSENT to service of process
SURETY bond

No

pg 65

Question 24

Does a firm have to provide the 4 “FACS” in each state where they operate? Or just in the state of their primary office?

Answer 24

ALL states where they plan to operate

Question 25

Are salaries and fingerprints automatically required with a BD or IA application?

Answer 25

No

Question 26

What forms are used for initial registration for a BD? For an IA? IAR? What form is used for changes to BD or IA registration? What form is used for BD or IA termination?

Answer 26

Form BD ADV U4 U4 U5

Question 27

What is the U4 Form called formally? The U5?

Answer 27

Uniform Application for Securities Industry Registration or Transfer Uniform Termination Notice for Securities Industry Registration

Question 28

When does registration become effective for a BD or IA? When does termination become effective?

Answer 28

Noon on the 30th day after application filed IF not stopped by the Administrator. 30 days after receipt of application

Question 29

Why can the Administrator deny or revoke registration?

Answer 29

If in the public interest

Question 30

When obtaining a Bond, what determines the amount of bond a BD or IA firm must obtain?

Answer 30

The Administrator

Question 31

What two legal / criminal matters MUST be reported with an application for registration? What's the time frame for foreign financial violations?

Answer 31

Financial related misdemeanors in the past 10 years Any felony CONVICTIONS ... ever 5 years

Question 32

Are minor infractions, accusations or civil suites proper grounds for application denial?

Answer 32

No

Question 33

For securities to be sold within a state, they must be registered unless they are _____________.

Answer 33

Exempt

Question 34

What are two things that exempt a security from registering within a state?

Answer 34

Federally covered OR exempt

Question 35

Exemption for a security can be for what two things?

Answer 35

The security itself The transaction

Question 36

What are the THREE ways a security can be registered? Do securities need to be filed with FINRA?

Answer 36

Notification Filing (Fed Cov'd Sec's, Mut Funds, Reg A+) Coordination (NASDAQ) Qualification (Intrastate offerings) No

Question 37

What is the difference between filing a security via: - Coordination - Qualification

Answer 37

Coordination: filed with the SEC and the same docs are filed with the state. Qualification: filed with the state and NOT the SEC

Question 38

A security must meet what THREE criteria to be sold within a state?

Answer 38

Registered with the state Federally covered Exempt

Question 39

How long is a security's registration effective?

Answer 39

1 year

Question 40

Can the Administrator put a stop order on a security if the company doesn't have an operating history?

Answer 40

No

Question 41

What TWO characteristics are looked at when determining if a security is exempt?

Answer 41

Security type Transaction Type

Question 42

If a security is exempt, what exactly are they exempt from?

Answer 42

Filing of: - Registration - Advertising

Question 43

Would a Fixed Annuity or Fixed Life Insurance policy be subject to securities anti-fraud provisions

Answer 43

No -- because they are NOT securities

Question 44

What are some EXEMPT securities? U BURN PIE

Answer 44

US, Canadian and Municipal Gov't Banks, Savings, Trusts and Credit Unions Utilities Registered on Stock Exchange Non-Profit Issues Promissory Notes & Commerical Paper (>$50k) Insurance companies Employee stock purchases

Question 45

Interests in Limited Partnerships or Intrastate Offerings of corporate securities require registration if there are more than _______ investors.

Answer 45

10

Question 46

Generally, what two characteristics determine an exempt transaction?

Answer 46

Not new OR sold to the public

Question 47

What are some exempt US Government and Municipal securities?

Answer 47

T-Bills, Notes & Bonds Revenue and GO Bonds

Question 48

Are securities issued by Bank Holding companies exempt from registration?

Answer 48

No

Question 49

Are securities issued by a Canadian Insurance company exempt from registration?

Answer 49

No

Question 50

Are transactions by Agents or IAs exempt?

Answer 50

Yes

Question 51

Are transactions with a "Blank Check," "Blind Pool" or "Shell Company" exempt? Why?

Answer 51

No Because they no stated object or investments and are too risky

Question 52

Are transactions between Financial Institutions exempt?

Answer 52

yes

Question 53

Private Placement transactions are exempt if they involve no more than _____ investors within a ______________ period. Who can NOT be involved in these transactions?

Answer 53

10 12-month Institutional investors

Question 54

What is a Pre-Organization Subscription Transaction? What FOUR conditions must be met for these transactions to be exempt?

Answer 54

New companies that intend to incorporate and trying to acquire capital - 10 or less subscribers - No commissions paid - Payments made after registration - Advertising is acceptable

Question 55

If a security is exempt, does this meant the transaction is exempt too?

Answer 55

No. And vice-versa

Question 56

If the Administrator denies or revokes an exemption, they must indicate within ______ days that a hearing will be granted. Can this be done retroactively? Do they need to provide a reason?

Answer 56

15 No Yes

Question 57

Does the 5-CLIENT exemption apply to BDs?

Answer 57

No