Registration & Licensing Requirements Flashcards
What does NASAA stand
for?
North American Securities Administrators Associate
Define the
NASAA
The body of state regulators that creates and amends Model Rules under the USA to maintain state “Blue Sky Laws”
What does NSMIA stand for?
National Securities Markets Improvement Act of 1996
What did the NSMIA do?
This eliminated duplicate registration requirements at the federal and state levels
According to the USA - who creates laws?
The State Legislature is responsible for this under the USA
What does the State Administrator do?
The enforce laws created by the state legislature
Under the USA define a
“person”?
A Personal is a legal entity
Under the USA, the definition of “person” includes:
One who has legal standing to sue or be sued.
This includes individuals, natural persons, and legal entities
What are some examples of legal entities?
Partnerships Corporations Associations Business Trusts/Trusts w/ beneficiaries Unincorporated Organizations Investment Clubs Federal, State, or Local government bodies Political Subdivisions or Agencies Joint Stock Companies or Joint Ventures Any other legal or commercial entity Estates
Who are NOT considered “Persons”
Minor Children
Mentally Incompetent Individuals
Deceased Individuals
What are issuer transactions?
These are primary market transactions and benefit the issuer
What are non-issuer transactions?
These are secondary market transactions and don’t benefit the issuer
Who cannot be an Institutional Buyer?
Individuals of the general public cannot be this kind of buyer
Define an issuer
Any person who issues or proposes to issue a security in a primary offering or any person who receives the proceeds from a new issue offering
who can be an issuer?
A corporation
The US Government
Or Municipalities
Can governmental entities be issuers?
Yes, governmental entities and municipals can be issuers
Who refers to issuers as the manager or depositor?
Certificates of Deposit for a Security
Voting Trust Certificates
Collateral Trust Certificates
Unit Investment Trusts
Regarding Equipment Trust Certificates who is the issuer?
The issuer is the entity to whom the equipment is being leased
Due to the Title going to the corporation (the issuer) once the payments are complete
Which transactions do not have an issuer due to too many fraudulent activities?
Fractional Interests or Participations in Oil, Gas, or mining titles or leases
or
Payments out of production under such titles or leases
There are NO issuers
When does an issuer transaction occur?
This transaction occurs when an issuer sells or redeems securities for its OWN benefit and RECEIVES the proceeds
Where do issuer transactions occur?
These are primary market transactions
Define Non-Issuer Transaction
This refers to any purchase or sale of a security that does not directly benefit the issuer
Where do non-issuer transactions occur?
These transactions are secondary market transactions
Between persons who trade (Buy or Sell)
OUTSTANDING securities after the COMPLETION of a primary offering
What is the most common instance of a non-issuer transaction?
Regular Secondary Market Trading between investors is the most common instance
Define a Broker-Dealer
This is a firm engaged in the business of buying or selling securities for the accounts of others or for its OWN account
Define an Agent
An agent is an individual who represents a broker-dealer, or an issuer
ATTEMPTING to effect or effecting securities TRANSACTIONS
What is a consent to service of process?
This appoints the State Administrator as the representative to be served legal papers on behalf of a registrant
Define an Institutional Buyer
These are entities who make security transactions on a large scale for their own accounts or for institutional clients,
Name examples of an institutional buyer
An insurance or Investment Company Trust Companies Broker-Dealers Investment Advisers Banks/Savings Institutions Employee Pension Plans Profit Sharing Plants
Who cannot be an institutional buyer?
They cannot be individuals of the general public
Define a qualified purchaser
This is a natural person (and their spouse) or a family-owned company with investments
Worth AT LEAST 5 Million Dollars
A Trust Fund backed by qualified purchasers with investments
Worth AT LEAST 5 Million Dollars
or an Institution with investments of
AT LEAST 25 Million Dollars
Qualified is 5x5=25
What is an exclusion?
This means that the person, entity, or thing
DOESN’T meet the DEFINITION therefore is EXCLUDED from the group in question
What is an exemption?
This means that the person, entity, or thing
DOES meet the definition of the group, BUT
have been RELEASED from the obligations of the group
Under the USA, who doesn’t have to register?
If something is excluded or exempt, the do not have to register
Define a Broker-Dealer
This is a person, or firm, engaged in the business of
BUYING or SELLING securities for the ACCOUNTS of OTHERS or for its OWN ACCOUNT
What does firm acting in an agency capacity do?
They are considered a BROKER in the business of
effecting transactions for the accounts of OTHERS
and charges a COMMISSION
What does a firm acting in a principal capacity do?
They are considered a DEALER in the business of
effecting transactions for its OWN ACCOUNT
Who are excluded from the definition of a broker-dealer?
Agents Issuers (except when transaction business in securities OTHER THAN ITS OWN) Banks Savings Institutions Trust Companies
What is the broker-dealer institutional exclusion?
This exclusion is when a broker-dealer has NO PLACE of business in the state AND ONLY effects transactions with other Broker Dealers Institutional Investors or Issuer of the Security Involved
What is the snowbird exclusion?
When a broker dealer has no place of business in a state
AND only effects securities transactions with
EXISTING customers who are
TEMPORARILY in the state
and
NOT RESIDENTS of the state
What 2 conditions must be met to be excluded from definition of a broker-dealer?
The entity/person has No place of business in the state Customer must be either an INSTITUTION or in the state TEMPORARILY
What do Broker Dealers trading in an agency capacity earn?
These broker dealers earn commissions
What do Broker Dealers trading in a principal capacity earn?
These broker dealers earn a mark up or mark down
When are Canadian Broker Dealers and their agents exempt?
They are exempt when dealing with
EXISTING Customers
TEMPORARILY in the US
Broker Dealers have what requirements?
They have net capital requirements and may have surety bond requirements
What agents may be excluded from registration?
Issuer Agents
When are broker dealer agents not required to register when servicing existing clients?
Existing clients that are
Temporarily in other states for 30 days
or
New residents in other states for 60 Days
What is the definition of an Investment Adviser?
ABC
Advice
Business
Compensation
Under the USA, how are M&A Advisers/Finders defined?
The could be defined as broker-dealers
What does an M&A adviser do?
The advise on the acquisition of companies
What does an M&A Finder do?
They find companies that may be acquired
When is an M&A professional defined as a broker-dealer?
When they are being compensated on the closing of the deal
When must a broker dealer notify the administrator of material changes in their registration?
They must notify the Administrator PROMPTLY of any material changes Also applies to AGENTS Investment Advisers Investment Adviser Representatives
Under the Investment Advisers Act of 1940, define an investment adviser:
The Investment Advisers Act of 1940 defines an investment adviser as a person who accepts compensation in the form of a flat fee or a percentage of assets under management, for the service of offering investment advice regarding the purchase or sale of securities.
What may an Administrator require on an agent’s application for registration?
They may require the applicant to submit
Specific information on an agent application
Applicants Qualifications Business History Any injunctions or administrative orders involving a Security Any Convictions for misdemeanors involving securities ANY felony convictions
Their financial condition and history
According to the USA, what records must be kept on file by an investment adviser?
They are required to keep
Various journals and ledgers reflecting client activity and positions
Client Assets Liabilities, and Financial Dealings
NOT
a List of Prospects
or Beneficiary Designations
What does the Administrator do when a registered investment advisor representative dies?
They would CANCEL the registration
REVOKE is when the person has given cause for disciplinary action
WITHDRAWAL is accomplished upon petition by the REGISTRANT
Who is an agent (RR) of a broker dealer required to register with?
A self-regulatory organization (SRO) - who will register with FINRA
Who is an agent required to register with?
SRO - FINRA
Any state in which they conduct securities business with retail customers that reside in the state
What materials may an Administrator require to be filed?
Balance Sheets Reports Advertising Marketing Sales Materials
When must record amendments be filed?
Record Amendments must be filed promptly and can caused registration applications to be delayed 30 days
When can Administrators audit records?
They may audit records at any time of firms located within the state or out of the state
When are withdrawals effective?
Withdrawals are effective for 30 days after filing form U5
The Administrator maintains jurisdiction for 1 year
When must an Administrator supply the opportunity for a hearing?
The administrator must schedule this within 15 days of a request
What are grounds for denial, suspension or revocation of registration?
Conviction of any felony within the past 10 years
Any money or securities related misdemeanor with in the past 10 years
When is registration effective?
30 days from filing
and it expires on December 31 of each year unless renewed
When does registration expire?
On December 31 of each year unless it is renewed
What must all persons registering submit?
An application
Consent to Service of Process
Pay a Filing Fee
Pass a Qualification Exam
What is a solicitor required to do?
They must be registered as IAs or IARs They must supply clients with IA Brochures and Solicitors Disclosures
What forms do Investment Advisers use to register?
They use for ADV Which includes Part 1A and Part 1B & Part 2A and Part 2B
What is form ADV Part 2A?
Investment Adviser registers form ADV Part 2A and is about firm services (Brochure)
What is form ADV Part 2B?
Investment Adviser Registers Form ADV Part2B to include info about the IARs (Brochure Supplement)
Where do Investment Advisers with $100-$110million register?
They may choose state or SEC registration
Who is included in the definition of Federal Covered Adviser?
Investment Advisers of Investment Companies
Investment Advisers with $110 in AUM
Private Fund Advisers with more than $150 in AUM
What are Investment Adviser exemptions?
If the investment adviser has no place of business in the state they may use
institutional
or
de minimis exceptions
