Regulation of Persons

Question 1

USA of 1956

Answer 1

With enactment of numerous state securities laws, known as blue-sky laws, USA is a model legislation for the separate states to adopt. Will be tested on the 1956 USA used by NASAA (North American Securities Administrators Association).

Question 2

Administrator

Answer 2

Office or agency that has complete responsibility for administering the laws of the state. Has jurisdiction over virtually all securities activity that emanates from his state.

Has jurisdiction over the registration of securities professionals and securities.

Question 3

Cease and Desist Order

Answer 3

Used by administrator when it appears that any registered person has engaged is about to engage in any act or practice constituting a violation of any provision of the Uniform Securities Act or any rule or order thereunder.

Question 4

Stop Order

Answer 4

Used to deny effectiveness to, or suspend or revoke the effectiveness of, any registration statement. This applies only to securities, not any professionals.

Question 5

Summary Order (Acting Summarily)

Answer 5

A power of the administrator to act without prior notice, with regard to registration of both securities and security professionals. 3 cases where this applies to the Uniform Securities Act:

1) Postponing or suspending the registration of any securities professional pending a final determination of a proceeding related to a problem
2) Postponing or suspending the registration of any security pending a final determination of a proceeding related to a problem
3) Denying or revoking a specific security or transaction exemption

Question 6

Final Orders

Answer 6

Whether referring to persons, exemptions, or registrations, other than the case of a summary order, no final order may be entered without

1) Appropriate prior notice to the interested parties
2) The opportunity to a hearing
3) Written findings of fact and conclusions of law

Question 7

Person

Answer 7

Any individual, corporation, association, joint stock company, or trust where the interests of the beneficiaries are evidenced by a security, an unincorporated organization, a government, or a political subdivision of a government.

Question 8

Nonpersons

Answer 8

1) Minors
2) Deceased individuals (estate is a person)
3) Individuals legally declared mentally incompetent

Question 9

Broker Dealer

Answer 9

Any person engaged in the business of effecting transactions in securities for the account of others or for its own account.

Acting on behalf of:
others = broker
self = dealer

Question 10

Agent

Answer 10

Any individual who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities.

Question 11

Investment Adviser

Answer 11

Any person who, for compensation, engages in the business of advising others in the value, advisability of investing in, purchasing or selling securities or promulgates analyses or reports concerning securities.

Question 12

Investment Adviser Representative (IAR)

Answer 12

An individual who represents an investment adviser performing duties related to the giving of or soliciting for advisory services.

Question 13

Issuer

Answer 13

Any person who issues or proposes to issue any security. Primarily include governments and corporations.

Question 14

Nonissuer

Answer 14

Not directly or indirectly for the benefit of the issuer. Nonissuer transaction is one where the issuer does not receive the money because the seller of the security is someone other than the issuer.

Question 15

Security

Answer 15

In S063 includes investment contracts, pre-organization certificates and others.

Question 16

Exempt Security

Answer 16

A security does not have to be registered in order to be sold and there are no requirements to file advertising about the security with the Administrator.

Question 17

Exempt Transaction

Answer 17

Nature of the sale is such that registration with the Administrator and filing of advertising material is not required in order for that transaction to take place.

Question 18

Guaranteed

Answer 18

Payment of principal, interest, or dividends, but not capital gains, are guaranteed. Refers to a security with a guarantee from a third party other than the issuer of the security.

Question 19

Offer/Offer to Sell

Answer 19

Includes every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security for value.

Question 20

Sale

Answer 20

Includes every contract of sale of, contract to sell, or disposition of, a security or interest in a security for value. In other words, the offer is the attempt; the sale is when it is successful.

Question 21

Fraud

Answer 21

Intentional effort to deceive someone for profit; this is not limited to common-law deceit.

Question 22

SRO

Answer 22

Self-Regulatory Organization: FINRA, MSRB, CBOE (Chicago Board Options Exchange), IIROC (Investment Industry Regulatory Organization of Canada)

Question 23

Solicitor

Answer 23

Any individual who, for compensation, acts on behalf of an investment adviser in referring potential clients.

Question 24

Accredited Investor

Answer 24

Rule 501 of the federal Securities Act of 1933. It refers to a person who is not counted when computing the number of investors purchasing a private placement under Regulation D of that act.

Question 25

Registrant

Answer 25

Used in legal circles to refer to those securities professionals (BDs, IAs, IARs) or securities issuers who are in the process of registering or who have registered with the Administrator.

Question 26

Institution

Answer 26

Includes banks, trust companies, savings and loan associations, insurance companies, employee benefit plans with assets of not less than one million dollars, and governmental agencies or instrumentalities.

Question 27

National Securities Markets Improvements Act of 1996 (NSMIA)

Answer 27

Enacted by congress to promote efficiency in capital formation in the financial markets. In effect, the act generally preempts states’ blue-sky laws, eliminating the dual system of state and federal registration of certain securities and investment advisers.

Question 28

State

Answer 28

Any of the 50 states, any territory or possession of the United States, District of Columbia, and Puerto Rico.

Question 29

Retail Client

Answer 29

Very Important: A few questions use the term retail client instead of non-institutional client. Look for it and remember that retail clients need far more protection than institutional ones. Also, individuals who meet the standard of accredited investor are still retail, rather than institutional, clients.

Question 30

Holding Company

Answer 30

A company whose primary business is holding a controlling interest in the securities of other companies. It is that element of control that differentiates holding companies from investment companies.

Question 31

Exclusion from a Definition

Answer 31

Excluded from, or not included in, a definition. For the purposes of the Uniform Securities Act, a person may be excluded from a definition and not subject to the provisions of state law that refers to the term.

Question 32

Exemption from Registration Under the Act

Answer 32

Not subject to a registration provision of the act.

Question 33

Wrap Fee Program

Answer 33

Program under which any client is charged a specified fee or fees, not based directly on transactions in the client’s account, for investment advisory services and execution of client transactions.