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Series 63 Notes > Series 63 > Flashcards

Series 63 Flashcards

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Series 63 flashcards
1
Q

Investment Advisers Act of 1940

A
  • IAA of 1940 regulates federally covered advisers
  • If registered with the SEC, IAs must comply with federal rules for financial and bonding requirements
  • IA’s subject to state registration would be subject to requirements placed upon them by the state in which it maintains its principal place of business
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2
Q

USA and Administrators min financial requirements

A
  • Administrator may require min financial requirements for advisers, whether or not they have custody of clients’ funds or securities.
  • Surety Bonds are required of IAs who have custody or exercise discretion
  • Administrator may inspect any Adviser’s records without prior notice, within and outside its state.
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3
Q

Surety Bonds

A
  • Surety bond is posted by a registrant to cover the cost of possible legal actions arising from violating the USA
  • cash or securities may be accepted in lieu of bond
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4
Q

Definition of IA under the USA

A
  • lawyers, accountants and teachers are specifically excluded
  • to meet definition of IA, must satisfy all 3 parts of the ABC test:
    • Providing Advice about securities
    • Providing these services as a Business
    • Receiving Compensation for these services
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5
Q

How long to maintain books and records according to USA?

A
  • IA firms must keep books and records for 5 years and broker-dealers for 3 years
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6
Q

Primary goal of a custodian under the UPIA

A
  • Under the UPIA, fiduciaries (such as custodians) are supposed to invest the portfolio in a way that is suitable given objectives of the account beneficiaries
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7
Q

IAs and providing balance sheets

A
  • IAs who have custody of client assets, or receive substantial prepayment of advisory fees or have discretion, are required to provide an audited annual balance sheet to clients
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8
Q

Provisions for Canadian B/D

A
  • Canadian B/D may conduct business with existing clients who are temporarily in a state
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9
Q

Permissible uses of soft-dollars do not include:

A
  • compliance or admin assistance
  • advertising or marketing
  • travel expenses
  • meals or entertainment
  • salaries, overhead expenses
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10
Q

Agent transacting in another state

A
  • an agent may transact business in a state in which he is not currently registered under certain circumstances.
  • The employing B/D must be registered in the state and the individual must be registered in at least one other state.
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11
Q

Under USA, when do registrations expire?

A
  • registrations expire at the end of each calendar year
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12
Q

Statute of limitations on taking action to recover damages

A
  • within 3 years of occurrence or 2 years of discovery, whichever comes first
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13
Q

Powers of Admin during investigation

A
  • subpoena records and witnesses
  • initiate criminal liability action
  • suspend or revoke a registration, provided reasons are cited for such action and the opportunity for a hearing is provided
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14
Q

Selling Away is permitted if

A
  • a registered rep can sell outside normal course of employment if first, notifying her firm in writing and receiving her firm’s written permission. The notice must describe the proposed transaction in detail.
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15
Q

Administrator Jurisdiction

A
  • an administrator has jurisdiction over any offer that originates, is directed into, received or accepted in its stated. It does not matter where the payment was made
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16
Q

Penalty for willfully violating SEC rules

A
  • any person who willfully violates the Securities Act of 1933 or SEC rules and regulations is subject to a fine of up to $10,000, imprisonment for up to five years, or both.
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17
Q

IAR

A
  • according to the USA, any person who solicits investment advisory service is considered an IAR.
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18
Q

What is required of an IA if the firm goes through a majority change in ownership?

A
  • the firm must obtain written permission of its clients to assign the contracts. If not, the contracts will be voided.
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19
Q

Form for IAs to register

A

Form ADV

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20
Q

Consent to Service of Process

A
  • a document that irrevocably appoints the Administrator as the a registered person’s attorney for the service of legal papers
  • allows customers who have a complain to file directly on the Administrator
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21
Q

Call Limits for cold calls

A
  • telephone cpa bans cold calls during hours of 8am to 9pm

- agents may not call prospective clients before 8am and after 9pm

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22
Q

Providing a prospectus

A
  • will be listed: 25 days
  • will not be listed and is not an IPO: 40 days
  • will not be listed and is an IPO: 90 days
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23
Q

Section 504 Private Placement

A
  • securities issued under Section 504 of Reg D are NOT federal covered securities
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24
Q

de minimis exemption for advisers under the USA for exemption from registration

A
  • 1: has no place of business in the state and only advises institutions
  • 2: has no place of business in the state and directs communications to no more than 5 non-institutional clients within 12 consecutive months
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25
Q

Prompt filings of amendments to Form ADV

A
  • considered to be filed promptly if filed within 30 days
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26
Q

Administrator taking disciplinary action

A
  • must provide prior written notice
  • an opportunity for a hearing
  • and written findings of fact and conclusions of law when taking disciplinary action against a person
  • the Admin’s order can be appealed if the person file a petition in state court within 60 days
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27
Q

delivery of disclosure document

A
  • an investment adviser must deliver a disclosure document at least 48 hours prior to signing the contract, or at the time of contract with the customer having five days to rescind the contract
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28
Q

Registration by Qualification

A
  • used when either a security’s federal registration has already become effective or when no federal registration will be filed - as would be the case for offerings made in one state only
29
Q

Registration by Coordination

A
  • a security may be registered by coordination if the same offering is being registered under the Securities Act of 1933
  • typically used by an issuer that is conducting an IPO of securities that will not be listed on an exchange and that needs to register its securities at both the state and federal level
30
Q

Renewal of an investment advisory contract

A
  • an investment advisory contract may not be assigned without a client’s consent
  • any action that causes a change in the adviser’s management, organizational structure, or control is considered an assignment
  • if a partnership, the death, resignation or retirement of a minority of the partners does not a constitute a change of control
31
Q

withdrawal of surety bond

A
  • required to be maintained for three years which coincides with the statute of limitations for initiating lawsuits
32
Q

NASAA model rules for sales of securities at financial institutions

A
  • activities of a broker-dealer and their agents should be physically segregated from the areas where retail banking business is handled
33
Q

Information sent to State Admin when registering a new issue

A
  • expected to know number of shares, issuer’s financial information and articles of incorporation
34
Q

compensation from broker-dealer

A
  • only individuals who are registered agents may receive compensation from a broker-dealer based on the sale of a security
35
Q

in order to sell a security in a state

A
  • the b/d and the agent must both be registered in the state.
36
Q

Key Terms for exempt transactions

A
  • unsolicited transactions
  • transactions by a trustee as part of bankruptcy proceedings
  • transactions between an issuer and an underwriter
  • certain non-issuer (secondary market) transactions
37
Q

Agent’s registration package should include…

A
  • the application
  • Consent to service of process
  • filing fees
38
Q

Agent inadvertently sold an unregistered, nonexempt security to a customer

A
  • the agent may offer to repurchase the security from the customer through a letter of rescission
  • and pay the customer the maximum legal rate of interest less dividend or interest income received from the date of purchase
  • the customer must respond to the letter of rescission within 30 days or the customer waives the right to sue
39
Q

components of a margin agreement

A
  • includes a hypothecation agreement and credit agreement
40
Q

are agents permitted to sell securities to clients in transactions that are not recorded on the books and records of their employing b/d?

A
  • no, effecting client transactions that are not recorded on the books and records of the agent’s employer is prohibited
41
Q

State Admin may not…

A
  • prohibit an investment adviser from participation in the securities business
  • a court has this power but the admin does not
42
Q

in order to sell a security in a state

A
  • the b/d and the agent must both be registered in the state
43
Q

minimum financial requirement for an investment adviser

A
  • the min financial requirement of the state where an investment adviser maintains its principal pace of business sets its registration requirements
  • no other state may impose higher requirements than the adviser’s home state
44
Q

investment adviser is exempt from registration if…

A
  • only provides advice to
    • mutual funds
    • other investment advisers
    • broker-dealers
    • banks
    • trust companies
    • insurance companies
    • savings and loan
    • or 401k where min asset is $1,000,000
    • or no more than 5 retail investors
45
Q

an offer

A
  • an offer is any attempt to buy or sell a security for value
  • a gift of nonassessable securities is not considered a sale or an offer to sell
46
Q

Application for withdrawal

A
  • generally becomes effective 30 days after it was filed
  • the withdrawal will not become effective until the Administrator declares whether there are proceedings pending or instituted against the firm at the time of the application
  • the administrator has one year after the registration is withdrawn to begin revocation or suspension proceedings against the firm
47
Q

Administrator action without giving the registrant an opportunity for a hearing

A
  • cancel a registration
48
Q

mutual fund can be considered no load if…

A
  • has no loads (no sales charges)

- is prohibited from charging 12b-1 fees that are greater than 25bps of the fund’s average annual net assets

49
Q

In order for an investment adviser to maintain custody of funds and securities:

A
  • The investment adviser must notify the Administrator and there must be no rule against custody
50
Q

Advertising and sales literature

A
  • all advertising, sales literature and other written materials (prospectuses, pamphlets, circulars, form letters, etc.) intended for distribution to current or potential clients must be field with the Administrator
  • materials relating to exempt securities, exempt transactions or federal covered securities, filing with the admin is not required
51
Q

splitting of commissions

A
  • the USA allows for splitting of commissions provided that the agents involved are employed by the same firm and are registered in the same state
52
Q

Reg D Accredited

A
  • institutions such as banks
  • meets financial test of either annual income of $200,000 or net worth of $1mm
  • senior officers of the issuer in the Reg D filing
53
Q

Reg T of the 1934 Act

A
  • initial margin requirement is 50% of the market value of the security at the time of the transaction
54
Q

monetary disputes between registered persons and their customers are usually settled by…

A
  • arbitration, which is considered more economical than lawsuits pursued through the court system
55
Q

definition of a broker-dealer does not include…

A
  • a person who has no place of business in a state

- and deals exclusively with other b/d, institutional client and existing clients who are temporarily in another state

56
Q

Viatical investors must be

A
  • accredited according to Reg D, or
  • min net worth of at least $150,000 and annual income of $100,00 or
  • min net worth of at least $250,000
57
Q

Qualified Clients to allow for performance based compensation exemption

A
  • companies and natural persons who have at least $1mm under management with the adviser or
  • net worth in excess of $2,100,000
58
Q

Agent may effect transactions not recorded on the books and records of the b/d if…

A
  • the transactions are authorized in writing by the b/d in advance of their execution
59
Q

Under the USA a person is defined as…

A

a legal entity, which would include

  • individuals (natural persons)
  • business entities such as corporations, broker-dealers, partnerships and investment advisers. It also includes trusts and estates
60
Q

Admin has suspended a b/d

A
  • the b/d may apply to the state court for review of the order
  • the firm is still suspended during the appeal process and cannot participate in any securities-related activities in the state
61
Q

federal covered adviser

A
  • an investment adviser that is required to register with the SEC
  • it is exempt from state registration in any state in which it transacts business although it is required to notify the states in which it is conducting business
62
Q

networking arrangement

A
  • agreement between b/d and S&L under which the b/d does business at a retail banking location
  • under NASAA model rules, these agreements must be in writing and specify how both the bank and the b/d will be compensated
  • the agreement must also state duties and responsibilities of both the broker-dealer and the bank
63
Q

waving the surety bond requirement

A
  • requirement can be waived if

- the investment adviser does not maintain custody of client assets and has a minimum net worth of $35,000

64
Q

SOL for criminal violations under the USA

A
  • 5 years
65
Q

days for hearing following a suspended registration

A
  • 15 days a hearing must be scheduled
66
Q

cease and desist

A
  • does not need to come from the SEC
67
Q

specifically excluded from definition of a broker dealer

A
  • agents

- issuers

68
Q

any insurance policy, annuity contract or endowment policy…

A
  • is not considered a security

- i.e. an insurance company promises to pay a fixed sum either periodically or in a lump sum

69
Q

custodian

A
  • agents may not take custody of a client’s money

Series 63 Notes (1 decks)

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