Series 63

Question 1

Administrator

Answer 1

• refers to the office or agency that has the complete responsibility for administering securities 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
• can deny, suspend or revoke registrations

Question 2

Cease and Desist Order

Answer 2

• used by Administrator whenever it appears that a registered person has engaged or is about to engage in any act or practice constituting a violation of any provision of the USA or any rule or order thereunder
• can be issued with or without hearing against person or persons engaged in prohibited activities
• directs these people to cease and desist from further illegal activity
• applies ONLY to registered persons, NOT securities

Question 3

Stop Order

Answer 3

• used to deny effectiveness to or suspend or revoke the effectiveness of any registration statement
• applies ONLY to securities, NOT people/companies

Question 4

No final order may be entered without:

Answer 4

(1) appropriate prior notice to the interested parties
(2) the opportunity for a hearing
(3) written findings of fact and conclusions of law

Question 5

Person (definition)

Answer 5

any individual, corporation, partnership, 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

Question 6

The three “nonpersons” to know of are:

Answer 6

(1) minors
(2) deceased individuals (but their estate would be a person)
(3) individuals legally declared mentally incompetent

Question 7

Broker-dealer (definition)

Answer 7

• any person engaged in the business of effecting transactions in securities for the account of others or for its own
• when acting on behalf of others, they are brokers
• when acting on behalf of themselves, they are dealers
• typically have to register with both the SEC and the state

Question 8

What is the primary function of broker-dealers?

Answer 8

-MAKING SECURITIES TRANSACTIONS

Question 9

Agent (definition)

Answer 9

• any individual who represents a broker dealer or issuer in effecting or attempting to effect purchases or sales of securities
• ALWAYS individuals
• function is to be involved in securities sales or supervise those who do

Question 10

Investment Adviser (definition)

Answer 10

any person who:

• who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities
• who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities

Question 11

Who are investment advisers registered with?

Answer 11

IAs are registered with either the SEC or the state, but NEVER both

Question 12

Investment Adviser Representative (definition)

Answer 12

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

Question 13

Issuer (definition)

Answer 13

any person who issues or proposes to issue any security

Question 14

Exempt Security (definition)

Answer 14

-when a security is exempt under the USA, it 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 15

Exempt Transaction (definition)

Answer 15

-one in which the 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 16

Guaranteed (definition)

Answer 16

• means guaranteed as to payment of principal, interest, or dividends, but NOT capital gains
• refers to a security with a GUARANTEE from a third party other than the issuer of the security

Question 17

Offer/Offer To Sell

Answer 17

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

Question 18

Sale/Sell

Answer 18

• includes every contract of sale of, contract to sell, or disposition of a security or interest in a security for value
• offer is the attempt; the sale is when it is successful

Question 19

Solicitor

Answer 19

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

Question 20

NSMIA (National Securities Markets Improvements Act of 1996)

Answer 20

• promotes efficiency in capital formation in the financial markets
• NSMIA PREEMPTS STATES’ BLUE-SKY LAWS, eliminating the dual system of state and federal registration of certain securities and investment advisers

Question 21

What is a holding company?

Answer 21

• a company whose primary business is holding a controlling interest in the securities of other companies
• different from investment companies

Question 22

Wrap Fee Program

Answer 22

• 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
• client will pay sponsor a single fee for management, brokerage commissions, custody and other services

Question 23

When do broker-dealers need to register in the state?

Answer 23

-when they have an established place of business (an office) in the state that is in the business of buying and selling securities for the accounts of others (customers) or for its own proprietary account

Question 24

Are individuals who buy and sell securities in their own accounts broker dealers?

Answer 24

No, because they’re engaged in personal investment activity, not the business of buying and selling securities for others
-these are INDIVIDUAL investors, not securities dealers

Question 25

Who are persons that are excluded from the definition of broker dealer?

Answer 25

• agents, issuers, banks, savings institutions, and trust companies
• domestic commercial banks and other financial institutions

Question 26

Under the USA, you are a broker-dealer if:

Answer 26

• you have a place of business in the state; OR

- you have even one retail client in the state

Question 27

Under the USA, you are not a broker-dealer if:

Answer 27

• you have no place of business in the state; AND
• your only clients are other BDs, institutions and issuers of the security involved in the transaction; and/or your only business in the state is with existing clients who are temporarily in the state