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Series 63 - Based on Class Book > Series 63 - Based on Class Book > Flashcards

Series 63 - Based on Class Book Flashcards

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Series 63 flashcards
1
Q

What is the USA (Uniform Securities Act)?

A
  • model act which represents best practices
  • each state has to put up its own version
  • STATE LEVEL ACT
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2
Q

What do you think of when you see NASAA?

A

-think STATE LEVEL ACT (state regulation)

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3
Q

What is the Investment Advisers Act of 1940 and what do you think of when you hear it?

A
  • deals with registration and regulation of investment advisors
  • “federal covered” meaning subject to federal regulation
  • FEDERAL LAW
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4
Q

What do you think of when you hear NSMIA (National Securities Market Improvements Act)?

A
  • divides role of state vs. federal regulation

- tries to make the regulation more efficient

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5
Q

Who is considered a person?

A
  • broadly defined: individuals (natural person/human), corporations, trusts, governments, government agencies, municipalities
  • entity!
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6
Q

Who is NOT considered a person?

A

(1) minors [custodians who act on their behalf can be registered/regulated]
(2) deceased [executors who have control of the will can be registered/regulated]
(3) mentally incompetent [guardians can be registered/regulated]

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7
Q

What is a broker-dealer? Who does it register with?

A
  • any person effecting securities transactions for (1) its own account OR (2) the accounts of others
  • must be registered with BOTH the SEC AND the state (subject to federal and state regulation)
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8
Q

What is an agent? Who does he/she register with?

A
  • individual (natural person) who represents broker-dealers

- must be registered at the STATE level; NOT registered at the federal level

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9
Q

What is an investment adviser? Who do they register with?

A
  • sells investment-related advice (state registered or federal covered); provides advice for a fee
  • registered at the state level OR the federal level but NOT BOTH
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10
Q

What is an investment adviser representative? Who do they register with?

A
  • individual (natural person) who represents IA firms

- registered at state level NOT federal level

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11
Q

Where/when do broker-dealers need to register?

A

-needs to register if they (1) have an office in the state OR (2) have at least one resident retail client in the state (NOT institutional client, ONLY retail client)

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12
Q

Who is NOT considered a broker-dealer?

A
  • agents (employees of broker-dealers)
  • issuers (customers of broker-dealers)
  • individuals trading their personal brokerage accounts
  • out-of-state broker-dealers - no retail AND no office in the state
  • banks, savings institutions, or trust companies
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13
Q

How does one register as a BD?

A
  • submit application (consent to service of process)
  • pay filing fees
  • publish an announcement of the registration
  • meet minimum financial (net worth/net capital), bonding, and recordkeeping requirements
  • each state can have its own requirement for BDs, but NO requirements can be higher than SEC
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14
Q

What is the effectiveness period for a BD?

A
  • by noon, 30 days after filing

- technically it is determined by administrator but no later than this unless they’re in the process of denying it

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15
Q

What is the renewal process for BD?

A

-by December 31 (then have to pay more fees)

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16
Q

When registering a BD, what do the bonding requirements refer to?

A

-insurance that protects a firm from theft or loss - bond will cover loss

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17
Q

What is the two-pronged test with regard to broker dealer registration?

A

(1) office test
(2) retail client
* *doesn’t matter where you have communications**

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18
Q

When/where do AGENTS need to register?

A
  • in any state where they do business, which means:
    (1) originating an offer in the state
    (2) directing an offer in the state
  • *registration does not matter if the client is retail or institutional
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19
Q

Remember: AGENT registration is based on _____, not _______vs_______.

A

based on offers; not retail vs. institutional

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20
Q

Who is EXEMPT for registration as an agent?

A
  • administrative and clerical staff (they do not effect securities transactions) = MINISTERIAL
  • Employees representing ISSUERS in connection with:
    (1) exempt securities
    (2) exempt transactions [private placement]
    (3) sales to existing employees without earning commissions
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21
Q

How do AGENTS register?

A

-submit a FORM U-4 application
-consent to service of process
-pay filing fees
-bonding may be required (but no financial or net worth requirements)
ONLY REGISTER AT STATE LEVEL

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22
Q

What is the effectiveness period for AGENTS?

A

-by noon, 30 days after filing

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23
Q

What is the renewal period for AGENTS?

A

-required by December 31

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24
Q

What does an agent do if he wants to terminate?

A

-ALL parties must notify state administrator (Agent, Old Firm, New Firm)

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25
Q

A consent to service of process is used for/covers:

A

-securities related CIVIL actions (not criminal)

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26
Q

When would a natural person register as an IA?

A

-sole proprietor would register as an IA

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27
Q

What are examples of investment advisers?

A

-financial planners, pension or retirement consultants, and sports and entertainment representatives

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28
Q

Who is EXCLUDED from the definition of an IA under the USA?

A
  • banks, savings institutions, and trusts
  • agents
  • broker-dealers
  • bona fide financial publications
  • investment adviser reps (IARs)
  • LATE professionals (lawyer, accountant, teacher, engineer) - KEY WORD: incidental
  • *these don’t need to register as IAs**
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29
Q

When would a BD dual register as an IA?

A

-if in a WRAP ACCOUNT, a BD is paid for doing the transaction AND giving advice on investments

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30
Q

Are wrap accounts suitable for buy and hold investors?

A

-NO

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31
Q

With whom do IAs register?

A
  • either on the federal OR the state level
  • State Level: any office in that state or has more than five retail clients
  • Federal Level: more than $100M AUM, present in 15 states OR advises only investment companies
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32
Q

Big firm IAs can choose to register

A

-with SEC and just be subject to ONE regulatory regime instead of with each state (less paperwork)

33
Q

IAs are subject to a ______ standard, while BDs are subject to ______.

A

fiduciary; suitability

**BD has lesser standard than IA so IA does not have to register until they have FIVE+ retail clients

34
Q

When do IAs register?

A

-IAs register if (1) the investment adviser has an office in the state OR (2) the investment adviser has 6 resident retail clients in the state

35
Q

How does an IA register at the state level as an investment adviser? (aka - what form is needed?)

A
  • Submit Form ADV [electronically] along with consent to service of process
  • pay filing fees
  • meet minimum financial, bonding and recordkeeping requirements OF THE HOME STATE (because state registered]
36
Q

What is the effectiveness period for state registered IAs?

A

-noon, 30 days after filing

37
Q

What is the renewal period for state registered IAs?

A

-December 31

38
Q

Who is a federal-covered adviser?

A
  • firms with $100 million or more in assets under management
  • if you have up to $100m in assets, you can go either way (file with state or federally)
  • if you get up to $110m, need to file with the SEC
  • once you fall below $90m, need to register with the state
39
Q

If you are going from state registered to SEC registered as an IA, you have to do so in _____

A

90 days

40
Q

If you are going from SEC registered to state registered as an IA, you have to do so in ______

A

180 days

41
Q

When is notice filing required for federal-covered IAs if the IA has…

A

if the IA has (1) a place of business in the state and (2) more than 5 retail clients in the state
if IA is registered with the SEC, state may also want a notification

42
Q

Who do IAR (investment adviser representatives) register with?

A

-register at the state level only

43
Q

If the IAR is under a State Registered IA, it must register in the state in which it has…

A

(1) a place of business

(2) more than five retail clients

44
Q

If the IAR is under a Federal-Covered IA, it must register in the state in which it has…

A

(1) a place of business

45
Q

How does on register as an IAR?

A
  • submit a FORM U-4 application, pay filing fees

- NO FINANCIAL REQUIREMENTS to register as an IAR (different than an agent - no bonding is required)

46
Q

What is the effectiveness period for IAR registration?

A

-noon, 30 days after filing

47
Q

When is the renewal date for IARs?

A

December 31

48
Q

If an IAR wants to terminate, who must notify the administrator?

A
  • if the IAR is at a state-registered IA: IA firm gives the notification because they have the relationship
  • if the IAR is at a federal-registered IA: the IAR gives the notification
49
Q

What is NOT considered a security?

A
  • commodities (gold, silver, jewelry)
  • personal residence
  • currencies
  • collectibles
  • interest in a retirement plan (IRA, 401K)
  • fixed annuity
  • FUTURES on options
50
Q

Securities must be registered in a state for lawful sale unless:

A

(1) Security is exempt, OR

(2) Transaction is exempt

51
Q

How are securities registered (three ways)?

A

(1) Coordination - coordinate with SEC filing; used to register in multiple states
(2) Qualification - file with an individual state; used for intrastate offerings
(3) Notice Filing - provide states with copies of sec-filed document; used for FEDERAL-covered securities [technically no registration occurs but states want to be notified/copies of documents]

52
Q

The state administrator has jurisdiction if an offer…[think ODA]

A
  • originates in the administrator’s state
  • is directed into the administrator’s state, OR
  • is accepted in the administrator’s state
53
Q

What state has jurisdiction for a TV or radio ad?

A

-originating state only has the jurisdiction [location of camera or microphone]

54
Q

What state has jurisdiction for a newspaper?

A

-jurisdiction of the state of publication ONLY

55
Q

What state has jurisdiction for a newspaper of general circulation?

A

-no state has jurisdiction (NO OFFERS ARE MADE)

56
Q

Rules vs Orders

A

Rules apply to everyone and are general

Orders apply to a specific instance

57
Q

What is the order of things that occur with the termination of registration for violation of the USA?

A

(1) Notice - sent to Agent/IAR AND firm
(2) Hearing - not required unless requested; must be requested within 15 days
(3) Findings of Fact - requires TWO findings: public’s best interest AND violation/bad action
(4) Final Order: can appeal but has to be within 60 days

58
Q

All _____ lead to statutory disqualification, however only securities-related _____ lead to statutory disqualification.

A

-all felonies; only securities related misdemeanors

59
Q

A crime is defined by…

A

the state in which it took place even if the definition is different from another state

60
Q

Withdrawal of a Registration

A

termination by request

  • effective after 30 days
  • administrator jurisdiction remains for one year
  • no notice/hearing/findings of fact required
61
Q

Cancellation of a registration

A
  • registrant no longer exists or ceased doing business
  • dissolution of business
  • death
  • legal incompetency [requires court activity]
  • no notice/hearing/findings of fact required
62
Q

For a civil liability, who files the lawsuit? What is the penalty maximum? What is the statute of limitations?

A
  • Investors file lawsuit
  • maximum recovery is that investors are made whole again (restored back to original position)
  • statute of limitations it he earlier of: 3 years from violation or 2 years from the date of discovery
63
Q

For a criminal liability, who files the lawsuit? What is the penalty maximum? What is the statute of limitations?

A
  • State files the lawsuit
  • maximum penalty is up to $5,000 fine and/or 3 years in jail
  • statute of limitations is up to five years of violation
64
Q

To avoid lawsuits, an agent can offer _____

A

rescission

65
Q

An administrator may require the filing of all advertising or sales literature to prospective investors or advisory clients, unless:

A
  • the security is exempt

- the transaction is exempt

66
Q

What are examples of account fees that require disclosure?

A
  • physical certificate issuance fees
  • account transfer fees
  • margin account interest
67
Q

What are examples of fees that are not subject to disclosure as an account fee but need to be disclosed separately?

A
  • commissions
  • mark-ups and mark-downs
  • advisory fees
68
Q

Who may use testimonials?

A

-broker-dealers, NOT investment advisers

69
Q

When an agent places trades for a client account that are excessive in frequency, the agent is engaged in _____.

A

-churning

70
Q

What are some prohibited/dishonest/unethical business practices?

A
  • unsuitable recommendations
  • selling away
  • unauthorized transactions
  • discretionary trading
71
Q

Authority is discretionary if it has these things:

A

time and price

72
Q

Authority is NOT discretionary if it doesn’t have these things:

A

asset, action (buy/sell), and amount

73
Q

An agent solicits investment company shares as having no load. Which load could the shares carry?

A

12b-1 fees - no load fund with 12b-1 fees cannot exceed 25bps

74
Q

A client is seeking to lower the costs associated with open-end investment company shares. What would not help him achieve this goal?

A

selling the dividend…because this is a prohibited sales violation

75
Q

According to NASAA Model Rules, an agent may lend money to or borrow money from a client that…

A

is a financial institution engaged in loaning funds

76
Q

When is the customer’s signed margin agreement required?

A

promptly after the initial transaction

77
Q

What is “custody”?

A

holding (directly or indirectly) client funds or securities, or having the authority to obtain possession of them

78
Q

What does custody require (2 things)?

A

(1) notice to administrators (NOT permission), and

(2) quarterly statements to clients

Series 63 - Based on Class Book (1 decks)

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