State Regulation Governing Broker-Dealers and Agents

Question 1

Is a bank whose trust department occasionally executes securities transactions considered a BD?

Answer 1

No. Banks are excluded from the BD definition.

Question 2

Is an individual who represents a BD in the sale of Treasury bonds considered an agent?

Answer 2

Yes, since anyone representing a BD in the sale of securities is an agent.

Question 3

Is a sales assistant for a BD who accepts unsolicited orders from clients considered an agent?

Answer 3

Yes, since anyone representing a BD in the sale of securities is an agent.

Question 4

Is an individual who represents an issuer in the sale of municipal bonds considered an agent?

Answer 4

No, since the individual is involved in the sale of exempt securities.

Question 5

Is an individual who represents the issuer of a private placement considered an agent?

Answer 5

No, since the individual is involved in an exempt transaction.

Question 6

Is an individual who represents the issuer in the sale of Treasury bonds considered an agent?

Answer 6

No, since the individual is involved in the sale of exempt securities.

Question 7

Is an individual who represents a BD in the sale of a private placement considered an agent?

Answer 7

Yes, since anyone representing a BD in the sale of securities is an agent.

Question 8

Is an individual who represents a BD in the sale of a bank’s stock considered an agent?

Answer 8

Yes, since anyone representing a BD in the sale of securities is an agent.

Question 9

Is an individual who represents a BD in the sale of stock to a bank considered an agent?

Answer 9

Yes, since anyone representing a BD in the sale of securities is an agent.

Question 10

Is an individual who represents an issuer in the sale of stock to a bank considered an agent?

Answer 10

No, since the individual is involved in an exempt transaction.

Question 11

Is an individual who represents an issuer in the sale of the issuer’s stock to its underwriter considered an agent?

Answer 11

No, since the individual is involved in an exempt transaction.

Question 12

Is Jim an agent if he works in ABC’s retirement dept. and, once a year, places ABC stock in employees’ accounts?

Answer 12

No, Jim is representing the issuer in an exempt transaction.

Question 13

True or False: A Consent to Service of Process is an example of an exculpatory clause.

Answer 13

False. Exculpatory clauses are waivers absolving agents from wrongdoing. The waivers are null and void under the USA.

Question 14

True or False: A Consent to Service of Process must be filed by BDs, but not their agents.

Answer 14

False. A Consent to Service of Process is required of all registrants.

Question 15

True or False: An agent whose client moves to a new state may not contact the client until registered in the new state.

Answer 15

False. The agent may engage in transactions with the client for 60 days if registration is pending in the new state.

Question 16

May an agent whose client is visiting another state sell securities to the client without being registered in the state?

Answer 16

Yes, provided the client is in the state temporarily.

Question 17

True or False: In state law, individuals representing issuers in effecting securities trades are ALWAYS deemed agents.

Answer 17

False. Individuals are not deemed agents if representing issuers of exempt securities or effecting exempt transactions.

Question 18

List some of the exclusions from the definition of a BD.

Answer 18

Agent, issuer, bank, or a BD with no office in the state that only deals with institutions or its existing clients

Question 19

May the Administrator set minimum net capital requirements for BDs?

Answer 19

Yes, but the requirement on BDs may not exceed the federal (SEC) requirement.

Question 20

Is there a limit to the amount of net capital the Administrator may require of a BD?

Answer 20

Yes. The Administrator may not set a requirement that exceeds the federal (SEC) requirement.

Question 21

A _________ bond is posted to cover the potential costs of legal action taken against certain persons.

Answer 21

A surety bond is posted to cover the potential costs of legal action taken against certain persons.

Question 22

An individual who represents an issuer in selling registered, non-exempt securities for compensation is an ________.

Answer 22

An individual who represents an issuer in selling registered, non-exempt securities for compensation is an agent.

Question 23

May an agent continue to do business in a state if his BD has gone out of business?

Answer 23

No. An agent’s registration is only in effect while associated with a BD or issuer.

Question 24

When an agent ends her association with a BD, who must notify the Administrator?

Answer 24

Both the agent and the BD

Question 25

If a BD is not registered in a state, may an agent of the BD do business in the state without being registered there?

Answer 25

Yes, if the agent is dealing with an existing client that is temporarily in the state.

Question 26

If a client moves to a new state, may the agent continue to do business while applying for registration in the state?

Answer 26

Yes, as long as the agent is registered in at least one other state and is not subject to disqualification.

Question 27

A client of a Canadian BD is visiting the U.S. May the agent do business with her without registering in the state?

Answer 27

Yes. Since she is an existing client of the Canadian BD, business may continue in the state.

Question 28

May an agent of a BD located in Mexico do business with a client in the U.S. without registering in the state?

Answer 28

No. BDs of Mexico are required to register in the U.S. to effect securities transactions in a state.

Question 29

What is the purpose of a Consent to Service of Process?

Answer 29

To appoint the Administrator as the applicant's attorney to receive and process any non-criminal legal complaints

Question 30

Who must sign a Consent to Service of Process?

Answer 30

Any issuer, BD, IA, IAR, or agent initially registering to engage in business within a state

Question 31

Must the Consent to Service of Process be renewed each year?

Answer 31

No. It is only required at initial registration.

Question 32

State registration expires annually on ______________.

Answer 32

State registration expires annually on December 31.

Question 33

When does state registration become effective?

Answer 33

At noon on the 30th day after filing an application, provided there are no proceedings pending

Question 34

If a BD is registered with the SEC, is registration required in any state in which it intends to do business?

Answer 34

Yes. There are no exemptions from registration in the state as a BD.

Question 35

True or False: If a BD registers in a state on March 3, it must pay a registration fee for the full year.

Answer 35

True

Question 36

If a firm meets the BD definition in the state, are there any exemptions from registration under the USA?

Answer 36

No. Firms that meet the BD definition are required to register in the state.

Question 37

The USA refers to an individual who represents a BD in the sale of securities as an ________.

Answer 37

The USA refers to an individual that represents a BD in the sale of securities as an agent.

Question 38

May the Administrator set net capital requirements for BDs?

Answer 38

Yes

Question 39

If the Administrator requires an IA, BD, or agent to post a bond, is a deposit of cash or securities acceptable?

Answer 39

Yes. However, the Administrator determines the amount and types of securities that are appropriate.

Question 40

A BD must maintain its books and records for a minimum of ____ years.

Answer 40

A BD must maintain its books and records for a minimum of 3 years.

Question 41

Identify the acronym: CRD

Answer 41

Central Registration Depository

Question 42

True or False: The USA requires all employees of a BD to register.

Answer 42

False. Only those representing a BD in effecting transactions (as an agent) must register.

Question 43

An _______of an ________ is an individual who represents an issuer in effecting transactions with the general public.

Answer 43

An agent of an issuer is an individual who represents an issuer in effecting transactions with the general public.

Question 44

A BD in New York gets an order from a client who is on vacation in Florida. Does the firm need to register in Florida?

Answer 44

No. Registration is not required since the client is an existing client who is temporarily in Florida.

Question 45

True or False: An agent may sell limited partnerships if he is not yet registered with the Administrator.

Answer 45

False. Limited partnerships are securities and an individual must be properly registered to sell them.

Question 46

True or False: An employee who is hired to assist in selling IPO shares is required to be registered.

Answer 46

True

Question 47

True or False: It is always prohibited for agents to split commissions.

Answer 47

False. Splitting commissions is allowed if both agents are licensed with the same firm and in the same state.

Question 48

Is an individual who represents an issuer in the sale of registered stock considered an agent?

Answer 48

Yes. An individual who represents an issuer of securities being offered publicly must register as an agent.

Question 49

If a person works for a federally chartered bank, is he required to register with the SEC or a state Administrator?

Answer 49

No. Only non-clerical employees of broker-dealers and investment advisers are required to register.

Question 50

True or False: On Form U4, a person must disclose any aliases or previously used names.

Answer 50

True. An alias or previously used name could simply include a person's maiden name.

Question 51

To apply for a securities license, a person must file Form ___ with FINRA.

Answer 51

To apply for a securities license, a person must file Form U4 with FINRA.

Question 52

True or False: BDs must file retail communication with the Administrator.

Answer 52

True

Question 53

True or False: A partner, officer, or director of a BD is always considered an agent of the BD.

Answer 53

False. A partner, officer, or director is deemed an agent of a BD if she is involved in the purchase/sale of securities.

Question 54

Is an individual who represents a bank in the sale of its bond offering considered an agent?

Answer 54

No, since the individual is representing the issuer in the sale of exempt securities.

Question 55

Is a firm considered a BD if it has an office in a state, but only deals with institutional clients in the state?

Answer 55

Yes, because the firm established an office in the state.

Question 56

Is a corporation considered a BD if it raises capital by selling new shares of its stock to the public?

Answer 56

No. The corporation is an issuer and issuers are excluded from the BD definition.

Question 57

Is a firm considered a BD if it has no office in a state and only deals with institutional clients in the state?

Answer 57

No. The firm is excluded from the BD definition.

Question 58

Is an individual who represents a BD in the sale of municipal bonds considered an agent?

Answer 58

Yes, since anyone representing a BD in the sale of securities is an agent.

Question 59

BD records must be kept for at least _____ years.

Answer 59

BD records must be kept for at least three years.

Question 60

True or False: Canadian agents cannot effect trades with existing Canadian clients who are temporarily in the U.S.

Answer 60

False. Provided the relationship with the client existed prior to entering the U.S., trades may be effected.

Question 61

A BD that is located and licensed in Canada may contact what types of individuals in the U.S.?

Answer 61

Existing clients who are temporarily in the U.S.

Question 62

In state law, individuals who represent BDs in effecting securities transactions are referred to as ______.

Answer 62

In state law, individuals who represent BDs or issuers in effecting securities transactions are referred to as agents.

Question 63

Is there a registration exemption for agents who conduct business in a state? If so, what are the guidelines?

Answer 63

Yes, no place of business in state and a client visits the state or existing client moves to the state (regist. pending)

Question 64

If a registrant wishes to withdraw her registration, when does the withdrawal become effective?

Answer 64

If no action is pending, it is effective 30 days after filing the withdrawal request with the Administrator.

Question 65

What is a consent to service of process?

Answer 65

A document that appoints the Administrator as attorney for any non-criminal legal complaints issued against a registrant

Question 66

If an agent has applied for registration, but has not yet heard back from the Administrator, what may she sell?

Answer 66

The agent is not permitted to sell securities. If she is properly licensed, she may sell life insurance or fixed annuities.

Question 67

True or False: An agent may sell fixed annuities if she is not yet registered with the Administrator.

Answer 67

True. Since fixed annuities are not securities, registration with the Administrator is not required.

Question 68

If a firm wants to register as both a BD and an IA, with whom must it register?

Answer 68

With the Administrator in the state in which its office is located and with the SEC

Question 69

True or False: Under the USA, a Canadian BD may solicit a Canadian client to open up an account while he is in the U.S.

Answer 69

False. Canadian BDs may service existing accounts of Canadians who are in the U.S., but cannot open new accounts.

Question 70

Under the USA, is a bank holding company that occasionally executes securities trades excluded from the BD definition?

Answer 70

No. Under the USA, bank holding companies are not excluded from the BD definition.

Question 71

Who must file Form U4 in order for an agent to register in a state?

Answer 71

Both the agent and the employing broker-dealer

Question 72

Retail communication generally requires __________ ____________.

Answer 72

Retail communication requires principal preapproval.

Question 73

With whom may an agent split commissions?

Answer 73

Another agent who is registered with the same BD, or another BD that is under common control

Question 74

If a BD or an IA ceases operations, how long must it maintain a surety bond?

Answer 74

Surety bonds must be maintained for three years after the firm ceases operations.