UNIT 3: Regulation of Broker-Dealers and their Agents Flashcards
U3LO2: Identify broker-dealer exclusions and exemptions under the Securities Exchange Act of 1934 and the Uniform Securities Act.
First Securities Corporation (FSC) is a broker-dealer registered in State A, the location of its principal office. They have begun doing business in State B with the First Fidelity Bank and Trust Company and open a small branch office in State B to service the account. Which of the following statements is CORRECT?
A. FSC does not need to register in State B because its only client is an institution.
B. FSC needs to register in State B because it has a place of business in the state.
C. Broker-dealers are only required to register in the state where their principal office is located.
D. FSC would have to register in State B even if it didn’t have a place of business there.
U3LO2: Identify broker-dealer exclusions and exemptions under the Securities Exchange Act of 1934 and the Uniform Securities Act.
First Securities Corporation (FSC) is a broker-dealer registered in State A, the location of its principal office. They have begun doing business in State B with the First Fidelity Bank and Trust Company and open a small branch office in State B to service the account. Which of the following statements is CORRECT?
A. FSC does not need to register in State B because its only client is an institution.
B. FSC needs to register in State B because it has a place of business in the state.
C. Broker-dealers are only required to register in the state where their principal office is located.
D. FSC would have to register in State B even if it didn’t have a place of business there.
Answer: B. We learned that the USA excludes from the definition of broker-dealer, a firm with no place of business in a state whose only clients are, among others, institutions, such as banks. That exclusion only applies when there is no place of business in the state; opening a small branch in State B voids that exclusion. Even if there is no place of business in the state, if they have a single individual (called a retail client on the exam) who resides in the state, then registration is always required.
U3LO4: Identify agent exclusions and exemptions under the Securities Exchange Act of 1934 and the Uniform Securities Act.
Under the Uniform Securities Act, which of the following would be considered an agent?
A. An individual who is employed by a small community bank for the purpose of selling stock in the bank
B. A broker-dealer with a place of business in the state with an extensive retail clientele
C. An individual whose broker-dealer is registered in the state, but her only clients are institutions
D. An individual with no place of business in the state dealing with more than 5 existing clients who are vacationing in the state
U3LO4: Identify agent exclusions and exemptions under the Securities Exchange Act of 1934 and the Uniform Securities Act.
Under the Uniform Securities Act, which of the following would be considered an agent?
A. An individual who is employed by a small community bank for the purpose of selling stock in the bank
B. A broker-dealer with a place of business in the state with an extensive retail clientele
C. An individual whose broker-dealer is registered in the state, but her only clients are institutions
D. An individual with no place of business in the state dealing with more than 5 existing clients who are vacationing in the state
Answer: C. Even though the individual’s only clients are institutions, the fact that her BD is registered in the state means she must register as well. Yes, transactions with institutions are exempt transactions, but that exemption only applies to individuals selling on behalf of the issuer, not when representing a broker-dealer. Individuals selling the securities of certain exempt issuers (like a bank) are excluded from the definition as are broker-dealers. If the individual has no place of business in the state and only deals with existing clients (regardless of the number), who are temporarily in the state, that individual is exempt from registration.
U3LO5: Describe the initial and post registration requirements of the Securities Exchange Act of 1934 and the Uniform Securities Act regarding broker-dealers, and agents.
The City of Chicago issues bonds for the maintenance of local recreational facilities. Purchasers have two choices: they can purchase the bonds directly from the city through Regina Stith (an employee of the city responsible for selling the bonds), or they can purchase them from Gary Thompson (an employee of First Allied Securities Corporation). Neither Stith nor Thompson charges a commission, although FASC is remunerated with an underwriting fee. It would be correct to state that
A. Stith and Thompson must be registered as agents.
B. Stith must be registered as an agent, but Thompson is excluded.
C. Thompson must be registered as an agent, but Stith is excluded.
D. Thompson and Stith are excluded from the definition of agent.
U3LO5: Describe the initial and post registration requirements of the Securities Exchange Act of 1934 and the Uniform Securities Act regarding broker-dealers, and agents.
The City of Chicago issues bonds for the maintenance of local recreational facilities. Purchasers have two choices: they can purchase the bonds directly from the city through Regina Stith (an employee of the city responsible for selling the bonds), or they can purchase them from Gary Thompson (an employee of First Allied Securities Corporation). Neither Stith nor Thompson charges a commission, although FASC is remunerated with an underwriting fee. It would be correct to state that
A. Stith and Thompson must be registered as agents.
B. Stith must be registered as an agent, but Thompson is excluded.
C. Thompson must be registered as an agent, but Stith is excluded.
D. Thompson and Stith are excluded from the definition of agent.
Answer: C. Any individual selling securities while representing a registered broker-dealer is always defined as an agent, even when the securities are exempt from registration (as are these municipal bonds). When an individual represents the issuer of certain exempt securities, such as municipal bonds, that individual is excluded from the definition of agent and does not register. This means the correct answer is C. It is important to remember the 5 categories of exempt issuers to which this exclusion applies.
