Series 63 ALL notes Study online at quizlet.com/_8ypos 1. 3 Categories of Federal Covered Securities: (1) stocks listed on a national exchange (2) investment company securities (3) Certain exem exempt pt securities, including out-of-state out-of-state munis and Reg D private placements. 2. ABC test: - provide ADVICE about securities - provide services as a BUSINESS - receive COMPENSATION for services Admin has jurisdiction over any offer to buy/sell and any acceptance acceptanc e if:: - originated in state - directed/sent to state - accepted in state 3. 4. Agency Cross Transaction: An adviser acts as agent for both parties in a trade. (4-140) 5. Agent: any individual who represents a B/D or issuer in securities transactions 6. Application Requirements for Agent: - method of business - qualifications and business history - financial conditon/histor conditon/history y - any injunction/misdemeanor/felony 7. Application business Requirements for B/D: - place and form of - method of business - qualifications and history of any partner/officer/director/ partner/officer/ director/controlling controlling person - financial conditon/histor conditon/history y - any injunction/misdemeanor/felony 8. Application Requirements for IA: - place and form of business - method of business - qualifications and history of any partner/officer/director/ partner/officer/ director/controlling controlling person - financial conditon/histor conditon/history y - any injunction/misdemeanor/felony - any info to be furnished to clients 9. 15. Application Requirements Requirements for IAR: - method of business - qualifications and business history - financial conditon/histor conditon/history y - any injunction/misdemeanor/felony 10. Are annuities a security?: Fixed annuities are not, but variabl variable e annuities are. (they are dependent on the investment performance of securities within the annuity). (2-57) 11. Are gifted non-assessable securities considered a sale?: NO. they do not involve a sale 12. Are individuals considered agents when transacting in exempt securities, exempt transactions, or as a noncommissioned employee of the issuer?: No. (they are not agents and thus do not have to be registered.) (1-16) 13. Are solicitations of unregistered, exempt securities allowed?: YES because they are exempt 14. Are solicitations of unregistered, nonexempt securities allowed?: NO. Are the following people Agents or not? 1. a person effecting transactions in municipal securities on behalf of a broker dealer. 2. a salaried secretary secretary taking buy and sell orders orders from from clients 3. bank employee selling bank-issued securities 4. an employee of a nonexempt issuer selling securities to employees for a commission 5. a person representing represen ting an issuer in effecting transactions transactions with underwriter underwriters.: s.: 1. agent 2. agent 3. not an agent 4. agent 5. not and agent (1-20) 16. At what point is a document considered to be officially "filed"?: When it is received by the Administrator. (3-102) 17. Breakpoint: minimum amount of $ clients needs to invest in order to receive sales charge for mutual fund 18. Brochure rule: - requires written disclosure doc at a specific time and contains: -services/fees -types of clients - if acts as B/D; gets benefits for that - exercises discretion, suggest brokers, receives addt'l compensation - des of securities -disclosure of affiliates 19. Broker/Dealer: any person in business of effecting transactions in securities for its own account or account of others 20. Can a client agree to waive his right to sue, or to waive any other protections under the USA?: No, and an agreement with such a sitpulation is null and void. (4-127) 21. Can Admin release nonpublic info?: NO. the admin nor any of his officers/employees may disclose nonpublic info obtained in the course of performing their duties 22. Can advisers use B/D to execute transactions in exchange for certain services?: YES...called soft dollars 23. Cash Account: must pay for all securities by settlement date 24. Causes for admin to deny/suspend/revoke etc registration: incomplete incomplet e apps - false/misleading info - convicted with past 10 years of misdemeanor - convicted of felony - if prohibited from engaging in business - violated fed/state/commodities laws within past 10 years - considered to be insolvent (liabilities > assets) - failed to pay filing fee 25. Cease and Desist Order: Issued by administrator, with or without a prior hearing, directing a person or persons to cease and desist from illegal activity in which they are engaging. (1-4) 26. Churning: Unethical practice of inducing excessive trading in a customer's account, generally done for the sole purpose of generating transaction fees. (4-119) 27.. 27 Clients must receive disclosure____ hours before they sign contract or at the time the account was open: 48 hours.... if not, they have 5 days to cancel contract without penalty 28. Commingling: Unethical practice of holding customer securities in the same account as firm securities. (4-121) 29. consent to service of process: appoints the state administrator as the applicant's attorney to receive and process noncriminal securities-related complaints against the applicant (1-37) 30. Contumacy: when the recipient of a subpeona from an Administrator disobeys the request. (3-91) 31. Current initial requirement when purchasing common stock: 50% of market value of security 32. Customer tickets must include:: -account # Customer -time order received -time entered -time trade executed 33. Cutoff for assets under management for state vs. federal covered investment advisers.: - Federal: 30M or more (or pension consultants w/ 50M assets under control) 40. documents for Reg T of 1934 Act when opening MARGIN account: - loan consent form - hypothecation agreement - margin account form 41. Enjoined: A person who is the subject of an injunction. (3-92) 42. Examples of non-assessable securities: - bonafide pledge/loan of stock -exchange of securities due to merger/reorg/bankruptcy - stock dividend 43. Examples of Non B/D: - issuers - agents - banks/ banks/savings savings institutions/trust companies - no place of business in state/only institutional customers - no place of business in state/licensed in state of business/only existing clients in other state 44. Examples of soft dollars: - traditional/3rd part research - discussions with research analysts - portfolio analysis software - attendance at a conference or seminar - mkt/economic data services - certain trading software 45. Examples of soft dollar violations: - compliance/admin assistance - adversiting/marketing - adviser's travel expenses/meals/entertainment - overhead/admin expenses -employee salaries - prof licensing fees - computer terminals -correction of trading errors 46. Exam required to be an investment adviser representative.: Series 65 or 66, and FINRA 6 or 7. (1-34) 47.. 47 Exempt Securities: - muni - agencies - guaranteed by US or any state - Canadian or foreign anything - bank/s bank/savings avings institution/trust company - fed savings and loan assoc/fed credit union - insurance company - railroad, common carrier, public utility - any exchange security - non profit orgs - promissionary note, draft, bill of exchange 48. Exempt Transactions: (1) Isolated nonissuer (secondary) (secondary) transactions, (2) nonissuer transa transactions ctions by pledgees, (3) transactions with existing security holders (4) unsolicited brokerage transactions, (5) underwriter transactions, (6) bankruptcy/guardian/conservator (7) institutional investor, (8) Limited offerings (private placements), (9) preorganization certificates - State: 25M or less (unless doing business in 30 or more states), 25-30M - may choose 34. Delivery delays: Unethical practice practice consisting of a pattern of unreasonable and unjustifiable delays in the delivery of securities purchased by clients. (4-118) 35. De Minimis Exem Exemption: ption: - no place of business in state - no more than 5 noninstitutional clients - 12 consecutive months for IA, NOT B/D 36. 37.. 37 De Minimis Exemption for Agents: - application is pending in state (up to 60 days) (as long as B/D registered in that state, agent is registered with FINRA, registered in at least one other state) - existing client who is visiting in another state An Detroit retail client of a national BD firm calls the Cleveland office to place an (unsolicited) order for an exempt security. The agent in Cleveland is not registered in Michigan. Can he/she accept the order?: No, must transfer to an agent registered in Michigan. 38. Directed transactions: Transactions directed from an IA to a BD in a soft money arrangement in exchange for research or other items that benefit the client. (4-148) 39.. 39 Do admins have inspectorial power?: YES: - may require written statemnts under oath detailing facts - may take place in ANY state - can be public or private - may subpeona witnesses (inside and outside of state state)) 49. Federal Covered Adviser: adviser exempt from state registration 50. Federal Covered Securities: - listed on exchang exchanges es - securities that are = or > in seniority than a listed security - issued by investmen investmentt company - offered/sold to qualified purchasers (private placements) 51. 52. 53. 62. Federal Covered Security: one that registers with the SEC and is traded on a national exchange, and is exempt from state registration. How can an out-of-state broker dealer be exempted from registration requirements?: (1) Must have no place of business in the state, AND either (2a) must deal excl exclusively usively with other BDs or instituational clients, or (2b) may only do business with existing retail customers who do not live in the state (snowbird exemption). (1-11) 63. How does a firm treat a written complaint if a customer wishes to withdraw it?: Make a copy for file and return Filing fee: paid with registration; based on % of total offering price 64. Final Orders: (1) prior notice, (2) opportunity for hearing, (3) written findings of fact and conclusions of law. (1-4) 65. Howey Case Test (4 part test to see if security): INVESTMENT of $ - common ENTERPRISE - expectation of PROFITS - results on EFFORTS OF OTHERS 66. How long after filing is a registration application deemed effective?: At noon 30 days after the application is filed and complete.. ( 1-40) complete 67.. 67 How long after the withdrawl of professional registration does the Administrator have jurisdiction over the person?: 1 year 68. How long does an adviser have to register with the SEC if asset level changes enough to require it? How long to register with the state?: - SEC: w/in 90 days of assets exceeding $30M; - State: w/in 180 days of assets dropping below $25M (1-26) 69.. 69 How long does the withdrawal of a registration application take to be effective?: At noon 30 days after filing, unless there are legal proceedings in progress. (1-41) 70. how often does a consent to service of process have to be renewed?: never. only completed ONCE 71. How should a broker ethically conduct a trade when they are affilliated affilliat ed with or have a control relationship with an issuer?: 54. Form ADV: application in 2 parts for registration as an investment adviser. (1-29) 55. For which exempted transactions may the administrator revoke revok e exemption?: Any other than federally covered securities. ( 22-71) 71) 56. 57.. 57 Front Running: illegal practive of brokerage firm executing orders on security for its own account while taking advantage of advance knowledge of pending orders from its customers Fulcrum fee: an advisory fee that increases and decreases proportionately with the investment record of an appropriate securities index; averaged over a specific period - if account outperformed index, adviser would be entitled to addt'l fee -if client's account underperformed index, the fee would be reduced 58. How are exempt securities and excluded securities different under USA?: - EXCLUDED items (ie, real estate, metals, and other non-security items) are not subject to anti-fraud provisions under the USA. - EXEMPT securities (munis, federally covered) are exempt from registration but still subject to anti-fraud provisions. (267)) 67 59. How can a BD ensure that their website content does not require registration in all states where the site can be viewed?: viewed ?: (1) clear communica communication tion that they can only do business if registered in state (or exempt), (2) follow-up individualized responses must comply with USA, (3) site may only supply general info and no specific advice. (4-151) 60. How can a BD set up an office/space for transactions within a retail bank?: The space must be separate from the main bank space. If this is i s not possible due to space constraints, effort must be made to distinguish as separa separate te services. (4-152) 61. How can an investment adviser ethically advertise a proprietary charting system that is used in providing advice?: Must indicate that there are limitations and difficulties inherent in using such programs. (4-137) original. (4-126) How does an Administrator enforce a cease and desist order?: must seek an injunction from a court of competent juristiction. (3-92) Disclosure must be made in writing at or before completion of the transaction. (4-125) 72. Hypothecation agreeme agreement: nt: gives B/D authority to hold title to the client's securities in street name and use them as collateral for bank loans 73. IAR: partner, officer, director, associate with an IA who recommends/gives advice/manages/supervises 74. If a BD is set up on the premises of a retail bank, what disclosures must be made to the client, in writing?: (1) not FDIC insured, (2) investments are are not guaranteed (3) investments are subject to risk, including possible loss of principal. 75. If a broker/dealer's existing (retail) client moves to a new state, how long do they have to register in the new state to continue doing business with the client?: 30 days. (1-11) 76.. 76 If a federally-covered adviser is operating within an administrator's jurisdiction what may he require of the adviser?: May require notice filing, or submission of documents filed with the SEC (ADV Part I). (1-29) 91. Investment Company: Mutual Funds (open-end or closed-end funds), Unit Investment Trusts, and face-amoun face-amountt certificates. (2( 260) 92. In what case can an Administrator cancel a registration?: If the holder no longer exists or ceases to transact business. (396) 93. 77. If an IA is registered in 3 states with different record keeping requirements, how does he know which to follow?: The one where the home office is located. (1-40) 78. If a person does not comply with a subpoena (contumacy), what recourse does an Administrator have?: The In what cases can an Administrator require by rule or order for an Investment Adviser to file advertising materials, prospectuses, or other sales literature?: In all cases except Administrator can apply to the courts for a court order, punishable by contempt of court. (3-91) exempt securities, exempt transactions, or federal covered securities. (3-102) 79. If client funds are inadvertently transferred to an adviser, how long does he have to return the funds?: 3 days. (4-145) 80. If security is said to be "guaranteed" "guaranteed" under the USA, it is guaranteed as to: - interest - dividends - principal 81. If the issue causing a stop order is correct corrected, ed, what happens to the order?: It is vacated. (3-94) 82. Impersonal advisory services: - activities of an investment adviser that do not meet the specific needs or objectives of a client, or which do not render an opinion of the investment merits of a particular security 83. Individual account: single acocunt opened by 1 person for his exclusive benefit 84. in order for Canadian securities to be ex exempt, empt, the securities must be:: - issued by an entity that files reports with canadian regulators - AND - listed on the Toronto Stock Exchange 85. inspectorial powe power: r: power to initiate investigations 86. Institution: Banks, trust companies, S&Ls, insurance companies, employee employe e benefit plans with $1M in assets, and governmental governmental agencies. (1-8) 87.. 87 institutional inv investor: estor: manages large amounts of money, such as a mutual fund, insurance company, company, bank, or pension fund. (2-70) 88. 89. 90. Investment Adviser: A person who: (1)advises others in securities for compensation, or (2) issues analyse analysess or reports for compensation and as part of regularr business. ( 1-6) regula An investment investment adviser that wishes to act as a principal for its own account must:: - disclose the capacity in which it is acting prior to the completion of transaction - obtain the client's written consent Investment Advisory Contract must include what 3 statements?: 1- IA will not be compensated on basis of sharing in CAPITAL GAINS or CAPITAL APPRECIATION of client's funds 2- may not assign contract without consent of client 3- IA will notify client of any change in membership within reasonable time (60 days) 94. In what cases can the purchaser of a security sue for recovery of losses?: (1) securities were sold in violation of registration requirements, (2) securities professionals professionals lied or ommitted information, information, (3) the agent was unregistered, (4) the securities were sold in violation of a rule or order of the administrator. (3-97) 95. Is a broker allowed to hypothecate a customer's securities?: Yes, with a lien or properly executed written consent. (4-122) 96. Is an administrator of one state allow to review an office's records if they are maintained in the company's home office in another state?: Ye Yes. s. (1-40) ( 1-40) 97.. 97 Is a representative of a broker/dealer considered an agent when transacting in exempt securities or exempt transactions?: Yes (a sales rep of a broker dealer pretty much ALWAYS must be registered.) (1-16) 98. Joint Account: - more than 1 owner - 1 account # - 1 SSN - signature of both owners - checks payable to both - any owner places orders - account info = all owners 99. Joint Tenants with Rights of Survivorship: - undivided interest - if 1 dies, other gets all assets 100. Letter of Intent: allows clients who are planning to advest additional money in mutual fund over the next 13 months to qualify for breakpoint 101. Limited Offering Transaction: Exempt transaction directed at no more than 10 non-institutional offerees (and unlimited institutional offerees) offerees) in a given 12 months. (2-69) ( 2-69) 102. List 3 situations in which w hich securities "given" "given" constitute an offer to sell.: (1) security given with (or as a bonus for) any purchase of securities or other items, (2) gift of assessable stock, (3) warrant or right to purchase another security. (3-86) 103. Margin Account: must pay portion of purchase price, borrowing remainder from B/D firm 104. Mutual Fund classes of shares are distinguished by:: sales charge (front load, 12-b1 charges) 105. NASAA: North American Securities Administrators Administrators Association. (1-3) 106. National Conference of Commissioners on Uniform State Laws (NCCUSL): org that allows states to work cooperatively to reduce differences among state laws 107. Non issuer transactions: not directly/indirectly for the benefit of the issuer...issuer does not receive proceeds of the transaction (ie trading listed on exchange) 108. Non-Persons: (1)minors, (2) deceased individuals, (3) the mentall mentally y incompetent (1-5) 109. Not an Agent: - represent issuer of exemp exemptt securities - does not effect on transactions and does not receive direct compensation 110. NOT IA: - banks/savings/trust companies - prof whose advice is incidental to doing their jobs (teacher, lawyer, accountant) - b/d that gives advice as part of normal business (no extra commission) - fed covered advisers -IARs 111. Notice Filing: Administrators can require documentation for the record and a filing fee for federally covered securities. This includes all Investm I nvestment ent Companies. (2-62) ( 2-62) 112. NOT securities: - "fixed" anything - futures - commodities - retirement plans (401k or keogh) 113. NSMIA: National Securities Markets Improvement Act of 1996. Eliminated redundancy in state and federal laws. (1-6) 114. An offer is made before a security's effective date (a violation that that subjects an agent to to civil liability), liability), but the sale is made in full accordance with the USA. Is the agent civilly liable for losses incurred by the investor?: Yes. (Although the sale must occur in order for the agent to be liable, the violation on the offer will expose the agent to liability.) (3-100) 115. offer is not made in state when:: - bonafide newspaper is circulated and NOT published in state 116. 117. 118. 119. 120. Registration by Filing Application must contain:: - statement Registration of eligibility - name/address/form of org of issuer - statement describing offering -copy of prospectus -non issuer's info (if applies) 121. Registration by filing (notification): - well established companies - financial requirements - fed filed under act 1933 (will be listed on exchange) - reg issuer under sec act of 1934 (with 500+ shareholders) - total net worth = 4 million+ or income of 2mill for at least 2 of last 3 years - 36 calendar months in business - 4 mkt makers for issuer's sec - underwriters commissions cannot > 10% of aggregate offering price -cannot failed to pay dividend on PREFERRED stock or default on any bond/LT lease - offering price of $5+ - usually not used anymore *becomes effective same time as fed 122. Registration Registra tion by Qualification: - any state, all types of securities - fed already effective - intrastate * becomes effective only when determined by admin* admin * 123. Registration by Qualification's disclosure requirements are:: general data about issuer - info on directors/officers - info on all holders of 10%+ - nonissuer info - des of capitalization and long term debt - type/amount type/amount of securities, price, selling fees, underwriting agreements - cash proceeds to be received, purpose of them - copy of every prospectus, letter, ad, legal opinion -radio/tv program broadcasts in state but communication originates in other state 124. Ponzi scheme: any returns received by investors comes from the capital contributed by subsequent investors investors 125. Registration of Securities is effective for:: 1 year from its effective day 126. Requirements for IA and B/D: B/D: min net capital, bond, 3 years of records recission: buying back from a customer a security that was sold unlawfully. The customer has 30 days to accept or reject a recission offer. (3-99) Registration by Coordination: - same offering is being registered under Sec Act of 1933 - need $$ - coordination with fed *becomes effective same time as fed Registration by Coordination must be filed with:: - 3 copies of the latest prospectus filed with SEC - copies of articles of incorporation - underwriting agreem agreements ents - indenture relating to security - amendments of prospectus - balance sheet, profit/loss statement for each of last 3 yrs Registration of Professionals become effective when?: at NOON on the 30th day after filing IA: min financial requirements, bond, 5 years of records 127. Restrictions for a promissory note (commercial paper), draft, bill of exchange, or banker's acceptance to be exempted under the USA.: - must mature within 9 months - be issued in denominations of at least $50,000 - receive one of the highest 3 ratings available from a national ratings agency. 128. Sale: any contract of sale, contract to sell, or disposition of a security/interest in a security of value 129. Section 28(e) of Securities Act Exchange of 1934: recognizes soft dollar arrangements as safe harbor; as long as: exercise discretion, services assist the adviser, and value of services are reasonable in relation to commission 130. 131. 132. 133. 142. Selling away: Unethical practice of conducting securities transactions not recorded on the regular books or records of the BD that an agent represents without notice. This would be allowed if the transactions are suthorized in writing by the BD prior to execution. (4-129) T/F: an agent must always disclose the commission or markup on a trade before the transaction is executed.: FALSE. FALS E. (If the markup is higher than normal due to special circumstances, it must be disclosed before transaction. Otherwise, it needn't be disclosed, but must appear on the trade confirmation) (4-115) 143. T/F: an individual is not considered an agent if the individual T/F: represents the issuer of effecting exempt transactions: TRUE 144. T/F: Anyone can change beneficiary of an account: FALSE: Shadowing: B/D executes trade for own account after executing a (substantial size) trade for a client, but before client's trade is reported 145. only account owner can change beneficiary...NO exceptions T/F: day of execution signals the existance of a contract which by definition is a sale: TRUE soft dollar arrangements: An investment manager directs the commission generated by a transaction towards a third party or in-house party in exchange for services that are for the benefit of the client but are not client directed. (4-147) T/F: Giving third party authoriy to trade in an individual T/F: account is valid if it is in writing: writi ng: TRUE 147. T/F: If an agent is found culpable for an investor's loss, the agent can be held responsible for treble (3x) damages.: FALSE (this is a federal not state law, and only pertains to insider trading anyway) (3-97) 148. T/F: If a person commits a non-securities related felony and is thus suspended from registration in State A, he can move to State B (where his crime is only a misdemeanor) and achieve registration there.: FALSE (The Administrator must consider the crime under the statutes of the state where it occured, not his own). (3-93) 149. T/F: If a registrant does not know that a violation is fraudulent, he cannot be criminally conviceted of fraud.: TRUE (The fraud must be willful and the registrant must know the activity is fraudul fraudulent). ent). (3-100) 150. T/F: oral discretion is sufficient for 10 days: TRUE 151. T/F: The most balanced way for an agent to provide information on a security to a client is to provide the full prospectus (which will include risks as well as investment investment potential), and highlight the most relevant points.: FALSE (It is unethical for an agent to highlight or otherwise mark up a prospectus.) (4-125) 152. Time period to appeal an Administrator order.: 60 days. 153. To whom does a de minimis provision (allowing an out-ofstate professional to engage with up to 5 local retail clients) apply?: Investmen Investmentt Advisers and Investment Adviser Representatives (1-27) 154. Transfer on Death (TOD)/Pay on Death (POD): - both individual/joint accounts - acct may be passed directly to named beneficiary with showing death certificate - may have more than 1 beneficiary with specified % 155. Under the USA, who automatically becomes registered when a BD registration becomes effective?: any partner, officer, or person of similar status or similar function. (1-41) 156. Under USA, an admin may:: - conduct investigations involving Soft Dollars: a means of paying brokerage firms for their services through trade commissions *must benefit its clients* clients* 134. Solicitor: Any individual who refers potential clients to an investment investme nt adviser for compensation. (1-8) 135. stock offering (offer/offer to sell): every attempt to dispose of and every solicitation to buy a securtiy/interests in a security of value 136. Stop Order: Used by administrator to deny effectiveness to, or suspend/revoke the effectiveness of, a security's registration statement.. (1-4) statement 137. Submission requirements for a professional to register with Administrator:: - application, - consent to service of process, - pay filing fees, - post bond (if requir required), ed), - pass exam 138. 146. Surety bond: covers costs of possible legal actions (B/D, IA, Agent...NOT IAR) bonds listed for as long as in business + 3 years after withdrawal 139. Tenants in Common: - interest in account varies - if 1 dies, share becomes part of estate 140. T/F: All ads must be filed except for fed covered securities: TRUE 141. T/F: An agent has the flexibility to adjust the amount of a client's order by a de minimis amount of less than 10% of total shares purchased, purchased, if it is done in the best interest of the client.: FALSE. (Unless the agent has discretionary authority, he may not execute an order other than as specified as the client.) (4-120) B/D domiciled in other states - conduct an investigation without proof of wrongdoing - issue supeonas to individuals outside the state 157. Under what circumstances can an Administrator enforce a subpeona that has been issued in another state?: Only if the activities being investigated are illegal in the Administrator's state. (3-91) 158. Under what conditions can an investment professional share in client accounts (share in profits and losses)?: An agent may do so with written approval from the BD and client. BDs, IAs, and IARs are never permitted to share in the profits and losses of client accounts. (4-130) 159. USA: Uniform Securities Act, model legislation for state securities laws. (1-3) 160. What are 3 ways that one may legally sell a security?: (1) registered issue (2) exempt security and/or exempt transaction (3) federally covered security 161. What are 3 ways to register a security?: filing, coordina coordination, tion, qualification 162. What are the 4 broad powers that the Administrator has to enforce and adminster the USA?: (1) make/amend/rescind rules and orders, (2) conduct investigations and issue subpoenas, (3) issue cease and desist orders and seek injunctions, (4) deny/suspend/cancel/revoke registrations and licenses. 163. 164. 165. 166. 167. What are the exceptions to the prohibition of performance fees for investment advisory work?: Performance fees are allowed BASED ON NET PERFORMANCE for contracts with: (1) a registered investment company, or (2) any person with $750K under the adviser's management or a net worth of at least $1.5M. (4-141) What are the limitations for advertising for an investment adviser?: (1)May not include falsehoods, (2) may not include testimonials, (3) may not refer to past specific recommenations (unless certain conditions are met), (4) may not represent that a chart or formula alone can determine what securities to trade. (4-137) What are the requirements for an adviser to maintain client funds?: (1) Administrator must not prohibit it, (2) Administrator must be informed that adviser is holding funds in custody, custody, (3) the adviser must supply an account statement at least quarterly. (4-145) What are the requirements for a securities professional to lend money to a client? To borrow from a client?: May borrow from a BD or financial institution who loans funds in the course of normal business. May lend only if a BD or financial institution or to an affiliated party. (4-128) What are the requirements for disclosing breakpoints to clients?: An agent must notify the client if there is a sales charge discount above a certain breakpoint, or if there is a letter of intent feature that will reduce sales charges. (4-128) 168. What are the requirements to revoke a security's registration?: (1) false applicatio application, n, (2) fraudulent or inequitable offering, (3) unreasonable fees, (4) control person convicted of securities crime, (5) subject to injunction, (6) engaged in illegal business, (7) subject to stop order of another state. (3-94) 169. What are the two primary types of conflict of interest that must be disclosed to clients under the USA?: (1) if the adviser expects to receive compensation compensation for advice in addition to that from the client, or (2) charging a client an advisory fee for advice when the adviser expects to receive compensation compensation for executing the transaction. (4-136) 170. What can states require from Fed covered Securities?: Notice filing - to file notice, sales reports, consent to service of process** - pay registration fee** - investigate fraud (**not for exchange securities) 171. What compensation may insurance agent receive from B/D in exchange for referrals?: -Insurance referrals only registered agents may receive $ compensation 172. What disclosures are required for an agency cross transaction?: (1) that adviser will be receiving commissions from both sides, (2) potential conflict of interest, (3) adviser must furnish a statement of all total agency transaction and compensation from them at least annually, (4) allows for termination, (5) the adviser could not have recommended recommended the transaction to both parties. (4-140) 173. What does an investor have the right to recover from an agent who engaged in an improper transaction? transaction? An IAR providing improper advice?: Agent = ORIGINAL PURCHASE PRICE + interest + legal costs - income IAR = COST OF ADVICE + LOSSES INCURRED + interest + legal costs - income . (3-99) ( 3-99) 174. What happens if a buyer does not respond to a letter of recision within the 30 day time period?: They forfeit the right to a lawsuit. (3-98) 175. What happens if an investment investment advisor schedules to meet with an existing client at a hotel out-of-state and invites them to bring friends?: The out-of-state registration exemption is lost. (1-27) 176. What happens to an agent if her employing broker dealer has registration terminated?: the employeed agent's registration is terminated as well. (1-18) 177. What info may issuer change by amending its registra registration tion statement after it receives an effective date?: - number of shares only 178. What information must be included in a written investment advisory contra contract?: ct?: (1) services provided, (2) term of contra contract, ct, (3) fee and formula for computing it, (4) amount of prepaid fees that are refunable on contract termination or nonperformance, (5) whether the contract grants discretionary power, (6) no assignment without client consent. (4-138) 179. What is required for annual renewal of registrations for professionals?: updated application and fee 180. What is the deadline for prospectus delivery delivery under the federal '33 Act? How soon may an Administrator require it?: no later than the mailing of trade confirmation or actual delivery of the security. Administrator can require delivery prior to or concurrent with sale. (2-75) 181. 182. What is the deadline to secure a properly executed margin agreement when executing client transactions in a margin account?: Must be receiv received ed promptly after the initial transaction in the account. (4-121) what is the difference between a cease and desist order and a stop order?: Cease and Desists: directed at persons, Stop Orders: directed at applications for registration of security 194. What materials do B/D's may need to file with Admin?: - any prospectus - pamphlet - circular - form letter - ad - sales literature **may NOT require sales materials related to exempt securities, exempt transactions, transactions, or fed securities 195. What parties may likely file a registration statement?: issuer 196. What requirements must be met for an Administrator for a formal order to suspend registration?: (1) appropria appropriate te prior notice, (2) opportunity for hearing, (3) providing findings of fact and conclusions of law. (3-92) 197. what test is used to determine if IA?: ABC Test 198. When can an adviser reveal the identity, affairs, or investments of a client?: Only with consent from the client. (4137) 199. When can an agent claim that shares are no commission, "no-load", or have "no sales charge"?: If the shares do not have: (1) a front-end load, (2) a contingent deferred sales load (CDSC), or (3) a Rule 12b-1 fee or service fee in excess of 0.25% NAV. (4-127) 183. What is the difference between a registration cancellation vs. a denial, suspension, suspension, or revocation revocation?: ?: A cancellation is non-punitive. It results from death, dissolution, or mental incompetency. (3-96) 184. What is the due date for an agent or adviser rep to deliver a prospectus to a client?: No later than the due date of confirmation of the transaction. (4-122) 200. When does registration by coordination become effective at the state level?: At the same time the federal registration becomes effective 185. What is the maximum fine for criminal offenses?: $5,000 201. 186. What is the maximum frequence with which the Administrator may require an issuer to file financial statements?: quarterly When does the registra registration tion of professionals EXPIRE?: annually on December 31st 202. When is a registration withdrawl effective?: 30 days after received by administrator. (3-95) 203. When is there no bond requirement for a B/D?: there is no bond requirement if b/d does not have custody or discretionary discretiona ry authority 204. When may an Administrator stipulate a surety bond for a 187. What is the maximum term of imprisonment to which an offender can be sentenced under the USA?: 3 years. 188. What is the statute of limitations for civil provisions of the USA?: 3 years from incident or 2 years from discovery (3-98) 189. What is the statute of limitations for criminal offenses offenses under the USA?: 5 yrs 190. What is the timeframe for a person to challenge the order of an Administrator?: 60 days from order issuance. (3-90) 191. What is the time requirement to provide a hearing for a suspension or revocation of registration?: 15 days 192. What is the typical net worth (or, alternatively, bond) required of an Investment Advisor with discretionary authority? Custody of funds?: $10,000 and $35,000 (1-30) 193. What limitations does the Administrat Administrator or face in making and amending rules?: - must make all rules publicly available - cannot change the securities laws themselves. themselves. (3-90) BD? For an IA?: If either has custody of, or discretionary authority over, over, the clients' funds or securities and does not meet state net capital/net worth requirements. (1-14) 205. When may an agent split commissions, and when must it be disclosed to a client?: Split commissions are only allowed between 2 agents at the same BD (or BDs under common control). Disclosure is only necessary if it will increase the charge to the client. (4-130) 206. When may a registration statement be withdrawn?: Not until 1 year after effective date IF any securities of the same class are outstanding, and then only with the approval of the Administrator Administ rator.. (2-7 (2-74) 4) 207. When might an Administrator require require that a security be placed in escrow?: (1) issued within past 3 years, (2) at a price substantially different from offering price, OR (3) to any person for a consideration other than cash. 208. which persons becomes automatically registered as an IAR when an IA 's registration becomes effective?: - only those officers, directors, and partners with MANAGEMENT responsibilities 209. Who is exempt from B/D definition?: agents, issuers, and persons conducting business exclusively with institutional buyers are all exempt from definition 210. Who is qualified as a "person" under the USA?: - legal entities - corporations - partnerships - assoc. trusts - unincorporated orgs 211. - gov't bodies and their political subdivisions Who is required to give bond?: B/D, IA, Agent... NOT IAR*** 212. Who must notify the Administrator if an agent is fired from a broker dealer? If he leaves to join another broker dealer?: - agent and B/D - agent, B/D, new B/D 213. withdrawal from registration (for B/D)becomes effective when:: Admin determines which there is an action for revocation of the firm's license pending at the time the app is filed 214. Within what time period will a request for a hearing be granted if a profe professional ssional disputes a stop order?: 15 days. (1-4) 215. Would speculative investing in an account with an objective of income only be acceptable?: NO. regardless of account size, speculative investing would never be appropriate for an account with an objective of income only 216. Wrap Fee required disclosures: (1) amount charged, (2) negotiability of fees, (3) services pro provided, vided, (4) nature of additional fees, (5) *statement *statement that the program may cost more that purchasing services separately. * (1-31)
