Series 63
The term state means any of the
50 states, any territory or possession of the US (such as American Samoa and Guam), the District of Columbia, and Puerto Rico
Although any person aggrieved by an order of the admin may request an appeal to the order within
60 days
A person may appeal an order of the admin in court within
60 days of order issuance
An investment adviser registered under state law whose assets reach $110mil under management has
90 days to register with the SEC
A control affiliate is any person that is
a director, general partner, or officer exercising executive responsibility (or having similar status or functions)
Excluded from the term person would be
a minor, a deceased individual, and one who has legally been determined as incompetent
A customer opening a nee margin account would not be required to sign
a new account agreement
If employed by or associated with a federal covered advisor, an IAR only comes under the registration requirements by having
a place of business in the state
The 120 day requirement is for
existing clients, not new clients
Each of the advisory clients must be given a written statement (brochure) prepared by the adviser that makes
all appropriate disclosures
De minimis appears to describe
an exemption available to investment advisers and their representatives
Exemption from registration of the security has no bearing upon the exemption from registration as an agent for those who represent
broker dealers
Net capital is solely for
broker dealers
Dually registered ia means that they are registered as
broker dealers and ia
Agents represent
broker dealers or an issuer of the securities
Exemptions for state registration for IA are when the advisers only clients in the state are
brokerdealers registered under the act other investment advisers institutional investors including employee benefit plans with assets of not less than 1mil existing clients who are not residents but are temporarily in this state any others the admin exempts by rule or order
Call buyers are generally thought of as being
bullish
A broker dealer is a
business entity
An investment adviser, like a broker dealer, is a
business entity.
Use of social media websites for business purposes should be treated no differently from any other
business related electronic communication
Statutory disqualification is a status that denotes that the individual may be subject to
disqualification under the USA and or parallel provisions in the Securities Exchange Act of 1934.
The NSMIA created the term
federal covered security
A security may be registered by coordination if a registration statement
has been filed under the securities act of 1933 in connection with the same offering
The typical life insurance policy or fixed annuity is not a security and blue sky law
has no impact on it.
With an offer, a transaction
has not taken place
IA register with either the SEC or the appropriate states
never both
The name of the clients employer is part of the
new account form but not one of the requirements of the CIP
All records must be avalable for
public inspection
Before a security can be sold in a state, it must be
registered unless exempt from registration or traded in an exempt transaction
Federal covered investment advisers
registered with the SEC
Agents are the individuals who
represent broker dealers in the conduct of their businss
If an agent has even 1 retail client who lives in a state, registration in that state is
required
If IA meets the net worth or surety bonding requirements of the state where its principal office is located, that is
sufficient in any other state in which it may be registered
As an agent, you can never lend money to any client unless
the client has some kind of affiliation with your firm
Securities professionals must not borrow money or securities from a client unless
the client is a broker dealer, an affiliate of the professional, or a financial institution engaged in the business of loaning money
Everyone needs at least $100mil to initiate registration with
the sec
No matter how high ranking the officer of a bd or IA,, registration status is that of
an agent or IAR.
If during the year, there should be a change of a material nature, such as a change of address or a change to the advisers executive officers, the adviser files
an amended Form ADV promptly with the admin
Anytime there is a material change to the infromation on the form adv,
an amended copy must be filed with the administrator
A wash trade is
an attempt to manipulate a securities price by creating an apparent interest in the security that really doesnt exist.
The distinction betwween exemptions and exceptions (or exclusions) from definitions is important in view of the fact that
an exempt security is not exempt from the anti-fraud provisions of the USA
Any sale to an institutional client is
an exempt transaction
Isolated nonissuer transaction
an exempt transaction between individual investors conducted privately
Advisers who would otherwise be required to register in 15 or more states qualify for
an exemption
Qualified purchaser means
an individual or a family business that has over $5mil in investments or an individual/entity that invests over $25mil on their own account or on other's behalf
The term qualified client is used to describe
an individual or company meeting the minimum financial requirements to enter into a performance-based compensation contract with an investment adviser.
US and canadian government and municipal securities, forein government securities, securities of enployee benefit plans, certain money market instruments are the only cases where
an individual representing the issuer in the sale of its securities is excluded from the definition of an agent
To compel compliance in the face of a persons resistance, the admin must apply to the court of competent jurisdiction for
an injunction
The act permits the admin to issue cease and desist orders and if they do not work, the admin may seek
an injunction from a court of competent jurisdiction
A cease and desist order is an admin order whereas
an injunction is a judicial order
It s permissable to sell unregistered nonexempt securities to
an institutional buyer such as an investment company because that would be an exempt transaction
Transactions with a broker dealer whether acting for itself or in some fiduciary capacity is
an institutional investor transaction and is exempt
Closed end management company
an investment company that issues a fixed number of shares in an actively managed portfolio of securities
An institutional investor is
an investor that manages large amounts of money such as a mutual fund, an insurance company, a bank, or a pension fund
3c1 issuer is one whose
outstanding securities are beneficially owned by not more than 100 persons and which is not making and does not presently propose to make a public offering of its securities.
If the price of the stock goes up, the owner of the call option benefits in the same manner as
owning the stock
a rule or order of the admin has the same authority as a provision of the act itself, but these rules and orders are not
part of the usa itself
REgistration of an investment adviser automatically contitues registration of any investment advisor representative who is a
partner officer or director or a person ocucpying a similar status or performing similar functions
registration of a broker dealer automatically contitutes registration of any agent who is a
partner officer, director, or a person occupying a similar status or performing similar functions.
An investment advisor representative is any
partner, officer, director, or an individual occupying a similar status or performing similar functions, or other individual employed by or associated with an investment adviser that is registered or required to be registred under the USA
IAR includes any
partner, officer, or director who offers advice concerning securities
Assessable stock is
stock issued below par for which the issuer or creditors have the right to assess shareholders for the balance of the unpaid par.
Call buyers are optimistic about the future movement of a
stocks price
Although the rules do not prohibit testimonials for BD and their agents, they are
strictly forbidden for use by IA
When it comes to investment advisers, the NASAA Model rule states that publishing, circulating, or distributing any advertisement which does not comply with the investment advisers act of 1940
would be prohibited
The admin may not enter an order denying registration solely on the basis of lack of experience if
the applicant or registrant is qualified by training or knowledge or both
Although it is highly unlikely you will be tested on the technical definition, a private fund is defined as
an issuer that would be an investment company as defined in section 3 of the investment company act of 1940 but for section 3c1 or 3c7 of the act.
The recommendation is
an offer
USA says a purported gift of assessable stock is considered to involve
an offer and a sale
Every sale or offer of a warrant to purchase another security of the same or another issuer is considered to include
an offer of the other security
a sale or offer of a warrant or right to purchase or subscribe to another security of the same or another issuer as well as every sale or offer of a security which gives the holder a present or future right of privilege to convert into another security of the same or another issuer is considered to include
an offer of the other security
A gift of nonassessable stock is neither
an offer or sale
A state registered adviser whose AUM peaked above $110mil during the year but then fell at the time of the update
would not trigger a SEC registration
The adviser shoudl but is not required to obtain a
written acknowledgment from each of its clients of their receipt of the disclosure statement
Before a broker dealer or agent can exercise discretion, a
written discretionary authorization permitting such discretion must be received by the firm and the account must be approved by a designated supervisor
It is required that each financial institution that offers or maintains one or more covered accounts must develop and implement a
written program designed to detect, prevent, and mitigate identity theft in connection with the opening of a covered account or any existing covered account.
Under the USA, you are a broker dealer if
you have a place of business in the state or you have even one retail client in the state
Linked in is beleived that information is limited to
your current position, past position, and job responsibilities
The designated supervisory person shall specifically approve or disapprove in writing the customers account for
options trading
Minimize the fine print
or at least make the fees and charges clear
For the first 10 days of the initial period for a IA,
oral authorization is permitted
A clients name or address does not have to be on the
order ticket
Under the USA, the state admin has jurisdiction over securities transactions that
originate in or are accepted in the admin state
THE USA describes activities considered to have take place in the state as any offer to buy or sell a security as well as any acceptance of the offer if the offer
originated in the admin state was directed to the admin state is accepted in the admin state
An investment adviser is a person who for compensation and as part of a regular business
issues or promulgates analyses or reports concerning securities
The USA does not require that an admin conduct a public or private hearing before
issuing a cease and desist order
the limited registration of canadian bd requires that the firm be a
member of an sro or stock exchange in canada, not the us.
REquirements for agents in canada are the same as a BD in canada except
membership in an SRO or stock exchange is not relevent
The admin may also cancel a registration if a person is declared
mentally incompetent
The USA defines offer or offer to sell as every attempt to
offer to dispose of or solicitation of an offer to buy a security or interest in a security for value
the security is being sold to or offered to the
offeree
The person attempting to make the sale is known as the
offeror
The administrators authority revolves around
offers and sales of securities
Ford ADV is the
official form used by investment advisers to register.
The admin reviews registrations for
ommissions of material facts and clarity of information and makes certain all supporting documentation is included
A broker dealer who when acting as a principal in a trade with a customer or as the customers agent, need only indicate that capacity
on the trade confirmation. Consent is not required
Once withdrawal of an application has taken place, the admin has jurisdiction of the former registrant for a period of
one year
Regardless of the method used for registration, every registration statement is effective for
one year from its effective date.
Securities registration statements are effective for
one year from the effective date
the I in IAR is like the number 1.
only one person gives notification to the admin
NASAA does not have a specific rule dealing with the
opening of options accounts
When the USA excludes broker dealers with no place of business in the state from the definition of a broker dealer in that state allows firms that deal exclusively with other broker dealers, issuers of securities being traded, and financial institutions to
operate in the state without registering.
When opening a margin account, giving consent to lend out securities held in the account is
optional
Typically the net worth required of investment advisers with discretionary authority is
$10K
Investment advisers registered at the state level can choose to remain there until they reach the
$110mil level
Rule 501 of Regulation D considers an individual with net worth greater than
$1mil on the date of purchase, individually or with a spouse, excluding the net equity in the primary residence, to meet the definition of an accredited investor.
One may qualify with earnings greater than $200,000 per year or
$300K if including the spouse in each of the previous 2 years and a reasonable expectation of reaching that level in the current year
Typically the net worth required of investment advisers who take custody is
$35K
If the investment adviser takes custody and has discretionary authority
$35K is sufficient
The statute of lmitation for criminal offenses under the USA is
5 years from the date of the offense
An option is a
2 party contract where one party has the right to exercise the contract to buy or sell the underlying security adn the other is obligated to fulfull the terms of the contract with specified time period (usually9 months)
The options account approval will indicate the
1. Date the options Disclosure Document is furnished to the customer 2. Nature and types of transactions for which teh account is approved 3. Name of the agent assigned to the account 4. Name of the supervisor approving the account 5. Date of approval 6. Dates of verification of currency of account infromation
All records must be readily accessible (in the principal's office) for the first
2 years
Together part 2A and 2B are delivered to
the client
Which clients can you borrow from?
1. A bank or other financial institution in the business of making loans 2. a Broker dealer in a margin account 3. A fellow employee of your firm
An investment adviser unless one of the exceptions discussed below applies, must deliver within 120 days of the end of its fiscal year
1. A free updated brochure and related brochure supplements which include or are accompanied by a summary of material changes or 2. A summary of material changes that includes an offer to provide a copy of the updated brochure and supplements and information on how the client may obtain a copy of the brochures and supplements
The Criteria for CE for IARs determined by NASAA
1. Continuing education content focuses on compliance, ethical, and sales practices standards. 2. The continuing education content is derived from state and federal investment advisory statutes, rules, and regulations accepted standards and practices in the financial services industry. 3. The continuing education content requires that its participants demonstrate proficiency in the subject matter of the educational materials.
Which clients cant you borrow from?
1. The employee at the lending institution who processes and approves loans 2. The agent at the bd who services your margin account 3. A mortgage broker 4. A family member unless they are employed by the same or an affiliated firm
A margin account is an example of
a covered account
Under the USA, the lawsuit for recovery of damages must commence within the earlier of
3 years after occurance of the offense or 2 years after its discover
When official residency is changed is when the
30 day rule begins
The withdrawal of a registration is effective
30 days after the admin receives it, provided no revocation or suspension proceedings are in process against the person making the request
In most states, when an existing client legally changes residence to another state in which the broker dealer is not registered, the firm has
30 days during which it may continue to do business with that client without registration in the new state.
The right of recission must be accepted or rejected within
30 days of receipt of the letter of recission
After the 90 day period, the IA has another
30 days to get the information into the brochure to send to the clients
A registration becomes effective on the
30th day after application
A request to withdrawal registration also becomes effective on the
30th day after submission.
The de Minimis Exemption is an exemption from registration is offered to an investment adviser who does not maintain a place of business in the state and limits its business to
5 or fewer retail clients who are residents in the state during the preceding 12 months.
Remember the sequence 5 5 3 for the application of criminal penalties
5 year statute of limitations 5K max fine imprisonment no more than 3 years
The administrator could issue all of the following except: A cease and desist order A court order A stop order A summary order
A court order.
Credit agreement 9margin agreement)
A document that a customer must sign when opening a margin account with a BD
The USA does not exclude economists from the definition of
investment adviser
Promissory Note
A financial instrument included in the definition of a security that contains a written promise by one party to pay another party a definite sum of money either on demand or at a specified future date
Dealer
A firm acting as pricnipal for its own account
A corporation that purchases stock in another corporation for the purpose of exercising management control is A business development company An investment company A holding company A management company
A holding company
Consent to Service of Process
A legal document entered into by all registrants whereby the admin is given power to accept legal papers on behalf of the registrant
Agency transaction
A transaction in which a broker daler acts for the accounts of others by buying or selling securities on behalf of customers.
Principal transaction
A transaction in which a broker dealer either buys securities from customers and takes them into its own invesntory or sells securities to customers from its own invesntory
The USA defines persons associated with an ia as
investment adviser representatives
Under the USA, the term person would include all of the following except: An incorporated association A child prodigy, gifted in math, in the custody of his parents, for whom his parents opened an account at a major securities firm A political subdivision An individual
A child prodigy.
Section 28(e)
A code section of the securities exchange act of 1934 that deals with soft dollar compensation
Investment company
A company engaged primarily in the business of investing and trading in securities including face amount certificate companies, UIT, and management companies
Regulation SP distinguishes bewtween a customer and consumer.
A consumer is an individual who obtains a financial product or service from a firm and has no further contact with the firm. A customer is an individual who has an ongoing relationship with the firm
Call option
A contract where the buyer of the option has the right to buy stock from the writer (seller) of the option. The writer is obligated to sell the stock at the strike price. Buyers of calls are bullish.
State F is proposing to issue a $100mil bond issue. The USA would define state F as: A. An issuer B. A Municipality C. A institutional investor D. an underwriter
A. an issuer.
Advertisement
Any material designed for use by newspapers, magazines, radio, television, telephone, recording, or any other public medium to solicit business
Other than when acting summarily, no order to deny, suspend, revoke may be entered without:
Appropriate prior notice to the applicant or registrant (as well as the employer or prospective employer if the applicant or registrant is an agent or investment adviser representative) An opportunity for a hearing and Written findings of fact and conclusions of law
A securities professional exercises discretion when determining any one or all of the following in a customers accounts
Asset (security) Action (buy or sell) Amount (how many shares)
Investment advisers registered with the admin use the form
ADV Parts 1 and 2
if an agent terminates employment with one broker dealer to join another broker dealer all three parties must notify the
Aadministrator
Each order ticket must disclose the
Account ID Description of the security including the number of shares of stock or total par value of bond the terms and conditions of the order (market or limit) the time of order entry and execution the execution price the identity of the agent who accepted the order or is responsible for the account
A firms website is considered
Advertising
The snowbird exemption applies to
Agents, IA, and IAR
Preorganization Certificate
Agreement for the future purchase of the stock of a corporation when it is eventually incorporated.
An individual is excluded from the term agent only when that individual represents an issuer in effecting transactions for the following exempt securities
Any security issued or guaranteed by the US, any state, any political subdivision of a state, or any agency of one or more of these or any security issued or guaranteed by canada, any canadian province, or any political subdivision of any such province Any security issued or guaranteed by any foreign government with which the us currently maintains diplomatic relations any security issued or guaranteed by any bank organized under the laws of the united states or any bank savings or trust company organized and supervised under the laws of any state commercial paper rated in the top three categories by the major rating agencies with denominations of $50K or more and maturities of 9 mo or less investment contracts issued in connection with an employees stock purchase savings pensions or profit sharing plans
Market maker
a dealer willing to accept the risk of holding securities to facilitate trading in a particular way
Which of the following is part of a broker dealers renewal of registration? A. Filing Form BD B. Providing a consent to service of process C. Paying the licensing fee D. Submitting a copy of the firms tax return for the previous year
C. renewing the registration of nay securities profession requires paying the appropriate fee.
Agency Cross Transaction
For an advisory client, a transaction in which a person acts as an investment adviser in relation to a transaction in which tht investment adviser or any person controling, controlled by, or under common control with that investment advisor acts as broker for both an advisory client and for another person on the other side of the transaction
The application form BD is for
BD
Broker dealers with no place of business in the state, dealing exclusively with other broker dealers or institutional clients are not considered to be
BDS in the state as long as they are properly registered in at least one state - the location of their principal office.
the CIP is part of he USA Patriot Act and its primary concern is to make sure that
BDs know exactly who the customer is.
A broker dealer is not obligated to disclose the amount of commission on any offer to sell
BEFORE the transaction unless it is a thinly traded security where commissions may be higher than normal
Registration statement
Before nonexempt securities can be offered to the public, they require registration under the Securities Act of 1933 and or the USA. the registration statement must disclose all pertinent information concerning the issuer and the offering
Probity
Being morally and ethically above reproach Having integrity A necessary trait for someone in this business
The terms offer and offer to sell and sell or sale do not include any
Bonafide pledge or loan Gift of nonassessable stock Stock dividend (and splits) Class vote by stockholders pursuant to the certificate of incorporation or the applicable corporation statute or a merger, consolidation, reclassification, or sale of corporate assets in consideration of the issuance of securities of another corporation Act incidental to a judicially approved reorganization with which a security is issued in exchange for one or more outstanding securities
The application is Form BD for
Broker dealers
REcission
Buying back from the customer a security that was inadvertently sold unlawfully
If the admin investigates the claim and find that it has merit, then
a case will be opened against the offending bd, agent, or both
BD and U4 must contain whatever information the admin requires by rule and may include
Form and place of business Proposed method of doing business qualifications and business history (broker-dealers must include the qualifications and history of partners officers, directors, and other persons with controlling influence over the organization
The admin need not seek an injunction to issue
a cease and desist order
Upon conviction, the court (not the admin) may
levy a fine against the person, impose a prison sentance, or do both
Whether a BD or an IA, all discretionary orders must be reviewed and approved by
a designated supervisory person on the day of the trade.
If an admin determines that a person isa bout to engage in an activity that constitutes a violation of the USA or her rules, the admin may issue
a cease and desist order with or without a hearing
it is not required that the applicant be
a citizen of the us
One of the following terms in the USA is BD. Who of the following is included in that definition? A. An individual employed by a business entity to open new customer accounts for the purpose of trading securities B. A business entity seeking to raise additional capital using the regulated securites markets C. A person whos primary function is buying and selling securities for its own account and for the accounts of others D. A person whos priamary function is providing advice on what assets belong in clients investment portfolios
C.
Other than FINRA, SRO's include
MSRB, CBOE, and IIROC
The prohibition of borrowing and loaning only applies if one end is
a client
OCC
Options Clearing Corporation
Fo IAR Continuing education, a waiver of both parts (ethics and products) may be granted to certain certificate holders, such as
CFP and CFA if they complete the required CE of those credentialing organizations.
IA must amend the FORM ADV by filing additional amendments promptly if information relating to any of the following changes or becomes inaccurate in any way
Change to the registrants name Change in the principal business location Change in the location of books and records if they are kept somewhere other than at the principal location Change to the contact person preparing the form Change in organizational structure such as from partnership to corporation and so on information provided in the brochure becomes materially inaccurate Change to any of the questions regarding disciplinary actions change in policy regarding custody of the customer funds and/or securities
Investment Company Act of 1940
Congressional legislation enacted to regulate investment companies that requires any investment company in interstate commerce to register with the SEC.
The CIP is
Customer Identification Program
A designated supervisory person with knowledge about options must approve the account opening. This person is generally a
Registered options principal or ROP.
an adviser managing $25mil but not 100mil
mid size state
For margin accounts, the documentation must be received promptly
after the initial trade
The SEC requirement is relevant for
Federal Covered Advisors
advisers registered with the sec are known as
Federal covered investment advisers
Accredited investor only applies to
Federal law and will probably never be the correct answer to a USA question.
As is the case with all of the securities professionals, the renewal date is
December 31
The renewal date for all registrations is
December 31 and there is no proration of fees.
Fraud means
Deliberate or willful attempt to deceive someone for profit of gain
Under the notice filind procedure, state admin may require the issuer to file the following documents as a condition for sale of its securities in the state:
Documents filed along with their registration statements filed with the sec documents filed as amendments to the initial federal registration statement consent to service of process a report on the value of such securities offered in the state
NASAAs model rule on unethical business practices of investment advisers, IAR, and Federal covered advisers includes the following as one of the unethical business practices
Entering into, extending or renewing any investment advisory contract unless such contract is in writing and discloses in substance the services to be provided the term of the contract, the advisory fee, the formula for computing the fee, the amount of prepaid fee to be returned int he event of contract termination or non performance whether the contract grants discretionary power to the advisor and that no assignment of such contract shall be made by the investment advisor without the consent of the other party to the contract (customer).
Person
In general, any entity that can be held to a contract an individual corporation, trust, government, political subdivision, and unincorporated association are all examples
What is the De Minimis Exemption?
It is available to an investment adviser who does not maintain a place of business in the state and limits its business to five or fewer retail clients (individuals) are who legal residents in the state during the preceding 12 months.
It is unlawful for any person to offer or sell any security in this state unless
It is registered under the USA The security of transaction is exempted under the act or it is a Federal Covered security
There will be test questions implying that the brochure MUST be delivered at least 48 hours in advance. This is not so.
It must be delivered not later than entering into the advisory contract. If it is not delivered at least 48 hours earlier, then the penalty free termination requirement is in effect.
LATE
Layers Accountants, teachers, engineers
Coordination
SEC plus State
Accredited Investor is a federal term and not one found in the
USA
The USA allows BD to do business with existing customers who are temporarily in a state to
avoid unnecessary multiple registrations.
The USA allows broker dealers to do business with existing customers who are temporarily in a state to
avoid unnecessary multiple registrations.
Expiration, unless renewed is
each DEcember 31
The admin may also require broker dealers to file
financial reports
Until the customer says "Buy" there
is no sale
As with FDIC, SIPC has
limits to coverage
Surety bonds cover losses for
theft, embezzlement, and forgery
Nonexempt means that
they need to be registered
Cease and desist orders can be issued
with or without a hearing
A federal covered IA submits only
Part 1A of the form ADV
FEderal covered advisers do not complete ADV
Part 1B
There are four parts to the ADV
Parts 1 A and 1B, 2 A and 2b.
In addition to the exemptions from the prohibition just covered, there are several additional exemptions from the prohibition on registration including
Pension consultants, but only those with at least 200mil under control Those mid size advisers with at least 100mil in aum but less than 110mil in aum who elect to register with the sec rather than the state investment advisers expecting to be eligible for sec registration within 120 days of filing form ADV
ODD
Prior to buying or selling an option, investors must read a copy of the characteristics and risks of standardized options better known as the options disclosure document
Statutory Disqualification includes
SEC of SRO Bar from association with a broker-dealer, all felony convictions and certain misdemeanor convictions within the last 10 years, certain investment related temporary or permanent injunctions as well as a variety of other investment-related legal or regulatory actions/sanctions.
an adviser managing 100mil but not 110mil
SEC or state
Stop orders are direct to applications regarding
registration of a security
The administrator deals with
registration of securities professionals and securities
The admin maintains a record of all applicants for
registration statements and all applications for broker-dealer agent, investment adviser, or iar which are or have ever been effective in his state All written notices of claim of exemption from registration requirements and All orders entered under this act and all interpretative opinions or no action determinations issued
for a small investment adviser, if they would be required to register in 15 or more states, then
registration with the sec would be required.
if there were a place of business and the IAR had a single client
registration would be required.
An exempt transaction is exempt from the
regulatory control of the state administrator because of the mannor in which a sale is made or because of the person to whom the sale is made
When it comes to broker dealers, regardless of how many states in which they are registered, other than enforcing anti-fraud statutes, the admin has
relinquished most control to the SEC
States require filing fees for initial applications as well as for
renewal applications
Any agent hearing a rumer must
report it to the appropriate supervisor
if the complaint is received by the agent rather than the firm, the agent must
report the complaint to the appropriate supervisor
IAs hire IARs to
represent them in the rendering of investment advice.
The employee is not an agent when
representing an issuer in exempt transactions
the ia firm is the legal person entity that the iar natural person
represents in performing the above listed functions
If the seller of securities discovers that he has made a sale in violation of the USA, the seller may offer to
repurchase the securities from the buyer.
Other Federal Covered Securities are generally not required to notice file, but the admin reserves the right to
request a filing from listed NASDAQ securities.
In conducting an investigation, the admin or any officer designated by him has the power to
require statements in writing, under oath, regarding all matters relating to the issue under investigation publish and make public the facts and circumstances concerning the issue to be investigated subpoena witnesses and compel their attendance and testimony and take evidence and require the production of books, papers, correspondence and any other documents deemed relevant
When a large shareholder or institution holding a large block of company stock, registers with the SEC, and sells - it is a
secondary distribution and classified as a nonissuer transaction because the proceeds go to the seller rather than the issuer
Because non-issuer transaction sales are not new, we refer to this as
secondary trading
An individual cannot be charged with violating USA in the sale of a fixed annuity but could be in the sale of a
stock in the insurance company or any other exempt security
An investment adviser to an investment company always registers with the
SEC regardless of the size of the fund
Because an offering is being made in more than one state,
SEC registration is necessary
The usa makes it unlawful for any broker dealer or issuer to
employ an agent unless the agent is registered.
An individual who solicits business for an investment adviser is considered an
iar under the usa
Once an investment adviser has reached the $100mil threshold,
SEC registration is permitted but not required until reaching $110mil
All advirtising by a member must include the
SIPC logo or a statement of SIPC membership
The USA provides for a number of categories of exempt securities and even more categories of exempt transactions in
Section 402 of the act
Part 2B is a brochure supplement that must contain certain information about the
advisory personnel on whom clients rely for investment advice
Part 2B is a brochure supplement that must contain information about
advisory personnel on whom clients rely for investment advice
Fraud aimed at groups of people who share similar interests is called
affinity fraud
stop orders can be issued
after a hearing
Transactions by an executor, administrator, marshal, sheriff, trustee in bankruptcy, or other fiduciary transactions is
exempt transactions
Transactions exempt from registration are called
exempt transactions
an employee of an issuer is not an agent when representing an issuer in
exempt transactions
Determining the price or time is not considered
exercise of discretion
Assessable stock no longer
exists
Any security can be registered by qualification but this method is almost exclusively used for
intrastate (single state) offerings
Qualification
intrastate offering
any security can be registered by qualification, but this method is almost exclusively used for
intrastate offerings (single state)
Entangled
A social media term sometimes referred to as entanglement. This is where the firm participates in the development of the content of a third party site.
Adoption
A social media term used to describe the firms endorsement or approval of the content of a third party site
Even after a withdrawal, the admin can initiate a case against the agent for a period of
1 year
The purchaser can sue for recovery if the
1. Securities were sold in violation of the registration provisions of the USA 2. Sale was of an unregistered nonexempt security in violation of the registration provision of USA 3. The securities professional omitted or made an untrue statement of material fact during the sales presentation 4. The agent was named along with the broker dealer for a civil infraction 5. the securities were sold by an agent who should have been but was not registered under the act or 6. The securities were sold in violation of a rule or order of the securities administrator.
The USA would view the following activities and communications as falling outside of the definition of a reccomendation
1. A BD creates a website that is available to customers or groups of customers. It has research pages or electronic libraries that contain research reports, which made may include buy sell recommendations from the author of the report, news quotes, and charts that customers can obtain or request. 2. A broker dealer has a search engine on its website that enables customers to sort through the data available about the performance of a broad range of stocks and mutual funds, company fundamentals, and industry sectors. The data is not limited to adn does not favor securities in which the BD makes a market or has made a buy reccomendation. Customers use and direct this tool on their own. Search results may display current news quotes and links to related sites. 3. A broker dealer provides research tools on its website that allow a customer to screen through a wide universe of securities or an externally recognized group of securities and to request lists of securities that meet broad objective criteria. The BD does not control the generation of the list in order to favor certain securities. The BD does not limit the universe of securities to those in which it makes a market or for which it has made a buy recommendation. 4. A broker dealer allows customers to subscribe to emails or other electronic communications that alert customers to news affecting the securities int he customers portfolio or on the customers watchlist. The customer selects the scope of the information that the firm will send to him
The regulators generally would view the following communications as falling within the definition of recommendation
1. A broker dealer sends a customer specific electronic communication to a targeted customer or targeted group of customers encouraging the particular customer to purchase a security 2. A broker dealer sends its customers an email stating that customers should be invested in stocks from a particular sector and urges customers to purchase one or more stocks from a list with buy reccomendations 3. A broker dealer provides a portfolio analysis took that allows a customer to indicate an investment goal and input personalized information such as age, financial condition and risk tolerance. The BD in this instance then sends the customer a list of specific seucirities the customer could buy or sell to meet the investment goal the customer has indicated. 4. A broker dealer uses data mining technology to analyze a customers financial or online activity whether or not it is known by the customer and then based on those observations sends specific investment suggestions that the customer prchase or sell a security
The USA divides Depository institutions into the following categories
1. Any security issued by and representing an interest in or a debt of or guaranteed by any bank organized under the laws of the united states or any bank, savings institution, or trust company organized and supervised under the laws of any state 2. Any security issued by and representing an interest in or a debt of or guaranteed by any federal savings and loan association, or any building and loan or similar association organized under the laws of any state and authorized to do business in this state 3. Any security issued or guaranteed by any Federal credit union or any credit union, industrial loan association, or similar association organized and supervised under the laws of this state.
An investment adviser registered or required to register under the USA must furnish each advisory client and prospective advisory client with
1. Brochure which may be a copy of Part 2A of its form ADV or written documents containing the information required by Part 2A of form ADV 2. A copy o it's Part 2B brochure supplement for each individual who provides investment advice and has direct contact with clients in this state or exercises discretion over assets of clients in this state even if no direct contact is involved 3. A copy of its Part 2A Appendix 1 wrap fee brochure if the IA sponsors or participates in a wrap fee account 4. A summary of material changes if any. The summary may be included in Form ADV Part 2 or given as a separate document and 5. Such other information as the admin may require
To justify a denial, revocation, or suspension of the license of a securities professional, the admin must find that the order is in the public intrest and also find tht the applicant or registrant or in the case of a bd or ia , any partner, officer, or director or any person occupying a similar status or performing similar functions
1. Has filed an incomplete, false, misleading registration application 2. Has willy violated the USA 3. Has been convicted of a securities related misdemeanor s a result of an action brought by any securities or commodities regulatory body within the last 10 years 4. Had been convicted of any felony within the last 10 years 5. Has been enjoined by law from engaging in the securities business 6. Is subject to any admin denial, revocation, or suspension 7. Is engaged in dishonest or unethical securities practices 8. is insolvent 9. has, in the case of a broker dealer or investent adviser, been found guilty on the charge of failure to supervise 10. has failed to pay application filing fees 11. Is not qualified because of lack of training, experience, or knowledge of the securities business
Every registred iar must complete the following iar continuing education requirements each reporting period.
1. IAR Ethics and Professional Responsibility requirement. Must complete 6 credits of IAR Regulatory and ethics content offered by an authorized provider with at least 3 hours covering the topic of ethics and 2. IAR Products and Practice Requirement. An IAR must complete 6 credits of IAR Products and practice content offered by an authorized provider.
The more common fees that might be charged by a broker dealer
1. Issuance of a stock certificate 2. Transferring an account 3. Wiring funds 4. Margin account interest 5. Account maintenance fees 6. Safekeeping of funds/securities 7. Late settlement fee 8. Postage and handling
What are the requirements to sell a security that needs registration?
1. It must be registered 2. It must be sold in an exempt transaction
To be classified as a private fun, there are two conditions that must be met
1. Neither the private fund adviser nor any of its advisery affiliates are subject to an event that would disqualify an issuer under rule 506d1 of SEC regulation D (the bad actor provision) 2. The private fund adviser files with the state the reports specified by the securities and exchange commission for an exempt reporting adviser ERA reports.
An investment advisers must deliver the Part 2A brochure and any Part 2B brochure supplements required by the rule to a prospective advisory client
1. Not less than 48 hours prior to entering into any advisory contract with such client or prospective client 2. At the time of entering into any such contract, if the advisory client ahs a right to terminate the contract without penalty within 5 business days after entering into the contract
Methods for protecting the firm and its customers
1. Single factor authorization (ID/Password) 2. Dual Factor Authentication (Key FBS, secure IDs) 3. Adaptive factor authorization (challenge questions) 4. Biometric authentication (fingerprint scan) 5. Antivirus software installed on electronic devices used to access client information
Required disclosure would include the following:
1. State or regulatory proceedings in which the adviser or a management person was found to have violated rules or statutes that led tot he denial, suspension, or revocation of the firms or the individual management persons registration 2. Court proceedings such as permanent or temporary injunction against the firm or management person pertaining to an investment related activity or any felony 3. Self regulatory organization proceedings in which the adviser or management person caused the business to lose the registration. The firm or individual was barred, suspended, or expelled or a fine in excess of $2,500 or a limitation was placed on the adviser or management persons activities
To register with the state securities admin, such person must
1. Submit an application 2. Provide a consent to service of process 3. Pay filing fees 4. Post a bond (if required by the admin) and 5. Take and pass an exam (if required by admin0 which may be written, oral, or both
The administrator would not have jurisdiction if the offer were made under any of the follwing circumstances
1. TV or radio broadcast that originated outside of the state 2. Bondafide newspaper or periodical published outside of hte state 3. Newspaper or periodical published inside the state but with more than 2 thirds (66%) of its circulation outside the state in the last y ear
On a rate occasion, an investment adviser might buy from or sell to an advisory client in the capacity of a principal or the adviser might put together a buyer and a seller acting in the capacity of an agent. This would be permitted with the following requirements
1. The client receives full written disclosure as to the capacity in which the adviser proposes to act 2. Client consent is obtained (oral or written) Both of these are to be done prior to the completion of the transaction
There are several requirements to ensure that the person is not deemed to be in the state
1. The communication clearly states that the person may only do business in this state if properly registered or exempt from registration 2. Any follow up individualized responses with prospects in this state that involve either effecting or attempting to effect transactions in securities or rendering personalized investment advice for compensation as may be will not be made without compliance with state broker dealer investment adviser, agent, or investment adviser representative registration requirements or an applicable exemption or exclusion. 3. The site may only make available general information not specific advice or reccomendations 4. In the case of an agent or IAR, the affiliation with the BD or investment adviser of the agent or IAR is prominrntly disclosed within the communication. 4(a) The BD or IA with whom the agent or IAR is associated retains responsibility for reviewing and approving the content of any internet communication by an agent or IAR 4(b) the BD or IA with whom the agent or IAR is associated first authorizes distribution of the information on the particular products and services through the internet communication and 4(c) in disseminating information through the internet communication, the agent or IAR acts within the scope of the authority granted by the BD or IA
What conditions must be met in order for a registration statement to be amended?
1. The public offering price is not changed from the amount stated in the original registration statement 2. The underwriters discounts and commissions are not changed from the respective amounts stated in the original registration statement.
The definition of advertisement now includes
1. Third party information if the adviser has either endorsed or approved the information after publication or involved itself in the preparation of the information 2. Communications to investors in a private fund 3. Extemporaneous, live, written, communications such as texts or electronic chats
The margin account risk disclosure document discusses the risks associated with margin trading
1. You can lose more funds than you deposit in the margin account 2. The firm can force the sale of securities or other assets in your account and do so without contacting you 3. You are not entitled to choose which securities can be sold if a call for additional funds is not met 4. you are not entitled to an extension of time to meet a margin call 5. The firm can increase its house maintenance margin requirements at any time and is not required to provide you advance written notice
An offer to buy or sell is accepted in this state when
1. acceptance is communicated to the offeror in this state orally or in writing
The marketing rule permits the use of testimonials and endorsements if the adviser satisfies the following disclosures
1. advertisements must clearly and prominently disclose whether the person giving the testimonial or endorsement is a client and whether the promoter is compensated. The like feature on an investment advisers social media could be deemed to be a testimonial if it is an explicit or implicit statement of a clients experience with the adviser 2. Solicitors may be considered promotors for purpose of the rule 3. Advisers also must enter into a written agreement with promoters exept where the prmotoer s an affiliate of the adviser or the promoter receives de minimis compensation
Place of business of an investment adviser representative means
1. an office at which the investment adviser representative regularly provides investment advisory services, solicits, meets with, or otherwise communicates with clients and 2. any other location that is held out to the general public as a location at which the investment adviser representative provides investment advisor services, solicits, meets with, or otherwise communicates with clients.
Every state registered investment advier must file a copy of a complete ADV Part 2 with the admin within
90 days of the end of the advisers fiscal year
The administrator may, by rule or order, revoke or deny registration exemption of
1. any security issued by any person organized and operated not for private profit but exclusively for religious, educational, benevolant, charitable, fraternal, social, athletic, or reformatory purposes, or as a chamber of commerce or trade or or professional association - your basic non-profit exemption. and Any investment contract issued in connection with an employee's stock purchase, savings, pension, profit sharing, or similar benefit plan
Any contract relating solely to the provision of investment advisory services
1. by means of written material or oral statements that do not purport to meet the objectives or needs of specific individuals or accounts. 2. Through the issuance of statistical information containing no expression of opinion as to the investment merits of a particular security 3. Any combination of the above services
Delivery of the brochure and related brochure supplements need not be made to
1. clients who receive only impersonal advice and who pay less than $500 in fees per year or 2. clients who an investment company registered under the investment company act of 1940
Not included in the fee disclosure documents are
1. commissions 2. Markups and Markdowns 3. Advisory fees
An investment adviser should not publish, circulate, or distribute any advirstisement that is inconsistent with federal rules governing the use of advertisements. Included in the prohibition are advertisements
1. containing untrue statements of material fact or exaggerated claims 2. using the initials RIA 3. That refer directly or indirectly to any testimonial of any kind 4. That refer to past specific reccomendations of the IA, unless certain conditions are met 5. That represent that a chart, formula, or other device being offered can by itself be used to determine which securities are to be bought or sold or 6. That contain a statement that any analysis, report, or service will be furnished for fee when that is not the case
The brochure supplement is also a narrative format in plain english and includes 6 required disclosure categories
1. cover page identifying the supervised person or persons covered by the supplement as well as the advisor firm 2. Educational background and business experience including disclosing if the supervised person has no high school education, no formal education after high school, or no business background 3. Disciplinary information about material events within the past 10 years (although the sec says that if even more than 10 years have passed since the date of the event, you must disclose the event if it is so serious that it remains currently material to a clients or prospective clients evaluation 4. Other business activities including disclosing if the supervised person receives commissions, bonuses or other compensaation based on the sale of securities or other investment products including as a broker dealer or registered representative (agent) and including distribution or service (trail) fees from the sale of mutual funds 5. Additional compensation beyond that paid by the client such as a sales award or other prize and 6. Supervision including providing the name, title, and telephone number of the individual responsible for supervising the supervised person advisory activites on behalf of the firm
The marketing rule allows the inclusion of performance information in an advertisement if certain conditions are met. Specifically the marketing rule prohibits including in any advertisment
1. gross performance unless the ad also includes the net performance 2. any performance results unless they are provided for specific time periods 3. Cherry picking by showing only the best performing portfolios 4. Hypothetical performance unless the adviser adopts and implements policies and procedures reasonably designed to ensure that the performance is relevant to the intended audience and 5. predecesor performance unless there is appropriate similarity with regard to the personnel and accounts at the predecessor adviser and the personnel and accounts at the advertising adviser
In 2020 the SEC added additional qualifiers to the definition of Accredited investors
1. individuals with a series 7 2. Individuals with a series 65
if the buyer accepts the recission offer, she may recover the:
1. original purchase price (made whole) of the securities 2. Plus interest at a rate determined by the admin (generally referred to as the states legal rate) 3. plus all reasonable attorneys fees and court costs 4. minus income received during the period in which the securities were held.
Here are some items that if received as soft dollar compensation would likely fall under section 28es safe harbor
1. research reports analyzing the performance of a particular company or stock 2. Financial newsletters and trade journals could be eligible research if they relate with appropriate specificity 3. Quantitative analytical software 4. seminars or conferences with appropriate content 5. Effecting and clearing securities trades
The major categories of federal covered securities (securities covered by federal securities laws) that cannot be regulated by state securities administrators (except for violating anti-fraud provisions) include
1. securities listed on the NYSE, the NYSE American, LLC (Formally known as the American Stock Exchange AMEX), The NASDAQ stock market and several other us exchanges. Any security equal in senority (rights or warrants) or senior to these securities (bonds and preferred stock) is also considered federal covered. 2. Investment company securities registered under the investment company act of 1940 such as open end management investment companies (mutual funds), closed end management investment companies, unit investment trusts, and face amount certificates 3. Offers and sales of certain exempt securities such as any federal security isued or guaranteed by the us or any bank regulated by the federal reserve board, securities offered by a muni issuer unless the issuer is located in the state in which the municipal securities are being offered and offers and sales of securities sold through certain exempt transactions such as securities offered to qualified purchasers under regulation D of the securities act of 1933 (private placements)
In simple terms, there are 2 loans taking place in a margin account
1. the loan from the bd to the client with the clients securities used as collateral that is covered in the credit agreement and 2. the loan from a bank to the BD with the clients securities used as collateral for the BDs loan, the authorization for the BD to use those securities is found in the hypothecation agreement
The USA was drafted for two primary reasons
1. to eliminate conflicts in state securities legislation and make state securities laws uniform and 2. To protect the public from unethical securities practices and fraud
9 investors are within the required
10
Int he case of an IA, required receipt of the written authorization form is no later than
10 business days after the initial trade
Block transactions are
10k shares
A written request for a hearing must be honored within
15 days
The NSMIA of 1996 amended the Securities Exchange Act of 1934 to add section
15(h)(1)
A federal covered investment adviser whose assets under management fall below $90mil no longer qualifies for SEC registration and has
180 days to register with the states
Under the civil provisions, the statute of limitations is
2 years from the discovery of the offense or 3 years after the act occurred, whichever is first.
The time limit or statute of limitations for violations of the civil provisions of the USA is
3 years from the date of sale or (rendering of investment advice) or two years after discovering the violations, whichever occurred first.
Records must be preserved for BD's for
3 years unless the admin prescribes otherwise
Broker dealers must keep most of their records for
3 years with the first 2 easily accessible
The investment adviser must get its paperwork into the state or SEC prior to the end of the
90 day period.
If a state covered advisers reported AUM exceed $110 mil, registration with the SEC must take place within
90 days
The form ADV must be updated each year by filing an annual updating amendment within
90 days after the end of the advisers fiscal year
Put option
A contract where the buyer of the option has the right to sell stock to the writer (seller) of the option. The writer is obligated to buy the stock at the strike price. Buyers of puts are bearish.
The USA also prohibits certain performance fee arrangements contingent on capital gains or appreciation being part of the advisory contract. There is an exception from the performance fee provisions for contracts with a qualified client defined as
A natural person or company that immediately after entering into the contract has at least $1.1mil under management of the IA or A natural person or company that the IA has reason to beleive that immediately before entering into the contract hs a net worth exclusive of the primary residence in excess of $2.2mil
Securities Investor Protection Corporation SIPC
A non-profit membership corporation created by an at of congress to protect clients of brokerage firms that are forced into bankruptcy
Affiliate
A person in a position to influence the policies of cooperation. This includes partners, officers, directors, and entitites who control more than 10% of the voting stock
Confirmation
A printed document that states the trade, settlement date, and money due from or owed to a customer. It is sent or given to the customer on or before the settlement date. Syn: trade confirmation
OTC Bulletin Board OTCBB
A regulated interdealer quotation system owned by FINRA. It displays real time quotes, last sale prices, and voume informaton for OT equity securities not listed or traded on an exchange
12b-1 plan
A section of the Investment Company Act of 1940 that permits an open end investment company (mutual fund) to levy an ongoing charge for advertising and sales promotional expenses. This fee may not exceed 0.75% and if above 0.25% the fund may not describe itself as no load.
Agent
A securities salesperson who represents a broker dealer or an issuer when selling or trying to sell securities to the investing public A person acting for the accounts of others
Registration by Coordination
A security is eligible for blue sky registration by coordination in a state if the issuer files for registration of that security under the Securities Act of 1933 and files duplicates of the registration documents with the state admin
REgistration by qualification
A security is eligible for blue sky registration by qualification in a state if all of the ordering is to be sold in a single state or if the security is not eligible for another method of state registration
Thiny traded
A security with a low trading volume usually traded in OTC with a wide spread between the quoted bid and ask prices or higher than usual commissions
In addition to the prior consent, at or before the completion of each agency cross transaction, the client must be sent a written trade confirmation that includes
A statement of the nature of the transaction the date, and if requested, the time of the transaction and the source and amount of any remuneration to be received by the IA or IAR in connection with the transaction
Proscribed
A term commonly used in legal situations to describe a prohibited action
Some of the most common warnings that firms should include in their identity theft programs are
Alerts, notifications, or other warnings received from consumer reporting agencies or service providers such as fraud detection services or a notice of credit freeze in response to a request for a consumer report Presentation of suspicious documents such as documents that appear to have been altered or forged The photograph or physcial description on the identitfication is not consistent with appearance of the applicant or customer presenting the identitfication presentation of suspicious personal identifying information such as a suspicious address change Unusual use of or other suspcisous activit related to a covered account Notice from customers, victims of identity theft, law enforcement authorities, or other persons regarding possible identity theft in connection with covered accounts held by the financial institution Personal identifying information provided by the customer is not consistent with other personal identifying information provided by the customer Personal indentifying infromation provided is of a type commonly associated with fradulent activity as indictated by internal or third party sources used by the financial institution For financial institutions, that use challenge questions, the person opening the covered account or the customer cannot provide authenticating infrormation beyond that which generally would be available from a wallet or consumer report Mail sent to the customer is returned repeatedly as undeliverable although transactions continue to be conducted in connection with the customers covered account
Filing a registration statement: State administrators may require every issuer to supply the following information:
Amount of securities to be issued in the state States in which the security is to be offered, but not the amounts offered in those other states Any adverse order or judgement concerning the offering by regulatory authorities, court, or the SEC Anticipated effective date anticipated use of the proceeds (why are we raising the money)
Retail investor
An individual or noninstitutional investor
Brochure rules
An investment advisor must provide its customer with its brochure Parts 2A and 2B of Form ADV at least 48 hours before having him sign the contract. If delivery is made after that, but no later than the finalization of the contract, the customer must be given 5 days to void the contract without penalty
Wrap account
An investment advisory account in which all management fees and commissions are combined and paid usually quarterly as a percentage of assets under management
Registered Investment company
An investment company such as an open end management company (mutual fund) or closed end management company that is registered with the SEC and exempt from state registration and regulation
Unit Investment Trust UIT
An investment company that sells a fixed number of redeemable shares in a professionally selected portfolio of securities
Options Clearing Corporation
An organization that acts as both the issuer and grantor for option contracts
What conduct by a trustee demonstrates prudence?
Analyze current position DEsign optimal investment portfolio structure formalize investment policy Implement investment policy monitor and supervise
Accredited investor
Any institution or individual meeting minimum requirements for the purchase of securities qualifying under the Regulation D registration exemption as defined in Rule 501 of REgulation D
First Securities Corp 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 id not have a place of business there.
B. 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. The exclusion only applies when there is no place of business in the state Opening a small branch in State B voids that exclusion so that is the correct answer. Even if there is no place of business in the state, if they have a single individual (called a retail client) who resides in the state, then registration is required
A broker dealers registration might be suspended for violations of the USA
after repeated warnings, one of the firm agents continued to conduct unauthorized trading in customer accounts
Special Subscription Form: The USA required that any application for registration include the
amount of securities to be sold in that state
Agents have separate function from
an IAR
Foreign Government Securities
Exempt securities. Includes securities issued, insured, or guaranteed by a foreign government with which the us maintains diplomatic relations.
NASAA does not have a separate principal registration as does
FINRA
The most prominent SRO is
FINRA
An IAR who is also an agent of a FINRA Registered BD and who complies with FINRA's continuing education requirements is considered to be in compliance with the IAR Products and Practice Requirement for each applicable reporting period as long as
FINRA CE content meets all the following baseline criteria as determined by NASAA
The application for the state must contain whatever information the admin may require by rule and may include
Form and place of business (bd) Proposed method of doing business qualifications and business history (broker dealers must include the qualifications and history of partners, officers, directors, and other persons with controlling influence over the organization) Disclosure if the applicant has ever been the subject of any court issued injunctions and administrative orders. Disclosure if any federal regulatory agency, any state regulatory agency or foreign financial regulatory authority has ever denied, suspended, or revoked the applicant or a control affiliate's registration or license or otherwise by order, prevented it from associating with an investment related business or restricted its activities Disclosure of any charge, conviction or guilty plea to a misdemeanor involving investments or an investment related business or bribery, forgery extortion or similar offenses. Disclosure of any charge, conviction or guilty plea to any felony Financial condition and history including the end date of the fiscal year (broker-dealers only - but only of the firm - no credit reports on the officers and in the case of an individual registrant (agent) citizenship information
You can go to jail for commiting
Fraud
As stated previously (and repeated because it is likely to be on the exam, other than when the admin has acted summarily, no final order may be issued without the administrator
Giving appropriate prior notice to the affected persons granting an opportunity for a hearing providing findings of fact and conclusions of law
The De Minimis provision applies only to
IAs and IARs. Not to broker dealers or agents.
Broker dealers can use testimonials while
IA cannot
The admin can also take into consideration whether the registrant will work under the supervision of a registered
IA or BD when approving the application
NASAA prohibits
IA testimonials
An employee who performs only clerical or admin functions is not an
IAR
Persons who manage client accounts or portfolios determine securities reccomedations or supervise personel engaged in the above activities are
IAR
ADV Part 3 applies solely to the
IAR with the SEC who deal with retail clients
Prudent investor rule
Legally known as the Uniform Prudent Investors Act of 1994 UPIA A modern adaption of the prudent man rule which as a result of the developement of modern portfolio theory applies the standard of prudence to the entire portfolio rather than to individual investments
Investment advisors act of 1940
Legislation passed by congress that requires certain investment advisors to register as such with the SEC to abide by the investment advisors act of 1940 adn all other applicable federal acts and to treat its customers in a fair and equitable manner
The individual meets the definition of an IAR by doing any of the following
Making any recommendations or otherwise rendering advice regarding securities managing accounts or portfolios of clients determinig which recommendation or advice regarding securities should be given soliciting, offering or negotiating for the sale of or selling investment advisory services supervising employees who perform any of the above
Notice Filing
Method by which a registered investment company and certain other FEderal covered securities file records with state securities admin SEC registered advisers federal covered may have to provide state securities authorities (the admin) with copies of documents that are filed with the sEC and pay a filing fee
States may not require registration of municipal securities issued by other states. Why?
Municipal securities issued in an admins state are not fed covered securities. They are not covered by the exemption
Commissions, markups and markdowns and advisory fees are not part of the
NASAA fee disclosure template
In instances where a state registered IA has custody or possession of clients funds or securities, it must comply with
NASAA model rule on Custody
There is no registered principal under
NASAA rules.
NSMIA
National Securities MArkets Improvement Act of 1996
SEA 1934 15(h)(1)
No law, regulation, or order or admin action of any state or political subdivision thereof shall establish capital, custody, margin, financial responsibility, making and keeping records, bonding, or financial or operational reporting requirements for BD that differ from or are in addition to the requirements in those areas established under the exchange act.
Ways of stating that an IAR has had no more than 5 retail clients
No more than 5 5 or fewer Fewer than 6
Soft Dollar compensation
Non-cash compensation received by an IA from a BD, generally in exchange for directed brokerage transaction
The records may be maintained and preserved for the required time by a BD on
Paper or hard copy form as those records are kept in their original form Micrographic media, including microfilm, microfiche, or any similar medium. Electronic storage media, including any digital storage medium or system that meets the terms of this section such as computer disk or the cloud
State registere advisers file both
Part 1 and Part 2 with the administrator of each state in which they are registering
Only a state registered adviser files
Part 1A and 1B
Modern portfolio theory
Prudence Portfolio means all of the trusts or estates assets Total return of the portfolio is measured, not that of the individual asset Trade off between all investments between risk and return Categorical restrictions have been removed Diversification DElegation is permitted to delegate investment functions
If the IA maintains client funds or securities pursuant to the rule as a qualified custodian in connection with advisory services, the independent certified accountant that the IA retains must be registered with
Public Company Accounting Oversight Board
Notice Filing
Registered investment company
An accredited investor is found in
Rule 501 of the Federal Securities Act of 1933.
Intrastate offerings are not registered with the
SEC
All BD register with the
SEC and those states where they are defined as a BD
All broker dealers register with the
SEC and those states where they are defined as a BD
if it is the first time an issuer distributes securities to the public, it is called
an IPO
The NASAA model rule on custudy specifically provide that
Securities of clients be segregated and properly marked The funds of clients be deposited in separate bank accounts The investment adviser notify each client as to the place and manner in which such funds and securities are being maintained an itemized list of all the securities and funds in the advisers possession be sent to the ciient not less frequently than every 3 months and all such funds and securities must be verified annually by actual examination by an independent CPA on a suprise basis (annual audit)
the following are registered by coordination
Securities traded on the OTC Bulletin Board OTC Link
Painting the tape
Spurious trading in a particular security among a group of collaborating investor to give a falsey high appearance of interest in the security
Part 1B is only for
State registered IAs
Assessable stock
Stock issued below par carrying with it the option ont he part of the issuer or creditors to assess the owner for the remainder. A gift of assessable stock is considered a sale under the USA
Uniform Securities Act USA
Template legislation written by the NCCUSL to serve as the basis for a state's securities legislation if the state wished to adopt it. It regulates securities, persons (broker-dealers and their agents and investment advisers and their representatives), and transactions in the securities markets within the state.
The Securities Exchange Act of 1934
The Federal legislation establishing the Securities and exchange commisison that regulates securities exchanges and OTC markets and protects investors from unfair and inequitable practices
Securities Act of 1933
The Federal legislation requiring the full and fair disclosure of all material infromation about the issuance of new securities
North American Securities Administrators Association NASAA
The NASAA founded in Kansas in 1919 is the oldest international investor protection organization The series 63 is written by NASAA and administered by FINRA
Private Placement
The USAs private placement provision allows an exemption from full state registration for a security that is offered in that state to no more than 10 noninstitutional investors within 12 month period
The term covered account is defined as
The account that a financial institution offers or maintains, primarily for personal, family or household purposes that involves or is designed to permit multiple payments or transactions (not a business account) Any other account that the financial institution offers or maintains for which there is a reasonably forseeable risk to customers or to the safety and soundness of the financial institution from identity theft, including financial, operational, compliance, reputation, or litigation risks
Under NASAA Model Rule on Custody, it is unlawful for an investment adviser to have custody of client funds and securities if
The admin in the state prohibits by rule, investment advisers from having custody In absence of a rule, an adviser fails to notify the admin on for ADV that it has custody An IA fails to supply clients, no less frequently then quarterly, with a statement of account activity and the location and value of their assets held in custody.
Wayne and GRayson LTD is a broker dealer with offices in Gotham, NEw Jersey. They place an ad for a new securities issue in the Gotham Gazette. Approx. 55% of the Gazette;s readership is in DElaware. Under the USA, Jurisdiction over this ad would lie with
The admin of New Jersey. Although more than half the readers of the Gazette live in Delaware, under the terms of the publishing and broadcasting exemption of the USA, the offer is not made in DEaware because the paper is not published there
Discretion
The authority for someone other than the beneficial owner of an account to make investment decisions for that account regarding the security, the number of shares or units, and whether to buy or sell. Decisions concerning only timing and price do not constitute discretion
A broker dealer or ia may delay a dispercement from an account of an eligible adult or an account on which an eligible adult is the beneficiary if
The broker dealer, investment adviser or qualified individual reasonably beleives that the dispercement may be a result in financial exploitation of an eligible adult and The BD or IA immediately or no more than 2 days after the dispercement provides written notification of the delay and the reason for the delay to all parties authorized to transact business on the account, notifies the relevent state agencies, continues an internal review of the suspected or attempted exploitation of the adult.
Delivery
The change of ownership or control of a security in exchange for payment
Records must be available for inspection by the admin or his rep
at any time during normal business hours. An appointment is not necessary
Securities and Exchage commision SEC
The commission congress created to protect investors which enforces the Securities Act of 1933, The Securities Exchange Act of 1934, The Investment Company Act of 1940, the Investment Advisers Act of 1940, and other securities laws
In the case of securities purchased as a result of improper investment advice, the buyer may recover
The cost of the advice Plus losses resulting from the advice plus all interest costs from the date of fee payment at a rate determined by the admin plus any reasonable attorneys fees less the amount of any income received from such advice
Opening a margin account involves signing 2 agreements with an optional third
The credit agreement The hypothecation agreement The optional loan consent form
Effective date
The date on which a security can be offered publicly if no stop order is submitted to the issuer by the administrator
Form ADV
The document used by an investment adviser to register with the appropriate authority.
Underwriter
The entity responsible for marketing stocks, bonds, mutual funds shares, and so forth
Dodd Frank Bill
The general term by which the wall street reform and consumer protection act of 2010 is known considered to be the most significant legislation impacting the securities industry since the 1930s
In an agency cross transaction, the IA or IAR acting on behalf of the firm acts as a broker dealer in an agency capacity for both its advisory client and the party on the other side of the trade. The USA will permit an IA to engage in these transactions, provided the advisor obtains prior written consent from these types of transactions from the client that discloses the following
The investment adviser will be receiving commissions from both sides of the trade There is a potential conflict of interest because of the division of loyalties to both sides On at least an annual basis the investment adviser furnishes a statement of summary of the account identifying the total numbers of such transactions and the total amount of all the renumeration from these transactions The disclosure document conspicuously indicates that this arrangement may be terminated at any time No transaction is affected in which the same investment adviser or an investment adviser and any person controlling, controlled by, or under common control with that investment adviser recommended the transaction to both any seller and any purchaser.
Quotation
The price for a security. It consists of 2 numbers, the bid and the ask (offer)
Arbitrage
The purchase of securities on one market and the simultaneous resale on another market to take advantage of price discrepancy. This is not a form of market manipulation and is completely legal
The offer is the
attempt
The USA specifies certain record keeping requirements for broker dealers. When it comes to email correspondence, the requirements are
The same as they would be for written correspondance
Broker dealers are regulated by
The states and SEC
US and Canadian government and municipal securities
These are exempt securities. These include issued, insured, or guaranteed by the us or canada by a state or province or by their political subdivisions
Federal covered securities
These include any security of an issuer equal to or senior to the common such, such as rights, warrants, preferred stock, and any debt security
Securities issued by mom profit organizations
These include securities issued by religious, educational, fraternal, charitable, social, athletic, reformatory, or trade associations and which are not for pecuniary profit. Non-profit is the key word
Insurance company securities
These include securities issued, insured, or guaranteed by an insurance company authorized to do business in the state.
Exempt securities - Depository Institutions
These include securities that are issued, guaranteed by, or are a direct obligation of a depository institution.
Direct Participation Program DPP
These programs are direct investments in limited partnerships and limited liability corporations.
Commercial Banks, the subsidiaries of bank holding companies, do not have to register because
They are excluded from the definition of a BD
Commercial banks, the subsidiaries of bank holding companies, do not have to register because
They are excluded from the definition of a broker dealer
The cover page of part 2A contains the following statement
This brochure provides information about the qualification and business practices of (name of the IA). If you have any questions about the contents of this brochure, please contact us at (phone number and/or email address. The information in this brochure has not been approved or verified by the SEC or by any state securities authority
When computing the fee, both gains and losses must be considered, the fee cannot be based solely on gains.
This fee computation contains realized as well as unrealized appreciation and depreciation.
Shares of nonassessable stock are given free as a bonus with the purchase of something else
This would not be a gift an would in fact be an offer or sale
underwriter transactions
Transactions between the issuer (or any other person on whose behalf the offering is made) and broker dealers performing in the capacity of an underwriter (such as a firm commitment underwriting) as well as those between underwriters themselves (as when functioning as members of a selling syndicate)
Unsolicited brokerage transactions
Transactions initiated by the client, not the agent. They are the most common of exempt transactions.
Assignment
Transferring an investment advisory contract to another firm
Similar to agents, financial planner initial registration is accomplished by filing a form
U4 and a consent to service of process
Exempt securities include the following:
US and Canadian Government and Municipal Securities Foreign Government Securities Depository Institutions Insurance company securities Public Utility Company Securities Federal Covered Securities Securities issued by Non-Profit organizations securities issued by cooperatives Securities of employee benefit plans Certain money market instruments
In 1956, the National Conference of Commissioners on Uniform Securities Law (NCCUSL), a national organization of lawyers devoted to unifying state laws, drafted the original
Uniform Securities Act (USA) as model legislation for the separate states to adopt.
Withdrawal
Voluntary termination of registration on the part of the registrant, through submission of form ADV W
Vacate
When used in a legal context it means to cancel or annul a judgement or penalty
Is it possible to increase the number of shares in the offering without having to file a new registration statement?
Yes. a registration statement may be amended after its effective date in order to increase the securities specified to be offered and sold if two conditions are met.
Under the USA you are not a BD if
You have no place of business in the state and your only clients are the other BD, 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 int he state
There could be an occasion where, in effect a person was the subject of
a rush order
Canada's equivalent of our IRA is called
a REgistered Retirement Savings Plan
The USA states that the admin shall consider that an agent who will work under the supervision of a registred broker dealer need not have the same qualifications as
a broker dealer
Any person with an established place of business in the state that is in the business of buying and selling securities for the accounts of others or for its own proprietary account is
a broker dealer and must register as such
Investment banker
a broker dealer in the business of raising capital for corporations an dmunicipalites
Bds will indicate if they acted as
a broker or a principal
If a securities professional is registering in six states the admin of each state must receive
a consent to service of process.
injunction
a court requiring a person to do or omit doing a specific action
When an IA has the previously enumerated powers for purposes of the regulation, it is
a financial institution
The punishment for engaging in a practice that is prohibited or unethical is generally limited to
a fine, suspension, or revocation
For an agent to have civil liability,
a sale must take place
Guaranteed security refers to a
a security with a guarantee from a third party other than the issuer of the security
SEC requirements are meaningless here because this is
a state registered firm
The advisory contract with the client can provide that investment return that is better than that of a selected index can result in
a higher fee to the advisor
If the firms registration has been revoked, the individuals registration will be placed in suspense until finding
a new affiliation
When a BD registers in the state, the admin may require that an applicant publish
a notice of the registration in one or more newspapers in the state
The 48 hour in advance rule says that the brochure delivery after that time requires IA to offer
a penalty free withdrawal from the contract if done within 5 days after the signing of the agreement
When time does not permit, the admin may issue a cease and desist order before a hearing to prevent
a pending violation
The consent to service of process is part of the initial filing and is
a permanent document for that registration.
Eligible adult means
a person 65 years of age or older or a person subject to the states adult protective services statutes
Enjoin
a person who is the subject of a court ordered injunction is said to be enjoined
Acting summarily means that he ma order, without going through the hearing process,
a postponement or suspension of a registration pending final determination of any proceeding based upon actions described above
an issuer transaction involving new securities is called
a primary offering
When broker dealers buy and sell securities for their own accounts, they act in
a principal capacity as dealers
The USA also grants an exemption for certain short term debt securities. Examples are
a promissary note (commerial paper) draft bill of exchange bankers acceptance
The publics best interest is not reason enough for denial suspension, or revocation of
a registration
The difference between a rule and an order is that
a rule applies to everyone whereas an order applies to a specific instance.
Should an agent come into pocession of inside information, the agent must report the possestion of the information to
a supervisor or compliance officer
Transactions with existing security holders is
a transaction made under an offer to existing security holders of the issuer (including persons who are holders of convertible securities, rights, or warrants is exempt as long as no commission or other form of remuneration is paid directly or indirectly for soliciting that security holder
The administrator may waive requirement for an exemption of
a transaction or a security
A securities professional may request on his own initiative
a withdrawal of a registration
If denial of a license is done as summary judgement
a written request may be made for a hearing
De minimis
about minimal things
Micrographic family, digital storage, as well as paper are
acceptable
An offer to buy or to sell is accepted in this state when
acceptance is communicated to the offeror in this state
Jusidiction applies when an offer to buy or sell is
accepted in this state
A designated supervisory person with knowledge about options must approve the
account opening
The USA requires registered broker dealers to keep
account records blotters (records of orig. entry) Correspondence including emails memoranda papers books advertisements and other records the admin requires
The SEC requires advisers to disclose soft dollar arrangements to their clients. Section 28e provides that a person who exercises investment discretion with respect to an account will not be deemed to have
acted unlawfully or to have breached a fiduciary duty solely by reason of his having caused the account to pay more than the lowest available commission if such a person determines in good faith that the amount of the commission is reasonable in relation to the value of the brokerage and research services provided
One of the powers of the admin is known as
acting summarily
If an agent makes a sale in violation or IAR gives improper advice but it can be shown that officers or partners of the bd or IA were irresponsible,
action can be taken against them and they can be found civilly. liable
The admin may issue and apply to enforce subpoenas in his state at the request of a securities agency or admin of another state only if the
activities constituting an alleged violation for which the information is sought would be a violation of the usa if the activities had occurred in his state
The USA is not
actual legislation
Regulation SP mandated by the GRamm-Leach-Bliley Act requires that firms take identity theft seriously and have
adequate safeguards in the form of privacy policies to protect nonpublic personal information from unauthorized access or use.
Lack of experience by itself is not enough to deny the registration as long as the admin feels assured that the individual will receive
adequate training or has the requisite knowledge
if the investment adviser is a federal covered adviser then the iar must notify the
admin
The primary role of the administrator is to
administer the securities laws of the state as well as make rules and issue orders in the public interest to ensure a well functioning investment climate in the state
if the ia is a state registered adviser, the firm must notify the
administrator
State registered advisers file both Part 1 and Part 2 with the
administrator of each state in which they are registering.
The second member of a surety bond is the
administrator who sets the bonding requirement
It may help you remember that the A in Part 2A tells us that part is about the
adviser
The SEC has defined soft dollars practices as arrangements under which products or services other than execution of securities transactions are obtained by the
adviser of client brokerage transactions to the broker dealer frequently referred to as directed transactions
Records relating to the broker dealer operation have the shorter retention period than those applying to the
advisory function
In the case of an advisory client, oral authorization may be relied upon for the first 10 business days
after the initial discretion trade in the account. After that time, without written authorization, no further discretion can be authorized.
When acting on behalf of their customers, buying and selling securities for their clients accounts, the broker dealer is acting in an
agency capacity
Clerical and administrative (sometimes referred to as ministerial) employees of a bd are generally not included in the definition of an
agent and therefore are not required to register.
Delivering securities is a function that is beyond the responsibility of
agents
Pre qualifying clients or suggesting ways to receive more income from their current stock or bond holdings would require registering as
agents
Those employed to open new accounts are defined as
agents
the application form u4 is for
agents
the application is U4 for
agents
Included in the definition of broker dealers are
agents issuers banks savings institutions trust companies that are not engaged in brokee dealer activities
Included in the definition of broker dealer are
agents (they work for broker dealers) Issuers (They issue securities, stocks or bonds that broker dealers buy and sell) and Banks, savings institutions, and trust companies (They are not engaged in broker-dealer activities)
As is customary in other industries, broker-dealers frequently hire summer interns. If these interns received any selling related compensation, they would be considered
agents and would have to register.
Registered BD are responsible for the supervision of individuals registered as
agents of the firm
Inidivuals representing broker dealers in a sales capacity must register as
agents whether they sell registered securities or securities exempt from registration
The annual updating amendment is used to update the responses to
all items on the ADV
To avoid legal costs and publicity when a case like this is uncovered, the bd will present an offer of rescission which gives the client
all of this except the court and legal fees because it is not necessary to go to court
Borrowing money or securities from other than a bank or broker dealer in the busines sof lending, failing to identify a customers financial objectives, and guaranteeing a customers account against losses are
all prohibited practices
The USA requires that admins publish
all rules and orders
Generally, static content is accessible to
all visitors on the site
an admin does not have the power to
alter the law
An investment adviser representative is
always an individual (natural person)
if there is a change to any material information in the form u4, an
ammendment must be filed within 30 days
Preorganization certificates
an offer or sale of a preorganization certificate or subscription is exempt if 1. No commission or other remuneration is paid or given directly or indirectly for soliciting any subscriber 2. The number of subscribers does not exceed 10 3. No payment is made by any subscriber
Upon application for contumacy by the admin, the court can issue
an order to the person requiring compliance with the request
Stating or implying in any way that past performance is a predictor of future results is
an unethical business practice.
The NSMIA divided registration responsibilities between the SEC
and the states securities departments.
At a minimum, a firm that permits the use of social media sites must hold
annual training as part of its continuing education obligations
AUM measument numbers are based on the AUM reported on the IAs
annual updating amendment.
You can borrow from or lend to
another employee of your firm.
If a fraudulent activity occurs during the offer or sale or rendering of advice relating to something that is not a security,
anti fraud provisions do not apply
As long as it involves a security, there is no exceptions to the
antifraud provisions of state securities laws
The broadest definition of material would include
any actions taken against the firm or management persons by a court or regulatory authority within the past 10 years
A deposit of cash or securities in the appropriate amount maybe accepted in lieu of
any bond so required
A wrap fee program is a program under which
any client is charged a specified fee or fees, not based directly on transactions in the client account, for investment advisory services, and execution of client transactions
The term solicitor means
any individual who for compensation acts on behalf of an investment adviser in referring potential clients.
The USA defines an agent as
any individual who represents a broker dealer or an issuer in effecting (or attempting to affect) transaction in securities.
Agent means
any individual who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities.
An Investment Adviser Representative is
any individual who represents an investment adviser performing duties related to the giving of or soliciting for advisory services
Limited offering transactions include
any offering called a private placement, directed at not more than 10 persons called offerrees other than institutional investors during the previous 12 consecutive months provided that the seller reasonably believes that all of the non-institutional buyers are purchasing for investment purposes only - no commissions or other remuneration is paid for soliciting noninstitutional investors and no general solicitation or advertising is used.
Filing the Registration Statement: Although most registration statements are filed by the issuer, the exam may require you to know that they may also be filed by
any other person, such as a stockholder making a large block sale or a broker-dealer
A broker dealer is defined in the USA as
any person engaged in the business of effecting transactions in securities for the accounts of others or for its own account.
The USA provides that every cause of action under this statute survives the death of
any person who might have been the plaintiff or defendant
Under the USA, issuer means any person who issues or proposes to issue
any security
A prospectus is considered an offer and a purchase of
any security in an unsolicited transaction is a sale. There is no offer made when the trade is unsolicited.
The investment adviser must give a client a brochure supplement for the following supervised persons
any supervised person who formulates investment advice for a client and has direct client contact any supervised person who has discretionary authority over a clients assets even if the supervised person has no direct client contact.
Registration of an investment adviser also leads to automatic investment adviser representative registration of partners, officers, or directors, active in the business and
anyone else performing a similar function
Every investment adviser representative is responsible for ensuring that the authorized provider reports the IAR representatives completion of
applicable IAR continuing education requirements
Once the summary order is entered, the admin will promptly notify the
applicant or registrant as well as the employer or prospective employer if the applicant or registrant is an agent or investment adviser rep that it has been entered and the reasons for it
If the firm changes the fee schedule, be clear about it and be sure to use
appropriate methods to give advance notification of the changes to the custome
It is not the device or technology that determines if a piece delivered by a BD or agent is subject to
approval and recordkeeping
A brokerage account with a BD or an account maintained by a mutual fund or its agent that permits wire transfers or other payments to third parties
are examples of covered accounts
Securities issued by a life insurance company authorized to do business in the state (their stock and bonds)
are exempt
Transactions by fiduciaries such as a trustee in a bankruptcy (the only trustee who qualifies) and transactions with institutions such as insurance companies
are exempt
US government and municipal securities are Federal covered securities and
are exempt from registration with the SEC
Securities issued by regulated public utilities, charitable organizations, and banks are members of the Federal REserve system and
are exempt under the usa
ERA reports are reports that the SEC determines
are necessary or appropriate in the public interest or for the protection of investors
Private investment advisory newsletters, usually distributed by subscription
are not bonafide newspapers and therefore are not included in the publishing exeption
A firm must
arrange and index the records in a way that permits easy location, access, and retrieval of any particular record promptly provide any of the following that the admin may request 1. A legible, true, and complete copy of the record in the medium and format in which it is stored. 2. A legible, true, and complete printout of the record and 3. Means to access, view, and print the records and Separately store for the time required for preservation of the original record, a duplicate copy of the record on any medium allowed by the rules.
Any broker dealer with an office in the state, regardless of the nature of it's clients is defined
as a bd under the usa.
under the USA, any person included in the definition of broker dealer must register
as a broker dealer in the states where it does business.
A broker dealer is defined in the USA as
as any person engaged in the business of effecting transactions in securities for the accounts of others or for their own account.
A non issuer transaction executed by a bonafide pledgee
as long as it was not for the purpose of evading the act is an exempt transaction
retail clients are within the de minimis limit and there is no limit on the number of institutional clients an investment adviser can have in a state without the need to register
as long as there is no place of business in the state
In approving a customers account for options trading, a broker dealer or an agent associated with the broker dealer must exercise due diligence to
ascertain the essential facts relative to the customer, his financial situation, and his investment objectives
Stock exchange prices are determined by
auction
Similar to the right of recission for securities sales, an investment adviser who realizes that he has given advice that will subject him to civil action may
avoid legal expenses by offering the client the same package as he would receive if he had sued. That is: 1. refunding the cost of the advice 2. losses from the advice 3. interest at the states predetermined rate 4. minus any income received on reccomended securities
Part of the receipt of options account agreement states that she is
aware of and agrees to be bound by the rules of the options clearing corporation
An offer to sell or to buy is originates from this state or
is directed to this state
Under law, for any agent of a state to have authority over an activity such as a sale or offer of securities, he must have
legal jurisdiction to act
NSMIA generally preempts state's
blue sky laws eliminating the dual system of state and federal registration of certain securities and investment advisers.
Part B in Part 2 is about the
bodies of the people who work there
Most admins will require advisers who maintain custody to provide a surety bond or
meet certain net worth standards.
The administrators authority does not stop at the state line. The admin or his rep of any state in which the person is registered may demand an inspection of any of the
books and records during reasonable business hours with whatever frequency the admin deems necessary
An agent can sell a security that is not exempt from registration in the state if the purchaser of the security is a
bank or other institutional buyer
Qualified custodian means ether a
bank or savings association that has deposits insured by the FDIC or a broker dealer holding the client assets in customer accounts who is registered in this jurisdiction and with the SEC
The term institution would include
banks trust companies savings institutions savings and loan associations insurance companies investment companies employee benefit plans with assets of not less than $1mil governmental agencies or instrumentalities
An agent is a representative of a
bd
The admin may consider that a person applying for registration as a bd and an ia is not neccessarily qualified solely on the basis of experience as a
bd or agent
banks or trust companies and agents are never
bds
The snowbird exemption applies to
bds, agents, investment advisors, and investment advisor representatives
Only an individual or a natural person can
be an agent
Firm policies should
be commited to writing and communicated firm wide be written in a clear and concise manner so as to eliminate confusion define the responsibilities of all concerned partied from registered representatives clearly describe the monitoring tools to be used by the firm
All fees must
be disclosed
If an agent were the subject of a complaint, the agent would
be notified but would not be given a copy of the complaint
Put buyers are generally thought of as being
bearish
Under section 3051 of the USA, the admin may require that a prospectus be sent or given to each person to whom an offer is made
before the sale of the security
There is no such thing as a reciptocal licensing agreement
between states
The NSMIA law effectively divided the responisbility for regulating IA between states and sec by
bifurcating (splitting in 2) the regulation of ia and creating the category of registration known as federal covered adviser.
If information is not specific, it is known as
blind data or aggregate information that contains no personal identifiers. It is not deemed to be personally identifiable information and therefore not subject to regulation SP requirements
A purported gift of assessable stock is considered to involve an
offer and a sale
Consumers are given an initial privacy policy only while customers must be given
both an initial and annual privacy policy notice.
The law specifically states that a purported gift of asessable stock is
both an offer and a sale
The NASAA model rule dealing with investment adviser brochures has very specific delivery requirements
both at the initial phase and on an ongoing basis
The appropriate state prosecuter usually the state attorney general may decide whether to
bring criminal action under the USA, another statute, or when applicable, common law
The term person is extremely
broad
Officers carry liability on behalf of the
broker dealer
There is no such thing as a federal covered
broker dealer
Any person who sells a federal covered security must be licensed as a
broker dealer or agent unless otherwise exempted and must also comply with the anti-fraud provisions of the state
Domestic commercial banks and other financial institutions are generally excluded from the definition of
broker dealer.
The broker dealer is the
business unit
Broker dealers are firms that
buy and sell securities for others or themselves as a business
Broker dealers are firms that
buy and sell securities for others or themselves as a business.
The ten years is for statutory disqualification
by statute, that is, generally automatic denial or revocation
The effective date under registration by coordination is set
by the SEC
Under the USA, a registered person has up to 60 days to appeal any order issued against him
by the state administrator
Notice filing is merely the filing of certain documents enabling the registrant to
offer securities in that state
regardless of whether the security or the transaction is exempt, as long as it is a security, it is not
exempt from the anti-fraud provisions of the USA
In lieu of a surety bond, the administrator will accept
deposits of cash or securities
Congress enacted the NSMIA in 1996 to promote
efficiency in capital formation in the financial markets
One way to mitigate the potential conflict of interest regarding varying compensation for different products is an agnostic or neutral
compensation grid.
A custodian of an UGMA or UTMA is not included as
exempt transaction
The sale of securities to certain financial institutions is an exempt transaction so the sale
can be made without registration
If an admin finds that an applicant or registrant no longer exists or has ceased to transact business, the admin may
cancel the registration
Part 2B requires advisers to create brochure supplements containing information about
certain supervised persons
Static content remains posted until
changed by the person who established the account on the site
When a security is sold in violation of the USA (non exempt security must be registered under tis scenario) the client can
claim to be made whole plus interest plus the expenses of going to court an paying for legal representation
certain employees investment advisor firms are excluded from the term iar provided their activities are confined to
clerical duties or those activities that are solely incidental to the ia services offered
A Notice filing is an opportunity for the states to
collect revenue in the form of filing fees because unlike with the other two methods of registration, the admin has limited powers to review any documentation filed with his department.
Certain money market instruments
commercial paper and bankers acceptances are the two most common examples
Agents earn a
commission
A broker dealers compensation is earned in the form of
commissions and markups or markdowns
Under the USA, fraud is not limited to
common law deceipt
An advertisement under state law is defined as a
communication to more than one person
The most common issuers of securities are
companies or governments (federal, state, and municipal governments, and their agencies and subdivisions.
Examples of static content are
company websites, profiles, backgrounds, or walls, images and pre-recorded videos
Although the admin has the power to issue cease and desist orders, she does not have the legal power to
compel compliance with the order
Part 2A of ADV focuses on customer related information such as
compensation arrangements types of clients types of investments recommended types of strategies employed methods of analysis used the consent to service of process educational and business background of those who formulate investment advice for a client and have direct client contact as well as those who have discretionary authority over a clients assets and an audited balance sheet if the investment adviser requires or solicits substantial prepayment of fees or maintains custody
When a written complaint is received by the firm (and only written complaints are recognized) then the
complainant would be notified that the complaint has been received and an entry would be made in the firms complaint file
The trade confirmation is sent no later than
completion of the trade (settlement date)
The admin has broad discretionary authority to
conduct investigations and issue subpoenas
An admin can compel the testimony of witnesses when
conducting an investigation
New applicants for registration as a securities professional must provide the admin of every state in which they intend to register with a
consent to service of process
to register by qualification, an issuer must supply a
consent to service of process and Name address and form of organization, information on directors officers and every owner of 10% or more of the issuers securities and the remuneration paid to owners in the last 12 months Description if the issuers capitalization and long term debt Estimated proceeds and the use to which the proceeds will be put type and amount of securities offered, offering price, and selling and underwriting cons stock options to be created in connection with the offering copy of perspectus, pamphlet, circular, or sales literature to be used in the offering specimen copy of the security along with opinon of counsel as to the legality of the security being offered audited balance sheet current within 4 months of the offering with an income statement for 3 years before the calance sheet date
In order to register, even by notice filing, there must be a
consent to service of process filed with the administrator
a gift of non-assessable stock is not
considered a sale
Any bond, regardless of the nature of the issuer is
considered a security
After an IAR advises a client about a specific security, the nest step is to
contact the broker dealer where that client maintains a brokerage account to give the buy/sell order to an agent
Failure to obey the order of the court may be punished by the court as a
contempt of court
The format is not what counts, it is the
content that matters
in late 2020 NASAA adopted the NASAA Model Rule on investment adviser representative
continuing education.
When acting in a principal capacity, the BD is the
contra party to the trade
Intrastate offerings are ineligible for registration by
coordination
The most common form of registration for those securities that are not federal covered is
coordination
In coordinating a federal registration with state registration, issuers must supply the following records in addition to the consent to service of process
copies of the latest form of prospectus filed under the securities act of 1033 if the admin requires. copy of articles of incorporation and bylaws copy of the underwriting agreement copies of any other information filed by the issuer under the securities act of 1933 if the admin requests Each amendment to the federal prospectus promptly after it is filed with the sec
Special Subscription Form: The administrator may also require as a condition of registration, that the issue be sold only on a form specified by the administrator and that a
copy of the form or subscription contract be filed with the administrator or preserved for up to 3 years
A broker dealer is organized as a
corporation but could also be a partnership, a Limited Liability company LLC, or even a sole proprietoship.
A surety bond is there to
cover losses if the securities professional acts criminally
Any transfer of a security in which money or some other valuable consideration is involved is
covered by the definition of sell and subject to the act.
In addition to computers in the office, personal devices used to communicate with clients in a social media setting are
covered by the rules
Part 2B requires advisers to
create brochure supplements containing information about certain supervised persons.
For a margin account, the customers signature is required on the
credit an hypothecation agreements
Persons found guilty of a fraudulent securities transaction are subject to
criminal penalties (as well as possible civil penalties)
The bank secrecy act requires every financial institution to file a
currency transaction report CTR on FINCEN form 112 for each cash transaction that exceeds $10k
BDs must comply with the SECs BD financial responsibility rules including as applicable,
custodial requirements under Rule 15c3-3 under the Securities Exchange Act of 1934
Fees are to be disclosed when a
customer account is opened
NASAA suggests addressing the following points RE: Cyber security
cyber preparedness Cybersecurity compliance program Cyber security and social media Cyber insurance Cyber expertise Cyber confidentiality Cyber incident Cyber disposal Cyber continuation Cyber lossess Cyebersecurity safeguards
Qualified clients mean they must have
either 1.1mil in aum with the adviser or a net worth (excluding the primary residence) of more than 2.2mil
Failing to furnish to a customer purchasing securities in an offering no later than the due date of confirmation of the transaction,
either a final propectus or a preliminary prospectus
IA register with
either the SEC or the states, never both
As an investment advisor, this person must register with
either the sec or states
All records may be maintained in computer or microfilm format or any other form of
data storage
agents doing business in a state must be registered in that state even if there is only one client who resides in that state. this is not like IA and IARs. They enjoy a
de minimis exemption
Cancellation occurs as the result of
death, dissolution, mental incompetency
renewal applications for canadian bds and agents who file for limited registration must be filed before
december 1 each year.
Every registration of a securities professional comes up for renewal on the next
december 31
the renewal of licenses on the next
december 31
Fraud is the
deliberate or willfull concealment, misrepresentation, or omission of material information or the truth to decieve or manipulate another person for unlawful or unfair gain
BD reps and investment advisors have a
deminimis exemption
for IARsa and other securities professionals, insolvency (bankruptcy0 is a cause for
denial or revocation of registration
The admin also has the power to
deny, suspend, cancel, or revoke the registration of bds, ias, and their representatives as well as the registration of securities issues
Provided it is in the best interest of the public, the state administrator can
deny, suspend, or revoke any securities transaction exemption other than that of a federal covered security.
Conviction for a felony within the past 10 years is one of a number of reasons the admin has for
denying a license
IARs have the
diminimus exemption
The administrator always has jurisdiction over any offer made from his state
directed to his state, or accepted in this state
At or prior to the time that a customers securities brokerage account is opened by a broker dealer on the premises of a financial institution where retail deposits are taken, the broker dealer must
disclose orally and in writing that the securities products purchased or sold in a transaction with the broker dealer are not insured by the FDIC, are not deposits or other obligations of the financial institution and are not guaranteed by the financial institution and are subject to investment risks, including possible loss o the principal invested and make reasonable efforts to obtain from each customer during the account opening process, a written acknowledgement of the disclosures.
Felony convictions (even just being charged) must always be
disclosed on the application for registration - there is no time limit
One thing that is on the agents application that does not apply to a broker dealer is
disclosing citizenship.
The customer is given 30 days to opt out before
disclosure of nonpublic personal infromation may be made
As long as the securities professional can select the specific security, whether to buy or sell (the action) or the size of the order (the amount) the person has
discretionary authority
One of the roles of a broker dealer is underwriting
distributing shares of new securities for issuers.
A nonissuer transaction is one in which the proceeds of the sale
do not go either directly or indirectly to the entity that originally offered the securities to the public
unlike finra registration requirements, fingerprints
do not have to be submitted
The USA exempts from registration certain persons who although included in the definition of IA
do not have to register as such in the state
Whether a BD or an IA, all discretionary orders
do not need prior approval
CEase and desist orders
do not require a hearing
if a person falls under one of the exclusions from the definition, that person
does not have to register in that state
the SEC holds that there is no such thing as a comprehensive financial plan that
does not include securities
A security may be registered in
dozens of states including this state
It is not unusual to find a large shareholder, sometimes a founder of a company or an institution holding a large block of the companies stock, desiring to sell a large portion of their holding. In many cases, the SEC regulations require that
due to the size of the offering, registration is neccessary.
An appeal to an order does not function as a stay order
during the appeal process
An application is complete when the applicant has furnished information responsive to
each applicable item on the application
An exemption for a transaction on the other hand must be established with
each transaction
Twitter posts are
easy to monitor
An agents only job is to
effect securities transactions
the issue date is usually a short time after the
effective date
By rule or by order, the admin may authorize an earlier
effective date of the licensing
The admin has the power to grant an earlier
effective date.
State securities laws modeled on the USA address fraud by making it unlawful for any person when engaged in the offer, sale, or purchase of any security directly or indirectly to
employ any device scheme or artifice to defraud make any untrue statement of a material fact or omit to state a material fact necessary to make a statement not misleading or engage in any act, practice, or course of business that operates as a fraud or deceit on a person
In certain states, the admin has full or limited criminal
enforecement powers
If the firm or one of its associated persons had a hand in the preparation of funding of the material, it is
entanglement
If the firm or an associated person has pad for or been involved in the perparation of the content that is deemed to be
entanglement.
In order for a surety bond to meet the requirements of the USA it must provide that any customer who can prove a violation (and does so within the statute of limitations is
entitled to collect against the bond
New clients must receive a copy of the advisers brochure no later than the
entry of the advisory agreement.
Justification as an exempt transaction must be
established before each transaction
The form U4 requires disclosing if an agent has ever been convicted or
even just charged with no time limit
The terms offer and offer to sell include
every attempt to offer or dispose of or solicitation of an offer to buy, a security or interest in a security for value
The USA defines sale or sell as
every contract of sale, contract to sell, and disposition of a security or interest in a security for value.
Net capital requirements of the states may not
exceed those required by federal law
if a firm did not have an office in the state and its only clients were institutions or other bds, it would be
excluded from the definition
The Broker-dealer subsidiaries of banks are not
excluded from the definition of a broker dealer
individuals representing an issuer are
excluded from the definition of agent
Those who perform clerical or ministerial functions are
excluded from the definition of an agent
Domestic commercial banks and other financial institutions are generally
excluded from the definition of broker dealer
Exclusion means
exclusion from a definition
Broker dealer's primary business function is
executing transactions in securities
Transactions between broker dealers and the issuers of the securities involved in the transaction, transactions between banks and transactions between banks and insurance companies are all
exempt because they are transactions between financial institutions
As long as the bd has no place of business in the state, it is
exempt from registration if its only clients are institutional investors such as banks, ia, bd, $1mil or more employee benefit plan, college endowment fund, governmental unit.
The fact that the insurance company is authorized to do business in the state would make it
exempt from registration in that state but that does not make it a federal covered security
A security could be
exempt from registration or not registered in that state
Bonds issued by municipalities, those issued by states or cities, are Federal covered securities
exempt from registration requirements in the states
Securities exempt from state registration are also
exempt from state filing of sales literature
The admin may not suspend or revoke a registration on the basis of
facts that were known to the admin at the time the registration became effective.
There is no deminimis rule for
federal covered advisers
The USA gives the admin the authority to require notice fiings with respect to
federal covered securities (investment companies registered with the SEC under the Investment Company Act of 1940)
Even though municipal bonds are exempt securities under the USA, they are not included in the NSMIA definition of
federal covered security
If the performance of the account is below that of the index, the
fee is reduced
Compensation is earned for an IA in the form of
fees or other charges, generally based on the amount of assets managed
If the purchaser of securities feels that the sale has been made in violation of the USA that purchaser may
file a complaint with the administrator
When a security is exempt under the USA, there are no requirements to
file advertising about the security with the administrator
For the canadian bd, to register in this fashion it must
file an application in teh form required by the jurisdiction where it has its principal office in canada file a consent to service of pricess provide evidence that it is registered in good standing in its home jurisdiction and be a member of an SRO or a stock exchange in canada
Ongoing Reports: The administrator may require the person who filed the registration statement to
file reports to keep the information contained in the registration statement current and to inform the administrator of the progress of the offering
Under the USA if a covered investment adviser has an office in the state, the admin may require by rule or order that the IA submit any documents that have been
filed with the sec
The act provides for recovery by a client of
financial loss that results from any action constituting a violation of any provision of the USA or any rule or order thereunder
The defininition of an ia includes
financial planners, pension consultants, sports and entertainment representatives
The maximum penalty is a
fine of $5K, a jail sentence for 3 years, or both.
Firm policies should be
firmly established precise clearly define the employees responsibilities explain how they are to be monitored on each electronic platform utilized by the firm
A state registered investment adviser would not qualify for the de minimis exemption if they had more than
five retail clients in a 12 month period.
Usually the financial requirement is higher for custody than
for discretion
Although NASAA does not have one, FINRA rules doo have a risk disclosure requirement
for margin accounts
If registration requirements are met, the admin clears or releases the security
for the sale to the public
Unless otherwise specified, compliance with the recordkeeping requirements of the USA for a broker dealer means maintaining copies
for three years, the first two in an easily accessible place
The application for registration as an investment adviser is on the
form adv
National Conference of Commissioners on Uniform State Laws NCCUSL
founded in 1892 is an organization composed of lawyers who draft and propose template state legislation where uniformity in law among the states is deemed to be desiranle
There are six items that are not securities
four of them begin with the letter c.
Some students remember that the 5 year statute of limitations from noting that
fraud has five letters
When DBs sell from their inventory, the firms profit comes
from a markup
The USA grants the administrator the authority by rule or order to exempt a security, transaction, or offer
from the USA's registration and filing requirements
NASAA accepts the SEC rule on custody as
fufilling a BD's responsibility
A new corporation cannot receive a charter unless their documents of incorporation provide evidence that minimum
funding is assured
Section 28e defines when a person is deemed to be providing brokerage and research services and states that a person provides brokerage and research services insofar as he
furnishes advice directly or through publications or writing about the value of securities, the advisability of investing in, purchasing, or selling securities or the availability of purchasers or sellers of securities Furnishes analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy, and performance of accounts effects securities transactions and performs functions incidental thereto 9such as clearance settlement, and custody
A bonafide newspaper is a newspaper of
general interest and cirulation
Unlike an investment adviser, there are no financial requirements or net worth requirements to register as an
iar
The definition of IA is any person who meets the ABC test.
give Advice in the Business of advising and receives Compensation
The primary function of every investment adviser is to
give investment advice
To maintain custody of client funds or securities, an IA or BD must
give notice to the admin on form ADV. Permission from the admin is not necessary
Facebook is not easy to monitor
given theyve termed entanglement issues
What is the optional loan consent form
gives permission to the firm to loan customer margin securities to other customers or broker dealers usually for short sales.
An investment adviser's primary business function is
giving advice
If a conflict of interest is not made in writing, it must be supplemented by the
giving or sending of written disclosure at or before the completion of the transaction
Persons include
governments and states
Guaranteed security means
guaranteed as to payment of principal, interest, or dividends but not capital gains
The term guaranteed
guaranteed as to payment of principal, interest, or dividends.
Under the consent to service of process all legal documents (subpoenas or warrants) received by the admin have the same legal effect as if they
had been served personally on the applicant
A person who buys a security as the result of investment advice received in violation of the USA
has the right to sue
There are two ways to be a qualified client. either
have a net worth of more than 2.2mil (joint) or have at least 1mil under management with ia.
The broker dealer may be registered in many states but unless the bd is involved in an offer or acceptance in this state, this states admin does not
have jurisdiction
Because securities transactions often involve several states, more than one admin may
have jurisdiction over a security or a transaction
If such securities were not sold in exempt transactions such as to an individual investor, they would
have to be registered in the state.
The usa states that it is unlawful for any person to transact business in this state as an agent unless
he is registered under this act
Te USA states that it is unlawful for any person to transact business in this state as an investment adviser unless
he is so registered under this act or is exempt from a states registration requirements
Stop orders require a
hearing
Investigation of serious violations need not be
held in public
When he finds that an applicant for an initial or renewal registration as a bd is not qualified as an ia, he may, by order, condition the applicants registration as a bd upon
his not transacting business in this state as an ia
A holding company is defined as a company whose primary business is
holding a controlling interest in the securities of other companies
Record keeping is not less than five years from the end fo the fiscal year during which the last entry was made on the record with 2 years easily accessible for
ia
an individual who acts solely as an iar is excluded from the definition of
ia
A person advising on precious metals is not an
iar
Registered investment advisers are responsible for the supervision of individuals registered as
iar
only an individual or a natural person can be an
iar
The safeguarding program must include reasonable policies and procedures to
identify releveling red flags for the covered accounts that the financial institution offers or maintains and incorporate those red flags into its program. detect red flags that have been incorporated into the program of the financial institution respond appropriately to any red flags that are detected to prevent and mitigate indentity theft and ensure the program, including red flags determined to be relevent is updated periodically to reflect changes to risks to customers and to the safety and soundness of the financial institution or creditor from identity theft
The only time a securitys rating is part of the registration or exemption under the usa is
if it is an exempt short term debt security
A mid size adviser is not prohibited from registering with the SEC
if the adviser is not required to be registered as an investment adviser with he securities administrator of the state in which it maintains its principal office and place of business. If registered, the adviser would not be subject to examination as an investment adviser by that securities administrator if the adviser is required to register in 15 or more states or if the adviser elects to take advantage of the buffer
Regarding depository institutions, categories 2 and 3
if the institution is not federally chartered, then it must be authorized to do business in the state under the supervision of a regulator in that state
Although securities issued by SEC registered investment companies are federal covered securities, the usa allows to
impose filing fees on them under a process called notice filing.
Escrow: In addition, the administrator may require that the proceeds from the sale of the registered security in this state be
impounded until the issuer received a specified amount from the sale of the security either in this state or elsewhere.
Although options are not marginable securities, they must be paid in full, they may be purchased
in a margin account with full payment made by the customer
Treble damages is
in addition to receiving back your investment, you receive payment equal to three times what you lost
Broker Dealers who meet the SECs net capital or bonding requirements cannot be required to meet higher one
in any state in which they do business
individuals representing an issuer are excluded from the definition of an agent and therefore are exempt from registration in a state when representing issuers in effecting transactions
in certain exempt securities exempt from registration (exempt transactions) with existing employees, partners, or directors of the issuer if no commission or other remuneration is paid or given directly or indirectly for soliciting any person in this state
The admin may require that an applicant publish a notice of the registration
in one or more newspapers in the state
You have to know that you are willingly in violation
in order to get jail time
An exempt security retains its exemption at its initial issue and
in subsequent trading
Delivery of the brochure and related supplements may be made electronically if the investment adviser
in the case of an initial delivery to a potential client obtains verification that a readable copy of the brochure and supplements were received by the client In cases other than initial deliveries obtains each clients prior to consent to provide the brochure and supplements electronically Prepares the electronically delivered brochure and supplements int he format prescribed in the instructions to Form ADV Part 2 Delivered the brochure and supplements in a format that can be retained by the client in either electronic or paper form and establishes procedures to supervise personnel transmitting the brochure and supplements and prevent violations of this rule
The only trustee included in an exempt transaction is
in the case of bankruptcy
Treble damages is found primarily
in the federal laws regarding insider trading but not state or this exam
The admin can deny, suspend, or revoke a registration for many reasons but they must be
in the interest of the public
You can borrow from clients who are
in the money lending business
Administrators still have the ability to request information about those firms who are doing business
in their states.
The admin has jurisdiction only when the offer is made or accepted
in this state
Lawyers, accountants, teachers, engineers give advice that is
incidental to the practice of their professions
Isolated non-issuer transactions
include secondary (non-issuer) transactions, whether effected through a broker dealer or not, that occur infrequently (very few) transactions per agent per year, the exact number varies by state.
Another prohibition found in that model rule is
indicating in an advisory contract any condition stipulation or provisions binding any person to waive compliance with any provision of the USA or of the IAA of 1940
Agents are always
individuals
Agents are always
individuals (natural persons)
IARs are
individuals employed by IA to give advice to their clients
Agents are
individuals employed by broker dealers to handle their customer orders to buy or sell securities
A Bd hires
individuals known as agents
The USA does not require that an agent provide all information about an investment but only
information that is material to making an informed investment decision
The consent to service of process is submitted with the
initial application (it is included in the form u4 or the form bd and remains in force permanently
An exempt security retains its exemption when
initially issued and in subsequent trading.
Only the courts can compel compliance by issuing
injunctions and imposing prnalties for violation fo them
The USA does not grant the admin the power to issue
injunctions to compliance with the act
There is no minimum order size to have an exempt transaction as an
institutional investor transaction
Employee benefit plans with assets of at least $1mil are included in the definition of
institutional investor transactions and are exempt.
The USA generally affords less protection to
institutional investors owing to their greater investment sophistication
Lack of experience in itself is
insufficient reason for denial
The admin in his discretion may honor requests from interest persons for
interpratative opinions or may have issue determinations that the admin will not institute enforcement proceedings against certain specified persons for engaging in certain specified activities where the determination is consistent with the purposes fairly intended by the policy and provisions of this act
A person who provides investment advice is an
investment adviser
Persons excluded from the definition and are not investment advisers
investment adviser representatives banks savings institutions and trust companies any lawers, accountants, teachers, or engineers whose advice is solely incidental to the practice of their profession are excluded any broker dealer whose investment advisory services are incidental to their brokerage business and w ho receive no special or separate compensation for offering advice a publisher, employee, or columnist of a newspaper, news magazine, or business or financial publication of regular and general circulation or an owner operator, producer, or employee of a cable, radio, or television network, station, or production facility if in either case, the financial or business news published or disseminated is made available to the general public and the content does not consist of rendering advice on the basis of the specific investment situation of each client Federal covered investment advisers registered with the sec any other person the admin specifies
Investment advisers hire individuals, known as
investment adviser representatives.
December 2011 saw the adoption of the NASAA registration exemption for the
investment advisers to private funds model rule
Any of the general business records required by broker dealers have the same requirement for
investment advisors
Impersonal investment advise
investment advisory services that do not purport to meet the objectives or needs of specific individuals or accounts
A function of a broker dealer is the underwriting of new issues, the practice known as
investment banking
A function of broker dealers is underwriting new issues. This is a practice known as
investment banking
The element of control differentiates holding companies from
investment companies
Notice fling is not required by a FEderal covered investment adviser if the investment adviser has no place of business in this state and the advisers only clients in this state are
investment companies other investment advisers broker dealers banks, trust companies, savings institutions insurance companies employee benefit plans with assets of not less than 1mil and governmental agencies or instrumentalities
One question asked on a new account form that is not required on a normal brokerage account opening but is on options opening is
investment experience and knowledge for options, stocks, bonds, commodities, and other financial instruments
In a sale there has been an actual transaction
involving money or another form of consideration for value.
Agents can also represent
issuers of securities
if the IAR asks clients to bring their friends, then the exemption
is lost.
Pledging stock as collateral for a loan, such as for a loan at a bank
is not a sale
Any sale to individuals, unless unsolicited
is not exempt
As long as the only form of compensation for an agent is sales commissions, registration as an iar
is not required
When it comes to registration of any securities professional, any statement relating to approval or something similar
is prohibited
Enjoined is the legal term that is used to refer to a person who
is the subject of an injunction
A securities offering made in a bonafide newspaper published within the state with no more than two thirds of its circulation outside of the state
is what an admin has jurisdiction over
Exempt transactions listed in section 402 of the USA:
isolated non-issuer transactions Unsolicited brokerage transactions Bankruptcy, guardian, or conservator transactions
While the admin does not have the power to arrest anyone, he may apply to the appropriate authorities in his state for the
issuance of warrant.
issuers
issue securities, stocks, or bonds that broker dealers buy and sell
The date of issue is when the actual shares are
issued
In addition to having the power to conduct investigations, the admin may enforce subpoenas
issued by admin in other states on the same basis as if the alleged offense took place in the admin state.
Before the initial offer of any federal covered security in this state, the admin may by rule or order require the filing of all documents that are part of a federal registration statement filed with the us sec under the securities act of 1933 together with a consent to service of process signed by the
issuer
The first step in the state securities registration procedure is for the
issuer or its representative to complete a registration application and file it with the state securities administrator.
All newly issued securities are
issuer transactions
Those seeking to raise new capital are
issuers
stop orders are against
issuers
If there is no place of business in the state, there are no registration requirements if the only securities transactions are with
issuers other broker dealers institutional clients
If a client does not respond to a letter of recission within the 30 day period,
it becomes null and void
What is the credit agreement
it discloses the terms of the credit extended by the broker dealer including the method of interest computation and situation under which interest rates may change
BD does not include a person who has no place of business in this state if
it effects transactions in this state exclusively with or through the issuers of the securities involved in the transactions (such as underwriting a new issue), other broker dealers, or banks, savings institutions, trust companies, insurance companies, investment companies, and pension or profit sharing trusts with assets of at least $1mil The person is licensed under the securities act of a state in which the person maintains a place of business and the person offers and sells in this state to a person who is an existing customer of the person and whos residence is not in this state. This is sometimes referred to as the snowbird exemption
Broker dealer does not include a person who has no business in this state if
it effects transactions such as when underwriting a new issue, other broker dealers, or banks, savings institutions, trust companies, insurance companies, investment companies, and pension or profit sharing trusts with assets of not less than $1mil or The person is licensed under the securities act of a state in which the person maintains a place of business and the person offers and sells in the state to a person who is an existing cutomer of the person and whos residence is not in this state.
Unless otherwise noted, always assume when asked about an agent that
it is an agent of a broker dealer
If no hearing is requested and none is ordered by the admin, the order will remain in effect until
it is modified or vacated by the administrator.
The admin may not deny the registration simply because
it is prudent
It is unlawful for any person to offer or sell any security in the state unless
it is registered under the act the security or transaction is exempted from registration under the act or it is a federal covered security
It is unlawful for any person to offer or sell any security in this state unless
it is registered under the act or the security or transaction is exempted under this act or it is a federal covered security
The advisory agreement occurs when
it is signed under state law
The exemption for short term debt securities is only if
it matures in 9mo or less is issued in minimum denomination of $50K receives one of the 3 highest ratings from a nationally recognized rating agency
For a securities transaction to be lawful under the usa, the security itself must be registered unless
it or the transaction is exempt from registration requirements.
When a security is exempt under the USA, it does not have to be registered in order for it
it to be sold.
The admin may consider that registration as a bd does not neccessarily qualify one for a license as an iar and may restrict that applicants registration as a bd conditional upon
its not functioning as an ia
To be subject to time in prison a sales agent must
knowingly have violated the USA
An administrator may not base a denial of a persons registration solely on is
lack of experience
The admin may not enter an order solely on the basis of
lack of experiense if the applicant or registrant is qualified by training, knowledge, or both
An adviser managing 110mil or more
large register with the sec
The USA excludes ____ from the definition of investment adviser
lawyers accountants teachers engineers
Contempt of court can
lead to jail time
Jurisdiction under the USA specifically means the
legal authority to regulate securities activities that take place in the state
Mortgage brokers do not
lend money
Once registered with the SEC, an investment adviser need not withdraw its SEC registration unless it has
less than $90mil of assets under management
The requirement to be an accredited investor is
less than a qualified client and is a federal term
Every person who directly or indirectly controls the person who sold the securities or the advice or is a material aid to the transaction, is also
liable to the same extent as the person who conducted the transaction
An exemption from registration exists when the individual is
licensed under the securities act of a state in which the individual maintains a place of business and the individual offers advice in this state to a person who is an existing customer of the person and whose residence is not in this state
IAs who advertise a charting or silimar system must indicate that there are
limitations and difficulties inherent in using such programs
The term Federal covered security includes securities
listed on the NYSE and other major exchanges, investment companies registered under the investment company act of 1940, and securities that are subject of the private placement exemption of Regulation D of the SEA of 1933.
Thinlytraded securities are those securities with
little trading activity
Part 1A contains information about the 1A including
location of principal office location of books and records form of business organization types of advisory activities provided other business activities maintaining custody of customer assets and or exercising discretion details relating to all control persons disciplinary history states in which the IA intends to or is already registered.
an investment adviser or one of its representatives who advertises to the public in any way its availability for meeting with prospective clients in a hotel, seminar, or any other location in the state is considered to
maintain a place of business in the state.
The admin can go during normal business hours and doesnt need to
make an appointment
It is unnecessary for the agent to
make financial contributions to shared investment accounts
Registering a security with the SEC does not automatically
make it federal covered.
Even thoug an issuer of a federal covered security may not have to notice file, that does not mean that they company can
make misrepresentations during an offer made in any state
When a securities transaction falls within the administrators jurisdiction, the administrator has power to
make rules and orders, conduct investigations, and issue subpoenas, issue cease and desist orders, deny, suspend, revoke registrations
The four broad powers the admin has to enforce and administer the act in his state are to
make, amend, or rescind rules and orders and require the use of specific forms conduct investigations and issue subpeonas issue cease and desist orders and seek injunctions deny, suspend, cancel, or revoke registrations and licenses
in order for a pension consultant to be eligible for SEC registration it must
manage at least $200mil
Once the AUM reached $110mil, registration with the SEC is
mandatory
Arbitrage is not a form of
market maniupulation and is legal
The most common form of market manipulation is
matched orders and wash trades
The form BD is an initial filing with amendments filed if there are
material changes
The administrator shall furnish to any person, photostatic or other copies certified under his seal of office if requested of any entry in the register or any document which is a
matter of public record
Contumacy means that the admin
may apply to the appropriate court in her state and ask for help
When an agent or iar is found civilly liable for improper behavior, officers or other supervisory personnel of the firm
may be liable as well, if failure to supervise can be proven
In some cases the audited balance sheet
may be required but never a copy of the tax return
There are only 2 securities exemptions that the administrator may revoke, whereas all exempt transactions, other than in the federal covered securities
may be revoked.
The admin may determine that an applicant, in his initial application for registration as an IA, is not qualified to act as an adviser and thus
may limit the registration to that of a bd
A radio or television program is considered to originate in the state where the
microphone or televeision camera is located, not the transmitter
For the protection of investors, the admin may establish
minimum financial standards for BD
The advance notice should be a
minimum of 30 days
Ongoing Reports: These reports cannot be required
more often than quarterly
The private placement exemption applies as long as there are no
more than 10 offers to individual retail purchasers within 12 consecutive months
States retain authority over the issue of municipal securities by their own
municiplaities.
If any material information in those documents relating to the application for registration becomes inaccurate or incomplete, the registrant
must promptly file a corrected copy (ammend their application) with the adminitrator
CIP includes
name, DOB, Residential or business street address, Tax id number, citizenship, financial informaiton about the customer
The brochure is arranged in a
narrative form using plain english
The term person is very broad and is not limited to
natural persons or individuals
Each program be appropriate to the size and complexity of the financial institution and the
nature and scope of its activities
Part 1A contains information
needed by regulators
The OTC is a market where prices are
negotiated
The admin may charge a fee for interpretative opinions and
no action determinations
When it comes to agency cross transactions, the client is giving blanket authority to engage in this activity. In the case of acting as the principal or the agent,
no blanket authorization is permitted and oral or written consent must be obtained prior to the completion of teh transaction
The final exclusion applies when the individual is effecting transactions with existing employees, partners, or directors of the issuer, as long as
no commision or other remuneration is paid or given directly or indirectly for soliciting any person in this state.
For securities registration, unlike BDs or Agents, the date December 31 has
no consequence
Int he case of BD and IA, a successor firm (an entity that acquires or takes over the operation of the existing firm) pays
no fees until the renewal date
Summary judgement means
no hearing
No person may be imprisoned for the violation of any rule or order if he proves that he had
no knowledge of the rule or order
For registrants of methods other than qualification, the USA follows the rules of the Securities Act of 1933, requiring that delivery of the prospectus be
no later than the mailing of the trade confirmation or actual delivery of the security
Investment advisers do not have to deliver a summary of material changes or a brochure to clients if
no material changes have taken place since the last summary and brochure delivery
The De Minimis exemption applies when during the preceeding 12 month period, the IAR has had
no more than 5 retail clients
De Minimis applies when there is
no place of business in a state and the number of retail investors is a small number (5 or fewer)
If more than 2 thirds of a circulation were outside of a specific state,
no state has jurisdiction
Registration by coordination becomes effective at the same time the federal registration becomes effective provided that
no stop orders have been issued by the admin and no proceedings are pending against the issuer The registration has been on file for at least the minimum number of days specified by the admin. A number that currently ranges from 10-20 days, depending on the state and a statement ofr the maximum and minimum proposed offering prices and maximum underwriting discounts and commissions have been on file for 2 full business days
Variable annuities (whose performance depends on the securities in a segregated fund, are
non exempt which means that they are covered by the act and have to be registered
The purchase of securities from a broker dealer by an employee of a bank is a
nonexempt transaction because it is a sale of a security by a broker dealer to a member of the public and is therefore not exempt.
Unless a legal proceeding is instituted or the applicant is notified that the application is complete. the registration of a bd, agent, ia, or iar becomes effective at
noon 30 days after the later of the date an application for licensing is filed and is complete or the date an amendment to an application is filed and is complete
REgistration taking effect at
noon of the 30th day
The effective day of registration is
noon on the 30th day after filing of a completed applicationU
The effective date of an initial registration is at
noon on the 30th day after the recept of a completed application.
The effective date of registration is normally at
noon the 30th day after the filing of a complete application
A fee based on the average amount of money under management over a particular period is
not considered a performance fee
HOwever, an investment adviser representative who contacts clients in the state and notifies them that he will be passing through their town and is available to meet with them in his hotel room is
not considered to have an office in the state because the announcement is being made only to existing clients and not to the public.
Determining the price and time for entry of a customer order is
not discretion and does not need written authorization
Preorganization certificates postpone registration
not excuse it all together
Variable policies (variable annuities, variable life insurance)
not exempt
Any person associated with a broker-dealer or investment adviser whose functions are solely clerical or ministerial is
not included in the meaning of associated person
If a security were exempt, then it would
not need registration regardless of how the sale was made.
Fixed insurance and annuity policies are
not securities
If a person or ntity is excluded from a definition, that person is
not subject to (covered by) the act.
exemption means
not subject to registration
If a person with no place of business in the state are not defined as BD, those persons are
not subjest to the registration requirements of that state.
While registration as an agent or IAR is pending, the individual may
not take part in any activity that would require registration
Because the admin has the power to enforce the act for the benefit of the public, the admin as well as his employees have an obligation
not to use the office for personal gain
Federal covered securities do not register with the admin but may, especially n the case of investment companies, have to
notice file with the admin.
The USA provides 2 methods for securities issuers to register their securities in a state, plus a special method for certain federal covered securities. They are
notice filing coordination qualification
if an agent terminates employment with a broker dealer or is involuntarily terminated, both parties must
notify the admin promptly
Testimonial are
now allowed.
Linking to a third party site or recieving data feeds from outside sources could contain information that NASAA considers
objectionable
Within 15 days after a customers account has been approved for options trading, the broker dealer must
obtain from the customer a written agreement that the customer is aware of and agrees to be bound by FINRA rules applicable to the trading of options contracts and that the customer has received a copy of the current ODD
In the case of agency cross transactions, permission to engage in them must be
obtained in writing prior to the first transaction
An agent would never maintain custody of money or securities
of a client
Custody is the physical posession or control
of funds and securities
In 2015 NASAA published an investor advisory regarding fees charged by broker dealer firms for services and maintenance
of investment accounts
Pecuniary
of or relating to money such as operating for a pecuniary profit
In any proceeding or prosecution under this act, any copy so certified is prima facie evidence
of the contents of the entry or document filed
Make the fee schedule available on the firms website without the need for a
password or login
Filing Fee: The issuer or any other person on whose behalf the offering is to be made must
pay a filing fee as determined by the administrator when filing the registration
Every person filing a securities registration amendment shall
pay a late registration fee and a filing fee, calculated in the same manner as the original quantity, levied against the additional securities proposed to be offered.
The bank secrecy act requirement applies to cash transactions used to
pay off loans, the electronic transfer of funds, or the purchase of certificates of deposit, stock, bonds, mutual funds, or other investments
in addition, the admin may deny a registration if the applicant fails to
pay the filing fee
Under a typical wrap fee program, a client will
pay the sponsor a single fee for management, brokerage commissions, custody, and other services provided under the program.
Spreads and commissions for broker dealers are what they use to
pay their agents who actually make the sales to clients
in order for a preorganization certificate to be an exempted transaction there can be no
payment of funds or commissions
Filing Fee: the filing fees are often based on a
percentage of the total offering price
Once your registration has been withdrawn, the admin still retains jurisdiction over you for a
period of one year
The USAs language is "In any proceeding under the act, the burden of providing an exemption or an exception from a definition is upon the
person claiming it
Under the USA, the burden of providing an exemption or an exception from a definition falls upon the
person claiming it
An accredited investor refers to a
person who is not counted when computing the number of investors purchasing a private placement under Regulation D of that act.
An issuer is any
person who issues (distributes) or proposes to issue a security
A 3c7 issuer is one whose outstanding securities are owned exclusively by
persons who at the time of acquisition of such securities, are qualified purchasers (a federal term referring to those with at least $mil in investments for individuals and generally 25mil in investments for business entities and which is not making and does not at that time propose to make a public offering of such securities
The brochure supplement is a narrative form using
plain english
The client can recover the entire loss,
plus costs
Regarding Foreign government securities, unlike US or Canadian issues
political subdivisions are not included as exempt unless they are guaranteed by the sovereign government
Addressing the IA, custody includes
possession of client funds or securities unless received inadvertently and returned to the sender within 3 business days Any arrangement under which you are permitted to withdrawal client funds or securities maintained with a custodian upon your instruction to the custodian Any capacity that gives you or your supervised person legal ownership of or access to client funds or securities possession of client funds or securities by a broker dealer affiliated with the IA
The admin may require bd who are registered in his state and who have custody of or discretionary authority over client funds or securities to
post surety bonds in amounts that the admin may prescribe, subject to the limitations of the SEA of 1934.
A linkedin page would require
pre approval
Although the states are preempted from requiring registration for Federal covered securities, status as a Federal covered security is not a
preemption of the licensing and antifraud laws
In June 2019, the SEC implemented Regulation BI for BD. At the time, they adopted new rule 204-5 under the investment advisers act of 1940. This created the requirement for the investment advisers to
prepare a customer relationship survey (CRS) as form ADV Part 3
An offer to sell or buy is made in this state whether or not either party is then
present in this state when the offer originates from this state
The firm must establish and maintain procedures to
preserve the records so as to reasonably safeguard them from loss, alteration, or destruction. - Digital records must be in a WORM format. Write once, read many. To limit the access to the records to properly authorized personnel and the admin and to reasonably ensure that any reproduction of a non electronic original record on electronic storage media is complete true and legible when received.
Admininstrator may bring a civil enforcement action in court particularly to
prevent publication, circulation, or use of any materials required by the administrator to be filed under the act that have not been filed
When proceeds of the sale go to the issuer, it is a
primary offering
When broker dealers buy and sell securities for their own accounts, called proprietary accounts, they act in a
principal capacity as dealers.
There is an area on the form adv part 2A where the state-registered advisers must identify each of the
principal executive officers and management persons and describe their formal education and business background. If that information has been supplied elsewhere in the form ADV, it is not necessary to repeat it in response to this queston
Depending on the nature of the media, prior approval by a supervisory person may or may not be required. For example, an unscripted participaton in an interactive electronic forum comes within the definition of a retail communication that does not require
prior supervisory approval (twitter)
Prospectus Delivery Requirements: The administrator may require that in the case of a security registered by qualification, the prospectus be delivered
prior to or concurrent with the sale
The administrator may require that a prospectus for a seucirty registered under qualification be sent or given to each person to whom an offer is made
prior to the sale of the security rather than no later than the due date of the confirmation
It is up to the court to determine
prison time
An IA or BD must give a customer 30 days to implement any opt out provision in the
privacy notice
If the clients case is proven, at the direction fo the admin, the client may
recover the orig purchase price of the securities plus interest at a rate determined by the admin generally referred to as the states legal rate minus any income received while the securities were held
Unlike agents, broker dealers investment advisers, and investment adviser reps are never permitted to share in the
profits and losses in their clients acocunts
Commercial paper is a form of
promissory note. It is a security.
On termination of an agent from a firm with which he is registered both the agent and the firm must notify the admin of such termination
promptly
The firm must obtain a properly executed written margin account agreement
promptly after the initial transaction in the account
When broker dealers buy and sell securities for their own accounts those accounts are called
proprietary accounts
Disclosure must be made to all current clients and to
prospective clients regarding material disciplinary action
Retail clients need far more
protection than institutional ones
SIPC provides
protection to clients of broker dealers in the event the BD enters bankruptcy.
REgulation SP requires members to adopt policies and procedures that
provide adequate safeguards of confidential customer information and records
For advisers to qualify for an exemption for private funds, the adviser had to be one who
provides advice soley and exclusively to one or more qualifying private funds.
Reasonable opt out methods available to memebers include
providing a reply form with the opt out notice an electronic means to opt out if the customer has agreed to the electronic delivery of information and a toll free number that customers may call
A registration statement may be amended after its effective date to change the number of shares to be offered and sold as long as the
public offering price and underwriters' discounts and commissions are unchanged.
There is a special Operations Disclosure Document ODD
published by the options clearing corporation OCC
When a security is sold in violation of the USA (non exempt security must be registered under this scenario) the client can not claim
punitive damages
The investment philosophy of a holding company is to
purchase ownership interest in other companies for the purpose of controlling them
For registration by qualification, the administrator may require that a prospectus be sent to
purchasers before the sale and that newly established companies register their securities for the first time in a state by qualification
When acting in an agency capacity, the firm is acting like any other broker or agent in that they are simply
putting the buyer and seller toghether
Securities not eligible registration by another method must be registered by
qualification
For a private fund, all investors must be
qualified clients.
Special Subscription Form: The administrator has the power to request regular filings of reports but no more frequently than
quarterly
Exempt transactions are most often identified by whom the transaction is with
rather than by what type of security is involved,
Filing the Registration Statement: One item that will not be found in the registration statement is the
rating of the security
When the period of suspension of the firm is over, registration of the individual is
reactivated
All required documents are subject to
reasonable, periodic, special, or other examination as the admin deems appropriate int he public interest or for the protection of the investor.
IA are required to disclose to clients in writing before any advice is rendered, any material conflict of interest relating to the adviser or any of its employees that could
reasonably be expected to impair the rendering of unbiased and objective advice, including compensation arrangements connected with advisory services to clients, which are in addition to compensation from such clients for such services and charging a client an advisory fee for rendering advice when a commission for executing securities transactions pursuant of such advice will be received by the adviser or its employees.
Custody does not include
receipt of checks drawn by clients and made payable to unrelated third parties if forwarded to the third party within 3 business days of receipt having investment discretion over the clients account
The consent to service of process appoints the admin as the applicants attorney to
receive and process noncriminal securities related complaints against the applicant
Cold callers working for a broker dealer would have to register as agents if they did any more than ask if clients wanted to
receive more infromation
In addition, if the registrant is an agent or an IAR, the employing broker dealer or IA, respectively, will
receive notice of the final order from the admin
Jusidiction applies to those who sell or offer to sell or to buy, whether or not either pary is then present in this state, when the offer originates from this state or is directed by the offeror to this state and
received at the place to which it is directed
A document is considered to be filed when it is
received by the admin
When improper investment advice is offered, the purchaser of the advice is entitled to
recover the cost of the advice, losses incurred, and legal costs but is not entitled to recover the original purchase price from the adviser.
As exempt securities, the issuer does not file advertisements or
register
Under the USA, any person included in teh definition of a BD must
register as a BD in the states where it does business.
In most states, when an existing client legally changes residence to another state in which the broker dealer is not registered, the firm has 30 days during which it may continue to do business with that client without registration in the new state. Should it wish to maintain that client, the broker dealer would have to
register in that state.
The firm has 30 days during which it may continue to do business with a client without registration in the new state. Should it wish to continue to maintain that client, the BD would have to
register in that state.
When an IAR for a covered IA, the IAR is requuired to
register only in the states where the IAR maintains a place of business.
If a person or entity advertises on the internet and follows up with advice (IA) or offering securities (BD), it either has to
register or find some kind of exemption
A broker dealer must
register with the USA
Every person (legal entity) that falls within the definition of a broker dealer must
register with the admin of the state
Mid size advisers are a new category added by Dodd Frank. It includes those with aum of at least 25mil but not 100mil. These are generally prohibited from SEC but must
register with the state
Unless qualifying for an exemption, any person who meets the definition of a BD (or agent, IA, or IAR) must
register with the state
Regarding a agency cross transaction, when acting in such a capacity such person is required to be
registered as a bd in the state unless excluded from the definition
A solicitor must be
registered as investment adviser representatives
Broker dealers offering wrap fee programs must also be
registered as investment advisers
Among the exemptions from registration are advisers who have no place of business in this state, but are
registered in another state
If a person or entity just generally advertises on the internet, it does not have to be
registered in the state
Securities sold in exempt transaction do not have to be
registered in the state
Under the USA, the admin may by rule or order establish minimum financial requirements for an investment adviser
registered in the state
Notice filing is used primarily for
registered investment companies such as mutual funds
There are several types of funds, such as hedge funds, venture capital funds, and private equity funds that are not
registered investment companies under the investment company act of 1940 for the purposes of the notice filing
Under FINRA, there is a supervisory level of registration called
registered principal
On FINRA exams, agents are referred to as
registered represenatives
Cease and desist orders are against
registered securities professionals
individuals representing broker dealers in a sales capacity must register as agents whether they sell
registered securitites, securities exempt from registration, or in exempt transactions
Under the National Securities Markets Improvement Act of 1996 (NSMIA), investment advisers are
registered with either the SEC (federal covered advisers) or the state (state registered) but never both
Many investment adviser are dually
registered.
The firm has 30 days during which it may continue to do business with a client without
registration in the new state.
Federal covered advisers are those
required to be registered or registered as an investment adviser with the SEC because they meet the minimum threshhold of assets under management, currently $110mil Registered with the sEC because they are under contract to manage an investment companyregistered under the investment company act of 1940, regardless of the amount of assets under management or not registered with teh SEC because they are excluded from the definition of an investment adviser by teh investment advisers act of 1940. The only testable example of a person who is excluded under this provision is one whose advice analyses or reports are related only to securities that are DO of or obligations guaranteed by the US or by certain us government sponsored corporations designated by the secretaty of the treasury FNMA GNMA
During the application process, should there be any legal proceeding in progress, the withdrawal will be delayed until
resolution of the issue
a buyer has 30 days after receiving the letter of recission to
respond
Individuals who meet the standard of accredited investor are
retail, rather than institutional
If an application is withdrawn or denied, the admin is entitled to
retain a portion of the fee.
if a period of more than 2 years should transpire without reregistering,
retaking the exam will be neccessary
One major difference between recordkeeping of ia and bd is
retention
SIPC (not the admin) appoints a trustee whose job is to
return assets owned by clients but held at the bd
in someone withdrawals an registration but later there is sufficient evidence of improper activity available, the admin may institute a
revocation or suspension proceeding within one year after a withdrawal becomes effective
The seller is offering the buyer the
right of recission
As part of opening a margin account, the bd must provide customers with a
risk disclosure document and must be provided to margin customers on an annual basis.
the admin may require additional information by
rule or order
The purpose of the cutomer protection rule is to
safeguard customer securities and funds held by a broker dealer to prevent investor loss or harm in the event of a broker dealers failure and to enhance the SECs ability to monitor and prevent unsound business practices
The term bank does not include a
savings and loan association, a building and loan association, a building and loan association or a foregin bank
The term bank does not include a
savings and loan association, a building and loan association, or a foreign bank
NASAAs statement of policy on dishonest or unethical business practices of broker dealers and agents states that it is prohibited to execute any transaction in a margin account without
securing from the customer a properly executed written margin account agreement promptly after the initial transaction in the account
Precious metals are not
securities
Promissory notes are
securities
The admin does not approve or disapprove of
securities
Rules for admin and compliance with the law are the responsibility of the
securities admin
Nonexempt means the
securities are not exempt from registration
The usa exempts registration a number of different issues including
securities issued by a bank or anything that resembles a bank (savings and loan or credit union). Securities issued by a governmental unit are always exempt. Securities listed on the NYSE are part of a group known as FEderal covered securities that also includes securities listed on NASDAQ Stock MArket
Examples of a federal covered security are
securities listed on national stock exchanges, investment companies registered under the investment company act of 1940, and securities issued by federal and state governmnts
Isolated non-issuer transactions usually do not involve
securities professionals
Broker dealers are prohibite from delaying delivery of
securities to customers
if secretaries or sales assistants accept customer transactions or take orders over the phone, they are engaging in
securities transactions and are subject to registration as agents.
The primary function of all BD is the execution of
securities transactions either for their clients or for their own accounts
IAs do not engage in
securities transactions. That is the role of the BD
When the client is buying a security, the broker dealer is
selling it out of their inventory
Special Subscription Form: Although the issuer is commonly the registrant,
selling stockholders and BDs may also file an application
Registration by coordination is by far the most frequently used method and from a practical standpoint is the most
sensible way to register a multi-state offering
if dually registered, the recordkeeping requirements are kept
separate
Use standardized and uncomplicated terms to describe
service and maintenance fees in order to help clients compare fees between different firms
Firms that are members of SIPC must place a
sign in each office location indicating that the bd is a SIPC member
Coordination method
simultaneous registration of a security with both the sec and the states
an adviser less than 20mil is
small and state
Firms must ensure that they have sufficient systems, policies, and procedures to supervise, review, and retain business communications made using
social media sires
Examples of non-public personal information include
social security number, account balances, transaction history, the fact that the individual was at one time a customer, and any information collected through a consumer reporting agency or an internet cookie.
Because commission dollars pay for the research (whether that is proprietary or third party) the practice of allocating certain amounts of these dollars to pay for the research component has come to be called
soft dollars
Those registered by coordination are obviously registerd with the SEC and therefore are
sold by major investment banking houses.
Those securities that are nonexempt must register unless
sold in exempt transactions
There is no civil liability unless the client has
some kind of monetary loss
Holding companies are
specifically excluded from the definition of an investment company.
Put options work in the reverse directions of calls. A put buyer has the right to sell (put) the stock to the put option seller at the
specified exercise price
When broker dealers underwrite shares of new securities for issuers, they generally earn a
spread or receive a commission on the sales
When underwriting, broker dealers generally earn a
spread or receive a commission on the sales which they then use to pay their agents who actually made the sales to the clients
registration of an iar is done solely on a
state basis
A state registered adviser only needs to meet the financial requirements of the
state in which its principal office is located
the composition or content of state securities law is the responsibility of the
state legislature, not of admin agencies
unlike gents who register as representatives of FINRA member firms with both the SEC and the states, IARs registers solely on the
state level
Once a state registered adviser has assets under management of at least $100mil it may choose to remain
state registered or register with the SEC.
A Federal covered adviser's AUM could drop below $90mil during the year without triggering the need to change to
state registration
The fees for notice filing are generally lower for the two forms of
state registration
Section 203A of the Investment Advisers Act of 1940 states that for those performing as IARs for Federal Covered Advisers
state registration is required only in those states where that individual has a place of business.
Becoming a member of a national stock exchange has no impact on the
state registration of a broker dealer
when application to the state is required all persons must complete and submit an initial application to the
state securities administrator
Part 1B of form ADV asks additional questions required by
state securities authorities.
The administrator must consider the crime under the statues of the
state where it occured, not his own
A state registered investment adviser must meet the record keeping requirements of the
state where the principal office is located
Broker dealers are regulated by the
states and the SEC
The admin has the power to make and amend rules for compliance with his
states blue sky laws
interest paid to client may be the
states legal rate
What is the hypothecation agreement
stipulates that the broker dealer may use the clients margin securities as collateral for the loan that it makes to the client. It gives permission to the BD to pledge (rehypthecate) customer margin securities as collateral. The firm rehypothecates customer securities to the bank and the bank loans money to the BD on the basis of the loan value of these securities
Covered by means
subject to
The content determines if a piece delivered by an agent is
subject to approval and recordkeeping
Persons who sell securities or offer investment advice in violation of the USA are
subject to civil liabilities as well as possible criminal penalties
If a person with no place of busines sin the state were defined as BD, they would be
subject to registration
For a BD to register in the state, they must
submit an application Provide a consent to service of process pay filing fees Post a bond 9if required by the administrator Take and pass an examination which may be written, oral, or both
Notice Filing is when the administrator can require the federal covered IA to
submit copies of all documentation filed with the SEC and of course pay a filing fee
There may be a publicly advertised offering of preorganization
subscriptions
The purchaser of securities sold in violations of the act may
sue the seller to recover financial loss
With or without prior notice
summarily
One of the requirements relating to the brochure is that submission must be made of a
summary of material changes either in the brochure (cover page or the page immediately thereafter) or as an exhibit to the brochure
Regarding twitter posts do not need
supervisory approval
The only possible financial obligatin of an agent is a
surety bond when exercising discretion
The admin, despite the lattitude he ahs as in administering the usa, cannot
suspend any provision of the usa
When the employers registration is suspended or revoked, that of the registered individual is placed into
suspense or some other term with essentially the same effect
Failure to abide by the required practices can lead to
suspension or a more severe penalty such as a revocation or bar from the industry.
A client rejecting the offer of recission within the 30 day period retains the right to
take the matter to court (sue).
Although it is required to keep all records relating to customers, there are no requirements to keep copies of their
tax returns
The following would likely fall out of the safe harbor
telephone lines office furniture computer hardware travel expenses associated with attending seminars rent any software that does not relate directly to analysis of securities Payment for training courses Internet service
The role of an agent is to represent her employer (the Broker Dealer) in
working with clients or supervising those who do.
If you would like to borrow from an immediate family member, unless that individual works for the same or an affiliated firm, the only way to do that is to
terminate the client relationship
You cannot borrow from any client including your mother unless
that client is a lending institution such as a bank or credit union
Administrators are as a result, prohibited from using for their own benefit, any information derived from their official duties
that has not been made public
An IAR could have 1000 or more clients in a specific state and not register there if
that iar did not maintain a place of business in the state.
Normally, admin investigations are open to the public but when in the opinion of the admin and with the consent of all parties, it is felt that a private investigation is more appropriate,
that investigation will be conducted without public scrutiny,
For a limited offering transaction, The USA does not require a written representation by each retail buyer that she is purchasing for investment. All that is required is that the seller reasonably believes
that the buyer is purchasing for investment only
If a person is subject to a disqualification by any SRO, even the NASD (before it became FINRA) for something that was not a violation of the usa
that would still be a possible cause for denial
Section 15C3-3 is known as
the Customer Protection Rule
NSMIA of 1996 created a new exemption,
the Federal covered security
The admin may cooperate with the securities admin of other states, the SEC and any national securities association registered under
the SEA 1934
Federal law is
the Securities Exchange Act of 1934
The disqualification of any agent may not automatically be used against the BD, but when the agents disqualification is due to lack of reasonable supervision
the admin may proceed against the BD
Anytime there is a material change to the information on the form adv, an amened copy must be filed with
the administrator
Registration by qualification requires a registrant to supply any information required by
the administrator
Registration by qualification is the only registration method in which
the administrator sets the effective date.
Admin investigations may be made in public of private and may occur within or outside of
the admins state.
A disclosure statement is particularly important if
the adviser will be receiving compensation from sources other than the agreed upon advisory fee or that recommendations are limited to the firms proprietary products
The admin may, however, require an agent to be bonded particularly if
the agent has discretion over a clients account.
Even though securities may be exempt from registration and the filing of advirtising and sales literature with the administrator, they are still subject to
the anti-fraud provisions.
Misrepresentations by issuers would violate
the antifraud provisions of the usa
When the fee is paid, the denial order will be removed provided
the applicant is in compliance with all registration procedures
The third member of a securities bond is
the bonding company issuing the bond
The execution of trades is done by
the broker dealer
if the buyer does not acept or reject the recission offer within 30 days,
the buyer forfeits the right to pursue a lawsuit at a latter date
Together Part 2A and Part 2B are delivered to
the client
A compensation grid refers to
the compensation schedule many firms use to pay agents.
If justified a broker dealer but not an associated person of the firm may correct a bona fide error. This does not apply to an associated person of a member because of
the concern that nay such payment may conceal individual misconduct
The only issuer of a court order is
the court
The registration of a successor firm will be effective until
the december 31 renewal date without payment of a registration fee
The USA excludes broker dealers with no place of business in the state from
the definition of a BD in that state to allow firms that deal exclusively with other BDs issuers of securities being traded, and financial institutions to operate in the state without registering.
A security does not have to be registered with the SEC to be included in
the definition of a Federal Covered security
USA excludes broker dealers with no place of business in the state from
the definition of a broker dealer in that state
A publisher of a financial newspaper that has a general circulation is excluded from
the definition of an investment adviser
A spread is
the difference between the POP and what the broker dealer paid the issuer
Form ADV is used to register on
the federal level and the state level
If the client is selling a security and the broker dealer purchases it for its inventory
the firm is acting as a principal and the profit comes from the markdown
An investor opening a new margin account would be required to sign
the hypothecation agreement and the credit agreement
if the iar represents a state registered ia, then
the ia does the notification to the admin
It is unlawful for any state registered investment adviser to employ an IAR unless
the investment adviser representative is registered under the act
Part 2A of ADv is known as
the investment advisers brochure and tends to focus on customer related information
In a non-issuer transaction, the proceeds of the sale go to
the investor who sold the shares
the Federal in Federal credit union does no mean
the issue is a federal covered security
An issuer transaction is one in which the proceeds of the sale go to
the issuer
An investment adviser must disclose compensation received from
the issuer of a security being reccomended
A transaction is an action and must be judged by
the merits of each instance
The disclosure statement should include
the nature and extent of any adverse interest of the adviser, including the amount of compensation it would receive in connection with the account
A security is exempt because of
the nature of the issuer, not the purchaser
Even one retail client who resides in a state triggers
the need for a broker dealer to register in that state.
The orig. site design of a website is kept for 3 years. Whenver revised
the new copy is maintained and starts a new retention requirement for that copy
Because the purpose preorganization certificates is to enable a new enterprise to obtain the minimum number of subscriptions required by the corporation law, the USA places limitations on the number of subscribers rather than
the number of offerees
A bonadife pledgee is
the one who received the security as collateral for a loan.
The SEC has stated that members are not providing a reasonable means to opt out if
the only method to do so is by writing a letter to the member
A function of broker dealers is the
underwriting of new issues
As is the case with a securities professional, a securities administrator may deny, suspend, cancel, or revoke a securities registration is
the order is in the publics interest and the securities registrant files a misleading or incomplete registration statement is engaged in an offering that is fraudulent or made an unfair or unjust or inequitable terms charges offering fees that are exessive or unreasonable has a control person convicted of a securities related crime is subject to a court injunction is engaged in a method of business that is illegal is subject to an administrative stop order of any other state
When securities are sold improperly, the buyer can recover
the original purchase price in addition to reasonable income plus if suit is necessary, legal costs.
Engaging in a transaction exempt from the oversight of the admin bc the issuer is not receiving any of the proceeds and
the parties involved are not trading as part of a regular practice.
denial is generally limited to convictions for any felony or investment related misdemeanors within
the past 10 years
The offeror is
the person attempting to make the sale to the offeree.
A Deminimis Exemption means that as long as the number of retail clients in the state does not exceed the stated number,
the person is not an IA or IAR
Any bond required must provide that suit may be brought for the specified statute of limitations even though
the person who is bonded dies before the expiration of that period
Markdown
the profit made by a dealer when purchasing a security from a customer
Markup
the profit made by a dealer when selling a security to a customer
If a person or entity is defined as a BD, that person is subject to
the provisions of the USA.
Any security given or delivered with or as a bonus on account of a purchase of securities or anything else (a car, jewelry, so forth) is considered to constitute part of the subject of
the purchase and to have been offered and sold for value.
Only individuals, not businesses or institutions, are covered by
the regulation for Regulation SP
NASAA model rule on custody is designed to ensure
the safekeeping of client funds or securities
Unless there is an appearance of fraud, the admin does not have the power bc of lack of jurisdiction to prevent
the sale of a federal covered security in his state
The BD subsidiaries of banks are subject to
the same securitires regulations as other broker dealers
iars never register with
the sec
the first party to a surety bond is
the securities professional who needs to be bonded.
The administrator may, by rule or orer, require the filing of any prospectus, pamphlet, circular, form, letter, advirtisement, or other sales literature or adertising communication addressed or intended for distribution to prospective investors, including clients or prospective clients of an investment adviser, unless
the security is exempt, the transaction is exempt, or it is a federal covered security
Escrow: As a condition of registration under coordination or qualification, the administrator may require that a security be place in escrow if
the security is issued within the past 3 years is issued to a promoter at a price substantially different than the offering price or is issued to any person for a consideration other than cash
Exemptions apply to
the security or transaction only, not tot he securities professional
No trading may take place in a discretionary account with a BD before receipt of
the signed authorization form
Arbitrage is
the simultanious buying and selling of the same security in different markets to take advantage of different prices
For options accounts, the customer agreement must be received
within 15 days after the account opening
A broker dealer does not include a person who has no place of business in this state if the person is licensed under the securities act of a state in which the person maintains a place of business and the person offers and sells in the state to a person who is an existing cutomer of the person and whos residence is not in this state. This is often called
the snowbird exemption and applies to agents, IA, and IAR.
Any delay of a dispercement from an account of an eligible adult will expire
the sooner of: 1. Determination by BD or IA that it is not exploitation 2. 15 business days after the date on which the BD or ia first delayed unless either of the agencies requests an extension of the delay. An extension of a delay will expire no more than 25 business days after the date on which the bd or ia first delayed unless sooner terminated by either agencies or order of court
For the small investment advisers, unless the investment adviser is an adviser to an investment company registered under the investment company act of 1940 and unless exempted under state rules, registration with
the state is required
the National Securities Markets Improvement Act of 1996NSMIA designated certain securities as Federal covered and therefore removed them from the jurisdiction of
the state regulatory authorities
all persons must complete and submit an initial application to
the state securities admin
A broker dealer has an established place of business in
the state that it is in the business of buying and selling securities for the accounts of others (customers) for its own proprietary account
The largest firms are required to register with the SEC and the smaller ones are required to register with
the states
If an issuer is a non-exempt, it must register its securities in
the states where they will be sold under one of the registration methods
The form ADV part 2A contains the most useful information to clients such as
the type of strategies used by the adviser
Securities issued by insurance companies are exempted from registration under the conditions of
the uniform securities act
Insurance company securities refer to the stocks or bonds issued by insurance companies, not
the variable products sold by the companies.
When updating an ADV, it is of critical importance
the verification of assets under management to determine if the adviser is eligible to register with the SEC or must remain state registered
The agent is making an offer of the common stock that can be acquired by exercsing
the warrant
The USA is model legislation for the states to use in writing
their own securities laws
If an agent sold a warrant to a customer for ABC stock then
then it would be a sale of the warrant and an offer of common stock
When assessable stock is given as a gift, the administrator has jurisdiction over the transaction because
there is a potential future obligation in that either the issuer or more likely, creditors can demand payment for the balance of the par value
under the usa with respect to certificates of interest, participation in oil, gas, or mining titles or leases, or in payments our of production under such titles or leases,
there is not considered to be any issuer
Securities of employee benefit plans
these include any investment contract issued by an employee of stock purchase, saving, pension, or profit sharing plan
Public utility securities
these include any security issued or guaranteed by a public utility or public utility holding company or an equipment trust certificate issued by a railroad or other common carrier regulated in respect to rates by Federal or state authority or regulated in respect to issuance or guarantee of the security by a governmental authority of the United States, any state, Canada or any Canadian province.
Securities issued by cooperatives
these include securities issued by a non-profit membership cooperative to members of that cooperative
unlike finra, there is no separate principal registration category for those in supervisory posititions
they are all agents
When acting in a principal capacity, the BD is the contra party to the trade. That is,
they are on the other side of the trade to the client
Disclosures are not required for broker dealers on the premises of a financial institution if
they are radio broadcasts of 30sec or less electronic signs, including billboard type signs that are electronic, time and temperature signs, and ticker tape signs, but excluding messages contained in such ,media as television, online computer services or ATMs signs such as banners, posters, when used as indicaors of locations
Individuals representing a federal covered investment adviser only register in those states where
they have a place of business
Federal covered investment advisers will make a notice filing with the state if
they have a place of business in the state or have 6 or more retail clients in that state in a 12 moth period regardless of place of business.
If the firm or associated person explicitly endorsed or approved the content on social media
this is adoption
Business accounts are excluded from the definition of covered account because
those are much less likely to be the subject of identity theft
Included in the USA's list of exempt securities offering an exclusion from the definition of agent for those representatives selling the issue are
those issued by any savings institution organized under he laws of any state and authorized to do business in this state.
The term registrant is used in legal circles to refer to
those security professionals (BD, IA, agents, IARs) or securities issuers who are in the process of registering or who have registered with the administrator.
A surety bond involves
three parties
Email as the same requirements as any other documents.
three years for BD and 5 years for ia.
To enforce the usa, the admin has the authority to make, amend, or receind rules, forms, and order necesary
to adminster the act
Agents function is
to be involved in securities sales or supervise those who do
In an agency cross transaction, the adviser may not recommend the transaction
to both parties of the trade
The administrator of the state has jurisdiction over an offer
to buy or sell
A call option gives the buyer the right, but not the obligation
to buy the stock from the person who granted the buyer that option (seller) at a specified price 9the exercise price)
Cease and desist orders are directed to persons requiring them
to cease activities
Cancellation does not result from violations or a failure
to follow the provisions of the act
Generally, the requirement for BD from the admin to protect investors is
to maintain a minimum net capital
Even though interests in a federal credit union are exempt securities, the exemption does not apply
to the anti-fraud provisions of the act.
Broker dealers are not required to disclose their operating results
to their customers
BDs must always indiciate their capacity on the
trade confirmation
Institutional investor transactions are
transactions with financial institutions and would include any offer or sale to a bank, savings institution, trust company, insurance company, or investment company as defined in the investment company act of 1940.
cash includes
travelers checks and postal money orders.
There is no provision for receiving
treble damages
Unreasonably high returns and not being registered in the US are
two items of a red flag warning to investors published by NASAA
withdrawal becomes effective 30 days after submission of the form
u5
The information contained in or filed with any registration statement, application, or report may be made available to the public
under such rules as the admin prescribes
One of the roles of a broker dealer is
underwriting (distributing) shares of new securities for issuers.
An individual may not act at any one time as an agent for more than one broker dealer or for more than one issuer
unless the bd or issuer for whom the agent acts are affiliated by direc tor indirect common control or the admin grants an exeption
The registration may remain in effect past the first anniversary if there are still some
unsold shares remaining as long as they are still being offered at the original public offering price by either the issuer or the underwriter.
some examples of exempt transactions are
unsolicited brokerage transactions (the client initiates the trade) Transactions between issuers and underwriters Transactions with financial institutons such as banks or trust companies, insurance companies, or investment companies offerings to a limited number of investors, usually referred to as private placements
A client calling to purchase a stock is an
unsolicited transaction, probably the most common of the exempt transactions
The legal term used to describe the lifting of the stop order is
vacated
The USA provides both civil liabilities and criminal penalties for persons who
violate the usa
Both civil liabilities and criminal penalties exist for
violating the act
Other than fees, in all cases on the test
waivers are not permitted
A federal covered security is a security that
was exempt from registration on the state level
If the applicant wishes a hearing, a written request must be made and
within 15 days after the receipt of the written request, the matter will be set down for hearing
The USA not only establishes the jurisdiction for the admin but also outlines the powers or the actions that the admin can take
within its jurisdiction
States may impose certain requirements on municipal securities issued
within their own states
agents
work for broker dealers
Matched orders
when market participants agree to buy and sell securities among themselves to create the appearance of activity or trading in a security
An amendment to a securities registration becomes effective
when the administrator so orders
Unlike coordination, in which the effective date is triggered by the SEC acceptance of the registration, a registration by qualification becomes effective
whenever the state administrator so orders
An admin in one state may enforce subpeonas from a different state
whether the violation ocurred in that state or not
For investment advises registered in multiple states, the location of the principal office determines
which states rules to follow
Part 2B contains information dealing with individuals in the firm
who manage accounts
An accredited investor is an investor
who meets the accredited investor standards of Regulation D.
The surety bonds guarantee the securities professional
will adhere to the law
If the broker dealers net capital exceeds the amounts required by the SEC a bond
will not be required by the state.
If the covered adviser has had no more than five retail clients during a 12 month period, notice filing
will not be required.
To be convicted of fraud, the violation must be
willfull and the registrant must know that the activity is fraudulent
Unlike broker dealers who almost always register with the SEC and one or more states, investment advisers are registered
with one or the other, never both
The state admin can deny, suspend, or revoke any securities transaction exemption other than that of a federal covered security. This action may be taken
with or without prior notice
Investment Advisors register
with the SEC or the state. Never both
The ODD must be provided to any prospective options customer no later than
with the approval of the account
If at the time of the filing, the annual updating amendment to the Form ADV by a SEC registered IA, the reported AUM is less than 90mil, it is necessary for the IA to
withdrawal its sec resgistration and register with the appropriate states within 180 days.
