The Uniform Securities Act Definitions
an individual selling stock that he or she owns to another investor would be considered a
non-issuer transaction
municipal bonds offered ONLY in the state where the issuer is located
excluded from the definition of a FEDERAL Covered Security (and therefore may or may not require registration)
securities issued by non-profit organizations
excluded from the definition of a FEDERAL Covered Security (and therefore may or may not require registration)
Receipt of commissions for agents
not a requirement for being an agent
shares acquired as a result of a merger or reorganization
would NOT be considered a sale
Would an IAR include solicitors?
yes, solicitors must be registered as an IAR under USA.
Listed transactions
Trades taking places in different marketplaces such as the floor of a stock exchange
Secondary Market
Transactions that do not involve issuers.
The following are considered Federal Covered Securities because an Exemption exists from the registration at the federal level under the 1933 Act
U.S. Government securities municipal bonds but ONLY if offered OUTSIDE the state of issue (inTERstate) securities that are unregistered an issed as private placements under SEC rules such as reg D offerings
Transactions in some exempt securities
US Gov Securities Municipal securities Canadian Gov Securities, incl securities issued by any province of CA Banks Promissory Notes and Investment Contracts
What are state securities based on?
A model law called the Uniform Securities Act (USA)
AUM FCA
$100 million or more may register with the SEC $110 million or more MUST register with the SEC
excluded from definition of investment adviser
- IARs (investment advisor reps) - Institutions such as banks, savings institutions, trust companies, investment companies, and other financial intermediaries, even if they charge a fee for advisor services These institutions are excluded from registering as an IA
Exempt transactions of Issuer Exclusions
- Isolated non-issuer transactions, meaning secondary market transactions by investors - Transactions in certain covered securities, namely securities sold to qualified purchasers or securities sold in a private placement - Transactions with investing employees, partners, or directors of the issuer if no commission or other remuneration is paid
Persons excluded from the term Broker-Dealer?
1. Agents 2. Issuers 3. Banks savings institutions, trust companies
Broker-Dealer Exclusions
1. An individual who represents a Broker-Dealer in one state and is servicing an existing client who is temporarily in another state (example: client is away on vacation or business) 2. a partner, officer, or director of a BD or issuer. Such executives would only be considered an agent if they were to personally effect transactions (Example: the president of a BD files required reports with the State Securities administrator, they would be considered to be a principal of a BD because they are acting on behalf of the firm OR if the president of the BD executes securities transactions for clients, they would be acting as "Agent")
Two purposes of the USA
1. minimize duplication of federal and state registration requirements ex: some people and securities must be registered only with the SEC and others only with the STATE 2. To prevent fraud
Key points to the definition of an investment advisor are
ABC - The provide Advice about securities directly or indirectly - as a Business - for Compensation in any form, such as advisory Within these three points, there is no requirement that a client implement the advice, or that the firm manages the funds
Broker
Agency capacity - buying and selling securities for the accounts of customers and charging commissions
Assistant of an Agent
Agents may hire unregistered assistants or interns who post and update account records under the direction and supervision of the agent but such assistants may not handle trades or make recommendations to clients under any circumstances if they are not registered
A federal covered advisor (FCA)
An investment advisor who comes within the def of an IA under the federal investment advisors act of 1940. Such an IA must register with the SEC ONLY.
Exception to offer, offer to buy/sell newspaper
An offer to buy or offer to sell is NOT made when a newspaper or other publication: is not published in a state but is sold in a state is published in a state but has had more than two-thirds of its circulation outside of the state during the past 12 months
Security definition
Any evidence of an interest in a common enterprise in which the investor expects a profit from the promoter's managerial efforts
Uniform Securities act state and federal regulators
Both federal government and the states regulate the securities industry
Two Ways BD can do business
Broker and Dealer
Supervisory system requirements for BD
BDs are required to have a supervisory system for the activities of its agents which complies with securities laws, regulations and FINRA rules
Four incidental professions excluded from the definition of an IA
Banks, Lawyers, Accountants, Teachers, and Engineers Excluded provided their advice is incidental to the practice of their professions
Examples of Institutional Investors
Banks, insurance companies, employee benefit plans, and any other persons who are designated as such by rule or order of the Administrator
State securities laws are also known as
Blue sky laws because they are intended to protect investors from buying into schemes that are nothing more than "blue sky"
exceptions of an offer to sell TV/ radio example
If a radio or TV signal is broadcast and directed to State A, but the signal can be received and viewed in State B, then the offer contained in the radio or TV signal is only considered to be an offer in the state where it originated and is directed (State A). It is not considered to offer in State B, but could be considered a "solicitation" in states other than State A
Primary Market
In primary market transactions the funds from the sale of securities go to the issuer of the securities to finance business operations.
What happens if a FCA AUM falls below 90 mil?
FCA must withdraw its federal registration unless an exception exists
Investment advisers Services
Financial Planning Managed Accounts paid in fees
Investment Advisors
Firms that provide "advice" to customers related to securities for a fee
Can agents work for more than one BD at a time?
Generally no. However, is an agent represents more than one BD registration with supervision by both BD is required (dual registration)
What is the difference in compensation for Investment Advisors and IA Representatives?
IA's are compensated with fees IA Rep's share in those fees
Exclusions from FCA and exempt from SEC registration
IAs who give advice on US Gov Sec only Banks and Bank Holding companies Publishers of general advice about securities BLATE professions
Issuer
any person who issues or proposes to issue any security for sale and receives the proceeds of the sale
Solicitors
Include salespersons and others who refer customers to UAs for compensation
Investment advisor employees
Investment Advisor Reps
Portfolio managers and financial planners are examples of
Investment advisors. Those who promulgate analyses or reports concerning securities
purported gifts are bona fide or not bona fide?
NOT bona fide gift, they are sales which appear to be a gift such as a gift of assessable stock
BD Services
New Issues, secondary market transactions paid in commissions
Are assistants or interns permitted to act as an Agent?
No
Is registration as a Broker-Dealer required of the issuer when filing in a state when issuing securities?
No, it would not be required
Are IAs that provide advice about securities issued by institutions, such as banks, be excluded from the definition of an Investment Advisor?
No, they are included
An accountant informs a client that they may be eligible for a tax break if the client invests in certain securities. Is the Accountant required to be registered as an IA?
No, this is an example of investment advice that is incidental to the accountant's practice as an accountant
Off the floor of a stock exchange
Over-the-counter transactions
Dealer
Principal capacity 0 by buying and selling securities for or from the firm's own inventory and charging a mark-up to the price on a buy and mark-down on the price of a sell
State
any state, territory, or possession of the US, including the District of Columbia and Puerto Rico
Broker Dealer Employees
Registered Reps (FED) Agents (State)
rights and warrants
are a security
Are states permitted to require registration of Federal covered security?
Since federal law preempts state law, states are not permitted to require "registration" of these securities. However, a notice of filing at the state level may be required
Regulator of the Uniform Securities Act
State Securities Administrators
Investment bankers and underwriters
are firms that also function as broker/dealers that help bring new issue securities to market and sell the securities through primary offerings
Regulator of the Investment advisors act of 1940
The SEC
A person who has no place of business in a state if the firm effects transactions in the state exclusively with or though
The issuers of the securities involved in the transactions other BDs Banks, savings institutions, trust companies, insurance companies, investment companies, pension or profit-sharing plans, other financial institutional buyers, whether acting for themselves or as trustees None of these members are members of the public (retail)
Where does the majority of trading take place investor to investor?
The secondary market. Where the funds from the sale are exchanged between investors.
A BD whose only offices are in state A and whose only business in State B is executing transactions with another BD in State B would be defined as what in state B?
They would not be defined in State B as a BD according to USA Act because the only customer in State B is a BD which is a financial institution
Are Employee benefit Plans (ex: 401(K)) excluded from def of IA?
Yes
Are Insurance Company securities and Federal Savings and Loans included in the list of "Exempt securities"?
Yes
Can an Administrator make public or private investigations within or outside of the state at any time?
Yes
Is an advisor to a registered investment company or manages an investment portfolio with AUM a FCA?
Yes
Are publishers of new issues, business, or financial publication or service giving general advice about securities excluded from the definition of an IA
Yes they are excluded. Whether hardcopy or electronic, newspapers, magazines, newsletters giving general advice about securities which is not specific to certain clients and does not respond to specific questions from readers
Can an IA be registered as a BD and be paid an advisory fee separate from any commissions it earns on securities transactions?
Yes, acting in both capacities on the same transaction requires written disclosure to the client
Are Federal covered advisers excluded from def of IA?
Yes, and they are exempt from state registration
Is a federal covered advisor exempt from state registration?
Yes, as federal law preempts state law but may be required to file a notice with the states in which 6 or more clients transact business with the FCA
Is a gift of assessable stock considered to be a sale?
Yes, because the owner would no longer be liable for future assessments (received value) by gifting the stock
Can a BD be classified as an issuer?
Yes, if they were selling its own securities
Are BD and their Agents if the advice is incidental to their normal brokerage activities and no extra compensation is charged excluded from the definition of an Investment Advisor?
Yes, they are excluded
If a finance professor at a university offers to create a financial plan for students at a cost of $250 per student, is the professor required to be registered as an IA?
Yes, this is not incidental to the instructor's profession. They are charging a fee.
Person excluded from the term BD
a person who has no place of business in this state is the person is licensed under the securities act of the 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 customer of the person and whose residence is not in this state
Federal covered security
a security that is "covered" by federal law under the Securities Act of 1933. This means that the security must be registered with the SEC or is exempt from registration with the SEC.
To be considered an FCA the IA must
actually register with the SEC Persons who meet the federal definition but have failed to register with SEC are NOT FCAs
An offer, offer to buy, or offer to sell is
an attempt to solicit a purchase or sale of a security for value
exceptions to offer to buy, sell, or offer
an offer to buy or offer to sell is not made when a radio or television program originating outside of the state is received or heard in the state
IAR definition
any individual partner, officer, director, employee, or associate of an IA who: makes reccomendations or gives advice regarding any securities manages clients accounts or portfolios determines the suitability of reccs solicits, sells, or negotiates invmnt advisory services supervises employees who perform above listed services
Agent
any individual who represents a BD or an Issuer in effecting or attempting to effect purchases or sales of securities refers to employees of a BD or a company issuing securities who execute transactions in the purchase or sale of securities to the investing public
a security issued with a guarantee from another entity as to principal, interest, OR dividends
excluded from the definition of a FEDERAL Covered Security (and therefore may or may not require registration) ex: a subsidiary which issues bonds that are guaranteed by the parent company. The idea is to make the subsidiary's bonds more marketable (safer in the eyes of the investor)
Broker/Dealers are compensated with
commissions and mark-ups/mark-downs charged on trades
receiving a "gift" of assessable stock
considered to be a sale
receiving a security as a bonus for buying another security or product
considered to be a sale
receiving rights or warrants to buy another security
considered to be a sale
It is unlawful for any "person" regardless of whether compensation is being received or not to:
employ any device or scheme to defraud Make any untrue statement of material fact or to omit a material fact
inTRAste offerings
excluded from the definition of a FEDERAL Covered Security (and therefore may or may not require registration)
firms and persons would not be required to register when giving advice about investment products
excluded from the definition of a security ex: a person giving advice about a fixed annuity would not have to be registered as an Investment Advisor, IAR, or as an Agent of a BD
Person excluded from BD no place of business vacationing client
if your client is away on vacation, the BD would not need to be registered in the state the client is traveling to
RRs as agents of their BD
includes RRs who are independent contractors
Fraud
includes common law "deceit" and the statutory definitions of "fraud" as used in federal and state securities laws
Investment advisor representatives
individuals that work for investment advisory firms, providing advice to clients related to securities
A person includes
individuals. corporations, partnerships, associations, trusts, unincorporated organizations, and governments or government sub-divisions DOES NOT INCLUDE MINORS
four basic elements of an investment contract
investment of money, a common enterprise, an expectation of profits, and management by a third party (per a supreme court decision known as the Howey decision)
collectibles, including antiques
is NOT a security
commodity futures contracts
is NOT a security
endowment policy
is NOT a security
fixed annuity contracts
is NOT a security
fixed life insurance policies
is NOT a security
precious metals
is NOT a security
real estate
is NOT a security
Assessable stock
is a class of stock in which the issuing company has the ability to impose future levies on stockholders for additional funds historically no restrictions were placed on these additional assessments with regard to limitations on amounts or frequency
An Investment Advisor
is a person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities.
Collateral trust certificates
is a security
Stock, including treasury
is a security
an interest in a real estate investment trust
is a security
any other instrument commonly known as a security
is a security
bonds, including debentures, corporates, municipal, and governments
is a security
certificates of deposit for a security (ex: ADR)
is a security
certificates of interest in an oil, gas, or mining title or lease (certificate of interest in a limited partnership)
is a security
certificates of interest or participation in a profit-sharing agreement
is a security
equity options
is a security
investment contracts, such as those issued by a company's employee stock purchase plan
is a security
pre-organizational certificates or subscriptions
is a security
transferable shares (ex: mutual fund)
is a security
variable life insurance and variable annuities
is a security
voting trust certificates
is a security
An individual that represents an issuer in the sale of an interest in a limited partnership
is an agent and must be registered as such
Dual registration
is an agent represents more than one BD, registration with and supervision by both firms is required
a person
is an individual or a legal entity. under USA a legalistic definition is applied to the term "person"
A sell or sale
is any contract of sale or contract to sell a security for value (as opposed to a bona fide gift)
Broker/Deals
is any person engaged in the business of effecting transactions in securities for the accounts of others or for the firm's own account
investment company or pooled investment fund shares (ex: mutual funds)
is included in the list of securities that must be registered with the SEC
securities listed or authorized for listing on a national stock exchange, such as NYSE, NASDAQ NMS
is included in the list of securities that must be registered with the SEC
securities sold to "qualified purchasers" which includes wealthy individuals, couples, family businesses, or a trust sponsored by qualified persons
is included in the list of securities that must be registered with the SEC
when issuing certificates of interest in oil, gas or mining titles or leases, the company . . .
is not considered to be an "issuer" even though the USA def of security includes such certificates of interest
Administrator
is the designated state official who administers the USA and enforces other securities regulations in a given state
A certificate of interest is defined as a security but the company who sells them are not defined as an
issuer
an offer is considered to have been made in a state when
it originates in a state it is directed to the state it is accepted in the state
agents who inform customers that they can accept offers to buy or to sell are technically
making an offer to buy or sell
Guaranteed
means guaranteed as to payment of principal, interest, or dividends. Guarantees are issued by someone other than the issuer
B/Ds and serving both capacities
of effecting transactions as an Agent / Principal and the two sides of business
Institutional Investors
organizations that trade large volumes of securities
remuneration
payment for work done
IAR does NOT include employees who
perform only clerical tasks such as a receptionist or only solicit sales of FIXED annuities
how the type of client affects registration
private/public sector employees, small companies, gov employees
In order to solicit business or be paid a referral fee, the person must be
registered
Solicitation definition for investment company shares
solicitation is any oral, written, or other communication used to offer or sell investment company shares excluding any proxy statement, report to shareholders, or other disclosure document relating to a security covered under section 18(b)(2) of the securities act of 1933
if an agent tells a customer that the agent cannot make an offer to sell a specific security but can accept an offer from the customer to buy that security then
the agent has technically made an offer to sell the security
Issuers are
the companies selling stocks and bonds to the public
USA Act designed to protect
the investing public, individual investors
Issuer Exclusions on the term Agent
the term agent does not include an individual who represents an issuer in effecting transactions in some exempt securities
If an IAR is not required to register in a state
they are still subject to the anti-fraud provisions
If a person or a security is required to be registered at the federal level
they/ it will not be required to be registered at the STATE level. In GENERAL
Promulgate
to announce; to make known
a bona fide pledge or loan of securities
would NOT be considered a sale
a stock dividend
would NOT be considered a sale
converting a bond to a stock
would NOT be considered a sale