Quiz 1
The basic rule for registration statements filed with the Administrator for securities offerings is that they are good for 12 months. However, if the offering takes longer than 12 months, the registration is still good until the sale is complete. The exact wording of the Uniform Securities Act is:
"Every registration statement is effective for one year from its effective date, or any longer period during which the security is being offered or distributed in a non-exempted transaction by or for the account of the issuer or other person on whose behalf the offering is being made or by any underwriter or broker-dealer who is still offering part of an unsold allotment or subscription taken by him as a participant in the distribution, except during the time a stop order is in effect."
Most States do not allow dual registration - an agent may only be associated with 1 broker-dealer at any time. However, it is permitted, in all instances, for an agent to be registered with a number of broker-dealers that are under "common control." For example, Prudential may have a separate mutual funds broker-dealer and a separate general securities broker-dealer. Agents of Prudential can be associated with both broker-dealers without violating State law. Finally, a few State Administrators permit multiple registrations with different broker-dealers. If this is the case, the agent must disclose all registrations to each of the broker-dealers with whom he or she is associated.
Agents can register with multiple B/D if under common control, also if allows dual registration, some states allow to be registered with multiple broker dealers
As a general rule, the Administrator cannot revoke the exemption from registration granted to the specific "exempt" securities listed in the Uniform Securities Act, such as U.S. Governments, Agencies, or Municipals. In addition, the State Administrator cannot require the registration of "federal covered" securities in the State (but can require a "notice" filing). (Also note that the Administrator does have the power to compel registration of non-profit issues, such as Church Bonds, due to major abuses that have occurred with these.) However, the Administrator can deny the claim of an exempt transaction and make that security be registered.
Administrator can deny claim of exempt transaction and require the security to be registered.
The Uniform Securities Act defines as an agent. Any individual who represents either a broker-dealer or issuer on effecting securities transaction. The Act excludes certain individuals who represent issuers from the definition of an "agent." These individuals are not required to register in the State. The exclusions for individuals representing issuers from being defined as an agent are: individuals who represent issuers in trades of specified exempt securities; individuals who represent issuers in exempt transactions; and individuals who represent issuers selling securities to the issuer's employees where no commissions are paid. The president of the bank comes under the first exclusion. The specified exempt securities are U.S. governments, agencies, municipals, Canadian government issues, bank issues, money market instruments, and money market instruments with no more than 9 months to maturity that are investment grade. Thus, this bank president is selling a specified exempt security because this is a bank issue and is excluded from being defined as an agent of the bank-issuer.
Agent, represents B/D or issuer with securities transaction. Exclusions to those who do not have to register: represent issuers in exempt transaction, exempt securities, selling to employees of issuer with no commissions, Exempt securities: us govt, agencies, municipals, canadian govt, bank, money market, commercial paper investment grade
Cash can be accepted from a customer. If the cash is an amount over $10,000, then the receipt must be reported to FinCEN (Financial Crimes Enforcement Network). Accepting funds or securities from a customer is considered to be "taking custody." Since the customer told the agent to "Buy any securities to meet my investment objective," the representative will be deciding which securities will be purchased and will be deciding the amount to be purchased. To do so requires a written power of attorney, since this is the definition of a "discretionary" account. All accounts must receive statements at least quarterly, whether the accounts are discretionary or not.
All accounts must receive statements quarterly.
Both the agent and the broker-dealer must notify the Administrator promptly of the withdrawal. The withdrawal does not become effective for 30 days. Finally, if there is a customer complaint, the Administrator retains jurisdiction over the agent for a period of 1 year (not 5 years) from the withdrawal date.
B/D and agent must notify promptly, I/A notifies Adviser notifies if Federal Advisor, all promptly, effective 30 days
Broker-dealers are registered federally with the SEC under the Securities Exchange Act of 1934 and, additionally, must register in each State where they have a physical presence or where they solicit securities business. As part of the National Securities Markets Improvements Act of 1996, it was made clear that because broker-dealers are regulated at the federal level, the States cannot require anything that is already required federally. Broker-dealer recordkeeping and reporting rules are set under Section 17 of the Securities Exchange Act of 1934 - so these rules prevail. All that the State can do is ask for a copy of any record or report that the broker-dealer keeps in accordance with the 1934 Act.
B/D are SEC registered required to record keeping and reporting rules under Act of '34, so these rules prevail, State can ask for a copy of any record or report in accordance with '34
Advisers must retain records for 5 years under NASAA rules (note that this differs from SEC rules for broker-dealer records, most of which must be retained for 3 years). The first 2 years' worth of records must be kept at the adviser's principal office, where it is available for inspection.
I/A records kept 5 years, SEC says B/D keep most 3 years. 2 years of records of I/A must be kept in principle office for inspecction
Because the Investment Advisers Act of 1940 permits the charging of performance fees to qualified customers (those with either $1,000,000 invested or a net worth of $2,100,000), NASAA cannot prohibit the charging of a performance fee for this customer who has a net worth of $2,500,000. (Remember that Federal law supersedes State law; in the absence of a Federal law, then only that State law applies.) An annual account fee, or an hourly fee arrangement, would always be acceptable.
Generally, I/A advisors can not benefit from capital gains or appreciation, but can get a performance fee from highly accredited investor ($1M networth 2.1M) Otherwise annual fee, hourly fee.
Civil liability is incurred under the Act if a person sells a security resulting in a violation of the Act. If no sale occurs, then there is no civil liability (Choice A). If a sale occurs, then there is civil liability.
Has to be a sale for civil liability to exist.
Under NASAA rules, investment advisers must update their Form ADV (State registration form) annually, within 90 days of fiscal year end, to reflect current and accurate information and must send the updated Form ADV to its clients within 120 days of year end if there is a material change. In addition, if there is a significant material change in the ADV information that occurs during the year, the filing must be amended within 30 days. The Form ADV is stored in the IARD (Investment Adviser Registration Depository) system. It is used to register both State registered advisers and Federal covered advisers, and to send notice filings to States by Federal covered advisers. Also note that while the annual updating amendment required for both Federal covered and State registered advisers must be filed within 90 days of fiscal year end for either; the filing rule for an "other-then-year" end material change notification is "promptly" under SEC rules for Federal covered advisers; while NASAA requires that it be filed within 30 days for State registered advisers.
I/A registration form: Form ADV, 90 days prior to end of fiscal year Send updated to clients, w/i 120 days of year if material change Significant change in year, update amendment w/i 30 days, promptly to SEC
If an investment adviser has no place of business in a State, and only deals with "professional investors" in that State, then it would be exempt from registration in that State. However, in Choice I, the adviser has a place of business in the State, and hence, must register. Once the adviser has an office in the State, it makes no difference who the adviser deals with - the adviser must register.
I/A, no place of business in state, only deal with accredited investors exempt from registration
Investment advisers with no office in the State that limit their clientele to insurance companies and investment companies are exempt from registration because they are dealing with professionals - not the general public. Note that if an adviser is physically located in a State, then it still must register. There is no exemption from registration under state law for investment advisers that solely give advice on municipal securities - this adviser must register in the state. (Note, however, that if the firm only gives advice about U.S. Government securities, it is exempted from registration under both Federal and State law.) If a broker-dealer is registered as such with the state, then a second registration is not required for that firm to act in the capacity of an "investment adviser" - as long as such investment advice is solely incidental to the broker-dealer's business. This avoids the dual registration of these firms. Please note that if this firm were to actually sell investment advice, it would be required to register in the state as an investment adviser. Investment advisers must register in the state unless an exemption is available.
IA's with no office in state dealing with insurance companies or investment companies are exempt, not dealing with general public, if physically located in state, must register. I/A advice to municipal only, must register US govt only no register If B/D also IA, and investment advice incidential to b/d business, then don't have to have dual registration If I/A sells investment advice, would have to register
Under the Uniform Securities Act, a person could give advice about all of the following securities without having to register in the State as an investment adviser EXCEPT: A. Treasury Bonds B. Ginnie Mae Pass-Through Certificates C. Fannie Mae Debentures D. State General Obligation Bonds The best answer is D. A person who gives investment advice relating solely to U.S. Government securities (including Agency securities), is excluded from Federal registration under the Investment Advisers Act of 1940. Any person excluded from registration with the SEC under the Investment Advisers Act of 1940 is a "federal covered adviser" and cannot be required to register in the State. Note that if the person gives advice about municipal bonds (Choice D), that person is not excluded and must register.
IAR who give advice only about government securities do not have to register, But if giving advice on any other exempt, have to register.
he NASAA model rule for investment adviser financial requirements (Rule 202(d)-1) states that "every adviser required to be registered in the State shall, by the close of business the next business day, notify the Administrator if such investment adviser's net worth is less than the minimum required." After transmitting such notice, each investment adviser shall file, by the close of business on the next business day, a report with the Administrator if its financial condition, including a: trial balance of all ledger accounts; statement of all client funds which are not segregated; compilation of the aggregate amount of client ledger debit balances; and statement as to the number of customer accounts. Since this IA's net capital fell below the minimum on Monday, notice to the Administrator must be given on Tuesday and the report filed on Wednesday.
If fall below, notify next day, file following day.
It is true that, in lieu of posting a surety bond, the Administrator must accept a deposit of cash in the appropriate amount, or a deposit of securities in the appropriate amount. The Administrator is permitted to waive the surety bond requirement for registrants whose net capital or net worth exceeds a stated dollar amount. It is untrue that if there is a surety bond requirement, the Administrator is not permitted to accept cash or securities as a substitute.
In lieu of surety bond, administrator can accept cash or securities.
Excluded from the definition of an investment adviser are: investment adviser representatives, broker-dealers, depository institutions (banks, trusts, savings and loans), professionals (lawyers, accountants, teachers, engineers) and newsletters that do not render advice based upon a specific client situation.
Insurance companies and investment companies are not excluded from the definition (though they may be exempt from registration under certain circumstances).
Finally, though not addressed in the question, NASAA requires that advisers that charge incentive fees provide a whole bunch of disclosures. The adviser must disclose in writing: that the fee arrangement may create an incentive for the adviser to make investments that are riskier; that the investment adviser will get compensation based on both unrealized appreciation and capital gains; the basis for valuing any illiquid investments used in computing unrealized appreciation; the periods that will be used to measure performance and their significance to the computation of the fee; and the nature of an index used as a comparison of investment performance, the significance of the index and the reasons why the adviser believes the index is appropriate.
Lots of disclosures if accept incentive fees.
NASAA rules for IAs only apply to State-registered advisers (those advisers with less than $100 million of assets under management). NASAA does not set rules for federal covered advisers - only the Investment Advisers Act of 1940 applies!
NASAA only sets rules for state registered IA's, Investment Advisers Act of 1940 sets for federal advisers.
Which statements regarding registration of a security in a State are FALSE? I Registration is effective for a time period of 1 year II Once registration is declared effective in a State, it is effective in any other State in which a registration statement is filed III A registration statement can be filed in a State by a person other than an issuer IV To maintain registration in a State quarterly and annual financial statements must be filed with the Administrator A. I and III B. I and IV C. II and III D. II and IV The best answer is D. Registration statements filed in a State are good for 1 year, so Choice I is true. Once registration is declared effective in one State, it is not automatically effective in any other State in which a registration statement is filed. Each State acts independently, making Choice II false. A registration statement can be filed by an underwriter or attorney acting for an issuer; or it can be filed by anyone who has securities that need to be State registered in order for them to be sold; making Choice III true. There is no State filing of an issuer's quarterly and annual financial statements - these are required to be filed by SEC-registered issuers under the Act of 1934 and are public documents, so Choice IV is false.
No state requirement to file quarterly and annual financial statements (required of SEC, but not state).
Registration of a security in a State means that the security can lawfully be offered in that State. The Administrator never approves of an issue, so Choice C is incorrect. The contract included in the security makes it legally binding - registration with the State does not - so Choice D is incorrect. While the information in a registration statement must be complete, accurate, and true, the State does not warrant this by granting a registration. Omissions or misstatements in a registration statement can occur and are the problem of the issuer; not the Administrator.
Omissions and misstatments in security registration are the problem of the issuer.
Being given investment discretion is only "custody" if the adviser has a full power of attorney over the account, which gives the adviser the ability to withdraw customer funds or securities. If the adviser is given a limited power of attorney, the adviser can trade, but cannot withdraw funds or securities, so the adviser does not take custody.
Only custody if have full power of attorney over withdrawal of funds or securities. Limited, can trade but not withdraw funds
Registration by Filing is used for "seasoned" companies to register securities in a State, when these companies have previously registered securities with the Securities and Exchange Commission. It is not available if another Administrator has issued a stop order against selling the issue (this would be the case with any securities registration); It is not permitted if the issue is only going to be sold in one State, since there is no Federal registration for intrastate issues; it is not available if the SEC does not allow the Federal registration to become effective; and it is not available unless the issuer files a copy of the latest prospectus used in the Federal registration with the State Administrator.
Registration by Filing is not available if another Administrator has issued a stop order against selling the issue. Not permitted if only to be sold in 1 state since no federal registration of intrastate issues, will not work if SEC doesn't allow registration, not available unless issuer files copy of prospectus used in Fed registration.
Registration of securities in a State by coordination becomes effective at the same time that the Federal registration becomes effective. However, the Administrator requires that the registration information be on file with the State for at least 10 business days prior to the State registration becoming effective.
Registration by Filing: effective 5th business day, some 2 day rule. Registration by Coordination; registration effective with SEC, must be on file for 10 business days prior Registration by Qualification: 30 days of filing date
Registration of a security does not mean that the Administrator approves of the issue. Registration means that required papers have been filed and reviewed by the Administrator; and that the appropriate filing fees have been paid to the state. Also note that as a condition of registration, the Administrator can require the filing of advertising, sales literature, prospectuses, form letters or circulars that will be used in connection with the offer of the securities.
Registration does not equal approval, Means filing fee paid Papers filed and reviewed, can require filing of advertising, sales lit, prospectused, form letters or circulars
Registration statements for securities are effective for 1 year. If the issuer cancels the sale of the issue, that registration becomes void. If a stop order is entered, the registration ceases to be effective and sale of the issue must stop.
Registration of security good for 1 year, issuer cancels/ registration is void, if stop order entered, registration no longer effective and sale of issue must stop.
The Uniform Securities Act states that registration of a security is not required if: the issue is exempt; or the issue is non-exempt but is offered in an exempt transaction; or the issue does not fall under the definition of a security; or the issue is a federal covered security. Whether an issue has been registered with the Securities and Exchange Commission (under the Securities Act of 1933 - Federal law) has no bearing on State registration requirements. For example, if a new stock issue is registered with the SEC and listed on the OTCBB, then it is not a Federal covered security. It still must be registered in the State before it can be sold.
Registration of security is not required: issue is exempt non-exempt but exempt transaction, not under definition of sec'y federal covered security
Unsolicited customer orders are defined as an "exempt transaction" under the Act, whether the securities involved are exempt or non-exempt.
Unsolicited orders are exempt transaction whether the securities involved are exempt or non exempt, securities do not have to be registered in state. Other exempt transactions: Isolated non-issuer transactions, 1-2 per year Non Isssuer transactions 180 days SEC covered Non Issuer transaction under Investment companies Issuer on Stock exgage changes Fiduciary Transactions Unsolicited Transactions Real Estate secured by Mort Transactions between Issuers and Underwriters Transactions with Financial or Institutional Private Placements: 10 w/i 12 mos Offers of Sales of Pre-Organization Subscriptions Sales where no commissions
NASAA rules require that within 120 days of fiscal year end, the adviser must send each customer a revised Brochure (Form ADV Part 2A) and Brochure Supplement (Form ADV Part 2B) if there are material changes. Instead of sending the entire Brochure, the adviser can simply send the "Summary of Material Changes" section to the Brochure, along with an offer of the revised Brochure. Also note that this annual procedure is not required if there are no material changes to the Brochure.
W/I 120 days of fiscal year end, IA must send each customer Form ADV Part 2A and Part 2B if ther are material changes. can send summary of material changes along with offer of revised brochure, annual procedure not required if no material changes to Brochure.
