Series 63

No Load

investor can buy and then redeem mutual funds shares without having to pay a sales load

Two ways BD can do business:

1. Broker/Agency Capacity: buying and selling securities for accounts of customers and charging commissions 2. Dealer/Principal capacity: buying and selling securities for/from firms inventory, charging markup/down price

What is excluded from the Definition of a Security?

1. Fixed life insurance or annuity contracts 2. Endowment policies 3. Commodity futures contracts 4. Collectibles, including antiques 5. Precious metals 6. Real Estate

What is required with initial registration filing?

1. Application 2. Registration Fee 3. Consent to Service of Process 4. Bond/Surety Bond

What Must an Order Ticket for securities transactions include?

Account number, time order was received, agent on the account and terms and conditions of order

ABC

Advice on securities as a Business for Compensation

IAR Does Not Include

Clerical tasks or sale of fixed annuities

Type of Firm: Broker Dealer

Employees: Registered Representatives (federal level), Agents (state level) Activities: New issues of securities and secondary market transactions Compensation: Commissions

Advertisement

Defined as any notice, circular, letter, or written communication sent to more than one person or any publication, radio, or television which offers analyses to be used to determining which security to buy or sell, or when

Secondary Market

Do not involve issuers, trading is investor to investor, and can be on an exchange floor or OTC

Isolated trade

Does not involve other trades; investor to investor or investor to B/D

Type of Firm: Investment Advisers

Employees: Investment Adviser Representatives Activities: Financial Planning, Managing Accounts Compensation: Fees

Federal Regulation of Securities

SEC ad Investment Adviser's Act of 1940

Certificates of Deposit

a certificate issued by a bank to a person depositing money for a specified length of time, with interest rate premiums

12b-1 Fee

annual fee charged my mutual fund

Money laundering

acceptance of large amounts of cash from individuals or businesses were money is suspected of being used for illegal purposes. Happens in three stages: placement, layering, and integration stage

Levy

bondholder who owns a secured bond does if the issuer defaults on the payments due on the bond i.e. the bondholder levies against the asset securing the bond and seizes and sells the asset

Federal Covered Security

"Covered" by federal law under Securities Act of 1933 -- must be registered or is exempt from registration from SEC. States cannot require registration of these securities

The term broker dealer does not include:

1. Agents 2. Issuers 3. Banks, savings institutions, trust companies 4. Transactions that effect only groups, not individual investors

Administrator may require registration of these normally exempt transactions and securities:

1. All Exempt transactions 2. Exchange listed securities 3. Securities of non-profits 4. Investment contracts of employee plans

Federal Covered Adviser

1. An investment adviser registered with the SEC or excluded from the definition of investment adviser by the Investment Advisers Act of 1940. Must generally meet a threshold of $100 million or more in assets under management (may register) but MUST register with portfolios above $110 million.

What are excluded from Definition of IA's (even if they charge a fee)

1. Banks 2. Savings Institutions 3. Trust Companies 4. Investment Companies

What are not considered a sale?

1. Bona fide pledge/loan of securities 2. Stock dividend 3. Stock acquired from merger 4. Converting Bond to Stock

Who has an automatic registration with a firm?

1. Broker Dealers -- partners, officers, directors 2. Investment advisers -- partners, officers, directors Needs to see if they're acting in agency or advisory capacity

What must a registration application for a firm contain?

1. Form and place of business 2. business method 3. qualification and business history 4. any injunctions 5. financial condition and history 6. any information furnished to clients if there is an IA capacity

What is excluded from Definition of Federal Covered Adviser (SEC Reg)

1. IA's who give advice on US gov securities ONLY 2. Banks 3. Publishers of general advice 4. L A T E professions

Investment Contract

1. Investment of Money 2. Common Enterprise 3. Expectation of Profits 4. Management by 3rd Party

An Offer is Considered to Have Been Made when:

1. Originates in the State 2. Directed to the State 3. Accepted in the State

What are the exempt Transactions for Agents Representing Issuer? IAR?

1. Secondary market 2. certain covered securities 3. Investing employees, partners, or directors of issuer if no compensation is paid

What are excluded from Federal Covered Securities and May require registration by states?

1. Securities by non-profit organizations 2. Municipal bonds offered only within state of issue 3. Intrastate offerings 4. Security offered with guarantee from another entity as to principal, interest, OR dividends.

Which securities are Agent/Issuer Exempt Securities?

1. US Government Securities 2. Municipal Securities 3. Canadian Gov Securities 4. Banks 5. Promissory Notes 6. Investment Companies

Uniform Securities Act

1. minimize duplication of federal and state registration requirements 2. Prevent fraud

What are the registration/licensing standard requirements for broker dealers and Investment Advisers?

1. minimum capital (set by SEC) 2. Surety bond (set by Administrator) 3. Examinations of books and records

Federal Covered Securities include:

1. securities listed or authorized on national stock exchange 2. Investment company or pooled investment shares (mutual funds) 3. Securities sold to "qualified purchasers."

Notification/Notice Filing

A form of registration at the State Level. A registrant that was previously registered with the SEC can perform a notice filing at the State Level to sell securities in that State. The registrant simply files the required SEC documentation with the Administrator of the State and does not have to register by qualification at the State Level.

Investment Advisor

A person who, for compensation, engages in business of advising others as to the value of securities or as to advisability of investing in those securities

What are the registration standard requirements for an Agent or IAR?

Agent: 1. Surety bond 2. Qualification exams IAR: None listed on U.S.A. Individuals do NOT have minimum capital requirements

Commodity Futures Contract

Agreement to buy/sell predetermined amount of commodity at a set price on a specific date

A new hire at a broker/dealer firm is not yet registered. Which of the following activities by the unregistered employee would be prohibited under the regulations of the Uniform Securities Act? The new hire talks to clients on the phone and accepts unsolicited orders. The new hire sets up meetings with clients where investment objectives and risk tolerance are established. The new hire accepts orders, but only from friends and family who know the new hire personally. The new hire works as an assistant for a registered agent and takes clients to lunch or golfing, where investments are occasionally discussed.

All of the above: An unregistered person is prohibited from discussing investments, investment objectives, and risk tolerance. Unregistered persons also may not accept orders from clients, regardless of the clients relation to the unregistered person. Unregistered persons can perform clerical tasks at the firm. Examples would be directing phone traffic, directing walk-ins to registered agents, mailroom functions, secretarial functions if investments are not discussed in any way, performing generic research which is to be used by a registered person in discussions with a client, and other non-investment related tasks that may need to be performed at a broker/dealer firm.

Common Enterprise

An agreement between two people for a common objective

Unsolicited Order

An order originated by the customer, not the result of a broker/dealer recommendation. The resulting trade is an exempt transaction, though written customer acknowledgement of its unsolicited nature may be required by the Administrator

Sell or Sale

Any contract to sell a security for value as opposed to a gift 1. Receiving a security as a bonus 2. Receiving rights/warrants to a security 3. Receiving assessable stock as a gift

Security

Any evidence of an interest in common enterprise in which investor expects a profit

Solicitation

Any oral, written, or other communication used to sell investment company shares and does NOT include proxy statements, reports to shareholders, or other disclosure documents.

Investment Adviser Representative:

Any partner, officer, director or other individual employed by or associated with an investment adviser who: • Gives investment advice or makes recommendations • Manages client accounts or portfolios • Determines which investment recommendations or advice should be given • Offers or sells investment advisory services, or • Supervises employees involved in any of these activities

State

Any state, territory, or possession of the US, DC, or Puerto Rico

Commodity Future's Contract

Commodities are bulk goods such as grains. Commodities are not securities. Commodity futures contracts are legally enforceable sales contracts of commodities to be delivered at a future date. They are not considered to be securities. Options on futures contracts are puts and calls on futures contracts. They are considered to be securities.

Certificates of Interest in Oil, Gas, Or Mining Titles:

Company is not considered an Issuer

Issuer

Company who issues or proposes to issue any security for sale and receives proceeds of the sale.

Uniform Prudent Investment Act

Established to protect investors and interests when involved in trust or fiduciary relationship

Which of the following statements would be true with regard to Federal Covered Securities?

Federal Covered Securities are not subject to registration by Qualification, but may have to be filed at the State level. Federal Covered Securities are subject to the Anti-fraud provisions of State and Federal Securities Law.

FinCEN

Financial Crime Enforcement Network - oversees BSA compliance.

Integration stage

Funds are reintroduced into economy to purchase legitimate assets

Which of the following is an offer to sell or buy in a state under the Uniform Securities Act? A television advertisement originating out of state is seen in your state. A radio broadcast originating in a neighboring state and heard in your state. A prospectus mailed to and received in your state. A television advertisement is broadcast and viewed in your state.

III & IV represent situations where the information was "directed to" or "originated" in the state.

Which are NOT excluded from the IA list?

Insurance companies and federal savings/loans

What is a warrant considered under USA?

It would be considered an "offer or sale" for purposes of the Uniform Securities Act definitions.

Can Robert, in Canada, contact John, a Canadian vacationing in Florida?

John is an existing client who is vacationing in Florida therefore Robert would be allowed to contact him as long as he and his broker-dealer are properly registered in Canada and have limited registrations in Florida.

Definition of Person does NOT include:

Minors

Are General partnerships and mortgages considered securities?

No

Why Real Estate Isn't A security:

Not regulated under SEC/USA, separate category for income

According to the Uniform Securities Act, which of the following would be specifically excluded in the definition of a Broker-Dealer? [A] Investment Advisers and Investment Advisor Representatives [B] Accountants [C] Lawyers [D] Issuers

Of the choices offered the only one that is "specifically" excluded from the definition of Broker-Dealer is an issuer.

Institutional Investors

Organizations that trade large volumes of securities such as banks and employee benefit plans

Broker-Dealer

Person (firm) engaged in business of effecting transactions for accounts of other or firm's own account

Blotter

Record of the daily activities of each branch of a broker dealer.

Coordination

Refers to registration of a security at the state level by a concurrent registration filing with the SEC. When the SEC or Federal registration becomes effective, the state registration becomes effective as well.

To Be considered a Federal Covered Adviser, one must:

Register with SEC

Agent

Represents a BD or issuer in effecting or attempting to effect purchase or sales of securities. Employees of BD/Issuing firm

Purported Gift

Sales which appear to be a gift such as an assessable stock

Primary Market

Securities being sold for the first time by a corporation (IPO) and funds from sale of securities go to the issuer. Investment bankers/underwriters are firms that function as BD to help bring new issue securities to market and sell through primary offerings

At what level does the Investment Adviser Rep need to register?

State only

Under the Uniform Securities Act, an Offer or Offer for Sale is any attempt to solicit a purchase or sale of a security for value and is considered to have been made in a State when:

Talking about an offer "originating in a state" whereas choices II & III, are talking about offers being through "general" distribution which is not specific to any one state and would therefore NOT be considered an offer made in the state.

An individual represents the Canadian government and its provinces when the government and provinces are issuing securities and effecting transactions related to the issue of these securities. How would this person be defined?

The actions of the individual would be those of an agent, but the individual would be excluded due to working for a government entity.

What is excluded from the list of Federal Covered Securities?

US Gov securities, municipal bonds offered outside of state of issue, and securities under Reg D

State Regulation of Secrities

Uniform Securities Act and State Securities Administration

What must be included if a firm acts in both a BD and an IA capacity?

Written disclosure to client

Are limited partnership interests considered securities under the USA?

Yes

Certificate of Interest

a document that evidences a member's ownership interest in an LLC or another company, including money invested

Correspondance

any written communication to 25 or less retail investors within any 30 day calendar day period

Retail communication

any written communication to more than 25 retail investors w/in 30 day periods, including advertisements, sales lit, and independently prepared reprints.

ADV

application to become an Investment Advisor

As stated in the Uniform Securities Act, federal-covered advisers

can be required to give notice to Administrators in states in which six or more retail clients transact business with the federal-covered adviser.

Placement Stage

cash enters into financial system

Assessable stock:

class of stock in which issuing company has ability to impose future levies on stockholders for additional funds.

Pledged Asset

collateral held by a lender in return for lending funds, which can include cash, stocks, bonds, etc.

Administrator

designated state official who administers USA and enforces securities regulations in given state

Sales Load/Load

fee charged to customer who buys shares of some mutual funds and normally pays up front

layering stage

funds are moved into other accounts

Nasdaq

global electronic marketplace for buying and selling securities, as well as the benchmark index for U.S. technology stocks

Guaranteed

guaranteed as to payment of principal, interest, or dividends, but NOT capital gains

Retail investor

includes both prospective and existing clients

Person

individual or legal entity -- legalistic, includes corporations, organizations, etc

Fraud

intentional misrepresentation, concealment, or omission of the truth for the purpose of deception.

Fiduciary

person who holds a legal or ethical relationship of trust with one or more other parties. Typically, a fiduciary prudently takes care of money or other assets for another person

Non-issuer transaction

purchase or sale of security whereby issuer doesn't benefit directly or indirectly

Does an advisory firm which advertises its services within a given state need to register within that state?

the advisory firm would have to be registered as an IA, because it is holding itself out to be an IA firm, even though the firm may not yet have clients. The advertisements essentially direct business toward all viewers within the state.

Administrator of a State is permitted to suspend or revoke a registration for a firm if....

the registrant has had a revocation or suspension of registration by any securities regulator or securities regulator of a foreign jurisdiction in the past 5 years.

Promulgate

to announce; to make known

Mutual fund

type of Investment Company that sells its own shares of stock and pools funds together to purpose of investing in securities