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Questions and Answers
What is the procedure called when issuers of mutual fund shares file a copy of the registration statement with the state?
What is the procedure called when issuers of mutual fund shares file a copy of the registration statement with the state?
Notice filing
__________ of prior corporate earnings is not a sufficient reason for the state administrator to issue a stop order denying or suspending a registration statement.
__________ of prior corporate earnings is not a sufficient reason for the state administrator to issue a stop order denying or suspending a registration statement.
Lack
When must broker-dealers disclose their compensation when selling non-NASDAQ OTC stocks?
When must broker-dealers disclose their compensation when selling non-NASDAQ OTC stocks?
Both at the time of the sale and again on the confirmation
Under the USA, who would not have to register as an investment advisor?
Under the USA, who would not have to register as an investment advisor?
Which federal covered securities may require notice filings by the state administrator?
Which federal covered securities may require notice filings by the state administrator?
If you are registered as an agent in state A and your client moves to state B but maintains a vacation home in state A, what are you guilty of if you continue to make trades for this client using their vacation home address?
If you are registered as an agent in state A and your client moves to state B but maintains a vacation home in state A, what are you guilty of if you continue to make trades for this client using their vacation home address?
What is co-mingling?
What is co-mingling?
Unsolicited, issuer transactions are exempt under the USA.
Unsolicited, issuer transactions are exempt under the USA.
When selling investment company shares, broker-dealers and agents must not imply that shares sold without a commission are no-load or have no sales charge if there is any of the following associated with the purchase:
When selling investment company shares, broker-dealers and agents must not imply that shares sold without a commission are no-load or have no sales charge if there is any of the following associated with the purchase:
If an agent offers securities in a private placement to 11 persons within a 12 month period, all offers are in violation of the private placement exemption.
If an agent offers securities in a private placement to 11 persons within a 12 month period, all offers are in violation of the private placement exemption.
Under the Uniform Securities Act, who must promptly notify the Administrator if an investment adviser representative is terminated?
Under the Uniform Securities Act, who must promptly notify the Administrator if an investment adviser representative is terminated?
Securities issued by a Canadian corporation whose stock trades on the Canadian Stock Exchange are exempt from registration under the USA.
Securities issued by a Canadian corporation whose stock trades on the Canadian Stock Exchange are exempt from registration under the USA.
Can a broker-dealer solicit an existing customer who is vacationing in another state?
Can a broker-dealer solicit an existing customer who is vacationing in another state?
Which of the following are defined as either a 'sale' or an 'offer to sell' common stock?
Which of the following are defined as either a 'sale' or an 'offer to sell' common stock?
An applicant's registration can be denied by the Administrator if convicted within the past __________ of any misdemeanor involving a security.
An applicant's registration can be denied by the Administrator if convicted within the past __________ of any misdemeanor involving a security.
It is prohibited for an investment adviser to be compensated only on the basis of __________ achieved.
It is prohibited for an investment adviser to be compensated only on the basis of __________ achieved.
What type of securities are sold through a private placement?
What type of securities are sold through a private placement?
The Administrator is NOT empowered to:
The Administrator is NOT empowered to:
Under the Uniform Securities Act, the term 'sale' or 'sell' includes which of the following?
Under the Uniform Securities Act, the term 'sale' or 'sell' includes which of the following?
Which actions could constitute fraud?
Which actions could constitute fraud?
What type of transaction is an unsolicited customer order in the secondary market?
What type of transaction is an unsolicited customer order in the secondary market?
Which type of securities is not exempt under the Uniform Securities Act?
Which type of securities is not exempt under the Uniform Securities Act?
What does registration of a security under the Securities Act of 1933 mean?
What does registration of a security under the Securities Act of 1933 mean?
Agents may never __________.
Agents may never __________.
What must the Administrator provide in disciplinary proceedings?
What must the Administrator provide in disciplinary proceedings?
What must an attorney do if advertising advisory services?
What must an attorney do if advertising advisory services?
A broker-dealer firm may do business in this state without registering if it deals exclusively with:
A broker-dealer firm may do business in this state without registering if it deals exclusively with:
The record keeping requirements set by the state administrator may not exceed those required under the federal Securities Exchange Act of __________.
The record keeping requirements set by the state administrator may not exceed those required under the federal Securities Exchange Act of __________.
What must broker-dealers disclose to register in a state?
What must broker-dealers disclose to register in a state?
What information must be included in an application for registration?
What information must be included in an application for registration?
Who may the Administrator impose net capital requirements upon?
Who may the Administrator impose net capital requirements upon?
What must a Canadian broker-dealer do to effect transactions in this state?
What must a Canadian broker-dealer do to effect transactions in this state?
What happens if an agent tells clients he has inside information but doesn't use it to execute trades?
What happens if an agent tells clients he has inside information but doesn't use it to execute trades?
Under the Uniform Securities Act, the registration of a security that was registered by notice filing will be effective for __________.
Under the Uniform Securities Act, the registration of a security that was registered by notice filing will be effective for __________.
Under the __________, stocks and bonds issued by insurance companies are considered to be exempt securities.
Under the __________, stocks and bonds issued by insurance companies are considered to be exempt securities.
SEC Regulation __________ is a federal exemption.
SEC Regulation __________ is a federal exemption.
Securities issued in connection with employee benefit plans are considered to be exempt __________ under the USA.
Securities issued in connection with employee benefit plans are considered to be exempt __________ under the USA.
When can the state administrator use an agent's lack of experience as the only grounds for the denial of registration?
When can the state administrator use an agent's lack of experience as the only grounds for the denial of registration?
Under the Uniform Securities Act, broker-dealers are excluded from the definition of an investment advisor only if the advisory services are __________ to their brokerage business.
Under the Uniform Securities Act, broker-dealers are excluded from the definition of an investment advisor only if the advisory services are __________ to their brokerage business.
What must restricted stock do before it can be resold?
What must restricted stock do before it can be resold?
Who must notify the Administrator when an investment advisor representative terminates employment?
Who must notify the Administrator when an investment advisor representative terminates employment?
Under the Uniform Securities Act, __________ companies are not specifically excluded from the definition of an investment advisor.
Under the Uniform Securities Act, __________ companies are not specifically excluded from the definition of an investment advisor.
The state administrator may not use lack of experience as grounds for agent termination if:
The state administrator may not use lack of experience as grounds for agent termination if:
__________ are a type of casualty insurance often required by government as a condition to licensing.
__________ are a type of casualty insurance often required by government as a condition to licensing.
What can the state administrator do if an agent refuses to comply with a subpoena?
What can the state administrator do if an agent refuses to comply with a subpoena?
Advance written __________ is required for both the amount and the type of stock to be purchased.
Advance written __________ is required for both the amount and the type of stock to be purchased.
Under the Uniform Securities Act (USA), issuers of exempt securities must give potential investors all __________ information.
Under the Uniform Securities Act (USA), issuers of exempt securities must give potential investors all __________ information.
The state administrator may require a surety bond for all of the following EXCEPT:
The state administrator may require a surety bond for all of the following EXCEPT:
Under the Uniform Securities Act, the Administrator may require issuers of mutual fund shares to file what?
Under the Uniform Securities Act, the Administrator may require issuers of mutual fund shares to file what?
Study Notes
Broker-Dealer Regulations
- Broker-dealers can solicit existing customers on vacation in another state without registering in that state as long as no new customers are involved.
- The definition of a "sale" includes any offer to sell securities for value and any solicitation to buy. Gifts of non-assessable common stock are not considered sales.
- An applicant's registration may be denied if convicted of a securities-related misdemeanor or any felony within the past 10 years.
Investment Advisers
- Investment advisers cannot be compensated solely based on capital gains; they can charge a percentage of assets under management.
- An investment adviser must register if advertising advisory services, even if those services are incidental to legal duties.
- Agents may not lend or borrow money or securities from customers, irrespective of authorization.
Securities Definitions and Exemptions
- Securities sold through a private placement are unregistered and defined as an exempt transaction under state law.
- Under the Uniform Securities Act, brokerage firms must disclose orders from other states when applying for registration, including any past administrative orders against them.
- Limited partnership interests are not exempt under the Uniform Securities Act, while government bonds and securities from registered exchanges are exempt.
Registration and Reporting
- Registration statements are valid for one year from their effective date regardless of filing method.
- Restricted stock, which is not registered or sold under an exemption, cannot be resold.
- Broker-dealers must notify the Administrator when an investment adviser representative terminates employment.
Administrator Powers
- The Administrator can issue subpoenas and conduct investigations but cannot issue injunctions; these are court matters.
- Disciplinary proceedings require prior notice, a hearing opportunity, and written findings from the Administrator.
- The Administrator may impose net capital requirements on broker-dealers and investment advisers but cannot deny registration solely based on lack of experience.
Investment Firms and Surety Bonds
- Surety bonds may be required for investment adviser firms with discretionary authority over customer accounts.
- Compliance with a subpoena is mandatory for agents; non-compliance may lead the Administrator to petition the court.
- The Administrator may require notice filings from investment companies, even though these securities are federally covered.
Anti-Fraud Provisions
- Intentional omission of material information constitutes fraud, even for exempt securities like government bonds.
- The agent’s mere claim of having inside information constitutes a violation if misleading statements are made.
- Disclosure of all material information is necessary when dealing with exempt securities as they are still subject to anti-fraud laws.
General Guidelines
- An attorney advertising advisory services must register as an investment adviser unless services are incidental.
- Non-NASDAQ OTC stocks must have disclosed compensation at sale and confirmed in documentation.
- Both agents and broker-dealers may need to post surety bonds, but issuers do not have such requirements.
Miscellaneous
- Lack of prior corporate earnings is not enough to deny a registration statement.
- The definition of an investment adviser excludes integrated broker-dealers if the advice is incidental to regular brokerage services.### Regulatory Compliance
- Payment of fees, filing of SEC documents, and consent to service of process are essential steps in regulatory compliance.
Agent Registration
- An agent registered only in state A is guilty of using fictitious information if they continue trading for a client who moved to state B while using a vacation home address in state A.
Co-mingling
- Co-mingling refers to mixing customer securities with those owned by the firm.
- NASAA requires broker-dealers to segregate customers' free securities from the firm's proprietary accounts. Free securities are those not pledged as collateral.
Unsolicited Issuer Transactions
- Unsolicited, non-issuer transactions are classified as non-exempt under the USA.
- Non-issuer transactions occur in the secondary market, while issuer transactions occur in the primary market.
Investment Company Shares
- Broker-dealers cannot claim shares sold without a commission are "no-load" if there are associated costs like front-end loads, contingent-deferred sales loads, or excessive 12b-1 fees.
Private Placement Exemption
- Offering securities in a private placement to more than 10 persons within 12 months violates the private placement exemption rule.
- This exemption allows small companies to raise capital without costly state registration, provided they follow specific rules.
Termination Notification
- For a terminated investment adviser representative, state-registered firms must notify the Administrator promptly.
- In federally covered firms, the investment adviser representative is responsible for notifying the state.
Foreign Securities
- Securities issued by Canadian corporations trading on the Canadian Stock Exchange are considered non-exempt under the USA.
- Exemption applies to recognized foreign governments but not foreign corporations.
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Description
This quiz covers key regulations affecting broker-dealers and investment advisers, including customer solicitation rules, registration requirements, and definitions of securities. Test your knowledge on the legal standards that govern the securities industry and ensure compliance in various scenarios.
