Securities Regulation and Registration Methods

Person

• The term "person" in the Uniform Securities Act (USA) is broadly defined to include all legal entities, including individuals, corporations, partnerships, trusts, and governmental bodies, capable of owning or engaging in securities transactions.

Issuer

• An issuer is any person who issues or proposes to issue a security.
• Examples include corporations issuing stocks or bonds, investment companies issuing shares, and trusts issuing certificates of interest.
• Issuer transactions are those where the issuer directly benefits from the sale of securities (e.g., IPOs, bond issuances).
• Non-issuer transactions are secondary market activities where the issuer does not directly benefit (e.g., trading on an exchange).

Non-Issuer

• Non-issuer transactions are those where the issuer does not directly or indirectly profit from the sale of securities.
• Examples include secondary market trading and private resales.
• Non-issuer transactions may be exempt from certain state securities laws.

Broker-Dealer (BD)

• A broker-dealer (BD) is any person engaged in the business of buying or selling securities for others or for its own account.
• They facilitate securities transactions for customers and conduct trades for their proprietary accounts.
• BDs are excluded from registration in states where their activities are limited to issuer transactions, institutional investors, or temporary residents of the state.

Agent

• An agent is an individual representing a broker-dealer or issuer in effecting securities transactions.
• Agents are required to register in each state where they conduct business, unless there are exemptions applicable.
• Certain transactions, like those with institutional buyers, may exempt specific agents from some registration requirements.

Registration Requirements

• Entities, including broker-dealers, agents, and investment advisors, need to register in any state where they conduct business, unless an exemption applies.
• Registration requirements encompass activities associated with soliciting, selling, or advising on securities.
• Failure to comply with registration requirements may result in penalties or sanctions.

Entity Registration

• Registration is required for broker-dealers, agents, and investment advisors conducting securities business within a state.
• Exemptions exist for specific situations like no office in the state, involving only institutional clients, or limited transactions with temporary residents.

Registration Procedures

• Procedures for registering securities vary depending on the method used (filing, coordination, or qualification).
• Registrants must meet eligibility requirements specific to the chosen method.
• Filing fees and documentation requirements are essential elements of the process for each method.
• Filing materials are generally available, such as forms, and vary according to the party filing.

Standards for Registration

• Competency in securities trading is shown through examinations (e.g., Series 63, 65/66, 7).
• Ethical conduct, including full disclosure of conflicts, is paramount.
• Financial standards necessitate minimum capital requirements and surety bonds.
• Appropriate supervisory systems, employee training, and periodic audits are crucial.
• Standards for broker-dealers and investment advisers differ.

Maintenance Requirements

• Maintain detailed records of operations, customer accounts, transaction data, and communications, retaining them for a required period (typically 3 to 5 years).
• Amendments to registration records and disclosures of material changes are necessary to maintain accuracy.

Denial, Revocation, or Suspension

• Grounds for the Administrator to deny, revoke, or suspend registrations include misrepresentations, fraud, financial instability, and violations of securities laws.
• Individuals or firms have the right to a hearing and contest these actions in court.
• Consequences of denial, revocation, or suspension can range from temporary restrictions to permanent disqualification from the industry.

Customer Accounts

• Account opening procedures include client verification (e.g., ID) and suitability assessments.
• Authorizations for transactions and confirmations, periodic statements, and client communications should be handled correctly.
• Misconduct like unauthorized trading, churning, or commingling funds is prohibited and carries severe penalties.
• Recordkeeping is essential for customer transaction details, disclosures, and agreements, adhering to specified retention periods.

Payment, Margin, and Commingling

• Transactions are typically settled T+2 (trade date plus two days).
• Margin accounts involve borrowing funds for securities purchases, triggering potential margin calls if the account's equity falls below the maintenance margin level.
• Commingling and conversion are both prohibited.
• Firms are required to maintain separate accounts for customer funds and securities.

Orders and Confirmations

• Clients provide order instructions regarding types and specific details.
• Trade confirmations are essential and must be delivered promptly and accurately.
• Prohibited activities like unauthorized trades by agents and misleading statements about trade execution are penalized.

Other Rules

• States have varying rules governing business activities for broker-dealers, agents, and advisory firms.
• Regulations concerning customer privacy, data protection, and anti-fraud measures are often enforced by state administrators.

Scope of the Act

• The Uniform Securities Act (USA) governs activities within its defined jurisdiction (transactions within a state and involving residents of that state).
• Federal covered securities are generally exempt from state registration but still subject to certain state requirements (notice filings, anti-fraud measures).
• The USA does not supersede federal laws, particularly when dealing with regulated entities (e.g., mutual funds, federally listed securities).

Prudent Investor Act

• Fiduciaries must act prudently, considering client goals, risk tolerances, and market conditions.
• Diversification and proper monitoring of portfolios are mandated.
• Avoiding conflicts of interest and speculative investments are critical aspects of compliance.