Regulation of Broker Dealers & Agents
What is a Broker-Dealer
A business that buys and sells securities for its customers and its own account
What are Investment Advisers and IARs
Persons who advise others about investments for a fee
What are the three (3) parts that define a security
1.) It is an evidence of ownership
2.) Can be traded for value
3.) Managed through the efforts of a third party
True or False: a formal written complaint against an agent that is filed with a state's Administrator has less legal validity than a complaint filed with an agent or an agent's firm
False. It has the same legal validity
When a Broker-Dealer has custody they either directly or indirectly
Hold client funds or assets or have the authority to obtain possession of them.
If a Broker-Dealer wishes to conduct interstate business and no exemption applies, who must the Broker-Dealer register with
SEC
All states where business is conducted
What is the term for an adviser that is federally registered and SEC-regulated
Federal covered adviser
Who is considered a qualified purchaser
1.) An individual or family-owned business with at least $5 million in investments
2.) An entity that manages at least $25 million in investments for other qualified purchasers - or - is exclusively owned by qualified purchasers.
Where must a new Broker-Dealer first register
In the state where their firm's head office is located
What is a common situation that creates a conflict of interest for IARs
When an IAR is also an agent of a BD
If not being denied, when does a Broker-Dealer's registration become effective
Noon of the 30th day after an application is filed
What is a Promoter
Persons who give testimonials or endorsements on behalf of an IA or IAR
When an security is exempt from registration and/or being sold in an exempt transaction what does the state Administrator retain jurisdiction over
Prosecution for fraud
How long can an agent do business with a client who is temporarily in another state without having to register in that state
30 days
What type of risk(s) does an investor assume
The risk of loss
What may the USA require a Broker-Dealer with custody of or discretionary authority do
Carry a bond
What do state securities Administrators have the authority to require of Investment Advisers and IARs
Registration when business is conducted in the state
What are two (2) reasons certain securities are excluded from USA registration requirements
1.) How they are sold
2.) Who they are sold to
When may a Broker-Dealer be exempted from posting surety bonds
When the firm maintains net capital in excess of minimum requirements
What can a firm purchase to protect against loss or theft by firm employees
Surety bonds (fidelity bonds)
What is a successor Broker-Dealer
A brokerage firm that is formed as a result of a merger or acquisition to continue the original business of the predecessor under a new name
How do Investment Advisers and IARs uphold their fiduciary duty to clients
1.) Hold the client's interest above its own in all matters
2.) Avoid conflicts of interest
In what situation would an Administrator issue a stop order or deny, suspend or revoke registration
If in the public interest or another violation of the Act has occurred
What are the three (3) characteristics that define an Investment Adviser
1.) Provides advice or analysis about securities
2.) Receives compensation
3.) Engages in regular business
What is not included in the definition of a security
1.) Fixed insurance products
2.) Endowment policies
3.) Fixed annuity contracts