Unit 3

Question 1

Who is a Broker-Dealer?

Answer 1

Any person engaged in the business of effecting transactions in securities for the accounts of others or for its own account.

One of the roles of a BD is underwriting (distributing) shares of new securities for issuers.

Question 2

Persons not included in the definition of BDs are:

Answer 2

• Agents
• Issuers
• Banks, savings institutions, and trust companies
• BDs with no place of business in the state

Question 3

Are BDs allowed to do business with existing customers who are temporarily in a state?

Answer 3

Yes - to avoid unnecessary multiple registrations

Question 4

When official residency is changed…

Answer 4

the 30-day rule applies

Question 5

Is there a de minimis exception for broker-dealers?

Answer 5

NO.

Even if the BD does not maintain a pace of business in the state and has a single retail client → registration is required!

Question 6

Federal Exemptions from Registration as a BD:

Answer 6

Conduct all of their business in one state - you do NOT have to register with the SEC

Question 7

Without SEC registration, a BD cannot…

Answer 7

participate in any transaction executed on a national securities exchange

Question 8

State Exemptions from Registration as a BD:

Answer 8

USA exempts a BD without a place a business in a state if the only transactions effected in the state are with the issuer of the securities involved in the transaction

Question 9

Under the USA, you are a BD if:

Answer 9

• you have a place of business in the state regardless of the nature of your clients

OR

• you have even one retail client in the state

Question 10

Under the USA, you are NOT a BD if:

Answer 10

• you have no place of business in the state

AND

• your only clients are other BDS, institutions, and issuers of the security involved in the transaction

OR

• you are registered in a state where you do maintain a place of business and only do business in a state with existing clients who are snowbirds

Question 11

Agent

Answer 11

any individual (other than a BD) who represents a BD or issuers in transactions of securities

(only a natural person can be an agent)

Question 12

Associated person

Answer 12

any person directly/indirectly controlling/controlled by the BD, any person who contributes capital, and any employees of the BD

(NOT including any clerical or ministerial employees)

Question 13

Cold callers working for a BD would be defined as an agent if:

Answer 13

they did any more than ask if clients wanted to receive information.

In addition, anyones who receives compensation for solicited clients, they would be considered agents and would have to register.

Question 14

Exclusions from the definition of agent for personnel representing issuers:

Answer 14

1. When effecting transactions in exempt securities
2. When effecting transactions exempt from registration
3. When effecting transactions with existing employees, partners, or directors if no sales-related commission is paid for soliciting any person in this state

Question 15

List the exempt securities

Answer 15

1. U.S. government securities
2. Foreign securities
3. Securities issued by or guaranteed by a bank
4. Commercial paper $50k or more with 9 months or less
5. Investment contracts issued in connection with employee’s stock purchase, savings, pensions, profit-sharing plans

Question 16

List the exempt transactions

Answer 16

1. Unsolicited brokerage transactions
2. Transactions between the issuer and underwriters
3. Transactions with financial institutions
4. Private placements

Question 17

An individual employed by a company to sell an IPO to the public is:

Answer 17

an agent of the issuer needing registration, even if not paid compensation. The only exception would be if all transactions were exempt, such as only selling the shares to institutional investors.

Question 18

An individual who works for an issuer of securities is:

Answer 18

excluded from the definition of agent when engaging in transactions with employees involving the issuer’s securities and does not receive compensation.

Question 19

Individuals representing BDs in a sales capacity:

Answer 19

must register as agents regardless of what they sell.

Question 20

What are the agent exemptions from registration?

Answer 20

1. Snowbird exemption
2. When the firm is excluded from the definition of BD because it has no place of business in the state and only deals with other BDs and institutions.

Question 21

All BDs register with:

Answer 21

SEC

Unless told otherwise, assume any BD registers with the SEC and at least one state.

Question 22

What form does a BD submit?

Answer 22

Form BD

Question 23

What form does an agent submit?

Answer 23

Form U4

Question 24

The Admin also may require that an applicant publish:

Answer 24

an announcement of the registration in one or more newspapers in the state.

Question 25

What is NOT a cause for a statutory disqualification?

Answer 25

Loss of a civil lawsuit, even involving securities

Question 26

Registration (usually) becomes effective for all securities professionals:

Answer 26

at noon of the 30th day after filing

Question 27

Records must be preserved for:

Answer 27

3 years (the first 2 years easily accessible in the principal office) unless the Admin specifies otherwise.

Question 28

Included in the recordkeeping requirements are:

Answer 28

electronic communications, particularly emails. However, it is not required to maintain emails of a personal nature sent to non-clients (“Honey, I’m stuck at the office and will be late for dinner.)

Question 29

What are the requirements to keep copies of a customer’s tax returns?

Answer 29

There are no requirements to keep copies of a customer’s tax returns

Question 30

Financial Requirement for BDs

Answer 30

The Admin may establish net capital requirements for broker-dealers (but cannot exceed those required by federal law). Broker-dealers who meet the SEC’s net capital or bonding requirements cannot be required to meet higher ones in any state in which they do business

Question 31

Admin may require those BDs that have discretionary authority over, clients’ funds or securities to post surety bonds. In lieu of a surety bonds,

Answer 31

the Admin will accept deposits of cash or securities

Question 32

Agent Registration Requirements

Answer 32

- Form U4 must be completed - Disclosing citizenship applies may not conduct securities transactions in a state unless that person is properly registered in the state. This is true even when receiving unsolicited orders. Even if there is only one client

Question 33

Agent Termination

Answer 33

If an agent terminates employment with a BD, both parties must notify the Admin. If an agent terminates employment with one BD to join another BD, all three parties involved must notify the Admin. Agent = All parties

Question 34

Financial Requirements for Agents

Answer 34

There are no financial requirements or net worth requirements

Question 35

Multiple Registrations

Answer 35

An individual may not have multiple registrations unless the BDs or issuers for whom the agent acts are affiliated by direct or indirect common control or the Admin grants an exception The agent would have to go through the registration process with the second firm in the same manner as the original application (another Form U4)

Question 36

A broker-dealer in Canada that has no office in this state may effect transactions for:

Answer 36

- A person from Canada who is temporarily a resident in this state who was already a client of the BD - A person from Canada who is a resident in the state, whose transaction is in a self-directed, tax-advantaged retirement plan in Canada of which the person is the holder (in Canada, the equivalent of an IRA is called a Registered Retirement Savings Plan (RRSP)).

Question 37

Renewal applications for Canadian BDs and agents who file for limited registration must be filed before:

Answer 37

December 1 each year

Question 38

Investment Advisers register on the _____ level

Answer 38

federal (SEC) or state, NEVER BOTH

Question 39

Investment Adviser Representatives only register on the ____ level

Answer 39

state

Question 40

Broker-dealers register on what level?

Answer 40

Federal (FINRA) AND state levels

Question 41

Agents register on what level?

Answer 41

Federal (FINRA) AND state levels