Learn About Agents/Broker Flashcards

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26 cards   |   Total Attempts: 188
  

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Cards In This Set

Front Back
Covered security
Is a security that is exempt from registration within a state.
The term SECURITY includes commonly known investment instruments:
  • Stocks (including voting trust certificates and treasury stock)
  • Bonds (issued by government entities and corporations, including debentures, collateral and equipment trust certificates, as well as Real Estate Investment Trust certificates and collateralized mortgage obligations)
  • Notes and commercial paper
  • Certificates of interest in profit-sharing agreements
  • Participation interests in oil, gas, mining, lease, and/or real estate limited partnerships, including those with a rental pool
  • Preorganization certificates or subscription agreements
  • Certificates of deposit
  • Options, warrants, or rights (to acquire a security)
  • Variable annuity contracts
  • Whiskey warehouse receipts
  • Real estate condominiums and cooperatives if sold subject to a mandatory rental pool — limited partnerships
  • Commodity options (option contracts to buy or sell currencies)
  • Multilevel distributorships (certain merchandise marketing schemes)
  • Interests in profit sharing agreements, such as oil, gas, and real estate (not the leases for the oil, but units in the partnership)
The term security does not include:
  • Insurance contracts or endowment policies with fixed benefits
  • Fixed annuities
  • Keogh and IRA plans (retirement plans are not securities; however, the money invested in the plans may be used to purchase securities)
  • Commodities futures contracts (note the difference between a futures contract and commodity option contracts. which are securities)
  • Drilling leases
    • PERSON
    An individual, corporation, partnership, government, political subdivision, or any other legal entity with the power to act separately under the law.
    Issuer
    The person who receives the proceeds from the issuance and original sale of a security (the primary distribution) is the issuer. The issuer is also the person (or company) who directly or indirectly receives a benefit from the issuing of a security
    BROKER/DEALER
    Any person, partner, officer, director, or securities firm that is engaged in the business of effecting securities transactions and has a place of business in the state.
    • Any firm that effects transactions and has an office in a state
    • Any person supervising other people's activities for the firm (such as managers supervising agents who are entering orders for clients)
    The following are NOT defined as broker/dealers, and therefore, are not required to register in a state as a broker/dealer:
  • Agents
  • Supervisors, when acting as agents
  • Issuers
  • Financial institutions
    • Please note, however, that under SEC rules, if a bank offers B/D services on its premises, that location can be regulated as a broker/dealer.
  • Out-of-state broker/dealers (those with no place of business within the state) are NOT broker/dealers if their transactions (within that state) are exclusively with or through:
    • Issuers of the securities in the transaction
    • Other broker/dealers
    • Banks (including savings and loan associations and trust companies)
    • Institutional investors (insurance companies, pension or profit-sharing trusts, or other institutional accounts)
  • A securities firm and its agents engaging in INCIDENTAL TRANSACTIONS and nonsolicited order
    		•
    When there is a question on the exam about whether or not a firm must be registered in a state,
    Always assume the firm is not registered in that state. Then determine whether the actions of the broker/dealer require the firm to be registered in that state.
    If the question states that the firm "has an office in the state,"
    Then no matter what additional facts are presented, the firm must be registered in that state
    The term AGENT includes
    Any individual representing a broker/dealer in effecting a purchase or sale in a state, such as:
    • A person who sells registered securities to a client in a state whether or not the person has an office in that state
    • A person who sells exempt securities in a state to a client whether or not the person has an office in that state
    • Persons who have a place of business in the state where they see or call clients on a regular basis
    The following persons are not defined as agents and therefore, are not required to be registered:
  • Individuals who do not have an office in a state and only have institutional clients with whom they do business
  • Individuals who represent issuers in effecting transactions exclusively with the issuer's employees, partners, or directors without direct or indirect compensation for the transactions
  • Individuals who represent issuers in effecting transactions in state-exempt securities, whether compensated or not.
  • Individuals who execute state-exempted transactions, such as:
    • Isolated nonissuer transactions — transactions with clients who are on vacation or clients who call in with an unsolicited trade
    • Issuer-underwriter transactions — transactions between the issuer and the underwriting firm in preparation for bringing securities to m
    		•
    INVESTMENT ADVISORS
    Any persons who have an office in a state and receive compensation or fees for their financial advice are defined
    Investment advisers who do not have offices in a state must still be registered with that state if they receive compensation (a fee) from clients in that state for any of the following:
    They engage in the business of advising others (directly, in writing, or through publications) regarding the value of securities, or they give advice in the buying, selling, or investing in securities.
    • They publish securities analyses or reports (MARKET LETTERS) for individual investors, on a paid subscription basis as a part of a regular business.
    • They call themselves financial planners or they are an integral component of other financially related services, which provide investment advisory services as part of a business for direct or indirect compensation
    Persons are not required to register as investment advisers if they are:
    • An institution such as a bank, savings and loan association, or trust company
    • Publishers of general, regular, and paid circulation publications (for example, newspapers and magazines)
    • Publishers of subscription newsletters that do not provide investment advice on the specific situations of individual subscribers
    • Investment adviser representatives
    • Professionals whose securities advice is incidental to the practice of their profession and for which no additional compensation is charged
    • Broker/dealers and their agents for whom the advice is incidental to a transaction and for which no special compensation is charged
    Lawyers, accountants, engineers, teachers, and agents are excluded from the definition of an investment adviser if
    If their advice is incidental and they are not specifically compensated for their investment advice.