Series 66 Crunchtimefacts

define a "person"

An entity with legal rights, including an individual ("natural person") or a corporation ("legal person"). A natural person does not include minors and mentally incompetent.

Regarding registration, an agent of an issuer who is compensated for selling securities publicly _____

must be registered

Regarding registration, an agent of an issuer of exempt securities _____

is not subject to registration

Regarding registration, an agent of a broker-dealer transacting exempt securities _____

must be registered

Regarding registration, an agent selling fixed annuities _____

is not required to be registered (fixed annuities are not securities)

The term "guarantee" can apply to what part's of an investment?

principal, interest, dividend, but NOT to capital gains

Regarding state registration, federal securities are _____

exempt

When do state securities expire?

1 year from their effective date

Define viatical investment. Is it a security?

the purchase of an interest in an insurance policy covering an individual's life. Yes it is a security even though the life insurance policy is not a security.

Investment company shares and securities issued under Rule 506 of Reg. D are subject to what type of registration?

Notice Filing

Registration by Filing (Notification)

- state registration of securities

- intended for large existing issuers (who are already registered under the securities act of 1933), to register new securities

-The issuer must have outstanding equities owned by at least 500 persons

-At least 400,000 shares of common stock held by the public

Registration by Coordination

- state registration of securities

- when an issuer first sells securities to the public it must register them with the SEC, and simultaneously registers with the state

Registration by Qualification

- state registration of securities

- used when a security's federal registration has already become effective (therefore cannot use coordination) OR when no federal registration will be filed (example: intrastate offerings)

Broker-dealers selling securities in a private placement are required to _____

perform due diligence (review issuer's finances and management)

Securities issued by insurance companies are exempt from registration, except for _____

variable annuities

Regarding federal and state registration, securities sold under Regulation A are:

exempt from federal registration (SEC), but subject to state registration (USA)

_____ a type of debt security, exempt if issued in minimum denominations of $50k, have 9 or less months to maturity, and are rated in one of the three highest credit categories by a NRSRO

Promissory notes

abbrev: NRSRO

Nationally Recognized Statistical Ratings Organization (NRSRO)

Unregistered employees of a broker-dealer cannot accept customer orders until _____, but they can _____

their registration becomes effective

write down details of the order

An individual who represents a broker-dealer in effecting or attempting to effect _____ must register as an agent

transactions in securities

A broker dealer must register in every state under what condition?

if it has an office in that state

If a broker dealer ceases operations, it must:

maintain a surety bond for 3 years

A broker dealer that sponsors a wrap program must register as:

an investment adviser

A wrap account:

a single account that combines all of a customers portfolio, charges a flat annual fee

Custody refers to the holding of third-party assets for what duration?

3 business days

Limited registration is granted to what persons?

BD's and agents of Canada

SIPC is an acronym for what and what does it do?

Securities Investor Protection Corporation (SIPC) protects customers in the event of BD insolvency

What is Form CRS?

The Customer Relationship Summary (CRS) must be given to all retail customers who open a new brokerage account.

What are the record retention requirements for a BD?

records must be kept for 3 years, and easily accessible for the first 2 years

What is a Consent to Service of Process? Who files it?

A document that appoints the Administrator as attorney for any non-criminal legal complaints issued against a registrant.

Filed by BD/agents, IA/IAR

Under what condition(s) may agents split commissions with other agents?

both agents are

1. of the same BD

2. registered in the relevant state

When do State registrations for BDs and their agents expire?

December 31 each year

An agent may transact business with _____ clients who are temporarily in another state without _____.

An agent may transact business with existing clients who are temporarily in another state without registering in that state

Advertisements that promote _____ are not required to be filed with the Administrator.

Advertisements that promote exempt securities are not required to be filed with the Administrator.

What are the continuing education (CE) requirements for an IAR?

per year (credits cannot rollover):

IARs must complete 6 credits of Regulatory and Ethics, 3 of which must cover ethics

If not dually registered with FINRA, IARs must also complete 6 credits of Products and Practices

If a firm regularly publishes newsletters on the best time to exercise options, it's considered

investment advice

A person who serves on a committee that makes investment decisions for advisory customers is required:

to register as an IAR

What is the rule to determine if someone is an advisor?

the abc rule: someone who Advises, as a part of their Business, and receives Compensation

What condition(s) must an IAR of a state-registered advisor register?

1. if the IAR has a place of business in that state

2. if the IAR has more than 5 non-institutional investors

What comprises an advisor's net worth?

business assets

- does not include home, furnishings, autos

What is ADV-A?

ADV-A is filed during an IA's initial registration and lists >5% owners and executives (C-suite)

A for Abc123/initial

What is ADV-E?

ADV-E is filed by the auditor of an iA that maintains custody of client assets; must be filed within 120 days of the audit

E for custodEEEEE

State-registered investment advisors must renew their registration every:

State-registered investment advisors must renew their registration every year within 90 days of year-end by filing an amendment to Form ADV, including financial statements

According to the USA, advisory clients must receive a brochure when?

at least 48 hours before signing

OR

at time of contract signing with a 5 day free look period

According to the USA, when are advisory clients not required to receive a brochure?

for contracts with registered investment companies

OR

impersonal advisory services < $500

What happens when an adviser's brochure is updated?

it must be sent to clients at year end

What do IARs file to register?

Form U4

NASAA ______ encryption for sensitive personal identifying information such as SSN.

recommends (not requires)

What is the record retention requirement for IAs?

IAs must keep records for 5 years, including records of former, non-current clients

Supervisors persons on an IA include:

officers, directors, partners, and employees who provide investment advice

When must federal covered IAs renew their registration and how do they do it?

Federal covered IAs must renew within 90 days of fiscal year-end by filing an amendment to Form ADV, including financial statements

Can IAs charge performance-based fees?

Yes, but only to qualified clients (those with 1.4m AUM or 2.7m in net worth)

What is a qualified client?

those with $1.4m AUM or $2.7m in net worth

What happens if an IA partnership changes its partners?

the IA must notify the Administrator and its clients

An IAR of a federal covered adviser must register in a state:

where he/she has a place of business

How do IAs register?

Form ADV

IAs managing less than _____ must register with the state

IAs managing less than $100m must register with the state

IAs that manage between _____ and _____ register with the SEC or state

IAs that manage between $100m and $110m register with the SEC or state

IAs that manage more than _____ must register with the SEC

IAs that manage more than $110m must register with the SEC

Advisers to investment companies must register:

with the SEC regardless of AUM

If a client provides an IAR with username/password to make trades or rebalance the account, the IAR is considered to have _____ over the account.

If a client provides an IAR with username/password to make trades or rebalance the account, the IAR is considered to have limited discretion over the account.

If a client authorizes an IAR to withdraw funds/securities from the client's account, the IAR is considered to have _____ over the account, and _____ over the assets.

If a client authorizes an IAR to withdraw funds/securities from the client's account, the IAR is considered to have full discretion over the account and custody over the assets.

Advisers to private funds less than $150m AUM are classified as _____

Advisers to private funds less than $150m AUM are classified as exempt reporting advisers (ERAs)

Exempt reporting advisers (ERAs) are exempt from _____, but must _____

exempt from SEC registration, but must notice file with the state Administrator and pay a filing fee

Hedge funds are exempt from registration under which act?

Investment Company Act of 1940

Private funds can be exempt under Section 3(c)(1): _____ or Section 3(c)(7): _____ of the Investment Company Act of 1940.

Section 3(c)(1): less than 100 investors or Section 3(c)(7): only sold to qualified clients with at least $5m of investable assets

If an IAR leaves her firm and goes to another firm, how does this impact assignment of client contracts?

It doesn't constitute assignment of client contracts

Performance-based ads are allowed as long as:

they're not misleading

justified with appropriate records

Books and records may be stored using cloud services as long as:

regulators are given notice within 24 hours and have free access

IAs have a _____ duty to their clients.

fiduciary

What is soft-dollar compensation?

Non cash compensation paid by a BD to an IA for directing securities transactions

examples: research reports, software, conferences (not travel)

What is the UPIA?

Uniform Prudent Investor Act (UPIA) - is a key feature of modern portfolio theory with emphasis on the risk/reward of a portfolio

What investment categories does the UPIA restrict?

None, the UPIA allows for any investment that is suitable.

For new issues, when is a prospectus required to be delivered?

by the settlement date

When can an agent sell new issues with the preliminary prospectus?

if the investor is also provided with the information added to the final prospectus

Investment advisers may use testimonials if they're not _____. They must be created by _____ and cannot be edited by the IA.

Investment advisers may use testimonials if they're not misleading. They must be created by a third party and cannot be edited by the IA.

Agents may engage in private securities transactions with customers as long as _____ to avoid the prohibited practice of selling away.

Agents may engage in private securities transactions with customers as long as their BD has been notified and records the transactions to avoid the prohibited practice of selling away.

What is a cross transaction and when is it allowed?

A cross transaction is executed within two clients of the same agent. Because of this, one of the transactions must be unsolicited. Otherwise the transaction would be unsuitable for one of the clients.

What is front running?

When a registered rep becomes aware of a large customer order and trades for her personal account beforehand (expecting the large order to cause the stock to rise)

What is insider trading and what are the penalties?

Insider trading is the use material, non-public information to avoid a loss or incur a gain.

Civil penalty: 3x loss/gain (treble damages)

Criminal penalty: 20 years prison, $5m

What is trading ahead?

Trading ahead is when an agent makes personal trades prior to his firm releasing a research report.

Stating that a security has been approved of by a regulator is _____

Stating that a security has been approved of by a regulator is prohibited

Regarding commingling of cash and securities:

Customer cash may be commingled, but securities must be segregated

An order ticket contains what information?

Name of security

Name of agent

(un)Solicited status

discretionary or not

Type of order

What is a not-held order?

when the customer provides the asset, amount, and action, but allows the registered rep to choose the price and time of execution

example: buy/sell (action) 100 shares (amount) of XYZ (asset)

Investment advisers may accept and execute verbal discretionary orders for up to _____ before obtaining _____

Investment advisers may accept and execute verbal discretionary orders for up to 10 days before obtaining written and signed power of attorney from the client

A no-load fund may assess a _____ fee if the fee _____

A no-load fund may assess a 12b-1 fee if the fee does not exceed 0.25%

When is an agent allowed to share in the profits/losses in a customer's account?

with written authorization of the customer and permission of the employing BD

An agent recommending the sale AND purchase of different mutual funds with the same objective is committing what violation?

churning

IAs that provide links to third-party websites have _____

adopted the content of those sites and are responsible for verifying accurate information

What is an access person?

officer, director, or partner of an IA, as well as any person with access to non-public information regarding securities or client information

In addition to a transaction report, access persons must submit a _____ report:

Access persons must submit a holdings report:

- within 10 days of becoming an access person

- information updated within the last 45 days

- annual reports thereafter

In addition to an access report, access persons must submit a _____ report:

transaction report within 30 days after each quarter

The administrator may issue a _____, but not an injuction.

The administrator may issue a cease and desist, but not an injuction.

A gift of assessable stock is considered what two things?

offer and sale

Regarding administrators, a State A admin investigating in State B is not required to:

not required to notify State B admin

The administrator has jurisdiction over an offer to buy/sell a security that's _____ in their state

The administrator has jurisdiction over an offer to buy/sell a security that's made or accepted in their state

An offer is made in a state if the offer ______, _____, or _____ in the state.

originated in, directed to, received in

Registration can be denied if an individual has been convicted of a securities violation in a foreign country within _____

Registration can be denied if an individual has been convicted of a securities violation in a foreign country within the past 5 years

The revocation of a person's insurance license within the past 10 years is grounds for:

statutory disqualification