Ch.3 - State Regulations Governing Broker-Dealers and Agents

who is NOT an agent of a BD

clerical roles (file paperwork, answer phones)

(4) circumstances in which Agents of issuers are not required to register as an agent during the sale of securities:

1. Exempt security

2. Exempt transaction

3. Federal covered security

4. Transaction with existing employees, partners, directors of issuer and no commission is paid

When must the agent of a broker dealer register as an agent?

always

(2) persons to remember are NOT broker dealers

1. banks/savings institutions/trust companies

2. a person with no office in a state

is a transaction exempt from registration if a customer is simply visiting/going to school another state?

yes

what (4) things must an agent of a BD do for a transaction to be exempt if their customer moves to a new state

1. agent must have pending registration in the new state

2. must be registered in 1 other state (at least)

3. must be registered with FINRA

4. their BD must be registered in the new state

When are Canadian broker dealers exempt from registering in the states? (4)

• Their client is in the US temporarily

• They don't solicit new clients in the state

• BD is a member of a Canadian stock exchange or SRO

• File an application with the state admin along with consent to service of process

When are renewal applications for Canadian BDs due?

December 1st. Must be filed before this date

Registration form for BDs?

form BD

Who does a BD file this with?

Central Registration Depository (CRD)

Registration form for Agents?

form U4

Who does an agent file this with?

Central Registration Depository (CRD)

An agent's registration is only effective when…

employed by a BD

When terminated/leaving a BD, agent must file a form…

U5

Who is the U5 filed with?

the SRO (FINRA) and the state administrator

When an agent leaves a BD for a new BD, who needs to notify the state admin?

all 3 parties. Agent, old BD, new BD

What is a form U6 used for?

to report disciplinary actions against BDs and associated persons

(BDs, agents, IAs, and IARS) registration application becomes effective when?

30 days after filing

When does this registration expire?

annually, 12/31

How quickly should they file for amendments to material changes (U5)?

30 days (promptly)

How often do they file the consent to service of process?

once. Never again

What power does the consent to service process give to the State Admin?

POA to receive and process non-criminal legal complaints

How often do firms pay the filing fee?

annually. Good for remainder of year

What is the purpose of Bonding Requirements?

 required to be paid by BDs, agents, and IAs that are under the minimum net worth to act as a financial guarantee of legal and ethical compliance

What happens to the bonding requirement if a BD violates the law?

affected customers can file a claim against the bond to recover losses

How long must the bonding requirement be maintained by the BD?

while they’re in business, plus 3 years after

What can and cannot satisfy the bonding requirements other than an actual bond?

cash or securities, NOT property

Who determines the minimum financial requirements of a BD?

SEC

How quickly must deficiencies be reported?

within 1 business day

(2) things a BD must do once deficient:

1. Submit statement of financial condition by next business day

2. Obtain a surety bond to make up for deficiency

How long must records be held on file by a BD? (and the caveat)

3 years, easily accessible for 2 years

When does the BD NOT need to file advertising, sales literature, communication with the state admin?

if it's an exempt security

Order tickets must show (4):

1. Customer name/account number

2. Trade details (buy/sell, description, # of shares, order type)

3. Capacity of firm

4. Discretion (yes or no)

(2) Main requirements of the Form CRS (Customer Relationship Summary)?

no longer than 2 pages, must be very clear and simple

When should a new customer receive the CRS by?

no later than the time of account opening, placing first order, or receiving recommendations

Difference between Transfer on Death (TOD) or Pay on Death (POD)?

TOD transfers assets, POD liquidates them then provides cash

What form is required for a discretionary account?

POA

When is the POA not required for discretionary trading?

only for IAs for a new customer up to 10 days

“Not Held Orders” allows the BD to determine…. (2)

1. Time

2. Price

Why?

because time and price aren't part of the 3 a's of discretion

SIPC Coverage:

Cash & securities held in street name:

Cash only:

If exceeded:

1. $500k

2. $250k

3. becomes a general creditor

Under SIPC, In what instance are securities distributed back to the customer without limit?

if they're held in the customer's name, not street name

Which statement(s) are true regarding BDs and agents?

 

1. An agent of an issuer who sells exempt securities needs to register with the state admin

2. If a BDs net capital falls under the minimum, it must notify the admin within one business day

3. If a BDs client moves to a new state, the firm must register in the new state before the client moves

4. An agent of a BD who sells exempt securities needs to register with the administrator

B, C, D