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assessable stock is a security which requires _______ and is it considered an offer, or a sale?

assessable stock is a security which requires additional payments from shareholders to maintain the value. It is considered an offer but not a sale.

NASAA’s model legislation to protect eligible adults is?

For people 65+ - to protect from financial exploitation allows firms to contact a trusted contact person and delay disbursements (up to a 15-day initial hold) but requires suspected exploitation to be reported promptly to the Admin and Adult Protective Services (APS).

What are the prohibitions on borrowing and lending to clients and what is the exception?

• While agents, IAs and IARs are prohibited from borrowing and lending from/to customers, BDs are permitted to lend to clients in margin accounts.

Organizational records must be retained for

the life of the BD/IA firm and for an additional 3 years post termination/withdrawal of registration.

A tax lien is

a reportable event that must be disclosed on Form U4; while it may indicate financial distress, it is not, by itself, grounds for denial or disqualification.

Not-held (NH) orders

allow an agent discretion over time and/or price of execution only (customer still controls the security and quantity), so they are not discretionary orders requiring written authorization. NH orders are good for the trading day only.

Agents/IARs must do what in regards to their personal information with the regulators?

keep Form U4 updated on a continuous basis. Material changes must be reported promptly, and no later than 30 days after the change.

Explain what happens to a POA at the end of a clients life.

• A POA’s authority ends at death, so no post-death transactions can be placed by the POA; the firm cancels open orders and freezes the account until a properly appointed executor or administrator provides instructions.

Form U4 requires:

disclosure of felony charges and convictions and securities- or money-related misdemeanor charges and convictions, but under the USA an Admin may deny or revoke registration only if the applicant has been adjudicated guilty (convicted) within the past 10 years of any felony or a securities- or money-related misdemeanor (charges or arrests alone are not disqualifying).

A state Administrator may require submission of advertising only for

securities that must register at the state level (e.g., Reg A under the ’33 Act). Advertising for federal covered securities (e.g., mutual funds) is not subject to state review.

An IA’s wrap fee program must be described in a separate disclosure document called the Wrap Fee Brochure. This document is

Form ADV, Part 2A, Appendix 1. It outlines the services provided, fees charged, and potential conflicts of interest unique to wrap accounts.

What types of securities by what issuers are exempt from state registration, and which aren’t

• Securities issued by US banks and insurance companies to raise capital are exempt from state registration. Foreign bank or insurance company securities are NOT exempt.

Explain Margin and Option account approval

under NASAA, the signed margin agreement (credit and hypothecation) must be obtained promptly after the first margin trade; for options, the ODD must be delivered at or before account approval and the signed options agreement must be returned within 15 days of approval, or the account is limited to closing transactions only.

NASAA’s Statement of Policy on Unethical Business Practices requires that

a signed margin agreement must be obtained promptly after the first margin transaction. In other words, a customer may enter the first trade in a margin account before signing the margin agreement, but the firm must secure the signed document without delay immediately following that initial trade.

A Not Held order gives the broker-dealer or agent discretion as to

• the time and/or price of execution, but not as to the security, whether to buy or sell, or the quantity. Because discretion is limited only to time and price, a Not Held order is not considered a discretionary order.

Under the USA, agent registration can be denied or revoked if,

within the past 10 years, they have been adjudicated guilty (convicted) of any felony or of a securities- or money-related misdemeanor. Charges or arrests alone are not disqualifying.

Determine if Stock dividends and loaned securities are offers or sales. Are reorganizations through bankruptcy or M&A an offer or sale? are Bonus offers considrered an offer or sale? Are gifts of assessable stock an offer or sale?

No, No, Yes, Yes

stock dividends, securities pledged or loaned as collateral, exchanges in reorganizations, mergers, or bankruptcies.

not offers of sale

It is prohibited under NASAA model rules to alter, summarize, or highlight

a prospectus before delivering it to a client. Prospectuses must be delivered exactly as filed, whether preliminary (red herring) or final. Any edits, markups, or emphasis added by an agent are considered misleading communications.

IAs must maintain books and records for

5 years, with the first two years in an easily accessible place. If a client switches advisers and transfers accounts, the original IA must still retain all records for the required retention period. Records are not transferred to the new adviser; each IA is responsible for maintaining its own required records.

A free credit balance is

unused cash in a client’s account that must be payable on demand; a BD may only apply standard processing procedures, not restrictions or delays.

When a firm undergoes a reorganization or change in ownership, the successor firm may

file for registration as a BD or IA. The successor firm can assume the registration of the predecessor without paying a new filing fee, provided the application is filed promptly and the successor firm continues the business of the predecessor. This applies to both BDs and IAs, whether state- or federally registered.

Qualified individuals” are

those in a position to recognize and act on suspected exploitation—BD agents, IARs, and persons serving in supervisory, compliance, or legal capacities for BDs or IAs, including independent contractors in those roles. Qualified individuals may delay disbursements and must report suspected exploitation to regulators or protective services.

Under FINRA rules, any communication (e.g email blast sent to 200) sent to more than 25 retail investors in a 30-day period is retail communication (advertisement) and must

be approved by a principal before use; correspondence (25 or fewer) and institutional communications do not require prior approval.

General Rules for Records

Investment Advisers must keep records for 5 years, Broker-Dealers for 3 years, counting from the date of last use, termination, or last activity.

A Private Securities Transaction (PST) occurs when

n agent engages in securities business outside the regular scope of their broker-dealer. If the agent will not receive compensation, they must provide prior written notice to their firm; if the agent will be compensated, they must obtain prior written approval. Failure to follow the appropriate procedure constitutes a selling away violation. (Chapter 6)

High-net-worth individuals with respect to IAR clients

are still considered retail clients under the Uniform Securities Act and count toward the 5-client limit for IAR registration.

A state administrator can investigate securities violations that

originate in another state if those actions have an impact on investors or the securities market in their own state. For example, if a firm based in State A solicits or defrauds investors in State B, the administrator in State B can take enforcement action.