Series 63 - The Foundation (Definitions)

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Definitions Part 1-6 as the Foundation of the Series 63

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Page 1

The Foundation - USA - Definitions Part 1

* Blue Sky Laws * Each State has its own securities regulations which are drawn from this master template.This is also known as the Uniform Securities Act.This was created to protect investors against securities fraud by requiring sellers of new issues to register their offerings and provide financial details.The USA master template allows investors to base their judgments on data that, while not approved by the administrator, has been the subject to some official review. The main objective is to protect individual investors from fraudulent activity.

* Uniform Securities Act *Is not an actual set of laws but a guidance for each state to use as a template when forming securities related legislation.The origin came from the mass amount of securities related fraud that occurred in the early 1900s. This and the Blue Sky Laws arose to prevent securities fraud and protect investors.This is a model legislation or template that each state uses in drafting its own legislations and not an actual legislation.

* Administrator * This is an individual responsible for administering and enforcing the securities laws in the state.

* Agent * This is an individual other than a broker dealer who represents a broker dealer in effecting or attempting to effect purchases or sales of securitiesThis is a individual other than a broker dealer who represents an issuer in effecting or attempting to effect purchases or sales of securities.This person is also known as a registered representativeThis person generally works for a broker dealer although he or she can be a person representing an issuer.

* Bank * This is defined as a banking institution organized under the laws of the USThis is defined as a member bank of the Federal Reserve SystemThis is defined as any other banking institution whether incorporated or not, doing business under the laws of a State or the US, a substantial portion of the business which consists of receiving deposits or exercising fiduciary powers similar to those permitted to be exercised by national banks under the authority of the Comptroller of the Currency.

* Broker Dealer *Broker Dealer is a person engaged in the business of effecting transactions in securities for the account of others or for the person's own account.Broker Dealer does not include 5 persons who are these: Agent Issuer A Bank or Savings Institution A person who has no place of business in the state if he effects transactions in the state exclusively with or through: a. the issuers of the securities involved on the transactions, b. other broker dealers, or c. banks, savings institutions, trust companies, insurance companies, investment companies (as defined in the Investment Company Act of 1940), pension or profit sharing trusts, or other financial institutions or institutional buyers, whether acting for themselves or as trustees or, 5. A person is licensed properly in the state in which the firm maintains a place of business (not in this state) and the only business the firm does in this state is with an existing customer of the firm who is not a resident of this state.ABC's of a Broker Dealer = Agent/Broker/Commissions; Principal/Dealer/MarkupBroker is when the securities firm is making transactions for the accounts of others. Dealer is when the securities firm is making transactions for their own account/inventory.

The Foundation - USA - Definitions Part 2

* Investment Advisor * A person that for compensation engages in the business of advising others, either directly or through publications or writings, as to the value of securities or the advisability of investing in, purchasing or selling securities or that, for compensation and as a part of a regular business, issues or promulgates analysis or reports concerning securities. A person that also calls themselves a financial planner or other person that as an integral component of other financially related services, provides investment advice to others for compensation as part of a business or that holds itself out as providing investment advice to others for compensation.When is a person not an investment advisor? An investment advisor representative A layers, accountant, engineer, or teacher whose performance of investment advice is solely incidental to the practice of the person's profession. (remember LATE) A broker dealer or its agents whose performance of investment advice is solely incidental to the conduct of business as a broker dealer and that does not receive special compensation (aka remuneration) for the investment advice. A publisher of a bona fide newspaper, news magazine, or business or financial publication of general and regular circulation, that doesn't consist of rendering of advice on a basis of the specific investment situation of each client. A federal covered investment adviser (advisers registered with SEC) A bank or savings institution. (institutional clients) Defined as a company or a firm that is in the business of providing investment advice for a fee. Even though this person can register as a sole proprietor, for the exam think of this person as a firm that hires othersInvestment advisors can advice through writing or publication.When the answer is yes to these 3 questions a person can be defined as this: does the professional receive compensation in any form as a result of advisory activities? does the professional provide investment advice on securities? does the professional engage in regular business of providing advice on securities? What is the exception of when can a Broker Dealer also be an Investment Adviser?When the BD manages a clients account, takes assets under mgmt. and charges a wrap fee. What is the exception of when can a Bank also be an Investment Adviser?When the bank is a subsidiary bank

* Subsidiary Bank *A banking operation incorporated in the country where it operates but is owned by a parent bank incorporated in another nation.main purpose is to sell and buy securities. it can't underwriter securities and follows regulations that apply to place where it incorporated

* Federally Covered Security *A covered security under the Securities Act of 1933Created by National Security Markets Improvement Act (NSMIA) through amendment of Securities Act of 1933Enjoys a federally imposed exemption from state securities regulation.

* Federally Covered Investment Advisor * Person registered under the Investment Advisor Act of 1940Created by the National Securities Market Investment Act of 1996 to separate the SEC registered IAs from the State registered IAs based on the amount of assets under management.

The Foundation - USA - Definitions Part 3

* Securities Act of 1933 *Applies to 4 Types of Covered Securities1. Securities listed or authorized to be listed on the exchanges or Tier 1 Exchanges (NYSE, AMEX, Nasdaq, Chicago Board). 2. Securities issued by a SEC registered investment company3. Sales to qualified purchasers.4. Securities transaction that is exempt from state registration but not prohibit a state from imposing notice filing rqmts.

The Foundation - USA - Definitions Part 4

* Guaranteed * Means as to the payment of all principal and all interest.There are only 3 entities that may legitimately make guarantees:1. The US Govt2. An Insurance Company3. A parent companyIs an agent allowed to make guarantees? No

* Institutional Investor * Means any of the following whether acting for itself or for others in a fiduciary capacity: A depository institution or international banking institution; An insurance company; A separate account of an insurance company; An investment company as defined in the Investment Company Act of 1940; A broker-dealer registered under the Securities Exchange Act of 1934; An employee pension, profit-sharing or benefit plan if the plan has total assets in excess of $10,000,000 ..." USA does not place as much emphasis on protecting institutions as it does on protecting individual investors"institutions" and "institutional investors" are quite frequently associated with exemptions, just like banks when it relates to the Series 63 exam.These are the big boys on the block who are considered to be more knowledgeable and better able to protect themselves from fraud.Organizations which pool large sums of money & invest those sums in securities, real property and other investments.

* Investment Advisor Representative * Is an individual employed by or associated with an investment adviser or federal covered investment adviser and who makes recommendations or otherwise gives investment advice regarding securities, manages accounts or portfolios of clients, determines which recommendation or advice regarding securities should be given, provides investment advice or holds himself out as providing investment advice, receives compensation to solicit, offer or negotiate for the sale of or for selling investment advice, or supervises employees who perform any of the foregoing.The term Investment Advisor Representative does not include: people who perform only clerical or ministerial acts agent whose performance of investment advice is solely incidental to the individual acting as an agent and who does not receive compensation for investment advisory services people employed by or associated with a federal covered investment. The registration of an investment advisor is defined by the North American Securities Administrators Association (NASAA) Memorandum of Understanding (MoU) from 1997 for both a Federal Covered Investment Adviser and a Investment Adviser Representative as such: "If an investment adviser is registered with the SEC, the states may not require registration, licensing, or qualification of the investment adviser or its supervised persons, except that states may license, register, or otherwise qualify investment adviser representatives who have a place of business located within that state."IAR's are always required to registered with the state. The IA firms that they work for may or may not be registered, depending on their status as defined by National Securities Market Investment Act of 1996.

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