Series 63

Front 1

Qualification

Back 1

Any security may be registered by qualification. A registration statement under this section becomes effective when the Administrator so orders.

Front 2

Coordination

Back 2

the simultaneous registration of the offering at the SEC and in the states where the offering is to be made

Front 3

are futures securities?

Back 3

no, they are exempt

Front 4

The main objective of the Blue Sky Laws

Back 4

is to protect individual investors from fraudulent activity.

Front 5

AGENT

Back 5

"Agent" means an individual, other than a broker-dealer, who represents a broker-dealer in effecting or attempting to effect purchases or sales of securities or represents an issuer in effecting or attempting to effect purchases or sales of the issuer's securities

Front 6

BANK ( exceptions)

Back 6

.

Front 7

Broker-dealer

Back 7

a person engaged in the business of effecting transactions in securities for the account of others or for the person's own account.

Front 8

Broker Dealer is not

Back 8

1. An agent;
2. An issuer;
3. A bank or savings institution
4. A person who has no place of business in the state

Front 9

when acting as a broker,

Back 9

the securities firm is making transactions for the accounts of others.

Front 10

When acting as a dealer,

Back 10

the firm is transacting business for its own account and inventory.

Front 11

Investment Adviser does not include

Back 11

1. An investment adviser representative;
2. A lawyer, accountant, engineer, or teacher whose performance of investment advice is solely incidental to the practice of the person's profession;
3. 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 for the investment advice;
4. A publisher of a bona fide newspaper, news magazine, or business or financial publication of general and regular circulation;
5. A federal covered investment adviser;
6. A bank or savings institution

Front 12

Late

Back 12

Notice that as long as any investment advice provided by Lawyers,Accountant, Teachers Engineers (late) is "solely incidental to the practice of the person's profession" that person is not defined as an investment adviser.

Front 13

clue that a person is not an investment adviser:

Back 13

not receiving special compensation for the investment advice. The test sometimes uses the word, "remuneration," which simply means money paid for work or a service.

Front 14

Federal covered investment adviser

Back 14

means a person registered under the Investment Advisers Act of 1940.

Front 15

2 types of Investment Advisers

Back 15

Federal Covered Investment

those registered with the states under the USA

Front 16

Notice that broker-dealers are still required to register with both the SEC and the state while the IA is only required to register with one.

Back 16

.

Front 17

covered securities

Back 17

1. Securities listed or authorized for listing on the New York Stock Exchange (NYSE), the American Stock Exchange (Amex); the National Market System of the Nasdaq stock market;
2. Securities issued by an investment company registered with the SEC (or one that has filed a registration statement under the Investment Company Act of 1940)."

Front 18

About 35% of the Series 63 exam focuses on fraudulent and other prohibited practices.

Back 18

.

Front 19

Point of Blue Sky?

Back 19

The main objective of the Blue Sky Laws is to protect individual investors from fraudulent activity.

Front 20

is the USA legislation?

Back 20

It is important to know that the USA is not actual legislation, but is "model" legislation. This means that it is merely a "template" that each state uses in drafting its own legislation.The main purpose of the USA is to REGULATE securities professionals and the sale of securities to protect the public against fraud.

Front 21

Agent

Back 21

an individual, other than a broker-dealer, who represents a broker-dealer in effecting or attempting to effect purchases or sales of securities or represents an issuer in effecting or attempting to effect purchases or sales of the issuer's securities."
This, of course, is the individual to whom we usually refer as a registered representative. This person generally works for a broker-dealer, although he or she can be a person representing an issuer.

Front 22

broker - dealer

Back 22

means a person engaged in the business of effecting transactions in securities for the account of others or for the person's own account.

Front 23

not a broker - dealer

Back 23

account. The term does not include:An agent;An issuer;A bank or savings institutionA person who has no place of business in the state if:He effects transactions in the state exclusively with or through
the issuers of the securities involved on the transactions,other broker-dealers, orbanks, 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, The 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.

Front 24

ABC / PDM

Back 24

Agent/Broker/Commission andPrincipal/Dealer/Markup

An agent makes trades on behalf of others for commissions and a principal trades for its own account and is compensated by a markup on the securities sold.

Front 25

investment advisor

Back 25

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 analyses or reports concerning securities.

Front 26

not a investment advisor

Back 26

An investment adviser representative;A lawyer, accountant, engineer, or teacher whose performance of investment advice is solely incidental to the practice of the person's profession;A broker-dealer or its agents whose performance of investment advice is solely incidental to the conduct of business as a broker-dealer and thatdoes not receive special compensation for the investment advice;A publisher of a bona fide newspaper, news magazine, or business or financial publication of general and regular circulation;A federal covered investment adviser;A bank or savings institution

Front 27

TEAL

Back 27

Notice that as long as any investment advice provided by Teachers, Engineers, Accountants and Lawyers(teal) is "solely incidental to the practice of the person's profession" that person is not defined as an investment adviser.

Front 28

remuneration

Back 28

"remuneration," which simply means money paid for work or a service.

Front 29

Federal covered investment adviser

Back 29

Federal covered investment adviser means a person registered under the Investment Advisers Act of 1940

Front 30

fed covered securities

Back 30

Securities listed or authorized for listing on the New York Stock Exchange (NYSE), the American Stock Exchange (Amex); the National Market System of the Nasdaq stock market;
Securities issued by an investment company registered with the SEC (or one that has filed a registration statement under the Investment Company Act of 1940).

Front 31

35% of the 63

Back 31

...fraud

Front 32

who can guarantee?

Back 32

There are only three entities that may legitimately make guarantees:

The U.S. governmentAn insurance companyA parent company

Front 33

agents cannot...

Back 33

Agents may not make guarantees. This point is likely to be emphasized on the exam

Front 34

Institutional investor

Back 34

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 ...

Front 35

Investment adviser representative does not include

Back 35

an individual who:Performs only clerical or ministerial acts;
Is an agent whose performance of investment advice is solely incidental to the individual acting as an agent and who does not receive special compensation for investment advisory services;
Is employed by or associated with a federal covered investment adviser, unless the individual has a "place of business" in this state ..."

Front 36

ISSUER

Back 36

means a person that issues or proposes to issue a security..."

By this definition, if a business or other person has begun the process that will result in the sale of securities to the public, it is already considered to be an "issuer" according to the law.

Front 37

issuer vs non issuer

Back 37

If the company gets the money from a transaction, it is an issuer transaction. If the company does not get the money from a transaction - it's a secondary market trade - this represents a nonissuertransaction.

Front 38

Nonissuer transaction

Back 38

a transaction or distribution not directly or indirectly for the benefit of the issuer."

Front 39

If the company gets the money from a transaction

Back 39

it is an issuer transaction.

Front 40

If the company does not get the money from a transaction

Back 40

it's a secondary market trade - this represents a nonissuer transaction.

Front 41

a sale includes

Back 41

A security given or delivered with, or as a bonus on account of, a purchase of securities or any other thing constituting part of the subject of the purchase and having been offered and sold for value; A gift of assessable stock involving an offer and sale; and A sale or offer of a warrant or right to purchase or subscribe to another security of the same or another issuer and a sale or offer of a security that gives the holder a present or future right or privilege to convert the security into another security of the same or another issuer, including an offer of the other security.

Hint 41

3 things

Front 42

not considered a sale

Back 42

A pledge of securities as collateral for a loan
A stock dividend
Securities received as a result of reorganization or merger

Front 43

The most frequent exemptions

Back 43

U.S. Government and Municipal Securities: These are exempt from everything except the anti-fraud laws. For the most part, we can also add securities issued by foreign governments with which the U.S. maintains diplomatic relations. The exam questions you see might focus on Canadian securities.

Banks: The regulatory structure for federal and state banking is, in most cases, considered sufficient to ensure that the public is not being defrauded.

Institutions: The USA is principally structured to protect the investing public from fraud, not institutions. The essential idea here is that institutions are (or should be) sophisticated investors that have the expertise available to investigate securities offerings, allowing them to take risks that the normal investor should not.

Front 44

The administrator may...

Back 44

If a question begins with the words "The administrator may", the answer may include all the choices. The administrator is granted broad powers to fulfill the requirements of his/her office.

Front 45

The administrator must

Back 45

... if the question begins with the words, "The administrator must", there are far fewer choices. Again, the USA provides administrators with very broad powers.

Front 46

the consent to service of process (Administrator)

Back 46

the Administrator has legally been given power of attorney to receive NON-CRIMINAL grievances on behalf of a registered person by the consent to service of process.

Front 47

Broker / Dealer

Back 47

A broker-dealer is ANY person OR entity that acts in the BUSINESS of securities transactions either for its own account (dealer), or for others (broker).

Front 48

Broker / Dealer does not include

Back 48

1. An agent;
2. An issuer;
3. A bank or savings institution
4. The issuers of the securities involved on the transactions,
5. Other broker-dealers, or
6. The 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.

Hint 48

4 things

Front 49

an "institutional exemption" / the entity/person in question DOES NOT have to register as a Broker/Dealer with the Administrator.

Back 49

Is the person/entity located out of state, with no address within the state where the transactions are effected? Is the person/entity conducting business solely with issuers, broker-dealers, federally regulated financial institutions, and/or pre-existing customers who are vacationing in the state? If yes

Front 50

the entity/person MUST register as a Broker/Dealer with the Administrator.

Back 50

1. the legal person/entity effecting securities transactions (excluding financial institutions, pensions and trusts) in an agency or principal capacity

2. the person/entity have a physical address in the state in which it is effecting transactions

Hint 50

2

Front 51

Broker/ Dealer application includes

Back 51

* Name of business·
* Address of business
* Type of business to be conducted·
* Qualifications of partners, directors and officers, including work history and financial solubility
* securities related misdemeanor convictions
* Administrative orders
* Any felony convictions, including those NOT related to the securities markets.

Front 52

Administration fees vs. applications

Back 52

fees are transferable, applications are not.

Front 53

Records of a broker-dealer must be kept for a minimum of ______ years.

Back 53

three

Front 54

all advertising and promotional material must be filed with the Administrator, unless_____

Back 54

it is exempt on either a security or transaction basis.

Front 55

A broker-dealer is required to file the following forms with the Administrator:

Back 55

1. Application
2. Consent to service of process

Hint 55

In addition to these two items, a broker-dealer can be required to take an examination, pay a filing fee, maintain a minimum (liquid) net capital specified by the Administrator, and potentially post a surety bond as well!Note: The Administrator may not establish requirements that are in excess of, or more burdensome than, those already established by the SEC.

Front 56

an individual, other than a broker-dealer, who represents a broker-dealer in effecting or attempting to effect purchases or sales of securities or represents an issuer in effecting or attempting to effect purchases or sales of the issuer's securities."

Back 56

"Agent"

Front 57

Exempt Securities

Back 57

* Investment grade commercial paper. Sometimes the exam will refer to these as promissory notes­, which have maturities of no more than 270 days and a minimum face amount of $50,000. The term "investment grade"refers to the top 4 grades, in terms of safety, as determined by such organizations as Moody's and Standard & Poor's.

Front 58

* An officer or director of a broker-dealer who is not involved in effecting securities transactions or the supervision of persons who make such transactions

Back 58

instances in which the person may be dealing in securities, but would be exempt from registration as an agent under the Uniform Securities Act.

Front 59

An agent can effect transactions in a state if his or her registration is pending (but not approved) for __ days ONLY WITH EXISTING CUSTOMERS

Back 59

60 days ONLY WITH EXISTING CUSTOMERS

Front 60

you ARE an agent and registration as an agent, under the USA, IS REQUIRED.

Back 60

Regardless of exemptions, if you accept a commission/compensation based on the sale of a security

Front 61

The De Minimis exemption for IAs has frequently been reported to be on the test, so remember:

Back 61

For registration exemption, an investment adviser must have fewer than five clients in twelve months, and NOT have a physical address in the state!

Front 62

1. Offers advice regarding specific security-related information,
2. Receives compensation for securities-related advice, or
3. Is considered to be in the business of securities-related advice

Back 62

Investment Advisor

Front 63

Exempt from registering as an IA

Back 63

1. Investment adviser representative (IAR). These are the individuals who work for an investment adviser (IA).
2. Individuals whose advice is incidental to their professional businesses. Think TEAL: teachers, engineers, accountants and lawyers
3. Bona fide publications not issuing client-specific advice
4. Broker-dealers providing advice as part of their normal business that DO NOT receive compensation for such. Note that often the exam will use the word, "remuneration," rather than compensation.
5. Banks, savings institutions, or trusts. Notice, once again, how banks and bank-related entities are excluded.

Hint 63

5 things

Front 64

Big Bubba Bob is an investment adviser representative of Kamikaze Portfolio Managers, a federal covered investment adviser (meaning it is registered with the SEC); he has clients in California, New York, Coloradoand Alaska. The company's offices are located in Georgia. In what states does he have to register with the Administrator(s) to work as an investment adviser representative?

Back 64

None, except Georgia if that's where he does business. However, because Kamikaze Portfolio Managers is a federal covered investment adviser (registered with the SEC) he does not have to register in the state where his firm has no physical address.

Front 65

IARs are not

Back 65

* Is a federal covered investment adviser representative (however, if a federal-covered investment adviser has a place of business in a state where a representative conducts business, the representative may be required to register with the state Administrator.)

Front 66

Investment advisers must create and maintain all records (including books, marketing and correspondence) for a minimum of ___ years.

Back 66

five

Front 67

* How did the Sarbanes-Oxley Act (SOA) affect the USA?

Back 67

The federal statute of limitations for criminal charges was changed from two years to five years.

Front 68

There are three tests to determine when an investment contract is asecurity

Back 68

1. Is it an investment of money?
2. Is it in a common enterprise?
3. Are its profits to come solely from the efforts of others?

Front 69

1. Fixed Insurance, endowment or annuities policies
2. Retirement plans
3. Commodities or futures contracts
4. Condominiums - when used as personal residences

Back 69

items that are notsecurities

Front 70

Is a Commodities Option a security?

Back 70

Yes. Commodities or futures contracts are not securities. Be aware however, if the term option is added to a commodities or futures contract, then the instrument becomes a security - the performance is now dependent on the activities of a third party.

Front 71

1. A pledge of securities as collateral for a loan
2. A stock dividend
3. Securities received in exchange as a result of reorganization or merger

Back 71

transactions/items which are not considered to be a sale

Front 72

hypothecation

Back 72

The act of pledging the stock as collateral

Front 73

type of investment contract arrangement whereby someone with a terminal disease sells his or her life insurance policy at a discount from its face value for ready cash

Back 73

Viatical Settlement

Front 74

non-issuer transaction

Back 74

If the company does not get the money from a transaction - a secondary market trade

Front 75

The USA clearly states that it is "unlawful for a person to offer or sell a security" in a state unless:

Back 75

* "the security is a federal covered security;"
* "The security, transaction, or offer is exempted from registration;" and or
* "The security is registered under" the USA.

Front 76

securities exemptions

Back 76

1. Government Securities
2. Financial Institution Securities
3. Public Utility and Common Carrier Securities
4. Insurance Company Securities
5. Securities Listed on Stock Exchanges
6. Not-for-Profit Enterprise Securities
7. Commercial Paper
8. Options or Warrants

Front 77

* No more than 10 offers may be made in a twelve-month period.
* No commissions may be paid, directly or indirectly.
* The purchase is for the purpose of investment and not resale.

Back 77

In order for a Private Placement Transaction to be exempt

Front 78

Exempt Transactions

Back 78

Isolated Non-Issuer Transactions

Non-Issuer Transactions in Outstanding Securities
Unsolicited Transactions
Fiduciary Transactions
Transactions with Financial Institutions
Private Placement Transactions
Federal Covered Securities Transactions

Transactions between Issuer and Underwriter

Transactions to Existing Owners

Transactions of employee stock plans

Hint 78

Bret, cover these over & over...

Front 79

Federal covered securities

Back 79

1. Securities listed or authorized for listing on the New York Stock Exchange (NYSE), the American Stock Exchange (Amex); the Nasdaq stock market; ...
2. securities issued by an investment company registered with the SEC

Front 80

a person legally appointed and authorized to hold assets in trust for another person

Back 80

Fiduciary

Front 81

instances in which an investment adviser can benefit from portfolio gain

Back 81

the client is: an institutional investor, such as a mutual fund, a private client with a minimum net worth of $2 million orprivate client with a minimum of $1,00,000 invested with the adviser

Front 82

if you are selling away, as an agent, you are attempting to sell something that you DO NOT have rights to, or have not been authorized to sell by your firm.

Back 82

Selling away - Look Out!

Front 83

firms are required to file a ____ for any cash transactions over $10,000.

Back 83

Currency Transaction Reports (CTRs)

Front 84

Agents may participate in gains of an account, if ______

Back 84

the account is equally (dually) owned by the agent and client, and is approved by the broker-dealer.