Person

Defined

• Natural Person - individual person, human being
• Legal Person - legal entities creatures of law. EX: Corporation, partnership, association, joint venture/joint stock company, an estate, business trust, unincoporated organization, government/government body 

What are the 3 non-persons?

1. Minors
2. Deceased individuals
3. Individuals legally declared mentally incompetent

Exclusion

as defined by

USA

excluded from, not included in, person not subject to provisions of state law that refer to agents

Agent

1. Securities salesperson who represents a broker/dealer/issuer when selling/trying to sell securities to the investing public; considered agent whether actually receiving/soliciting order
2. Usually act on commission basis on behalf of others known as principals

Person not Defined as

Agent in 3 Circumstances

1. when effecting transactions in securities exempt from registration
2. effecting transactions exempt from registration
3. effecting transactions with existing employees when no commission is paid

Exemption Under 1933

Act

• not being subject to a registration provision of the act even though that person is otherwise covered by act
• when federal law exempts person/security from registration indiv. states can't require a person/security to register under state law

National Securities Markets Improvement Act of 1996 (NSMIA)

• enacted to eliminate conflict b/twn state laws & federal securities regulations

Who are the 4 persons included under the jurisdiction of state securities laws?

1. Broker/dealer (generally legal persons such as a corp./partnership)
2. Agents (always individuals)
3. Investment Advisors (generally legal persons such as corp./partnership)
4. Investment Advisor Representative (always individual)

Broker/Dealer

Persons excluded from

broker/dealer definition

• Agents
• Issuers
• banks, savings institutions, & trust companies (not engaged in broker/dealer activities)

Gramm-Leach-Bliley Act 1999 / Financial Modernization Act

Financial institutions that engage in brokerage-related securities activities subject to SEC registration as broker/dealers. Subsidiairies of financial institutions subject to the same regulations.

Broker/Dealer Exclusion

based on location

• broker/dealer has no place of business in state & deal exclusively w/issuers, other broker/dealers, financial institutions
• broker/dealer has no place of business in state but licensed in state where they have a place of business, & offer & sell securities in the state only w/persons instate who are existing customers & not state residents (snowbird exemption)

Broker/Dealer

Registration Requirements

Broker/Dealer

Financial Requirement

-Administrator may establish net capital requirements for broker/dealer but it can't exceed those required by federal law

-Administrator may require broker/dealers that have custody/discretionary authority over client funds/securities to post surety bonds

Broker/Dealer

Registration

-After applicant's submission of all required info. to state Administator registration becomes effective noon on 30th day after filing. Administrator has right to specifiy ealier date

-Boker/dealer registration expire DEC. 31st unless renewed

Exclusion

from

Agent

-Clerical/administrative employee of broker/dealer do not effect securities transactions

-representing issuers in effecting transactions in exempt securities

-effecting transactions exempt from registration

-effecting transactions with existing employees, partners/directors of issuers if no commission/remuneration is paid

Effecting Transactions in Exempt

Securities

You are not an agent when effecting exempt securities which are

-gov. & municipal securities

-securities of gov. to which U.S. has dimplomatic relations

-Securities of U.S. commercial banks & savings institutions/trust companies (when not engaged in securities related activities)

-Commerial paper rated in top 3 categories by major rating agency with denominations of $50k or more and maturity of 9 months or less

-Investment contracts issued in connection with employee's stock purchase, savings, pension,/profit sharing plan

Exempt Agent

Transactions

Employees of issuer not an agent when completing exempt transactions:

• isolated nonissuer transaction
• transactions b/twn issuer & underwriter
• transactions b/twn savings institutions/trust companies; & private placements

Agent Registration

Requirement

-Unlawful for any person to transact business in state unless registered. Broker/dealer can't employ agent unless registered.

-Administrator must be promptly notified when agent begins/terminates connection w/broker dealer.

Financial Requirements

Fee & Commission Sharing

Multiple Registrations

-Indiv. may not act as agent for more than 1 broker/dealer/issuer unless Administrato grant exception

-Registered agents of broker/dealers may share/split fees provided they are registered agents for same broker/dealer

Effecting Securities

Transactions

Canadian Broker/Dealers

&

Agents

Provided limited registration requirements met broker/dealer domiciled in Canada that has no office in this state may effect transactions by

-person fom Canada who's temp. resident in state but already client of broker/dealer

-person from Canada who's resident in state & transactions are self directed tax-advantaged retirement plan in Canada

Limited Registration

Canadian Broker/Dealers

&

Agents

-File app. in form required by jurisdiction where it has its principal office in Canada

-file consent to service of process

-provide evidence it's registered in good standing in home jurisdiction

-be a member of SRO exchange in Canada

Renewal apps. must be filed b/4 Dec. 1st of each yr.

Investment

Advisor

    Sec Release

IA-1092

maintains person who gives advice and issues reports, analyses, & recommendations on specific securities is an advisor. Also includes financial planner, pension consultants, and sports & entertainment reps

In the Business of Providing

Advice

Subject to Regulation as investment advisor if

-gives advice on regular basis that constitues business activity w/regularity

-advertises investment advisory service & presents himself to public as investment advisor

person whose job it is to offer investment advice through publication not covered

Exclusion

from

Definition of Investment

Advisor

-Investment advisor reps. (the firm is the advisor not the rep.)

-Banks, savings institutions, trust companies

-lawyers, accounts, teachers, engineers (LATE), whose advisory services are soley incidental

-broker/dealers whose investment advisoy service is incidental & receive no special compensation

-publisher, employee, columists of newspaper, magazine, / bus. publication

-Fed. investment advisor registered w/ SEC w/$30million/moe in assets 

Exemption

from Registration

 of

Investment Advisors

Exemption for advisors who have no place of business in state but registered in another state provided their only client in state is

• registered broker/dealer
• investment advisors
• instutional investors, including large employee benefit plan
• existing clients who aren't residents but temp. in state
• limited to 5< clients other than listed above, resident in state during preceding 12 months de minimis exemption

NSMIA

Eliminated state registration for

• advisor's with $30million>
• advisor's with @ least $25million<$30million
• advisor's with less than $25 million must register with state unless they do bussiness in 30 or more states
• pension consultants with assets under control of @ least $50 million would also be federal covered advisors

Notice filing

When advisor egistered w/state assets reach $30 million or fall below $25 million then...

-90 days to register with sec when $30million is reached

-180 days to register with state after falling below $25 million

Financial Requirements

fo

Investment Advisors

financial requirement that Administator sets can't exceed federal law

-typically bond requirement of investment advisor with discretionay authority is $10,000 where as advisors maintaining custome funds need bond/net worth $35,000

-if IRA meets net worth/ surety bonding equirement of state where principal office located that's sufficient in any other state

Wrap Fee Program

-broker/dealer wraps all services together including transactions, advice, custody, and research for one flat fee-

-Generally must be registered as investment adviser

-Firm offering program must make following disclosures to clients:

1)amount of wrap fee charge

2)whether feesae negotiable

3)the services provided under program

4)description of nature of fee paid in addition to wrap fee
5)statement that puchasing program may cost more than purchasing services separately

Investment Advisor

Representative

-any individual who repesents an investment advisor/federal covered investment advisor when:

• making investment recommendations
• managing accounts/client portfolios
• soliciting investment advisory service
• supervising employees performing any of these duties

Exclusion from Definition

of

Investment Advisor

Representative

-Can only be registered as rep. of registered advisor so until adviser's registration is in effect  reps of advisor are in limbo

-Independent financial planner may operate as independant contractors, not employees of  investment advisory firms or broker/dealers

-Business cards may contain name of separate planning entity but also must disclose name of investment advisor

To register with state securitiws administrator

• submit application
• provide consent to service of process
• pay filing fees
• post a bond (if required)
• take and pass examination

Submitting

Application

Required info. may include:

-form & place of business

-proposed method of doing business

-qualifications & business history (people with controlling influence over org.)

-injuctions & administrative orders

-convictions of misdemeanors involving a security/any aspect of securities business

-felony convictions

-financial condition & history

-advertising and promotional material

-Form ADV / similar document

-Administrator may require applicant publish announcement of registration in paper

Consent

to

Service

of

Process

-new applicants must provide administrator of every state where they wish to register a consent to service of process

-appoints Administrator as applicant's attorney to receive & process non securities related complaints against applicant; all complaints received have same effect as if they were served personally to applicant

Payment of Initial

&

Renewal Filing Fees

-state require filing fees for initial apps. as well as renewal apps.

-if app. is w/drwn or denied administrator still retains portion of fee

-filing fees for each category need not be identical

-Renewal date fo all registrations Dec. 31st

Post Registration

Requirements

-USA requires brokers/dealers to keep records perserved for 3 yrs and investment advisors 5 yrs

-all records must be readliy accessible after 2 yrs

-record keeping and financial reports also required