I. Broker Dealer (BD) and Agent Registration:

1. BDs registration with SEC:

BD Branch Registration

Successor BD and its agents:

II. Communication:

Four options:

SEC’s IA Marketing Rule:

1+person communication - Advertisement or not?

1 person communication - Advertisement or not?

RIA’s Form ADV:

Part 1: General Info

Part 2: Brochure

Part 2A: Main Brochure - All about the services offered

Part 2B: Brochure Supplement - Info on IA Representatives

Part 3: Relationship Summary (Only for Retail)

Margin Account Disclosure Form & Margin Agreement

Margin Disclosure Document:

Margin Agreement:

Option Disclosure Document (ODD):

III. Ethics

USA Unfair Behavior Types

Criminal Penalties

Statute of Limitations:

Prohibited Practices for BDs (USA and NASAA):

Price Manipulation:

Fake Market Activity:

Prohibited Practices for Agents (USA and NASAA):

Borrowing or Lending from customers (other than financial insti’s):

Selling Away

Joint Accounts with customers

REG BI (Best Interest) Obligations:

Prohibited Practices for RIAs and IARs:

Borrowing money/securities from the client:

Lending money/securities from the client:

Principal Transactions:

Agency Cross Transactions:

Sharing/Rebating Commissions:

Trusts:

IV. Uniform Securities Act (USA) Admin Provisions:

Rescission Offer:

Record Keeping:

Appeal against an Administrator’s Order:

V. Securities and Issuers Regulation:

Securities:

What are not securities?

Federally Covered Securities under the USA:

Registration by Coordination / Coordinated Review:

Exempt Transactions under the USA:

VI. Investment Advisors

Security or Not?

Federal Oversight: The CFTC regulates futures on broad-based indices and commodities, while the SEC oversees security futures (e.g., single-stock futures)

Commodities:

  1. Are Commodity Futures securities? => No, as regulated by CFTC

Single-Stocks:

  1. Are Single-Stock Futures securities? => Yes, as regulated by SEC
  2. Are Single-Stock Options securities? => Yes, as regulated by SEC

Broad-based Stock Indexes:

  1. Are Futures on Broad-based Stock Indexes Securities? => No (Verify), as regulated by CFTC
  2. Are Options on Broad-based Stock Indexes Securities? => Yes (Verify), as regulated by SEC

Narrow-based Stock Indexes:

  1. Are Futures on Narrow-based Stock Indexes (less than 10 stocks and have concentrated risk) Securities? => Yes (Verify), as jointly regulated by SEC and CFTC
  2. Are Options on Narrow-based Stock Indexes Securities? => Yes (Verify), as regulated by SEC

Registration of Securities:

According to USA, it is unlawful to offer/sell a security in a state unless:

  1. Federally covered securities (most securities fall in this bucket - Register with SEC)
  2. Registration at the state level
  3. Exemptions (Exempt Security/Exempt Transaction)

After all said and done only a handful of securities register at the state level. Their characteristics are:

  1. Small issues
  2. Sold in only one state
  3. Not widely traded

Securities that are not Federally covered:

  1. Pink sheet securities
  2. Penny Stock Issues
  3. Bulletin Board Securities

Exempt Securities:

  1. US/Canada All Govt Securities All Govt/Agency or Munis
  2. Other countries Federal Securities with whom US has diplomatic relationships
  3. Banking Institutions: Commercial Banks/Savings and Loans Insti./Trust Companies/Credit Unions/Similar organizations. No Investment Banks
  4. Insurance Companies: Doesn’t extends to their products, only their capital securities
  5. Commercial Paper/Promissory Note/Bankers Acceptance: < 270 days, Min $50,000, and Top three credit ratings (S&P, Moody, etc)
  6. NFPs (Revocable by Admin)
  7. Public Utility/Railroad/Common Carrier: Subject to regulation under US Govt Authority such as US Dept of Transportation/Interstate Commerce Commission
  8. Organization and its Employees (Revocable by Admin) Any contract that is linked to ESOPs, Pension, Employee Stock Purchase, Savings, or Profit-sharing plans

Exempt Transactions:

  1. Underwriting Transactions Transaction b/w an Issuer and its Underwriter
  2. Sale to existing shareholders
  3. Sale to Institutional Investors/BDs
  4. Private or limited offerings: Any # of Institutional Investors + Max 10 Non-Institutional investors in a 12-month period. No General advertising/solicitation allowed. No commission can be paid for solicitation of Non-Institutional investors. Also offering must be for investment and not for resale (flipping)
  5. Unsolicited Brokerage Transaction: Customer contacts (by himself) the BD to buy/sell securities that are not registered in the state.
  6. Isolated non-issuer transaction: Non-registered securities sold infrequently b/w two investors
  7. Fiduciary Transactions: An executor/bankruptcy marshall/guardian/etc sells securities held in a deceased’s estate/bankruptcy
  8. Sale of preorganization certificates: Max 10 Investors + No commission for solicitation
  9. Crowdfunding Sales: Max $5M over a 12 month period. Guidelines vary state by state.

Registration Types at State level:

  1. Notice Filing (Basically a heads-up that may be required by the state administrators for Federally Covered Securities)
  2. Registration by Coordination: Registration at the state(s) level and SEC becomes effective at the same date
  3. Registration by Qualification: Registration at the state(s) level: All Prospectus type info, and Consent to Service of Process, and and fees

Finer Points:

Accredited Investor vs Qualified Purchaser:

Criteria Accredited Investor (Reg D – Rule 501) Qualified Purchaser (Investment Company Act – §2(a)(51))
Purpose Invest in private offerings under Reg D Access hedge funds/private funds exempt under 3(c)(7)
Net Worth Requirement $1 million (excluding primary residence) $5 million in investments
Income Requirement $200K ($300K with spouse) for past 2 years ❌ No income test
Entity Qualification $5 million in assets or all beneficial owners are accredited $25 million or more in investments/ all owners are Qualified
Regulatory Source SEC Regulation D, Rule 501(a) Investment Company Act of 1940, Section 2(a)(51)
Used For Private placements (e.g., startups, Reg D funds) Unregistered investment companies (e.g., hedge funds using 3(c)(7))
Threshold (Individual) Lower ($1M net worth or $200K income) Higher ($5M in investments)
Exclusivity ❌ Less exclusive ✅ More exclusive

Credit Unions, Savings Institutions, Trust Companies, and Banks (Series 63 Focus)

Feature Credit Union Savings Institution Trust Company Bank
Type of Institution Non-profit cooperative For-profit depository institution Fiduciary financial institution For-profit depository institution
Ownership Owned by members Owned by shareholders Owned by shareholders or parent companies Owned by shareholders
Main Regulator NCUA OCC, FDIC, or State Banking Regulators State Banking Authorities or OCC OCC, FDIC, Federal Reserve, State Regulators
Insurance of Deposits NCUA (up to $250,000) FDIC (up to $250,000) May not offer insured deposits FDIC (up to $250,000)
Primary Purpose Serve members with low-cost financial services Accept deposits and make loans, especially for homes Manage trusts, estates, and fiduciary accounts Offer a full range of banking services
Services Offered Checking, savings, loans, credit cards Similar to banks, often mortgage-focused Trust/estate management, investment oversight Full-service banking and loans
Clientele Members only General public Individuals, families, and institutions needing fiduciary help General public, businesses
Securities Activity Very limited Limited unless they own BDs or subsidiaries May manage portfolios, not underwrite or trade securities Often partner with or own BDs for securities services
Broker-Dealer Registration Not required if offering only basic services May be required if selling securities to the public Not required if acting solely as fiduciary Not required unless engaging directly in securities sales
Series 63 Relevance Not subject to Series 63 registration Could be subject if offering securities directly Exempt under fiduciary rule; no Series 63 Exempt if only banking; BD registration triggers Series 63

Exempt Securities under the Uniform Securities Act (USA)

  1. Government Securities
    • Securities issued, insured, or guaranteed by the U.S. federal government
    • Securities issued by U.S. states, municipalities, or public agencies
    • Securities issued by foreign governments with which the U.S. maintains diplomatic relations
  2. Financial Institution Securities
    • Securities issued by U.S. banks, trust companies, or savings institutions
    • Securities issued by federally or state-chartered credit unions
    • Securities issued by insurance companies authorized to operate in the state
  3. Public Utility and Common Carrier Securities
    • Securities issued by public utility companies or transportation companies regulated by a government authority (e.g., SEC or a public utilities commission)
  4. Nonprofit Organization Securities
    • Securities issued by nonprofit organizations operated exclusively for:
      • Religious
      • Educational
      • Benevolent
      • Charitable
      • Fraternal
      • Social
      • Athletic
      • Reformatory purposes
      • Chambers of commerce
    • Must be not for pecuniary (financial) gain
  5. Commercial Paper and Short-Term Debt
    • Promissory notes or commercial paper with:
      • Maturity of nine months (270 days) or less
      • Minimum denomination of $50,000
      • Top three ratings from a recognized credit rating agency
  6. Employee Benefit Plan Securities
    • Investment contracts related to:
      • Employee stock purchase plans
      • Savings plans
      • Pensions
      • Profit-sharing plans