Series 63 key terms

A firm that buys and sells securities for its own account or on behalf of customers. It must register in each state where it does business unless a federal preemption or a state exemption applies.

An individual who represents a broker-dealer in effecting securities transactions. Registration is required in each state where the agent solicits or transacts business with residents, generally filed on Form U4.

A person or firm that, for compensation, gives advice about securities as part of a regular business. Most state-registered advisers manage less than $100 million and register where their principal office is located.

An individual who provides investment advice for an adviser, manages client accounts, or solicits advisory clients. The person typically registers in states where he or she has a place of business or enough clients.

An adviser registered with the SEC, generally because it manages at least $110 million in assets or advises a registered investment company. States may require notice filings but cannot require registration.

The uniform application and disclosure document for investment advisers. Part 1 collects business and disciplinary data; Part 2 is a narrative brochure covering services, fees, and conflicts of interest.

The uniform application broker-dealers use to register with the SEC, states, and self-regulatory organizations. It discloses ownership, business practices, and any disciplinary history of the firm and its control persons.

The uniform application used to register individual agents and investment adviser representatives. Filed by the sponsoring firm, it discloses employment history and any criminal, regulatory, or financial events.

The uniform termination notice a firm files when an agent or adviser representative leaves. It explains why the person left and must disclose any misconduct, becoming part of that individual's permanent record.

A computer database run by FINRA that holds registration and disciplinary records for firms and individuals. States use it to process applications, and it feeds the public BrokerCheck system.

Written systems a firm uses to monitor and review the conduct of its agents and employees. They must be reasonably designed to prevent and detect securities law violations and must actually be enforced.

Holding client funds or securities directly, or having authority to withdraw them, such as through a general power of attorney. Advisers with custody face extra safeguards, including qualified custodians and surprise examinations.

A limited exception letting an out-of-state adviser do business without registration, typically when it has no place of business in the state and fewer than six clients there in twelve months.

A state registration filed at the same time as a federal registration under the Securities Act of 1933. It takes effect when the federal registration does, assuming required documents and fees were submitted.

The most detailed state registration method, used when no federal registration is involved. The registration becomes effective when the state administrator declares it effective after reviewing the full disclosure filing.

A simplified state registration available to established issuers meeting minimum net worth, earnings, and shareholder requirements. It typically becomes effective shortly after the filing is submitted to the state.

A security that does not have to be registered at the state level, such as U.S. government and municipal bonds, bank and savings institution securities, and federally covered securities like exchange-listed stocks.

A transaction that escapes state registration even though the security itself is not exempt. Common examples include isolated non-issuer sales and unsolicited customer orders executed through a broker-dealer.

An investor meeting income or net worth thresholds, such as $200,000 in individual income or a $1 million net worth excluding a primary residence, or a qualifying institution or issuer insider.

A federal private placement exemption permitting sales to an unlimited number of accredited investors and a limited number of others. States may require notice filings and fees but cannot review the offering's merits.

State statutes and regulations governing securities registration, registration of firms and individuals, and antifraud enforcement within the state. The name refers to protecting investors from speculative schemes with no substance.

The 1996 federal law barring states from requiring registration of covered securities, including exchange-listed stocks and Rule 506 offerings. States keep authority over fraud and over notice filings.

Excessive buying and selling in a customer account that the agent controls, done to generate commissions rather than to serve the customer. It violates antifraud provisions and the duty of good faith dealing.

Entering a securities transaction for a customer without that customer's approval or discretionary authority. Even a profitable trade is a violation, because the representative had no authority to act.

An agent's sale of securities outside the employing broker-dealer, without the firm's knowledge or approval. The practice is normally prohibited and can expose both the agent and the firm to liability.

Mixing customer money or securities with the firm's or representative's own property. Customer assets must be segregated, and commingling is a serious violation that can lead to revocation of registration.

A promise by a firm or representative to protect a customer from investment losses, or to repurchase securities at cost. It is prohibited because it misleads customers about the real risks of investing.

The obligation of an investment adviser to act in the client's best interest with loyalty and care, including disclosing conflicts of interest and seeking best execution of client transactions.

The SEC standard requiring broker-dealers to recommend securities and strategies in a retail customer's best interest, weighing costs and reasonably available alternatives, rather than placing the firm's interest first.

A trade in which the broker-dealer acts as principal, buying from or selling to the customer out of its own inventory. The firm must disclose its capacity and the markup or markdown charged.

A transaction in which the adviser's affiliated broker acts as agent for both the advisory client and the other side of the trade. Written disclosure and the client's consent are required.

Using brokerage commissions generated by client accounts to pay for research or services that benefit the adviser's business. Permitted only within legal safe harbors and requiring disclosure of the arrangement.

Telephoning prospects without a prior relationship in order to solicit business. Firms must train agents on required disclosures, permitted calling hours, and do-not-call obligations before letting them call.

Regulations requiring firms to honor the national registry and their own internal lists and to limit the hours of telemarketing calls. Calling a registered number can bring substantial penalties.

A statement from a client or other person praising an adviser's services. Adviser rules permit testimonials with disclosures addressing conflicts, while several states restrict their use in advisory advertising.

An illustration or forecast of expected investment returns used in sales material. It needs a reasonable basis and required disclosures; misleading or unsubstantiated projections are prohibited.

An administrative order, issued after notice and hearing, commanding a person to stop violating state securities law. Violating the order brings added penalties and possible referral for criminal prosecution.

An emergency action a state administrator may take without a prior hearing to deny, suspend, or revoke a registration when immediate action protects the public. A hearing must follow promptly.

A settlement in which a respondent accepts a sanction without admitting or denying the findings. The administrator avoids a full hearing, and the respondent avoids a contested finding of wrongdoing.