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The go-to guide to acing the Series 63 Exam! Passing the Uniform Securities Agent State Law Examination (Series 63) qualifies an individual to act as a securities agent. The exam covers the principles of state securities regulation as reflected in the Uniform Securities Act and its amendments and related rules, as well as ethical practices and fiduciary obligations. Many states require an agent to pass the Series 63 exam in addition to the Series 6, 7 or 62 exams to conduct securities business within the state. Created by the experts at The Securities Institute of America, Inc., Wiley Series 63 Exam Review 2017 arms you with everything you need to pass this challenging 60-question test. Designed to help you build and fine-tune your knowledge of all areas covered in the exam and to guarantee that you're prepared mentally and strategically to take the test, it provides: * Dozens of examples * Assorted practice questions for each subject area covered in the exam * Priceless test-taking tips and strategies * Helpful hints on how to study for the test, manage stress, and stay focused Wiley Series 63 Exam Review 2017 is your ticket to passing the Series 63 test on the first try--with flying colors!

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Wiley FINRA Series

This series includes the following titles:

Wiley Series 3 Exam Review 2017 + Test Bank: National Commodities Futures Examination

Wiley Series 4 Exam Review 2017 + Test Bank: The Registered Options Principal Examination

Wiley Series 6 Exam Review 2017 + Test Bank: The Investment Company and Variable Contracts Products Representative Examination

Wiley Series 7 Exam Review 2017 + Test Bank: The General Securities Representative Examination

Wiley Series 9 Exam Review 2017 + Test Bank: The General Securities Sales Supervisor Examination—

Option Module

Wiley Series 10 Exam Review 2017 + Test Bank: The General Securities Sales Supervisor Examination—

General Module

Wiley Series 24 Exam Review 2017 + Test Bank: The General Securities Principal Examination

Wiley Series 26 Exam Review 2017 + Test Bank: The Investment Company and Variable Contracts Products Principal Examination

Wiley Series 57 Exam Review 2017 + Test Bank: The Securities Trader Examination

Wiley Series 62 Exam Review 2017 + Test Bank: The Corporate Securities Representative Examination

Wiley Series 63 Exam Review 2017 + Test Bank: The Uniform Securities State Law Examination

Wiley Series 65 Exam Review 2017 + Test Bank: The Uniform Investment Adviser Law Examination

Wiley Series 66 Exam Review 2017 + Test Bank: The Uniform Combined State Law Examination

Wiley Series 99 Exam Review 2017 + Test Bank: The Operations Professional Examination

For more on this series, visit the website at www.effficientlearning.com/finra.

Wiley Series 63 Exam Review 2017

The Uniform Securities State Law Examination

The Securities Institute of America, Inc.

Cover Design: Wiley Cover Image: © iStockphoto.com / LuisB

Copyright © 2017 by The Securities Institute of America, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Previous editions published by The Securities Institute of America, Inc. Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002.

Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com. For more information about Wiley products, visit www.wiley.com.

ISBN 978-1-119-37984-3 (Paperback) ISBN 978-1-119-40315-9 (ePDF) ISBN 978-1-119-40314-2 (ePub)

CONTENTS

About the Series 63 Exam

Taking the Series 63 Exam

How to Prepare for the Series 63 Exam

Why Do I Need to Take the Series 63 Exam?

What Score Is Needed to Pass the Exam?

Are There Any Prerequisites for the Series 63?

How Do I Schedule an Exam?

What Must I Take to the Exam Center?

How Soon Will I Receive the Results of the Exam?

About This Book

About the Test Bank

About The Securities Institute of America

Chapter 1: Federal Law Review

The Securities Act of 1933

The Prospectus

The Final Prospectus

Misrepresentations

The Securities Exchange Act of 1934

Net Capital Requirement

Customer Coverage

Fidelity Bond

The Insider Trading and Securities Fraud Enforcement Act of 1988

Firewall

The Telephone Consumer Protection Act of 1991

National Securities Market Improvement Act of 1996

The Uniform Securities Act

The Uniform Prudent Investors Act of 1994

The Patriot Act

Regulation S-P

Chapter 2: Definition of Terms

Security

Person

Broker Dealer

Pension Consultants

Investment Counsel

Form ADV

Investment Adviser Registration Database (IARD)

Investment Adviser Representative

Offer/Offer to Sell/Offer to Buy

Sale/Sell

Guarantee/Guaranteed

12B-1 Fees

Limits of a 12B-1 Fee

Contumacy

Federally Covered Exemption

Power of attorney

Pretest

Definition of Terms

Chapter 3: Registration of Broker Dealers, Investment Advisers, and Agents

Registration of Broker Dealers and Agents

Agent Registration

Registering Broker Dealers

Financial Requirements

Broker Dealers on the Premises of Other Financial Institutions

Hiring New Employees

Resignation of a Registered Representative

Registering Agents

Canadian Firms and Agents

Investment Adviser Registration

The National Securities Market Improvement Act of 1996/The Coordination Act

Investment Adviser Representative

Investment Adviser Registration

Capital Requirements

Exams

Advertising and Sales Literature

Brochure Delivery

Wrap Accounts

Pretest

Registration of Broker Dealers, Investment Advisers, and Agents

Chapter 4: Securities Registration, Exempt Securities, and Exempt Transactions

Exempt Securities

Securities Registration

Registration of IPOs Through Coordination

Registration Through Notice Filing

Registration of Non-Established Issuers/Registration Through Qualification

Exempt Securities/Federally Covered Exemption

Exempt Transactions

Pretest

Securities Registration, Exempt Securities, and Exempt Transactions

Chapter 5: Professional Conduct and Prohibited and Fraudulent Actions

Fraud

Professional Conduct

Suitability

Market Manipulation

Customer Complaints

The Role of the Investment Adviser

Additional Compensation for an Investment Adviser

Agency Cross Transactions

Disclosures by an Investment Adviser

Investment Adviser Contracts

Private Investment Companies/Hedge Funds

Fulcrum Fees

Soft Dollars

Borrowing and Lending Money

Free Services

Free Lunch Seminars

Pretest

Professional Conduct and Prohibited and Fraudulent Actions

Chapter 6: The State Securities Administrator and the Uniform Securities Act

Actions by the State Securities Administrator

Cancellation of a Registration

Withdrawal of a Registration

Actions Against an Issuer of Securities

Rule Changes

Administrative Orders

Interpretive Opinions

Administrative Records

Investigations

Civil and Criminal Penalties

Jurisdiction of the State Securities Administrator

Administrator's Jurisdiction over Securities Transactions

Radio Television and Newspaper Distribution

Right of Rescission

Statute of Limitations

Pretest

The State Securities Administrator and the Uniform Securities Act

Answer Keys

Chapter 2: Definition of Terms

Chapter 3: Registration of Broker Dealers, Investment Advisers, and Agents

Chapter 4: Securities Registration, Exempt Securities, and Exempt Transactions

Chapter 5: Professional Conduct and Prohibited and Fraudulent Actions

Chapter 6: The State Securities Administrator and the Uniform Securities Act

Glossary of Exam Terms

Index

Advert

Access-Code

EULA

Guide

Cover

Table of Contents

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About the Series 63 Exam

Congratulations! You are on your way to becoming a registered representative licensed to conduct securities business in all states that require the Series 63. The Series 63 exam will be presented in a 60-question multiple-choice format. Each candidate will have one hour and 15 minutes to complete the exam. A score of 72% or higher is required to pass.

The Series 63 is as much a knowledge test as it is a reading test. The writers and instructors at The Securities Institute have developed the Series 63 textbook, exam prep software, and videos to ensure that you have the knowledge required to pass the test and to make sure that you are confident in the application of the knowledge during the exam.

IMPORTANT EXAM NOTE

The series 63 exam is based on the provisions of the Uniform Securities Act not on any of the amendments enacted by any particular state or state securities administrator. The Uniform Securities Act may be referred to as the USA or as the Act. Test takers should treat these terms as interchangeable.

Taking the Series 63 Exam

The Series 63 exam is presented in multiple-choice format on a touch-screen computer known as the PROCTOR system. No computer skills are required, and candidates will find that the test screen works in the same way as an ordinary ATM. Each test is made up of 60 questions that are randomly chosen from a test bank containing several thousand questions. The test has a time limit of one hour and 15 minutes and is designed to provide enough time for all candidates to complete the exam. Each Series 63 exam will have five additional questions that do not count towards the final score. The Series 63 comprises questions that focus on the following areas:

Regulation of Investment Advisers

Including State-Registered and Federal Covered Advisers

3 questions

5%

Regulation of Investment Adviser Representatives

3 questions

5%

Regulations of broker dealers

9 questions

15%

Regulations of Agents of broker dealers

9 questions

15%

Regulation of Securities and Issuers

3 questions

5%

Remedies and administrative provisions

6 questions

10%

Communications with customer and prospects

12 questions

20%

Ethical Practices and Obligations

15 questions

25%

How to Prepare for the Series 63 Exam

For most candidates, the combination of reading the textbook, watching the videos, and using the exam prep software is enough to successfully complete the exam. It is recommended that the candidate spend at least 30 hours preparing for the exam by reading the textbook, underlining key points, watching the video class, and completing as many practice questions as possible. We recommend that candidates schedule their exam no more than one week after completing their Series 63 exam prep.

Test-Taking Tips

Read the full question before answering.

Identify what the question is asking.

Identify key words and phrases.

Watch out for hedge clauses, for example,

except

and

not

.

Eliminate wrong answers.

Identify synonymous terms.

Be wary of changing answers.

Why Do I Need to Take the Series 63 Exam?

In order to conduct securities business, most states require that an agent successfully complete the Series 63, in addition to obtaining a Series 6, 7, or 62 registration.

What Score Is Needed to Pass the Exam?

A score of 72% or higher is needed to pass the Series 63 exam.

Are There Any Prerequisites for the Series 63?

A candidate is not required to have any other professional qualifications prior to taking the Series 63 exam.

How Do I Schedule an Exam?

Ask your firm's principal to schedule the exam for you or to supply you with a list of test centers in your area. If you are not with a member firm, you may obtain a Form U10 from the North American Securities Administrators Association (NASAA) to make an appointment. The Series 63 exam may be taken any day that the exam center is open.

What Must I Take to the Exam Center?

A picture ID is required. All other materials will be provided, including a calculator and scratch paper.

How Soon Will I Receive the Results of the Exam?

The exam will be graded as soon as you answer your final question and hit the Submit for Grading button. It will take only a few minutes to get your results. Your grade will appear on the computer screen, and you will be given a paper copy from the exam center.

If you do not pass the test, you will need to wait 30 days before taking it again. If you do not pass on the second try, you will need to wait another 30 days. If you fail a third time, you are required to wait six months to take the test again.

About This Book

The writers and instructors at The Securities Institute have developed the Series 63 textbook, exam prep software, and videos to ensure that you have the knowledge required to pass the test, and to make sure that you are confident in the application of the knowledge during the exam. The writers and instructors at The Securities Institute are subject-matter experts as well as Series 63 test experts. We understand how the test is written, and our proven test-taking techniques can dramatically improve your results.

Each chapter includes notes, tips, examples, and case studies with key information, hints for taking the exam, and additional insight into the topics. Each chapter ends with a practice test, to ensure that you have mastered the concepts before moving on to the next topic.

About the Test Bank

This book is accompanied by a test bank of approximately 200 questions to further reinforce the concepts and information presented here. The access card in the back of this book includes the URL and PIN code you can use to access the test bank. This test bank provides a small sample of the questions and features that are contained in the full version of the Series 63 exam prep software.

If you have not purchased the full version of the exam prep software with this book, we highly recommend it to ensure that you have mastered the knowledge required for your Series 63 exam. To purchase the exam prep software for this exam, visit The Securities Institute of America online at www.SecuritiesCE.com or call 877-218-1776.

About The Securities Institute of America

The Securities Institute of America, Inc. helps thousands of securities and insurance professionals build successful careers in the financial services industry every year.

Our securities training options include:

Onsite training classes.

Private tutoring.

Classroom training.

Interactive online video training classes.

State-of-the-art exam preparation software.

Printed textbooks.

Real-time tracking and reporting for managers and training directors.

You can choose a securities training solution that matches your skill level, learning style, and schedule. Regardless of the format you choose, you can be sure that our securities training courses are relevant, tested, and designed to help you succeed. It is the experience of our instructors and the quality of our materials that make our courses requested by name at some of the largest financial services firms in the world.

To contact The Securities Institute of America, visit us on the Web at www.SecuritiesCE.com or call 877-218-1776.

CHAPTER 1Federal Law Review

INTRODUCTION

Although the Series 63 exam is a state-based exam, a full understanding of federal securities laws is required. All federal securities laws have a year attached to them that corresponds with the year the law was enacted.

The Securities Act of 1933

The Securities Act of 1933 was the first major piece of securities industry regulation, which was brought about largely as a result of the stock market crash of 1929. Other laws were also enacted to help prevent another meltdown of the nation's financial system, such as the Securities Exchange Act of 1934, which will be discussed later.

The Securities Act of 1933 regulates the primary market. The primary market consists exclusively of transactions between issuers of securities and investors. In a primary market transaction, the issuer of the securities receives the proceeds from the sale of the securities. The Securities Act of 1933 requires nonexempt issuers, typically corporate issuers, to file a registration statement with the Securities and Exchange Commission (SEC). The SEC will review the registration statement for a minimum of 20 days. During this time, known as the cooling-off period, no sales of securities may take place. If the SEC requires additional information regarding the offering, the SEC may issue a deficiency letter or a stop order that will extend the cooling-off period beyond the original 20 days. The cooling-off period will continue until the SEC has received all of the information it has requested. The registration statement, formally known as an S1, is the issuer's full disclosure document for the registration of the securities with the SEC.

The Prospectus

While the SEC is reviewing the securities' registration statement, registered representatives are very limited as to what they may do with regard to the new issue. During the cooling-off period, the only thing a registered representative may do is obtain indications on interest from clients by providing them with a preliminary prospectus, also known as a red herring. The term “red herring” originated from the fact that all preliminary prospectuses must have a statement printed in red ink on the front cover stating, “These securities have not yet become registered with the SEC and therefore may not be sold.” An indication of interest is an investor's or broker dealer's statement that it may be interested in purchasing the securities being offered. The preliminary prospectus contains most of the same information that will be contained in the final prospectus except for the offering price and the proceeds to the issuer. All information contained in a preliminary prospectus is subject to change or revision. The preliminary prospectus must be delivered to investors in hard copy.

The Final Prospectus

All purchasers of new issues must be given a final prospectus before any sales may be allowed. The final prospectus serves as the issuer's full-disclosure document for the purchaser of the securities. If the issuer has filed a prospectus with the SEC and the prospectus can be viewed on the SEC's website, a prospectus will be deemed to have been provided to the investor through the “access equals delivery” rule. Once the issuer's registration statement becomes effective, the final prospectus must include the following:

Type and description of the securities

Price of the securities

Use of the proceeds

Underwriter's discount

Date of offering

Type and description of underwriting

Business history of issuer

Biographical data for company officers and directors

Information regarding large stockholders

Company financial data

Risks to purchaser

Legal matters concerning the company

SEC disclaimer

SEC Disclaimer

The SEC reviews the issuer's registration statement and the prospectus but does not guarantee the accuracy or adequacy of the information. The following SEC disclaimer must appear on the cover of all prospectuses: “These securities have not been approved or disapproved by the SEC nor have any representations been made about the accuracy or the adequacy of the information.”

Misrepresentations

Financial relief for misrepresentations made under the Securities Act of 1933 is available for purchasers of any security that is sold under a prospectus that is found to contain false or misleading statements. Purchasers of the security may be entitled to seek financial relief from any or all of the following:

The issuer.

The underwriters.

Officers and directors.

All parties who signed the registration statement.

Accountants and attorneys who helped prepare the registration statement.

The Securities Exchange Act of 1934

The Securities Exchange Act of 1934 was the second major piece of legislation that resulted from the market crash of 1929. The Securities Exchange Act of 1934 regulates the secondary market, which consists of investor-to-investor transactions. All transactions between two investors that are executed on any of the exchanges or in the over-the-counter (OTC) market are secondary market transactions. In a secondary market transaction, the selling security holder receives the money, not the issuing corporation. The Securities Exchange Act of 1934 also regulates all individuals and firms that conduct business in the securities industry. The Securities Exchange Act of 1934:

Created the SEC.

Requires registration of broker dealers and agents.

Regulates the exchanges and FINRA.

Requires net capital for broker dealers.

Regulates short sales.

Regulates insider transactions.

Requires public companies to solicit proxies.

Requires segregation of customer and firm assets.

Authorizes the Federal Reserve Board to regulate the extension of credit for securities purchases under Regulation T.

Regulates the handling of client accounts.

The Securities and Exchange Commission (SEC)

One of the biggest components of the Securities Exchange Act of 1934 was the creation of the SEC. The SEC is the ultimate securities industry authority, and it is a government body. Five commissioners are appointed to five-year terms by the president, and each must be approved by the Senate. The SEC is neither a self-regulatory organization (SRO) nor a designated examining authority (DEA). A self-regulatory organization regulates its own members, such as the New York Stock Exchange (NYSE) or FINRA. A DEA inspects a broker dealer's books and records; it can also be the NYSE or FINRA. All broker dealers, exchanges, agents, and securities must register with the SEC. All exchanges are required to file a registration statement with the SEC that includes the articles of incorporation, bylaws, and constitution. All new rules and regulations adopted by the exchanges must be disclosed to the SEC as soon as they are enacted. Issuers of securities with more than 500 shareholders and with assets exceeding $5,000,000 must register with the SEC, file quarterly and annual reports, and solicit proxies from stockholders. A broker dealer that conducts business with the public must register with the SEC and maintain a certain level of financial solvency, known as net capital. All broker dealers are required to forward a financial statement to all customers of the firm. Additionally, all employees of the broker dealer involved in securities sales who have access to cash and securities or who supervise employees must be fingerprinted.

Extension of Credit

The Securities Act of 1934 gave the authority to the Federal Reserve Board to regulate the extension of credit by broker dealers for the purchase of securities by their customers. The following is a list of the regulations of the different lenders and the regulation that gave the Federal Reserve Board the authority to govern their activities:

Regulation T: Broker dealers

Regulation U: Banks

Regulation G: All other financial institutions

Public Utilities Holding Company Act of 1935

The Public Utilities Holding Company Act of 1935 regulates all companies that are in business to provide retail distribution of gas and electric power. Because the companies are regulated by this act, their securities are exempt from state registration requirements.

The Maloney Act of 1938 /NASD

The Maloney Act of 1938 was an amendment to the Securities Exchange Act of 1934 that allowed the creation of the NASD. The NASD is the SRO for the OTC market. Its purpose is to regulate the broker dealers that conduct business in the OTC market. The NASD (now part of FINRA) is organized into four major bylaws. They are:

The Rules of Fair Practice.

The Uniform Practice Code.

The Code of Procedure.

The Code of Arbitration.

The Trust Indenture Act of 1939

The Trust Indenture Act of 1939 requires that corporate bond issues in excess of $5,000,000 that are to be repaid during a term in excess of one year issue a trust indenture for the issue. The trust indenture is a contract between the issuer and the trustee. The trustee acts on behalf of all of the bondholders and ensures that the issuer is in compliance with all of the promises and covenants made to the bondholders. The trustee is appointed by the corporation and is usually a bank or a trust company. The Trust Indenture Act of 1939 only applies to corporate issuers. Both federal and municipal issuers are exempt.

Investment Advisers Act of 1940

The Investment Advisers Act of 1940 regulates industry professionals who charge a fee for the advice they offer to clients. The Investment Advisers Act sets forth registration requirements for advisers as well as disclosure ­requirements relating to the adviser's:

Methods of recommendations

Types of securities recommended

Professional background and qualifications

Fees to be charged

Method for computing and charging fees

Types of clients

Investment Company Act of 1940

The Investment Company Act of 1940 regulates companies that are in ­business to invest or reinvest money for the benefit of its investors. The Investment Company Act sets forth registration requirements for the three types of investment companies. They are:

Management investment companies.

Unit investment trusts (UITs).

Face-amount companies (FACs).

Securities Investor Protection Corporation Act of 1970 (SIPC)

The Securities Investor Protection Corporation (SIPC) is a government-sponsored corporation that provides protection to customers in the event of a broker dealer's failure. All broker dealers that are registered with the SEC are required to be SIPC members. All broker dealers are required to pay annual dues to SIPC's insurance fund to cover losses due to broker dealer failure. If a broker dealer fails to pay its SIPC assessment, it may not transact business until it is paid.

Net Capital Requirement

All broker dealers are required to maintain a certain level of net capital in order to ensure that they are financially solvent. A broker dealer's capital requirement is contingent on the type of business that it conducts. The larger and more complex the firm's business, the greater the net capital requirement. Should a firm fall below its net capital requirement, it is deemed to be insolvent, and SIPC will petition in court to have a trustee appointed to liquidate the firm and protect the customers. The trustee must be a disinterested party; once the trustee is appointed, the firm may not conduct business or try to conceal any assets.

Customer Coverage

SIPC protects customers of a brokerage firm in much the same way that the Federal Deposit Insurance Corporation (FDIC) protects customers of banks. SIPC covers customer losses that result from broker dealer failure, not market losses. SIPC covers customers for up to $500,000 per separate customer. Of the $500,000, up to $250,000 may be in cash. Most broker dealers carry additional private insurance to cover larger accounts, but SIPC is the industry-funded insurance and is required by all broker dealers. The following are examples of separate customers:

Customer

Securities Market Value

Cash

SIPC Coverage

Mr. Jones

$320,000

$75,000

All

Mr. & Mrs. Jones

$290,000

$90,000

All

Mrs. Jones

$397,000

$82,000

All

All of the accounts shown would be considered separate customers, and SIPC would cover the entire value of the accounts. If an account has in excess of $250,000 in cash, the individual would not be covered for any amount exceeding $250,000 in cash and would become a general creditor for the rest. SIPC does not consider a margin account and a cash account as separate customers, and the customer would be covered for the maximum of $500,000. SIPC does not offer coverage for commodities contracts, and all member firms must display the SIPC sign in the lobby of the firm.

Fidelity Bond

All SIPC members are required to obtain a fidelity bond to protect customers in the event of employee dishonesty. Some things that a fidelity bond will insure against are check forgery and fraudulent trading. The minimum amount of the fidelity bond is $25,000; however, large firms are often required to carry a higher amount.

The Insider Trading and Securities Fraud Enforcement Act of 1988

The Insider Trading and Securities Fraud Enforcement Act of 1988 set forth guidelines and controls for the use and dissemination of nonpublic material information. Nonpublic information is information that is not known by people outside of the company. Material information is information regarding a situation or development that will materially affect the company in the present or future. It is not only just for insiders to have this type of information, but it is required for them to do their jobs effectively. It is, however, unlawful for an insider to use this information to profit from a forthcoming move in the stock price. An insider is defined as any officer, director, 10% stockholder, or anyone who is in possession of nonpublic material information, as well as the spouse of any such person. Additionally, it is unlawful for the insider to divulge any of this information to any outside party.

Trading on inside information has always been a violation of the Securities Exchange Act of 1934, but the Insider Trading Act prescribed penalties for violators, which include:

A fine of the greater of 300% of the amount of the gain or 300% of the amount of the loss avoided, or $1,000,000 for the person who acts on the information

A fine of up to $1,000,000 for the person who divulges the information

Insider traders may be sued by the affected parties

Criminal prosecutions

Information becomes public information once it has been disseminated over public media. The SEC will pay a reward of up to 10% to informants who turn in individuals who trade on inside information. In addition to the insiders already listed, the following are also considered insiders:

Accountants

Attorneys

Investment bankers

Firewall

Broker dealers who act as underwriters and investment bankers for corporate clients must have access to information regarding the company in order to advise the company properly. The broker dealer must ensure that no inside information is passed between its investment banking department and its retail trading department. The broker dealer is required to physically separate these divisions by a firewall. The broker dealer must maintain written supervisory procedures to adequately guard against the wrongful use or dissemination of inside information.

The Telephone Consumer Protection Act of 1991

The Telephone Consumer Protection Act of 1991 regulates how telemarketing calls are made by businesses. Telemarketing calls that are designed to have consumers invest in or purchase goods, services, or property must adhere to the strict guidelines of the act. All firms must:

Call only between the hours of 8 a.m. and 9 p.m. in the customer's time zone.

Maintain a Do-Not-Call list. Individuals placed on the Do-Not-Call list may not be contacted by anyone at the firm for five years.

Give the prospect the firm's name, address, and phone number when soliciting.

Follow adequate policies and procedures to maintain a Do-Not-Call list.

Train representatives on calling policies and use of the Do-Not-Call list.

Ensure that any fax solicitations have the firm's name, address, and phone number.

Ensure that the name of the firm and phone number are displayed on caller ID.

Exemption from the Telephone Consumer Protection Act of 1991

The following are exempt from the Telephone Consumer Protection Act of 1991:

Calls to existing customers

Calls to a delinquent debtor

Calls from a religious or nonprofit organization

Calls may be made prior to 8 a.m. or after 9 p.m. to places of business. The time regulation only relates to contacting noncustomers at home.

National Securities Market Improvement Act of 1996

The National Securities Market Improvement Act of 1996, also known as the Coordination Act, eliminated the duplication of effort among state and federal regulators. Some of the key points of the act include:

Federal law supersedes state law.

Registration of investment advisers.

Capital requirements.

Industry competition.

The National Securities Market Improvement Act of 1996 ensured that no action by any state or political subdivision could impose laws or requirements upon any broker dealer that differed from or are in addition to those of the Securities Exchange Act of 1934 relating to:

Capital requirements.

Recordkeeping.

Financial reporting.

Margin.

Custody.

The National Securities Market Improvement Act of 1996 also set forth that the states did not have any authority to regulate investment advisory firms that are federally registered. However, the states may require an investment advisory representative of a federally registered investment adviser to register with the state.

The Uniform Securities Act

In the early half of the twentieth century, state securities regulators developed rules and regulations for transacting securities business within their states. The result was regulations that varied widely from state to state. The Uniform Securities Act (USA) laid out model legislation for all states in an effort to make each state's rules and regulations more uniform and easier to address. The USA, or the Act, sets minimum qualifications and standards for each state securities administrator. The state securities administrator is the top securities regulator within the state. The state securities administrator may be the attorney general or it may be an individual appointed specifically to that post. The USA also: