Exam Updates
NASAA clarifies investment adviser custody rules
NASAA's model rules currently provide two conflicting standards for investment advisers seeking to avoid taking custody of a check received from a client that is payable to a third party. The custody rule states that the adviser avoids taking custody if they forward the check within 3 business days, whereas the recordkeeping rule states that the adviser avoids custody if they forward the check within 24 hours. Both rules require the adviser to keep records regarding the receipt and delivery of the check.
NASAA has confirmed that the custody rule applies in this situation, and thus the correct interval is 3 business days.
This update applies to the Series 63, Series 65, and Series 66.
Last Updated: October 27, 2012
Series 24 Changes due to the JOBS Act
-NASD Rule 2711*: IPOs for "emerging growth companies" will be subject to fewer restrictions limiting communication between research analysts and investment bankers (Chinese Walls). An emerging growth company is defined as a company with less than $1 billion in annual revenue that had its first IPO no more than five years ago. Banks will be allowed to publish research reports on emerging growth companies immediately after they take them public. The old rule required a 40 calendar day quiet period for IPOs.
-Regulation A: The JOBS Act increased threshold for avoiding registration from $5 million to $50 million. The Act calls for a study of the effects of blue sky laws on Reg A.
-Regulation D, Rule 506: Offerings made under this rule may have general advertising and general solicitation as long as the issue is only sold to accredited investors. Normally Regulation D, Rule 506 offerings may not have general advertising or general solicitation and may be sold to up to 35 non-accredited investors (plus any number of accredited investors).
-Sarbanes-Oxley, Section 404: Emerging growth companies are exempt from annual audits of internal financial controls.
-Section 12 of the Securities Exchange Act of 1934 (Registration Requirements for Securities): The JOBS Act increases the number of shareholders and amount of assets a non-bank company may have before it is required to go public - number of shareholders was raised from 500 persons to 2,000 persons or 500 non-accredited investors; amount of assets was raised from $1 million to $10 million. Up to 2,000 shareholders may invest in a bank holding company before registration is required (up from 500). The threshold for deregistration of bank holding company securities has been raised from 300 to 1,200 persons.
-Section 4 of the Securities Act of 1933 (Exempted Transactions): Startup companies can sell small amounts of shares to several investors to raise up to $1 million without being required to register the security (crowdfunding). An investor can contribute up to at most $10,000, though the individual maximum may be lower based on the investor's annual income or net worth.
-Section 7 of the Securities Act of 1933 (Information Required in the Registration Statement): Emerging growth companies do not need to present more than two years of audited financial statements with their registration statement. The standard requirement is to present statements for the past three years.
-Regulation S-K: The SEC must review Regulation S-K to determine how Congress may simplify the registration process.
-Section 14A of the Securities Exchange Act of 1934 (Shareholder Approval of Executive Compensation): Emerging growth companies are exempt from being required to disclose executive compensation and from needing shareholder approval of executive compensation.
-Regulation NMS, Rule 612: The Act requires the SEC to conduct a study to determine the impact of decimalization, i.e. trading in one cent ($.01) increments. If the SEC finds that emerging growth companies should be traded in increments greater than one cent, then it may designate a larger trading increment (though the increment must be smaller than ten cents ($.10)).
*Note that the JOBS Act has not changed NASD Rule 2711 directly - rather, it has changed the laws that regulate national securities associations to prohibit certain restrictions. It is expected that FINRA will modify its rules to comply with the new law.
Last Updated: April 16, 2012
Series 79 Changes due to the JOBS Act
-NASD Rule 2711*: IPOs for "emerging growth companies" will be subject to fewer restrictions limiting communication between research analysts and investment bankers (Chinese Walls). An emerging growth company is defined as a company with less than $1 billion in annual revenue that had its first IPO no more than five years ago. Banks will be allowed to publish research reports on emerging growth companies immediately after they take them public. The old rule required a 40 calendar day quiet period for IPOs.
-Regulation A: The JOBS Act increased threshold for avoiding registration from $5 million to $50 million. The Act calls for a study of the effects of blue sky laws on Reg A.
-Regulation D, Rule 506: Offerings made under this rule may have general advertising and general solicitation as long as the issue is only sold to accredited investors. Normally Regulation D, Rule 506 offerings may not have general advertising or general solicitation and may be sold to up to 35 non-accredited investors (plus any number of accredited investors).
-Sarbanes-Oxley, Section 404: Emerging growth companies are exempt from annual audits of internal financial controls.
-Section 12 of the Securities Exchange Act of 1934 (Registration Requirements for Securities): The JOBS Act increases the number of shareholders and amount of assets a non-bank company may have before it is required to go public - number of shareholders was raised from 500 persons to 2,000 persons or 500 non-accredited investors; amount of assets was raised from $1 million to $10 million. Up to 2,000 shareholders may invest in a bank holding company before registration is required (up from 500). The threshold for deregistration of bank holding company securities has been raised from 300 to 1,200 persons.
-Section 4 of the Securities Act of 1933 (Exempted Transactions): Startup companies can sell small amounts of shares to several investors to raise up to $1 million without being required to register the security (crowdfunding). An investor can contribute up to at most $10,000, though the individual maximum may be lower based on the investor's annual income or net worth.
-Section 7 of the Securities Act of 1933 (Information Required in the Registration Statement): Emerging growth companies do not need to present more than two years of audited financial statements with their registration statement. The standard requirement is to present statements for the past three years.
-Regulation S-K: The SEC must review Regulation S-K to determine how Congress may simplify the registration process.
-Section 14A of the Securities Exchange Act of 1934 (Shareholder Approval of Executive Compensation): Emerging growth companies are exempt from being required to disclose executive compensation and from needing shareholder approval of executive compensation.
*Note that the JOBS Act has not changed NASD Rule 2711 directly - rather, it has changed the laws that regulate national securities associations to prohibit certain restrictions. It is expected that FINRA will modify its rules to comply with the new law.
Last Updated: April 16, 2012
Series 62 Changes due to the JOBS Act
-NASD Rule 2711*: IPOs for "emerging growth companies" will be subject to fewer restrictions limiting communication between research analysts and investment bankers (Chinese Walls). An emerging growth company is defined as a company with less than $1 billion in annual revenue that had its first IPO no more than five years ago. Banks will be allowed to publish research reports on emerging growth companies immediately after they take them public. The old rule required a 40 calendar day quiet period for IPOs.
-Regulation A: The JOBS Act increased threshold for avoiding registration from $5 million to $50 million. The Act calls for a study of the effects of blue sky laws on Reg A.
-Regulation D, Rule 506: Offerings made under this rule may have general advertising and general solicitation as long as the issue is only sold to accredited investors. Normally Regulation D, Rule 506 offerings may not have general advertising or general solicitation and may be sold to up to 35 non-accredited investors (plus any number of accredited investors).
-Sarbanes-Oxley, Section 404: Emerging growth companies are exempt from annual audits of internal financial controls.
-Section 12 of the Securities Exchange Act of 1934 (Registration Requirements for Securities): The JOBS Act increases the number of shareholders and amount of assets a non-bank company may have before it is required to go public - number of shareholders was raised from 500 persons to 2,000 persons or 500 non-accredited investors; amount of assets was raised from $1 million to $10 million. Up to 2,000 shareholders may invest in a bank holding company before registration is required (up from 500). The threshold for deregistration of bank holding company securities has been raised from 300 to 1,200 persons.
-Section 4 of the Securities Act of 1933 (Exempted Transactions): Startup companies can sell small amounts of shares to several investors to raise up to $1 million without being required to register the security (crowdfunding). An investor can contribute up to at most $10,000, though the individual maximum may be lower based on the investor's annual income or net worth.
-Section 7 of the Securities Act of 1933 (Information Required in the Registration Statement): Emerging growth companies do not need to present more than two years of audited financial statements with their registration statement. The standard requirement is to present statements for the past three years.
-Regulation S-K: The SEC must review Regulation S-K to determine how Congress may simplify the registration process.
-Regulation NMS, Rule 612: The Act requires the SEC to conduct a study to determine the impact of decimalization, i.e. trading in one cent ($.01) increments. If the SEC finds that emerging growth companies should be traded in increments greater than one cent, then it may designate a larger trading increment (though the increment must be smaller than ten cents ($.10)).
*Note that the JOBS Act has not changed NASD Rule 2711 directly - rather, it has changed the laws that regulate national securities associations to prohibit certain restrictions. It is expected that FINRA will modify its rules to comply with the new law.
Last Updated: April 16, 2012
Series 82 Changes due to the JOBS Act
-NASD Rule 2711*: IPOs for "emerging growth companies" will be subject to fewer restrictions limiting communication between research analysts and investment bankers (Chinese Walls). An emerging growth company is defined as a company with less than $1 billion in annual revenue that had its first IPO no more than five years ago. Banks will be allowed to publish research reports on emerging growth companies immediately after they take them public. The old rule required a 40 calendar day quiet period for IPOs.
-Regulation A: The JOBS Act increased threshold for avoiding registration from $5 million to $50 million. The Act calls for a study of the effects of blue sky laws on Reg A.
-Regulation D, Rule 506: Offerings made under this rule may have general advertising and general solicitation as long as the issue is only sold to accredited investors. Normally Regulation D, Rule 506 offerings may not have general advertising or general solicitation and may be sold to up to 35 non-accredited investors (plus any number of accredited investors).
-Sarbanes-Oxley, Section 404: Emerging growth companies are exempt from annual audits of internal financial controls.
-Section 12 of the Securities Exchange Act of 1934 (Registration Requirements for Securities): The JOBS Act increases the number of shareholders and amount of assets a non-bank company may have before it is required to go public - number of shareholders was raised from 500 persons to 2,000 persons or 500 non-accredited investors; amount of assets was raised from $1 million to $10 million. Up to 2,000 shareholders may invest in a bank holding company before registration is required (up from 500). The threshold for deregistration of bank holding company securities has been raised from 300 to 1,200 persons.
-Section 4 of the Securities Act of 1933 (Exempted Transactions): Startup companies can sell small amounts of shares to several investors to raise up to $1 million without being required to register the security (crowdfunding). An investor can contribute up to at most $10,000, though the individual maximum may be lower based on the investor's annual income or net worth.
*Note that the JOBS Act has not changed NASD Rule 2711 directly - rather, it has changed the laws that regulate national securities associations to prohibit certain restrictions. It is expected that FINRA will modify its rules to comply with the new law.
Last Updated: April 16, 2012
Updated Outside Business Activities Rule
If you are studying for the Series 6 or Series 7 using Robert Walker's Pass the 6 or Pass the 7, please be advised that the information for outside business activities has been updated since our last published editions. In December 2010, FINRA implemented a revised rule (FINRA Rule 3270) indicating that anyone seeking outside business activities must obtain written approval from his or her member firm prior to engaging in the activity. This differs from the prior rule that indicated registered representatives needed to simply provide their firms with prompt notice of the activities.
Our books will be updated with the correct information in the next edition and if you would like to join our mailing list to hear when new editions are published, please click here.
This rule also affects the following FINRA exams: Series 24, Series 26, Series 62, Series 79, Series 82 and Series 99.
Last Updated: January 17, 2012
Updates to the FINRA Rules Governing Books and Records
On December 5, 2011, new FINRA rules regarding books and records took effect. The changes are as follows:
Account Information
-The default rule for keeping a record is six years. This means that when FINRA requires a firm to keep a record but does not specify the length of time the firm must keep it, the firm must keep the record for at least six years. If the records pertain to an account, the records must be kept for six years after the account is closed. If not, then the records must be kept for six years after they are made.
-Firms must preserve customer account information that is subsequently updated for at least six years after that update. If the account is closed, firm must keep the most current customer account information for six years after the account is closed.
-Previously, when opening a customer account, the signature of the registered representative introducing the account was required, but this is no longer the case. Now, the name(s) (but not signatures) of any associated person(s) responsible for the account are required instead.
-Previously, when opening a discretionary account, the firm was required to record the signature of anyone with discretionary authorization, the date authorization was given and the "age of the customer in connection with exempted securities." Now, the firm is only required to record the manual, dated signature of anyone with discretionary authorization. However, there must be an acknowledgment that the person is over 18-years-old (although a specific age is no longer necessary).
Customer Complaints
-Previously, firms were required to keep written customer complaints for three years. Now firms must keep written customer complaints for four years.
Order Information
-Before executing a customer order, firms must record the name or designation of the account. Previously, firms were allowed to accept block orders from an investment adviser for customer accounts if the firm received the specific account names and designations by the end of the business day. Now, firms are allowed to accept orders from an investment adviser for customer accounts if the order involves more than one customer and the firm receives the specific account names and designations by noon of the next business day.
Pre-dispute Arbitration Agreements
-The disclosure language for pre-dispute arbitration agreements has been updated to include that arbitrators are required to explain their decision in eligible cases if all parties involved file a joint request 20 days before the first scheduled hearing date.
These changes may affect your studies for the following FINRA exams: Series 7, Series 6, Series 24, Series 26, Series 62, Series 79, Series 82 and Series 99.
To read FINRA Regulatory Notice 11-19 that details the changes, please click here.
Last Updated: January 17, 2011
Series 7
As you may have heard, FINRA has recently announced changes to the Series 7 exam outline. The changes are scheduled to take effect November 7, 2011. After examining the new outline, we have found that the majority of new topics are already covered in our Pass the 7 (3rd Edition) exam prep guide.
To reassure our Series 7 customers, we have identified the new topics that are contained in our book with a page number of where they are located. We have also identified the small number of topics that are not covered in the Pass the 7, and if you click the link below, you can access information on these topics that you will need to know for your exam. We will be publishing an updated book corresponding with the new outline soon but until then, please use the Supplement provided below to aid in your studies.
Solomon Exam Prep's Series 7 Supplement to New Outline
You can access FINRA's new Series 7 outline here: NEW FINRA Series 7 Outline
Last Updated: 11/4/11
Investment Adviser SEC Registration Rules
Pursuant to the Dodd-Frank Act, there have been some changes to investment adviser rules that you should know for the NASAA Series 63, Series 65 and Series 66 exams. These rules regulate when investment advisers must register with the federal government. If you have any questions about these rules, please submit your question via our "Ask the Professor" webpage and expect an answer within one business day.
If you have assets under management of at least $110 million, you MUST register with the SEC. However, if your assets under management are between $100 million - $110 million, then SEC registration is permitted but not mandatory.
Here are other conditions that necessitate or permit federal registration:
- Advisers to registered investment companies
- Mid-sized advisers ($25 million-$100 million assets under management) that are advisers to a business development company
- Pension consultants for plans having an aggregate value of $200 million
- Investment advisers controlling, controlled by, or under common control with federally registered investment advisers
- Investment advisers that expect to be eligible for federal registration within 120 days
- Investment advisers that would be required to register in 15 or more states
- Internet advisers that provide advice to fewer than 15 clients outside of an interactive website
Last Updated: June 18, 2012