The Foundation - The Uniform Securities Act (USA) - Definitions Part 3

  • FEDERAL COVERED INVESTMENT ADVISER - "Federal covered investment adviser" means a person registered under the Investment Advisers Act of 1940."

This term (along with the next term) came into being when the NSMIA Law of 1996 was implemented. This law split the registration of investment advisers into: 1) those firms registered with the federal government (with the SEC) -these are the Federal Covered Investment Advisers and 2) those registered with the states under the USA. The quote above came from the 2002 USA, but a Memorandum of Understanding by NASAA in 1997 amplifies the definition. Notice that broker-dealers are still required to register with both the SEC and the state while the IA is only required to register with one. We will take a closer look at this issue later on.

  • FEDERAL COVERED SECURITY - "Federal covered security" means a security that is, or upon completion of a transaction will be, a covered security under Section 18(b) of the Securities Act of 1933 ..."

    You may notice that this isn't a very helpful definition (from the 2002 USA) for folks who aren't lawyers or securities law professionals. Much more useful are the official comments that are a part of that law's documentation.

    "The National Securities Markets Improvement Act of 1996, as subsequently amended, partially preempted state law in the securities offering and reporting areas ...

    Section 18(b) of the Securities Act of 1933 applies to four types of "covered securities":

 

  1. Securities listed or authorized for listing on the New York Stock Exchange (NYSE), the American Stock Exchange (Amex); the National Market System of the Nasdaq stock market;
     
  2. Securities issued by an investment company registered with the SEC (or one that has filed a registration statement under the Investment Company Act of 1940)."

Adding to this list, the Official Comments accompanying the USA of 2002 state that:

Under Rule 146 the SEC has designated as federal covered securities under Section 18(b)(1) Tier I of the Pacific Exchange; Tier I of the Philadelphia Stock Exchange; and The Chicago Board Options Exchange on condition that the relevant listing standards continue to be substantially similar to those of the New York, American, or Nasdaq stock markets ..."

So what does all of this really mean? (You don't have to know that rule number, or what Tier I represents, by the way). The basic concept is that if the issuer of a security - the corporation - has achieved a level of financial strength and stability that is sufficient for it to be listed on one of the exchanges or the Nasdaq National Market (NNM) system, there is no need to have it examined by and registered again with the state. This is one of the major securities market simplification thrusts of NSMIA - the elimination of repetitive registration.

  • FRAUD - "Fraud," "deceit," and "defraud" are not limited to common law deceit."
    This is a statement that runs unchanged in all versions of the USA. Webster's New World Dictionary says that "common law" means "the law of a country or state based on custom, usage and the decisions and opinions of law courts." In practical terms, common law means that persons cannot lie, cheat, or steal in the securities business. The Statements of Policy and Model Rules of NASAA are quite a bit more specific, as you will see. In this book, any instances in which we define a term, other than ones defined in the USA, the definition comes from Webster's New World Dictionary unless otherwise indicated. About 35% of the Series 63 exam focuses on fraudulent and other prohibited practices.
The Uniform Securities Act (USA) - Definitions Part 4


Related Articles
  1. Professionals

    Federal Covered Securities

    FINRA/NASAA Series 63 - Federal Covered Securities. This section defines and explains covered securities.
  2. Professionals

    Securities

    FINRA/NASAA Series 63 - Securities. In this section securities registration and three tests to determine when an investment contract is a security.
  3. Professionals

    Federal Covered Securities

    FINRA/NASAA Series 66 - Federal Covered Securities. This section explains federal covered securities and sample exam questions.
  4. Professionals

    The Uniform Securities Act (USA) - Definition Part 1

    FINRA/NASAA Series 63 - The Uniform Securities Act (USA) - Definition Part 1. This section explains blue sky laws, the USA and related important definitions.
  5. Professionals

    National Conference of Commissioners on Uniform State Laws (NCCUSL)

    FINRA/NASAA Series 63 - National Conference of Commissioners on Uniform State Laws (NCCUSL). In this section National Conference of Commissioners on Uniform State Laws and federal and state securities ...
  6. Professionals

    Other Definitions

    FINRA/NASAA Series 63 - Other Definitions. This section review other definitions and note how they could appear on the exam.
  7. Professionals

    USA Regulation and The Administrator

    FINRA/NASAA Series 66: Section 7 USA Regulation and The Administrator
  8. Professionals

    The Uniform Securities Act (USA) - Definitions Part 4

    FINRA/NASAA Series 63 - The Uniform Securities Act (USA) - Definitions Part 4. In this section definitions of guaranteed, institutional investor and investment advisor representative.
  9. Professionals

    The Administrator

    North American Securities Administrators Association (NASAA) As the name indicates, NASAA is an organization of securities Administrators. The term "Administrator" is a generic title ...
  10. Professionals

    Introduction

    FINRA/NASAA Series 66: Section 7 Foundation for Regulatory Issues. This section explains blue sky laws and the uniform securites act (USA) in detail.
RELATED TERMS
  1. SEC Form S-6

    A filing with the Securities and Exchange Commission (SEC), which ...
  2. SEC Form 1

    An application for and amendments to an application for registration ...
  3. Covered Security

    A class of securities, created by the National Securities Market ...
  4. Securities Exchange Act Of 1934

    The Securities Exchange Act of 1934 was created to provide governance ...
  5. SEC Form S-8

    A filing with the Securities and Exchange Commission (SEC) that ...
  6. SEC Form S-11

    A filing with the Securities and Exchange Commission (SEC) that ...
RELATED FAQS
  1. According to the USA, it is unlawful for a person to offer to sell a security in ...

    a. the security is registered with Federal Reserve. b. it is a federal covered security, is exempted from registration, or ... Read Answer >>
  2. Is a person registered for Financial Instruments Business eligible to conduct both ...

    Explore Japan's 2006 Financial Instruments and Exchange Law, and understand how the law affects investment services regulation. Read Answer >>
  3. The de Minimis clause for investment advisers means:

    A. An investment adviser must register with the state if it holds less than $25 million in assets.B. An investment adviser ... Read Answer >>
  4. Under the Uniform Securities Act, which of the following advisers is NOT defined ...

    The correct answer is b). Federal covered advisers include those who manage client assets of $25,000,000 or more or who advises ... Read Answer >>
  5. How do I know if I am buying unregistered securities or stocks?

    All securities, including stocks, bonds and notes, must be registered with the Securities and Exchange Commission (SEC) before ... Read Answer >>
  6. Do I need to pass the Series 63 if I am just taking orders for securities?

    Learn about the requirements for practicing a financial profession. Find out who is required to take the Series 63 exam and ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center