Regulation of B/Ds and Agents

Question 1

True or False: It is always prohibited for agents to split commissions.

Answer 1

False. Splitting commissions is allowed if both agents are licensed with the same firm and in the same state

Question 2

Is a firm considered a BD if it has no office in a state and only deals with institutional clients in the state?

Answer 2

No. The firm is excluded from the BD definition

Question 3

With whom may an agent split commissions?

Answer 3

Another agent who is registered with the same BD, or another BD that is under common control

Question 4

If a BD is promoting wrap accounts, does it need to register as an IA?

Answer 4

Yes. Selling wrap accounts is considered advisory service which requires registration

Question 5

Is a sales assistant for a BD who accepts unsolicited orders from clients considered an agent?

Answer 5

Yes, since anyone representing a BD in the sale of securities is an agent

Question 6

For financial professionals, state registration expires annually on ______________.

Answer 6

December 31

Question 7

State registration remains in effect for ___ year(s)

Answer 7

one year

Question 8

If a registrant wishes to withdraw her registration, when does the withdrawal become effective?

Answer 8

If no action is pending, it is effective 30 days after filing the withdrawal request with the Administrator

Question 9

Is an individual who represents a BD in the sale of Treasury bonds considered an agent?

Answer 9

Yes, since anyone representing a BD in the sale of securities is an agent.

Question 10

How is a firm acting if it effects trades on behalf of its customers, without taking the other side of the trade?

Answer 10

Agent or broker

Question 11

May an agent of a BD located in Mexico do business with a client in the U.S. without registering in the state?

Answer 11

No. BDs of Mexico are required to register in the U.S. to effect securities transactions in a state

Question 12

A BD in New York gets an order from a client who is on vacation in Florida. Does the firm need to register in Florida?

Answer 12

No. Registration is not required since the client is an existing client who is temporarily in Florida

Question 13

A client of a Canadian BD is visiting the U.S. May the agent do business with her without registering in the state?

Answer 13

Yes. Since she is an existing client of the Canadian BD, business may continue in the state

Question 14

May an agent use a new issue prospectus to create a marketing piece and only include positive details about the issue

Answer 14

No. Material provided to clients must include all facts about the issue, not just the positive ones

Question 15

Is there a limit to the amount of net capital the Administrator may require of a BD?

Answer 15

Yes. The Administrator may not set a requirement that exceeds the federal (SEC) requirement

Question 16

True or False: BDs must file retail communication with the Administrator

Answer 16

True

Question 17

The USA refers to an individual who represents a BD in the sale of securities as an ________.

Answer 17

agent

Question 18

What is needed for a BD to exercise discretion over a client’s account?

Answer 18

BDs need the client’s prior written authorization

Question 19

As it applies to persons and securities, what does the term “exemption” mean in the USA?

Answer 19

Exemption signifies that a person or security is not subject to registration under the USA

Question 20

If the Administrator requires an IA, BD, or agent to post a bond, is a deposit of cash or securities acceptable?

Answer 20

Yes. However, the Administrator determines the amount and types of securities that are appropriate

Question 21

Is an individual who represents the issuer of a private placement considered an agent?

Answer 21

No, since the individual is involved in an exempt transaction

Question 22

May the Administrator set minimum net capital requirements for BDs?

Answer 22

Yes, but the requirement on BDs may not exceed the federal (SEC) requiremen

Question 23

A securities firm that executes trades for its own account or the accounts of others is deemed a _______________.

Answer 23

broker-dealer (BD)

Question 24

If a firm meets the BD definition in the state, are there any exemptions from registration under the USA?

Answer 24

No. Firms that meet the BD definition are required to register in the state.

Question 25

In place of a surety bond, the Administrator will accept a deposit of _______ or _____________

Answer 25

cash or securities

Question 26

A BD that is located and licensed in Canada may contact what types of individuals in the U.S.?

Answer 26

Existing clients who are temporarily in the U.S

Question 27

Is being charged with a felony or securities-related misdemeanor grounds for statutory disqualification?

Answer 27

No. Statutory disqualification is due to conviction for any felony or securities-related misdemeanor in the past 10 yrs

Question 28

What is the purpose of a Consent to Service of Process?

Answer 28

To appoint the Administrator as the applicant's attorney to receive and process any non-criminal legal complaints

Question 29

A _________ bond is posted to cover the potential costs of legal action taken against certain persons

Answer 29

surety bond

Question 30

True or False: An employee who is hired to assist in selling IPO shares is required to be registered

Answer 30

True

Question 31

True or False: Under the USA, a Canadian BD may solicit a Canadian client to open up an account while he is in the U.S.

Answer 31

False. Canadian BDs may service existing accounts of Canadians who are in the U.S., but cannot open new accounts.

Question 32

Must the Consent to Service of Process be renewed each year?

Answer 32

No. It is only required at initial registration.

Question 33

An ___________________________________ is to an investment adviser what an ________ is to a BD.

Answer 33

(IAR) is to an IA what an agent is to a BD

Question 34

If a BD is not registered in a state, may an agent of the BD do business in the state without being registered there?

Answer 34

Yes, if the agent is dealing with an existing client that is temporarily in the state.

Question 35

Is an individual who represents a BD in the sale of a bank's stock considered an agent?

Answer 35

Yes, since anyone representing a BD in the sale of securities is an agent

Question 36

If a BD's net capital falls below the required minimum, it must notify the Administrator within ___ business day(s)

Answer 36

one business day

Question 37

Is an individual who represents an issuer in the sale of municipal bonds considered an agent?

Answer 37

No, since the individual is involved in the sale of exempt securities

Question 38

May an agent whose client is visiting another state sell securities to the client without being registered in the state?

Answer 38

Yes, provided the client is in the state temporarily.

Question 39

Under the USA, is a bank holding company that occasionally executes securities trades excluded from the BD definition?

Answer 39

No. Under the USA, bank holding companies are not excluded from the BD definition.

Question 40

True or False: Canadian agents cannot effect trades with existing Canadian clients who are temporarily in the U.S.

Answer 40

False. Provided the relationship with the client existed prior to entering the U.S., trades may be effected

Question 41

True or False: The USA requires all employees of a BD to register

Answer 41

False. Only those representing a BD in effecting transactions (as an agent) must register.

Question 42

If an agent has withdrawn registration, the Administrator may still take action for ___ year(s) after the withdrawal

Answer 42

one year

Question 43

Is a bank whose trust department occasionally executes securities transactions considered a BD?

Answer 43

No. Banks are excluded from the BD definition.

Question 44

True or False: Under the Uniform Securities Act, debentures issued by a Canadian bank are exempt from registration

Answer 44

False

Question 45

True or False: An agent whose client moves to a new state may not contact the client until registered in the new state

Answer 45

False. The agent may engage in transactions with the client for 60 days if registration is pending in the new state

Question 46

Is an individual who represents an issuer in the sale of stock to a bank considered an agent?

Answer 46

No, since the individual is involved in an exempt transaction

Question 47

When an agent ends her association with a BD, who must notify the Administrator?

Answer 47

Both the agent and the BD

Question 48

The application for registration of an agent or IAR becomes effective in _____ days.

Answer 48

30 days

Question 49

In state law, individuals who represent BDs in effecting securities transactions are referred to as ______.

Answer 49

agents

Question 50

Is an individual who represents a BD in the sale of a private placement considered an agent?

Answer 50

Yes, since anyone representing a BD in the sale of securities is an agent

Question 51

True or False: If a BD registers in a state on March 3, it must pay a registration fee for the full year.

Answer 51

True

Question 52

List some of the exclusions from the definition of a BD.

Answer 52

Agent, issuer, bank, or a BD with no office in the state that only deals with institutions or its existing clients

Question 53

May an agent of a BD effect personal trades in a stock two days before her firm releases a research report on the stock?

Answer 53

No. Employees of a broker-dealer may not trade ahead of their firm's research report.

Question 54

True or False: A BD may withhold shares of an IPO for the purpose of later selling them to customers at a higher price.

Answer 54

False

Question 55

Can a BD punish one of its agents for responding to a subpoena?

Answer 55

No. This is a prohibited action

Question 56

If a client moves to a new state, may the agent continue to do business while applying for registration in the state?

Answer 56

Yes, as long as the agent is registered in at least one other state and is not subject to disqualification

Question 57

Is an individual who represents a BD in the sale of stock to a bank considered an agent?

Answer 57

Yes, since anyone representing a BD in the sale of securities is an agent.

Question 58

If a BD is registered with the SEC, is registration required in any state in which it intends to do business?

Answer 58

Yes. There are no exemptions from registration in the state as a BD.

Question 59

How is a firm acting if it is trading for, or from, its own inventory?

Answer 59

As a principal / dealer

Question 60

Is a firm considered a BD if it has an office in a state, but only deals with institutional clients in the state?

Answer 60

Yes, because the firm established an office in the state.

Question 61

What are the justifiable reasons for denying an individual's registration?

Answer 61

Conviction for any felony or securities-related misdemeanor within the last 10 years

Question 62

Is an individual who represents the issuer in the sale of Treasury bonds considered an agent?

Answer 62

No, since the individual is involved in the sale of exempt securities.

Question 63

How may the failure to pay the proper filing fee be corrected?

Answer 63

By paying the appropriate amount

Question 64

BD records must be kept for at least _____ years

Answer 64

3 years

Question 65

True or False: Registration may be denied due to ANY misdemeanor convictions

Answer 65

False. Registration may be denied for ANY felony conviction or securities-related misdemeanor conviction.

Question 66

Give some examples of institutional investors.

Answer 66

Banks, S&Ls, insurance or investment companies, investment advisers, or entities with at least $50 million in assets

Question 67

A BD must maintain its books and records for a minimum of ____ years.

Answer 67

3 years

Question 68

True or False: A partner, officer, or director of a BD is always considered an agent of the BD.

Answer 68

False. A partner, officer, or director is deemed an agent of a BD if she is involved in the purchase/sale of securities.

Question 69

For any securities that are delivered to a BD, an agent must ____________ provide the customer with a receipt.

Answer 69

immediately

Question 70

May investment adviser's advertising refer to testimonials?

Answer 70

Yes. Provided the testimonial is not misleading and certain disclosures are made.

Question 71

An individual who represents an issuer in selling registered, non-exempt securities for compensation is an ________.

Answer 71

agent

Question 72

To apply for a securities license, a person must file Form ___ with FINRA.

Answer 72

Form U4

Question 73

True or False: An individual may be denied registration due to lack of experience

Answer 73

False. However, a lack of training, knowledge, and experience may be grounds for denial.

Question 74

Who must sign a Consent to Service of Process?

Answer 74

Any issuer, BD, IA, IAR, or agent initially registering to engage in business within a state

Question 75

May an agent continue to do business in a state if his BD has gone out of business?

Answer 75

No. An agent's registration is only in effect while associated with a BD or issuer.

Question 76

Is a corporation considered a BD if it raises capital by selling new shares of its stock to the public?

Answer 76

No. The corporation is an issuer and issuers are excluded from the BD definition

Question 77

For how long does the Administrator maintain jurisdiction over a registrant after a withdrawal of registration?

Answer 77

One year

Question 78

When may the Administrator cancel a registrant's registration?

Answer 78

If the registrant has died, ceased doing business, been declared mentally incompetent or cannot be located

Question 79

If a person works for a federally chartered bank, is he required to register with the SEC or a state Administrator?

Answer 79

No. Only non-clerical employees of broker-dealers and investment advisers are required to register.

Question 80

Is Jim an agent if he works in ABC's retirement dept. and, once a year, places ABC stock in employees' accounts?

Answer 80

No, Jim is representing the issuer in an exempt transaction.

Question 81

Is an individual who represents a BD in the sale of municipal bonds considered an agent?

Answer 81

Yes, since anyone representing a BD in the sale of securities is an agent

Question 82

True or False: A Consent to Service of Process must be filed by BDs, but not their agents.

Answer 82

False. A Consent to Service of Process is required of all registrants

Question 83

The application for withdrawal of registration of an agent or IAR becomes effective in _____ days.

Answer 83

30 days

Question 84

True or False: An agent may trade a stock two days prior to a research report on the stock being released by his employer.

Answer 84

False. This is an example of trading ahead and is prohibited.

Question 85

Is there a registration exemption for agents who conduct business in a state? If so, what are the guidelines?

Answer 85

Yes, no place of business in state and a client visits the state or existing client moves to the state (regist. pending)

Question 86

When does state registration become effective?

Answer 86

At noon on the 30th day after filing an application, provided there are no proceedings pending

Question 87

Does the de minimis exemption apply to BDs that have no place of business in a state?

Answer 87

No. The de minimis exemption only applies to IAs and IARs.

Question 88

As it applies to a BD or IA, what does the term "exclusion" mean in the USA?

Answer 88

Exclusion signifies that a person does not meet the definition of a BD or IA in the state

Question 89

Is an individual who represents a bank in the sale of its bond offering considered an agent?

Answer 89

No, since the individual is representing the issuer in the sale of exempt securities.

Question 90

True or False: In state law, individuals representing issuers in effecting securities trades are ALWAYS deemed agents

Answer 90

False. Individuals are not deemed agents if representing issuers of exempt securities or effecting exempt transactions.

Question 91

An underwriter is most likely registered as a _____________

Answer 91

broker-dealer

Question 92

May the Administrator set net capital requirements for BDs?

Answer 92

Yes

Question 93

List some of the different types of institutional clients.

Answer 93

IAs, BDs, investment, insurance, or trust companies, banks, savings and loan associations, and pension plans

Question 94

Is an individual who represents an issuer in the sale of the issuer's stock to its underwriter considered an agent?

Answer 94

No, since the individual is involved in an exempt transaction.