SERIES 63

Question 1

What is a security?

Answer 1

According to the supreme court, in the Howey decision, a security has four characteristics:

1. Financial investment
2. Common enterprise
3. Depends on efforts of others (not the investors to succeed
4. Profit motive

Question 2

Name a list of securities (examples)

Answer 2

Stock (including treasury stock), bond (including debentures), note(short term debt security)

Question 3

Name a list of non-securities

Answer 3

• Fixed annuities (including equity indexed annuities)
• Insurance products with guaranteed payment, including whole life, term life, universal life, endowment policy.
• Commodities such as gold, oil, cattle, corn
• Collectibles

Question 4

What is a form s-1?

Answer 4

A Securities & Exchange Commission (SEC) filing in which a private company declares its intention to sell its stock to the public. See Initial Public Offering (IPO).

Question 5

What is a form s-3?

Answer 5

A shorter form of registration statement than the Form S-1 that can be used by certain already public companies tosell additional shares. It is also the form most often used to cover resales of restricted securities by selling stockholders.

Question 6

What is a form s-4?

Answer 6

is a filing with the Securities and Exchange Commission (SEC) by a publically traded company that is used to register any material information related to a merger or acquisition. In addition, the form is also submitted by companies undergoing an exchange offer.

Question 7

What is a form s-8?

Answer 7

• A filing with the Securities and Exchange Commission (SEC) that is used by a publically traded company to register securities that will be offered to its employees via benefit or incentive plans.

Question 8

What is a form s-11?

Answer 8

used to register securities that are issued by real estate investment trusts (REITs) or by those whose business is acquiring or holding real estate for the purpose of investment.

Question 9

What is the S.E.C?

Answer 9

The Securities and Exchange Commission (SEC) is a government commission created by Congress to regulate the securities markets and protect investors. In addition to regulation and protection, it also monitors the corporate takeovers in the U.S. The SEC is composed of five commissioners appointed by the U.S. President and approved by the Senate. The statutes administered by the SEC are designed to promote full public disclosure and to protect the investing public against fraudulent and manipulative

Question 10

What is a issuer?

Answer 10

a legal entity that develops, registers and sells securities for the purpose of financing its operations. Issuers may be domestic or foreign governments, corporations or investment trusts

Question 11

What is a underwriter?

Answer 11

is a company or other entity that administers the public issuance and distribution of securities from a corporation or other issuing body. An underwriter works closely with the issuing body to determine the offering price of the securities, buys them from the issuer and sells them to investors via the underwriter’s distribution network.

Question 12

After an agent has passed the Series 63 examination, which of the following approves the application for him/her to sell securities?

A) The MSRB
B) The FINRA
C) The state administrator
D) The SEC

Answer 12

The Right Answer is c

The Series 63 exam is for the registration of agents with the state. The FINRA administers the exam, but the state administrator makes the judgment on approving or denying registration.

Question 13

An investment adviser who provides investment advice only to investment companies is:

I. Subject to state registration
II. Subject to federal registration
III. Exempt from state registration
IV. Exempt from federal registration

A) I & II
B) II & III
C) I & IV
D) III & IV

Answer 13

The Right Answer is b.

The correct answer is II & III, since an adviser to investment companies falls under the federal registration requirements. And, a federal covered investment adviser is always exempt from state registration.

Question 14

If a sales representative moves from one broker-dealer to another, who must notify the Administrator?

I. Sales representative
II. Previous broker-dealer
III. New broker-dealer

A) III only
B) I only
C) I, II & III
D) II only

Answer 14

The Right Answer is c

The correct answer is I, II & III, since all parties are required to notify the Administrator.

Question 15

A broker-dealer needs to contact a client that is currently vacationing in a state where the broker-dealer is not registered. Under the Uniform Securities Act, which of the following statements is true?

A) The broker-dealer may contact the client only if the information would help the client to achieve a gain
B) The broker-dealer may not contact the client unless registered in the state
C) The broker-dealer may contact the client even if not registered in the state
D) The broker-dealer may contact the client only if the information would help the client to avoid a loss

Answer 15

The Right Answer is c.

The broker-dealer may contact the client even if not registered in the state. While it is true that a broker-dealer must generally be registered in a state to contact a client in that state, there are exemptions. One of these exemptions covers the situation described, where an existing client is temporarily in another state.

Question 16

All the following statements describe a federal covered security, EXCEPT:

A) Corporate bond listed on the Nasdaq National Market System
B) Common stock issued by a mutual fund
C) Common stock of an OTC Bulletin Board listed company
D) Common stock of a NYSE listed company

Answer 16

The Right Answer is c

Generally, a federal covered security is one issued by a substantial company (or investment company such as a mutual fund) which must register with the SEC. OTC Bulletin Board stocks tend to be “penny stocks” which are more often the source of securities fraud. As such, they must be registered both by the SEC and the state, and are not considered federal covered securities.

Question 17

Registration by coordination allows issuers to file a registration on the federal and state levels. How does the phrase “in connection with the same offering” affect the filing process?

A) State registration statements must be filed within 15 working days after the federal registration statements.
B) Federal and state registration statements must be filed simultaneously.
C) It does not require that federal and state registration statements be filed simultaneously or become effective simultaneously.
D) Federal and state registration statements must become effective simultaneously.

Answer 17

The Right Answer is c.

A registration by coordination can be filed in a state after the effectiveness of the federal registration statement as long as the administrator does not conclude that the interval was too long to consider the state registration statement “the same offering”.

Question 18

Under the Uniform Securities Act, the Administrator may not deny an application for securities registration if:

I. An officer has previously filed for personal bankruptcy
II. There are incomplete statements of material facts in the application
III. The issuer’s liabilities exceed their assets
IV. The issuer’s business is illegal within the state

A) I, II & IV
B) II & IV
C) I & III
D) I, II, III & IV

Answer 18

The Right Answer is c

The Act does give the Administrator to power to deny an application for securities registration if it is incomplete in any material respect and also if the issuer’s business is illegal within that state. However, the Administrator is not empowered to deny the application if a director has filed for bankruptcy or if the issuer’s liabilities exceed assets. Those reasons may be sufficient to deny registration of a broker-dealer, sales representative or investment adviser, but not for a security.

Question 19

Under the USA, which of the methods of registration for non-exempt securities is most common?

A) Notification
B) Administration
C) Qualification
D) Coordination

Answer 19

The Right Answer is d

Registration by coordination means that, at the initial public offering (IPO), the company files the same documents for registration with the SEC and with the states in which the securities are to be registered. Registration will become effective at the state level at the same time as the SEC’s effective date so long as certain conditions are met.

Question 20

Of the following list, which are considered to be exempt securities under the USA?

I. Commodity futures contracts
II. Promissory notes with a maturity of nine months
III. Church bonds
IV. Railroad stocks

A) II, III, IV
B) II, III
C) I, II, III, IV
D) I, IV

Answer 20

The Right Answer is a

This is a sneaky one! Commodities are not securities and are excluded from the definition of securities. The question asks which are exempt securities. Recognize that the term, “promissory notes” is synonymous with commercial paper. Church bonds are issued by not-for-profit organizations and railroad stocks come under the heading of “common carrier” stocks.

Question 21

Your company has just changed the name and management on one of their worst performing domestic stock funds. To generate sales the company is running a contest for business closed over the next six months. What should you do?

A) Tell clients about the fund’s history
B) Let clients read the prospectus
C) Tell clients that it is a brand new fund
D) Tell clients about the fund’s management team

Answer 21

The Right Answer is a

Anything short of disclosing everything you know is misleading and fraudulent.

Question 22

Which client is an advisor automatically prohibited from offering a “performance fee” compensation arrangement to?

A) Mr. Apple, who has a $900,000 net worth with $750,000 to invest
B) Charles, who is not a U.S. citizen
C) Harry, who has a $1.1 million net worth with $500,000 to invest
D) Mrs. Smith, who has a $1.6 net worth

Answer 22

The Right Answer is c

Advisors may not participate in performance fees unless the private clients have a minimum net worth of $1.5 million or $750,000 invested with the advisor.

Question 23

Under the Uniform Securities Act, no civil liability is incurred under which of the following circumstances?

A) An offer to sell is made which would result in violation of the act, but the sale does not actually occur
B) An issuer sells an unregistered security in the state, which should have been registered but was not due to incorrect advice by the issuer’s attorney that the issue was exempt from registration
C) A sales representative effects a sales transaction after termination from one broker-dealer and prior to association with a second broker-dealer
D) A sales representative intentionally omits material facts when selling a security

Answer 23

The Right Answer is a

In order for a violation to occur, the sale must occur. And no civil liability is incurred unless the violation actually occurs.

Question 24

The administrator can conduct investigations outside of its state:

A) Only if they are public
B) Only if they are private
C) At any time
D) Only if they involve a violent crime

Answer 24

The Right Answer is c

At any time, the administrator can conduct public or private investigations within or outside of a state, which the administrator considers necessary or appropriate to determine whether a person has violated, is violating and is about to violate a rule, or to aid in the enforcement of regulations of the USA.

Question 25

The following would all be liable under the Uniform Securities Act for misstatements of material facts in a securities registration EXCEPT:

A) b. Issuers
B) a. Sales representatives
C) c. Directors of issuers
D) d. Underwriters

Answer 25

The Right Answer is b

While sales representatives are involved in the sale of securities, they have no role in the registration of securities, so they are not liable for such violations. However, issuers, members of the board of directors of the issuer and underwriters are all liable for such violations.

Question 26

Under the Uniform Securities Act, the Administrator can subpoena a broker-dealer’s records under which circumstances?

A) Only after a violation has occurred
B) Only if a customer makes a written complaint to the Administrator
C) Only if criminal charges have been filed
D) If the Administrator suspects that a violation has occurred.

Answer 26

The Right Answer is d

There is no requirement that a written complaint or a criminal charge must occur. The Administrator can subpoena records based on a reasonable suspicion that a violation has occurred.

Question 27

Define remuneration

Answer 27

money paid for work or a service.

Question 28

Define INVESTMENT ADVISER REPRESENTATIVE

Answer 28

individual employed by or associated with an investment adviser or federal covered investment adviser and who makes any recommendations or otherwise gives investment advice regarding securities, manages accounts or portfolios of clients, determines which recommendation or advice regarding securities should be given, provides investment advice or holds herself or himself out as providing investment advice, receives compensation to solicit, offer, or negotiate for the sale of or for selling investment advice, or supervises employees who perform any of the foregoing.

Question 29

What is a non-issuer transaction?

Answer 29

means a transaction or distribution not directly or indirectly for the benefit of the issuer.

Question 30

Offer to purchase

Answer 30

includes an attempt or offer to obtain, or solicitation of an offer to sell, a security or interest in a security for value.

Question 31

Define Collateral

Answer 31

property or other assets that a borrower offers a lender to secure a loan.

Question 32

What is an annuity

Answer 32

An annuity is a contract between you and an insurance company in which you make a lump sum payment or series of payments and in return obtain regular disbursements beginning either immediately or at some point in the future.

Question 33

Examples of transactions/items that are not considered a sale?

Answer 33

A pledge of securities as collateral for a loan
A stock dividend
Securities received as a result of reorganization or merger.