Series 63 Practice Questions

Question 1

Agents’ and investment adviser representatives’ registrations expire

Answer 1

Annually on December 31st

Question 2

How long is the consent to service of process in effect for?

Answer 2

As long as the person is registered

Question 3

An individual has passed their Series 63 exam and has filed a registration statement to register as an agent in State A. When can this individual begin acting as an agent in State A?

Answer 3

30 days

Question 4

An investment planning firm would not be required to register as an investment adviser in State A under any of the following circumstances, except:

Answer 4

The firm has an office in State A but advises only institutional investors

Question 5

not an issuer under the Uniform Securities Act?

Answer 5

A broker-dealer

Question 6

The Administrator may set all of the following requirements for a registered broker-dealer, EXCEPT:

Answer 6

Qualifying examinations of the firm

Question 7

A broker-dealer who has no office in a state, would not need to register in the state, when:

Answer 7

Serving existing retail customers who are temporarily in the state

Question 8

An agent does NOT include a person who:

Answer 8

Only advises others on their investment portfolio for compensation

Question 9

Which of the following communications may be required to be filed with the Administrator in a given state?

Answer 9

general prospecting form letter and Ads for CMOs

Question 10

According to the NASAA Recordkeeping Requirements for Investment Advisers, which of the following is TRUE regarding the preservation of an investment adviser’s records other than those required to be maintained for at least three years after termination of the firm?

Answer 10

Such records must be maintained in an easily accessible place for at least five years, the first two in the firm’s principal office

Question 11

An agent with a place of business in the state who sells only municipal securities is not considered a what?

Answer 11

not considered a broker-dealer?

Question 12

Federal covered securities that are required to be registered with the SEC are covered under the rules and regulations of the:

Answer 12

Securities Act of 1933

Question 13

A broker-dealer has just changed its branch office location in State A. When does the firm need to file an amendment with the Administrator in State B?

Answer 13

Never

Question 14

A broker-dealer buying and selling securities for the benefit of their own account as a market maker is said to be operating in what capacity?

Answer 14

Principal capacity

Question 15

At the time of formation, any silent partner or affiliated person who will not be performing the duties of an agent or investment adviser representative, is:

Answer 15

Not registered automatically

Question 16

When transactions or securities involved are exempt from state registration requirements, the agent representing a broker-dealer in such transactions:

Answer 16

Still must be registered

Question 17

An investment adviser requires payment of advisory fees six months or more in advance and in excess of $500 per client. What makes this situation is correct?

Answer 17

This practice is in compliance with the Uniform Securities Act, but the investment adviser must file an audited balance sheet with the Administrator

Question 18

What is the minimum assets under management a firm providing investment advice for compensation needs in order to become a federal covered investment adviser?

Answer 18

$100 million

Question 19

What is the minimum assets under management a firm providing investment advice for compensation needs in order to become required to register with the SEC?

Answer 19

$110 Million

Question 20

What is the first step in the registration process with the State Administrator?

Answer 20

Filing of a registration statement

Question 21

Which of the following is the correct definition of a non-exempt security?

Answer 21

A security that must be registered under the Uniform Securities Act with the State Administrator

Question 22

The preorganization certificate limit on subscribers is how many for a exempt transaction.

Answer 22

10

Question 23

What is consent to service of process as it relates to the registration of securities professionals?

Answer 23

Consent to service of process allows the Administrator to accept legal documents on an individual’s behalf.

Question 24

At the state level, when does an investment adviser’s application for registration become effective?

Answer 24

At the state level, an investment adviser’s registration becomes effective at noon on the 30th day after the application is filed.

Question 25

At the federal level, when does a federal covered investment adviser’s application for registration become effective?

Answer 25

Within 45 days after the application is filed a federal covered investment adviser’s registration will be granted or proceedings will be instituted to determine whether the application should be denied.

Question 26

How many reasons must an Administrator have to take disciplinary action against an investment adviser?

Answer 26

An Administrator must have at least two reasons to take disciplinary actions against an investment adviser. One of these reasons must be that the disciplinary action is in the public’s best interest.

Question 27

Is lack of experience a proper ground for an Administrator to deny a registration?

Answer 27

No. A lack of experience alone is not grounds for denial of a registration.

Question 28

Is a lack of qualification a proper ground for an Administrator to deny a registration?

Answer 28

Yes. A lack of qualification, including not having passed the Series 63 examination, is a valid reason to deny a registration

Question 29

What are the notice, hearing, and written findings requirements when a state securities Administrator subjects an individual to disciplinary action?

Answer 29

The Administrator must provide notice and give an opportunity for a hearing. If a hearing is held, the Administrator must provide written findings that support the disciplinary action.

Question 30

Under what circumstances must an individual subject to disciplinary proceedings be given a hearing?

Answer 30

An individual subject to disciplinary actions must be given a hearing if the individual requests one. A hearing must be held within 15 days of such request.

Question 31

Under what four circumstances can an Administrator cancel the registration of an investment adviser?

Answer 31

An Administrator can cancel the registration if the investment adviser is:

no longer in business;
no longer in existence;
a court finds the investment adviser to be mentally incompetent; or
the investment adviser cannot be located after a reasonable search.

Question 32

When is a withdrawal of state registration effective?

Answer 32

A withdrawal of state registration occurs 30 days after filing with the Administrator, unless disciplinary actions are pending. An individual cannot withdraw to avoid disciplinary actions.

Question 33

After a registration is withdrawn, for how long may an Administrator initiate disciplinary actions?

Answer 33

An Administrator has jurisdiction to initiate disciplinary proceedings for one year after withdrawal

Question 34

When can a state Administrator take disciplinary action without a hearing?

Answer 34

f the Administrator suspects fraudulent activity it can issue a cease and desist order. This immediately requires a person to refrain from doing a certain activity. This order can be issued before the fraud actually occurs.

Question 35

Who is a “person” under the Uniform Securities Act?

Answer 35

Under the Uniform Securities Act a “Person” means an individual, a corporation, a partnership, an association, a joint-stock company, a trust where the interests of the beneficiaries are evidenced by a security, an unincorporated organization, a government, or a political subdivision of a government. A person is defined very broadly.

Question 36

Who is a NOT a “person” under the Uniform Securities Act?

Answer 36

The only nonpersons are:

minors (those under 18),
deceased individuals, and
individuals declared legally incompetent.

Question 37

What is the relationship between a broker-dealer and an agent?

Answer 37

Broker-dealers (any legal person) employ agents (individuals) to represent them in effecting securities transactions.

Question 38

When does the registration of broker-dealers, agents, state-covered investment advisers, and investment adviser representatives expire?

Answer 38

December 31st of each year. All registrations come up for renewal on December 31st. A registration is renewed by paying a fee.

Question 39

Define broker-dealer

Answer 39

Any person engaged in the business of effecting transactions in securities for the account of others or for his or her own account.

Question 40

What is an issuer?

Answer 40

An issuer is any person who issues or proposes to issue a security, such as companies or governments.

Question 41

Define agent

Answer 41

Any individual other than a broker-dealer who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities.

Question 42

Define legal person

Answer 42

Legal person means an individual, a corporation, a partnership, an association, a joint-stock company, a trust where the interests of the beneficiaries are evidenced by a security, an unincorporated organization, a government, or a political subdivision of a government.

Question 43

Define natural person

Answer 43

Natural person means an individual. A living human being.

Question 44

A broker-dealer has an office in the state. Does it have to register in the state?

Answer 44

Yes. A broker-dealer with a physical office in a state must register in that state. No further analysis is required.

Question 45

A broker-dealer has a single retail client in the state. Does it have to register in the state?

Answer 45

Yes. A broker-dealer with a single retail client in a state must register in that state.

Question 46

Who is an agent of an issuer?

Answer 46

An agent of an issuer is an employee of an issuer who sells the issuer’s securities in the marketplace.

Question 47

When is an issuer’s agent exempt from registration?

Answer 47

An issuer’s agent is exempt from registering if the agent:

sells exempt securities,
sells securities in an exempt transaction, or
sells the securities to existing directors, officers, or employees of the issuer and receives no additional compensation for such sales.

Question 48

Are there financial requirements to register as an agent?

Answer 48

No.

Question 49

A broker-dealer cannot legally be
A. a partnership.
B. an individual.
C. a sole-proprietorship.
D. A broker-dealer can be any of the above

Answer 49

Answer : D

Explanation:
A broker-dealer can be a partnership, an individual, or a sole-proprietorship under the guidelines of the Uniform Security Act.

Question 50

Which of the following does not describe a prohibited practice for broker-dealers under the
NASAA Model Rules?
I. SecureMoney Broker-Dealers has received a request from a client who wants
SecureMoney to identify a few solid firms in the Asian market and invest up to $20,000 in them. SecureMoney executes the purchases and receives the requisite signed discretionary authorization from the client before the settlement date.
II. CanDo Broker-Dealers executes a margin transaction for a client, promptly receiving a signed, written margin agreement from the client after the transaction takes place.
III. GetErDone Broker-Dealers receives a call from a client who wants to purchase some securities on margin. GetErDone has the client come into the office to sign a properly executed margin agreement prior to effecting the transaction.

A. None of the selections are prohibited practices.
B. I and III only
C. II and III only
D. III only

Answer 50

Answer : C

Explanation:
Neither Selection II nor Selection III describes a prohibited practice for broker-dealers under the NASAA Model Rules. Broker-dealers are permitted to execute margin transactions for clients as long as they receive a signed, written margin agreement promptly after the initial margin transaction takes place. The agreement need not be signed beforehand. Discretionary authorizations do need to be signed before the broker-dealer executes any discretionary transactions for a client, so Selection I describes a prohibited practice.

Question 51

Which of the following would not fall under the classification of “institutional investor”?
A. Prudential Insurance
B. Chase Bank
C. Neuring Investment Advisers
D. Franklin Templeton Mutual Funds

Answer 51

Answer : C

Explanation:
Nuering Investment Advisers would not fall under the classification of institutional investor. Institutional investors are defined as banks, insurance companies, mutual funds, some pension plans, and broker-dealers registered under the Securities Exchange Act of
1934. Investment advisers are not part of this group.

Question 52

Assuming there is not a stop order or a proceeding pending, under the registration by coordination process a securitys registration with the state becomes effective:
A. only when it is approved by the state Administrator, regardless of whether it has been approved by the SEC.
B. immediately after approval by the SEC as long as the registration statement has been on file for at least 20 days or the Uniform Securities Act has provided an exemption to this waiting period.
C. immediately subsequent to approval by the SEC, regardless of how long the registration statement has been on file.
D. only when it is approved by the state Administrator, who will review the registration documentation upon notification that SEC approval has been granted.

Answer 52

Answer : B

Explanation:
Under the registration by coordination process, the securitys registration with the state becomes effective immediately after approval by the SEC as long as the registration has been on file for at least 20 days or the Uniform Securities Act has provided an exemption to this waiting period. This assumes, of course, that there is not a stop order or a proceeding pending

Question 53

Until yesterday Maddie was a registered agent employed by the broker-dealer, QuikDeals.
Yesterday afternoon, issues that had been brewing between her and another employee of the firm came to a head, and Maddie impulsively quit her job.
At this point,
A. Maddie has thirty days to find a job with another broker-dealer, or she will need to file a new registration application.
B. Maddie has sixty days to find a job with another broker-dealer, or she will need to file a new registration application.
C. Maddie will have to file a new application for registration with the Administrator upon finding employment with another broker-dealer since she is no longer considered to be a registered agent by the state.
D. Maddie is required to call all of her clients at QuikDeals to inform them she is no longer employed there.

Answer 53

Answer : C

Explanation:
When Maddie quit her job, her status as a state-registered securities agent was automatically terminated, and she will need to file a new application for registration with the
Administrator upon obtaining a position with another broker-dealer. If she does so within thirty days, her registration will become effective as soon as she has filed her application and paid her application fee. While she is required to notify the Administrator that she has terminated her employment with QuikDeals, there is no requirement that she contact any of her clients at QuikDeals.

Question 54

“T + 3” refers to
A. the form, also known as a trade ticket, that is filled out when an order is entered into the market.
B. the form that is filled out and sent to the client confirming that the trade has been executed.
C. the fact that the settlement date will be three business days after the trade date, which is the regular way settlement for transactions involving stocks and corporate and municipal bonds.
D. a procedure to minimize the potential for money laundering.

Answer 54

Answer : C

Explanation:
T + 3 is an abbreviation indicating that the settlement date will be three business days after the trade date, which is the regular way settlement for transactions involving stocks and corporate and municipal bonds.

Question 55

Ari Gaunt is employed by a small state-registered broker-dealer and has recently received notification that his application to be a registered agent of the state has been accepted.
Now that he is licensed to execute transactions for the firms clients, Ari has a batch of business cards printed up, with a picture of himself on the right-hand side of the card.
Underneath the picture is the caption, State-Approved Agent.
Will Ari be violating any securities laws if he distributes these business cards?
A. No. However, he may be violating company policy of the broker-dealer he works for by designing his own cards.
B. No. His registration with the Administrator of the state has been accepted, so he is entitled to call himself a State-Approved Agent.
C. Yes. Agents are not permitted to include a picture of themselves on their business cards.
D. Yes. It is a violation of a securities law to suggest that he has been approved by the state Administrator.

Answer 55

Answer : D

Explanation:
Yes, Ari will be violating a securities law if he distributes the business cards because the cards suggest he has been approved by the state Administrator. The Uniform Securities
Act specifically states that the effective registration of a person does not mean that the
Administrator has given approval to that person. Any statement to this effect is considered an unlawful representation.

Question 56

You are a registered agent with a large brokerage firm. Your client is a very busy woman.
She is interested in purchasing 500 shares of Google, but she thinks this mornings opening price is too high. Shes going to be in meetings and then on a transatlantic flight.
She wants the purchase to take place today because she believes Googles price is just going to keep rising with only the occasional daily ups and downs. She wants you to use your discretion and try to get her the best price for the stock in todays trading session.
Which of the following statements are true?
A. You have to tell her that you can’t do this without a signed discretionary authorization from her, and there’s none on file.
B. You tell her that you can do this for her, but only if you execute it as a margin transaction.
C. You tell her you can enter it for her as a “market not held” order.
D. You tell her to have her secretary type up a discretionary authorization for her to sign and drop in the mail before she boards the plane. As long as the written authorization is in the mail, you can place the order.

Answer 56

Answer : C

Explanation:
You can tell her that you will be able to execute this for her as a market not held order that permits you to use your discretion in timing the purchase in order to try to get a better price than currently exists. As long as you are only being requested to use your discretion in the timing and price of the transaction, and not in the actual security being traded or the size of the trade, you do not need written authorization. However, if written authorization is required, you must have it in your hand before you can effect a transaction. In other words, it isnt good enough for it to be in the mail.

Question 57

Which of the following does not describe a prohibited activity by investment advisers and their representatives, according to NASAA Model Rules?
A. A new client comes to Simon LaGree for investment advice. The client has $25,000 to invest. Simon tells the client that it will cost the client $5,000 to have a customized financial plan developed for him, but after that the client needs to pay only 5% of the total value of the assets under management each quarter.
B. A 72-year-old retired social worker comes to Simon LaGree for investment advice. She has $50,000 to invest. Simon recommends she invest half of it in an international growth mutual fund and half in a variable annuity.
C. The agreement that Simon LaGree has his clients sign indicates that LaGree uses SecureMoney Broker-Dealers in executing trades for his clients and that, in return, LaGree receives software from the broker-dealer that allows LaGree to perform some fundamental and technical analysis.
D. All of the above describe prohibited practices.

Answer 57

Answer : C

Explanation:
It is not prohibited for LaGree to receive the software from SecureMoney in return for executing trades through that broker-dealer since LaGree has disclosed this to his clients.
An investment adviser is permitted to receive soft dollars from broker-dealers in return for executing trades through them, as long as the client is informed of the arrangement and the soft dollars will benefit both the client and the adviser, which is the case in this instance since the software gives LaGree the ability to do research in order to better advise his client. Choice A is clearly prohibited since it constitutes an unreasonable advisory fee. In
Choice B, LaGree is making unsuitable recommendations to his client. A 72-year-old retired social worker is likely to have a greater-than-average need for liquidity to pay for unexpected items, such as medical bills. Variable annuities are designed to be long-term investments, not short-term investments, so they would not meet this need. They typically have high surrender penalties that the client would be subject to if she needed to make withdrawals within, say, the next 10 years. Likewise, international growth funds are not liquid investments. International growth mutual funds are invested in foreign stocks and are riskier than average, and are, thus, not suitable investment vehicles for the typical 72-year- old retired social worker.

Question 58

Which of the following is not considered to be a security, as defined by the Uniform
Securities Act (USA)?
A. a debenture
B. a certificate of deposit (CD)
C. a put option
D. an annuity contract wherein an insurance company promises to pay a fixed sum, either in a lump amount or through periodic payments.

Answer 58

Answer : D

Explanation:
The Uniform Securities Act excludes annuity contracts wherein an insurance company promises either to pay a fixed sum, either in a lump amount or through periodic payments, from its definition of a security. Debentures, CDs, and option contracts are all classified as securities under the USA.

Question 59

Broker-dealer Nebulous opted to withdraw its registration with the state. Six months later, the Administrator finds that Nebulous had been engaged in fraudulent securities transactions.
Which of the following statements is true?
A. The Administrator is unable to take disciplinary action against Nebulous because the self-initiated withdrawal became effective 30 days after the application was filed.
B. The Administrator is only able to take disciplinary action if the misdeeds are discovered within three months of the effective date of the withdrawal, so Nebulous slipped by this time.
C. The Administrator has five years from the discovery of the misdeed to take disciplinary action, so Nebulous will have to be on the lookout for a long time to come.
D. The Administrator can take disciplinary action against Nebulous for up to one year, so Nebulous is in trouble.

Answer 59

Answer : D

Explanation:
Even though Nebulous withdrew its registration from the state, the Administrator has up to a year to take disciplinary action against the broker-dealer if he discovers that Nebulous has been engaged in fraudulent securities transactions after the fact. The Administrator can retroactively begin a revocation or suspension proceeding. Criminal courts can initiate proceedings anytime within five years of the alleged misdeeds.

Question 60

Desi Genuos is an agent with Broker-Dealer CanDo. A client has asked Desi to recommend a mutual fund that does not have a sales charge. Desi recommends a fund that has no front-end load although it does have a deferred sales load if the investor redeems his shares within the first three years of ownership, but the client has informed
Desi that he is looking at this as a long-term investment. Based on these facts, Desi
A. is in violation of NASAA rules regarding investment company shares.
B. is not in violation of any rules since the fund has no front-end load and the deferred sales load will not apply to this client, given his indication that this is meant to be a long- term investment.
C. will not be in violation of any NASAA rules as long as he has his client sign a “letter of intent.”
D. is not in violation of any rules because he is an agent of a broker-dealer and is not affiliated with the fund he has recommended in any manner.

Answer 60

Answer : A

Explanation:
If Desi recommends a mutual fund that has a deferred sales load to a client who requests a mutual fund with no sales charge, he is in violation of NASAA rules regarding investment company shares. The NASAA rules specify that it is prohibited for an agent to state or imply that the investment has no sales charge if there is a deferred sales load involved. It doesnt matter if, in fact, the deferred load may never have to be paid by the client. A letter of intent involves a statement of intent by the investor to invest an amount that will meet a breakpoint that will entitle him to a lower load charge. This is not pertinent to this specific question.

Question 61

Skip is a registered agent with state. He recently quit his job with Venus Broker-Dealers to become affiliated with Mars Broker-Dealers.
Which of the three entities must report this change to the state Administrator?
A. Skip only
B. Skip and either Mars or Venus, but not both
C. Both Skip and Venus
D. Skip, Mars, and Venus

Answer 61

Answer : D

Explanation:
When Skip leaves one broker-dealer and signs on with another, all three entities-Skip,
Mars, and Venus-must report this to the state Administrator. Under the Uniform Securities
Act, when an agent leaves a broker-dealer, both the agent and the broker-dealer are required to report this to the state Administrator, and when an agent begins employment with a new broker-dealer, both the agent and the new broker-dealer must report i

Question 62

Blue Sky Laws are designed to:
A. protect investors from fraud in their securities market transactions.
B. protect agents, broker-dealers, and investment advisers and their representatives from spurious allegations of fraudulent activity.
C. enhance the tourism industry within a state.
D. favor investment in companies that engage in environmentally friendly practices.

Answer 62

Answer : A

Explanation:
The main purpose of Blue Sky Laws is to protect individual investors from fraud in their securities market transactions. Requiring the registration of new security issues and the registration of those persons who advise individual investors as well as those involved in the purchase and sale of securities to the public are just some of the regulations designed to do this. There are no provisions designed to protect agents, broker-dealers, or investment advisers and their representatives in any regard.

Question 63

Which of the following statements regarding the registration of broker-dealers and investment advisers is true?
A. Investment advisers are required to register with both the state and the SEC, while broker-dealers may be registered with only one or the other.
B. Investment advisers must always be registered with the SEC to conduct business; broker-dealers may be registered with either an individual state or the SEC or both.
C. Investment advisers are required either to be registered with a state or with the SEC, while broker-dealers must be registered both with the SEC and the state.
D. Both investment advisers and broker-dealers must be registered with the SEC and with the states in which they have offices.

Answer 63

Answer : C

Explanation:
The true statement is C: Investment advisers are required either to be registered with a state or with the SEC, but broker-dealers must be registered with both the SEC and the state. Investment advisers who are federal covered do not need to be registered with the state as well, but they do have to execute a notice filing with the Administrator of any state in which they have an office.

Question 64

In which of the following scenarios will the investment adviser be subject to criminal fraud charges?
A. An adviser owns the stock of TweedleDee Corporation and has issued a report recommending the stock as a buy without disclosing the fact that it owns the stock.
B. An adviser owns the stock of TweedleDee Corporation and has issued a report recommending the stock as a buy, disclosing the fact that it owns the stock
C. An adviser sells its shares of TweedleDee Corporation after issuing a report recommending the stock as a buy.
D. all of the above. It is considered criminal fraud for an investment adviser to make any recommendations on a security in which it has or plans to have a position.

Answer 64

Answer : C

Explanation:
An adviser that sells its shares of TweedleDee Corporation after issuing a report recommending the stock as a buy is subject to criminal fraud charges for willfully deceiving its clients.
The adviser who recommends the stock as a buy without disclosing the fact that it owns the stock is engaging in a prohibited activity for non-disclosure, but would be unlikely to face criminal fraud charges.

Question 65

After passing the necessary exams, you must submit which of the following to the state
Administrator when applying for registration as an agent?
A. U-4
B. Form ADV
C. a recent photograph of yourself
D. proof that you meet the state’s minimum net capital requirement

Answer 65

Answer : A

Explanation:
When applying for registration as an agent, you will need to submit a U-4. No photograph is necessary. Form ADV is used to register as an investment adviser, and only broker-dealers and investment advisers must meet the states minimum net capital requirement.

Question 66

In an arrangement between MoeMoney Investment Advisers and one of the firms clients, the YourMoney mutual fund, part of MoeMoneys compensation is based how the fund performs compared to the S&P 500 Index. If the return on the fund exceeds the return on the index, MoeMoney gets a bonus. The S&P 500 had a return of negative 8% this year, and the fund returned a negative 2%, so MoeMoney invoiced the client for the bonus.
Has MoeMoney violated any securities laws?
A. No. The fund beat the return on the S&P 500 Index, so MoeMoney is entitled to the bonus, based on its agreement with YourMoney.
B. Yes. It is a violation of the Uniform Securities Act for an investment adviser to earn a bonus if a portfolio it manages loses money.
C. Yes. Under no circumstances can a bonus be part of an investment advisers compensation package according to the Uniform Securities Act.
D. Yes. An investment advisers compensation cannot be based on the capital appreciation of the portfolio.

Answer 66

Answer : A

Explanation:
No. MoeMoney has not violated any securities laws. Even though the funds return was negative, it still beat the return on the S&P 500 Index, and MoeMoney is entitled to the bonus. The Uniform Securities Act does not prohibit compensation agreements like this one as long as the client is a sophisticated investor, such as a mutual fund. This would not be permitted if the client were your average individual investor.

Question 67

D. Vious and Associates is a small broker-dealer trying to generate more business. To this end, the firm had a professional four-color brochure printed that provides the years of industry experience of its management along with other information. The firms founder,
Ms. D. Vious, is listed as having over 30 years of experience in the industry. Ms. D. Vious has worked for broker-dealers for over 30 years, but for 20 of those 30 years, she was a secretary.
Has D. Vious violated any securities laws?
A. No. Technically, Ms. D. Vious does have over 30 years of experience in the industry, even though it was not in the capacity of an agent or a broker-dealer.
B. No. Ms. D. Vious’ years of experience is not a material fact that would affect an investor’s investment decision.
C. Yes. The broker-dealer is making a misleading statement in an advertising brochure in order to convince investors to do business with the firm.
D. No. Advertising brochures are not securities.

Answer 67

Answer : C

Explanation:
Yes. The broker-dealer is making a misleading statement in an advertising brochure in order to convince investors to do business with the firm. This is deceitful and misleading, and persons involved in the securities industry are prohibited from making deceitful and misleading statements.

Question 68

Under the Uniform Securities Act, the person responsible for enforcing a state’s securities laws could be known as all of the following, except:

A
Secretary

B
Administrator

C
Commissioner

D
Issuer

Answer 68

D
Issuer

The terms Administrator, Commissioner, or Secretary refer to the person responsible for enforcing that state’s securities laws and rules.

Question 69

Under the USA, the following are NOT defined as persons:

Answer 69

Minor children
Mentally incompetent individuals
Deceased individuals

Question 70

A corporation selling new shares of stock to the public is acting as a(n):

A
Non-issuer

B
Broker-dealer

C
Agent

D
Issuer

Answer 70

D
Issuer

Any person who issues or proposes to issue a security in a primary offering or any person who actually receives the proceeds from a new issue offering is considered an issuer.

Question 71

Broker-Dealer

Answer 71

A broker-dealer (BD) is a firm engaged in the business of buying or selling securities for the accounts of others or for its own account.

Question 72

Agent

Answer 72

An agent is an individual who represents a broker-dealer, or an issuer, attempting to effect or effecting securities transactions.

Question 73

Consent to Service of Process

Answer 73

A consent to service of process appoints the State Administrator as the representative to be served legal papers on behalf of the registrant.

Question 74

Institutional Buyer

Answer 74

Institutional buyers are entities who make security transactions on a large scale for their own accounts or for institutional clients, such as insurance or investment companies, trust companies, broker-dealers, investment advisers, banks, savings institutions, and employee pensions and profit-sharing plans. Institutional buyers must be institutions of some kind. They cannot be individuals of the general public.

Question 75

Qualified Purchaser

Answer 75

A qualified purchaser is a natural person (and their spouse) or a family-owned company with investments worth at least 5 million dollars, a trust fund backed by qualified purchasers with investments worth at least 5 million dollars, or an institution with investments of at least 25 million dollars.

The definitions of institutional buyer and qualified purchaser are important. In certain cases, those that deal solely with institutional buyers and/or qualified purchasers will not be required to register in the state.

Question 76

Exclusion vs. Exemption

Answer 76

When talking about the USA, if something is excluded or exempt, they don’t have to register. The reasons why they don’t have to register will differ depending on whether it is an exclusion or exemption.

Question 77

principal capacity as a dealer

Answer 77

A firm that is in the business of effecting transactions for its own account may be referred to as a market maker

<ex> PDQ Securities acts as a dealer in the stocks of several local companies by buying these securities for its own inventory and then selling stock from its inventory to other customers. In this situation, PDQ is acting as a dealer in a principal capacity by charging a markup when selling to customers, as opposed to a commission.
</ex>

Question 78

agency capacity as a broker

Answer 78

A firm that is in the business of effecting transactions for the accounts of others and charges a commission

<ex> A customer of PDQ Securities, wants to sell 100 shares of XYZ Corporation common stock. PDQ finds another investor who wishes to buy 100 XYZ shares and arranges the trade. PDQ charges a commission as its fee for acting as the broker in an agency capacity.
</ex>

Question 79

broker-dealer

Answer 79

a person, or firm, engaged in the business of buying or selling securities for the accounts of others or for its own account.

Question 80

A person creating an inventory of securities to sell to others is acting in the capacity of a:

A
Broker

B
Issuer

C
Agent

D
Dealer

Answer 80

D
Dealer

A firm that is in the business of effecting transactions for its own inventory is acting in a “principal” capacity as a dealer.

Question 81

The following are excluded and are not broker-dealers:

Answer 81

-Agents

-Issuers (except when transacting business in securities other than its own)

-Bank, savings institutions, or trust companies

Question 82

Broker-Dealer Institutional Exclusion

Answer 82

A broker-dealer that has no place of business in the state and only effects transactions with other broker-dealers, institutional investors, or the issuer of the security involved in the transaction is excluded and does not need to register in that specific state as a broker-dealer.

<ex> ABC Broker-Dealer is located and registered in Nebraska. ABC Broker-Dealer regularly does transactions with other BDs in Nebraska and decides to offer the same services in Iowa, without having an office in the state of Iowa. ABC Broker-Dealer is NOT a BD in the state of Iowa and would not need to register in the state since it only conducts business with other institutions in Iowa (BDs) and has no place of business in the state.
</ex>

Question 83

Broker-Dealer Retail Customer (Snowbird) Exclusion

Answer 83

This exclusion allows broker-dealers to transact business with their existing customers who are on vacation or temporarily residing in another state. The broker-dealer is not required to register in the state if they do not solicit new customers who are residents of that state. However, if a customer relocates to another state and establishes residency, the exclusion no longer applies to the broker-dealer.

<ex> XYZ Broker-Dealer maintains an office in New York and transacts business with several retail and institutional customers in the state. XYZ’s customer is in the state of Florida temporarily visiting family and requests a transaction on their existing account with XYZ. XYZ can process the transaction, is not a broker-dealer in the state of Florida, and does not need to register in Florida.
</ex>

Question 84

To be excluded from the definition of a broker-dealer under the USA, 2 conditions must be met:

Answer 84

No place of business in the state
The customer must either be an institution or in the state temporarily.

Question 85

Broker Dealer scenarios

Answer 85

ABC brokerage has an office in State A and works with several institutions in the state

RST brokerage has no office in State C and deals with 1 retail customer domiciled in State C

Question 86

Broker Dealer Exclusions Scenarios

Answer 86

WXY brokerage with no office in State D who conducts securities transactions with institutions located in State D

XYZ brokerage has no office in State B and conducts several security trades for an existing customer who is in State B on business

Question 87

Upon registration, Canadian broker-dealers and agents must:

Answer 87

-Maintain provincial or territorial registration in good standing

-Broker-dealers must maintain membership in an SRO in good standing and provide the Administrator, upon request, with books and records relating to business in the state

-Inform the Administrator of any criminal action taken as a result of regulatory action involving fraud, theft, deceit, or misrepresentation

Question 88

Canadian Broker-Dealer Exemption

Answer 88

Canadian firms doing business with existing retail customers who are temporarily in the U.S. The agents of the Canadian broker-dealer are also exempt from registration. However, the firm must be registered as a broker-dealer in Canada and cannot have a place of business in the state.

The firm must sign a consent to service of process and is required to disclose to all U.S. clients that it has a limited registration in the state and is not subject to the full regulatory provisions of the USA. Canadian broker-dealers and their agents may not solicit new clients in a state under this exemption. If soliciting new clients, the registration process outlined must be followed.

Question 89

Under the USA, there are several broker-dealer EXCLUSIONS, but only 1 EXEMPTION.

Question 90

Exempt vs Excluded

Answer 90

If an entity is excluded, it means they do not meet the definition of a broker-dealer
If an entity is exempt, it does meet the definition of a broker-dealer, but special circumstances mean it does not have to register.

Question 91

If a broker-dealer loses its registration involuntarily

Answer 91

agents registered with that firm also lose their registration until they register with another broker-dealer.

Question 92

Agents

Answer 92

any individual who represents a broker-dealer or an issuer when buying or selling securities is referred to as an agent. An agent’s compensation may be based on salary or commission. Individuals who fit this definition must be registered in each state where they do business or be exempt from registration in that state.

Question 93

broker-dealer agent

Answer 93

often referred to as a registered representative or a securities salesperson

Question 94

Issuer Agent Exclusions

Answer 94

-Persons representing an issuer in transactions of certain exempt securities

-Persons representing an issuer in exempt transactions

-Persons representing an issuer in transactions with employees of the issuer in that issuer’s securities when no compensation is received for those transactions

Question 95

Exempt securities, which are not required to be registered in the state, include:

Answer 95

-U.S. government bonds and government agency securities

-Municipal securities

-Canadian government and municipal securities

-Securities issued by recognized foreign governments

-Securities issued by domestic banks, savings institutions, and trust companies

-Investment-grade promissory notes (commercial paper) and bankers’ acceptances, if they mature in 9 months (270 days) or less and have minimum denominations of at least $50,000

-Investment contracts issued in connection with an employees’ stock purchase, savings, pension, profit-sharing, or similar benefit plan
-Certain federal covered securities

Question 96

Exempt transactions

Answer 96

-Unsolicited brokerage transactions

-Transactions between underwriters and issuers

-Transactions with institutions

-Transactions with institutional buyers or qualified purchasers

-Private placement offerings

Question 97

Persons representing broker-dealers that would not need to register:

Answer 97

-An employee, partner, officer or director of a broker-dealer if that person does not attempt to offer or sell securities or supervise these activities, however these persons must be registered as agents if they do offer or attempt to offer securities or supervise these activities (not working in a sales capacity)

-Individuals who perform clerical or ministerial functions only (not working in a sales capacity)

-Individuals who represent exempt broker-dealers, such as Canadian broker-dealers (works for an exempt broker-dealer)

Question 98

Working for a BD, the only time an individual is not required to register….

Answer 98

When they are not working in a sales capacity or when they are an agent of an exempt BD.

Question 99

Unregistered employees of registered BDs may not:

Answer 99

accept any customer orders, open customer accounts, or service customer accounts.

Question 100

Non-Resident Customer

Answer 100

An individual does not have to register as an agent in a state if they are only executing a transaction for an existing customer who is temporarily located in that state.

They must be registered in at least 1 other state under a registered BD.

Question 101

New Resident Customer

Answer 101

If an agent has a customer who moves to another state, the individual is not considered an agent in that state and may engage in securities activity with that client for a period of 60 days or less.

to qualify for the 60-day grace period, an application to register in the state in which the client is now a resident must be filed within 10 business days of a transaction with the client in the new state, or the discovery by the agent of the client’s change in residence, whichever is later. This exception applies to existing clients only.

Question 102

To be defined as an investment adviser, a person must pass the ABC test:

Answer 102

provides Advice about securities as a Business for Compensation.

An IA provides advice on securities as its business and is compensated based only on the advice given.

**A BD provides advice on securities as its business and is compensated based on a completed transaction or trade.

Question 103

Release IA-1092

Answer 103

To provide guidance and further clarify the definition of an IA, the SEC, in consultation with state regulators, issued Release IA-1092

Question 104

According to the Uniform Securities Act, all of the following characteristics are necessary parts of the definition of an investment adviser, except:

A
Having discretionary authority over clients’ accounts

B
Providing investment advice about securities

C
Receiving compensation for providing investment advice

D
Being in the business of providing investment advice

Answer 104

A
Having discretionary authority over clients’ accounts

Investment advisers meet the ABC test—they provide advice about securities as a business and they are compensated for the advice given. Managing client accounts on a discretionary basis is one of the things an investment adviser might do, but you can meet the definition of an IA without having discretionary authority.

Question 105

Investment Adviser Exclusions

Answer 105

Investment advisers representatives

Lawyers, accountants, teachers, engineers (LATE) –

Broker-dealers and their agents

Banks, savings institutions, and trust companies

Publishers of bona fide generally circulated newspapers, news columns, newsletters, magazines or other business or financial publications

Federal covered investment advisers

Question 106

Investment Adviser Exemptions

Answer 106

These are not exclusions from the definition of an investment adviser, but are exemptions from the requirement to register with the State Administrator

<ex>FGH investment adviser with no office in State C providing investment advice to institutions domiciled in State C

<ex>DEF investment advisers with no office in State D offering investment adviser services to 3 retail customers who reside in State D
</ex></ex>

Question 107

State Administrator AKA

Answer 107

Administrator
Commissioner
Secretary

Question 108

BD or not BD:

A person, not an agent, with an office in the state, who conducts business only with foreign institutional investors?

Answer 108

A BD

The firm has an office in the state

Question 109

BD or not BD
A person, not an agent, with no place of business in the state, who conducts business in the state, with only 3 customers who reside (domiciled) in the state

Answer 109

Yes- It is a broker-dealer in the state because the firm has a retail customer who lives in the state

Question 110

BD or not BD
An agent, with an office in the state, who effects securities transactions with institutional and non institutional investors domiciled in the state?

Answer 110

Not a BD
It is an AGENT (employee of the BD)

Question 111

Which of the following agents is required to register with the state?

a. An RR whose customer moved to NY 5 months ago
b. An RR with a customer on a 15 day vacation in CA
c. An agent with the U.S. government selling US government bonds in the state of TX
d. An employee of XYZ corp who buys XYZ for XYZ employees without compensation related to the transactions

Answer 111

a. An RR whose customer moved to NY 5 months ago

Question 112

Registration for both agents and investment adviser representatives expires:

A. upon termination only

B.every 5 years

C.annually on December 31st

D.every time they change firms

Answer 112

C. annually on December 31st

If you are registered with the Administrator in October, for example, then your registration expires on December 31st of the same year.

Question 113

How quickly must agents as well as broker-dealers or issuers notify the Administrator when agents begin or terminate employment?

A. promptly

B.within 5 business days

C.within 14 business days

D.within 10 business days

Answer 113

A. promptly

According to the USA, notification must be accomplished “promptly” when an agent begins or terminates employment with a broker-dealer or issuer. There is no set number of days for such notification

Question 114

When a broker-dealer withdraws its registration, what happens to the registrations of agents employed by the broker-dealer?

A. the agents’ registrations remain active

B.the agents’ registrations are lost until they register with another broker-dealer

C.the agents’ registrations remain active as long as they register with another broker-dealer within 30 days

D.the agents’ registrations are null and void and they must repeat all necessary licensing examinations

Answer 114

C.the agents’ registrations remain active as long as they register with another broker-dealer within 30 days

The withdrawal itself does not become effective for 30 days. That gives an agent 30 days to find another broker-dealer to move his/her registration.

Question 115

Nigel is a successful agent of a Canadian broker-dealer in Manitoba. The firm he works for has no offices in the U.S., and he has no interest in moving to the U.S. One of his biggest clients, Beatrice, is in temporary residence in Minnesota settling her mother’s estate. Nigel wants to keep Beatrice as a client but he is not registered in the U.S. and doesn’t know if he can continue to work with Beatrice under the current situation. What is your advice?

A. Nigel can transact business for Beatrice without problems. Canada and the U.S. have a reciprocity agreement that allows such international business relationships.

B.Nigel cannot continue to transact business for Beatrice, since he is not registered in Minnesota and does not want to move to the U.S.

C.Nigel needs to bite the bullet and move to the U.S. where he can register in Minnesota and continue to transact business for Beatrice, including possibly reinvesting any proceeds of her mother’s estate.

D.Nigel can transact business for Beatrice after he obtains a limited registration in Minnesota.

Answer 115

D.Nigel can transact business for Beatrice after he obtains a limited registration in Minnesota.

If the Canadian firm does not have offices in the U.S. state (which it does not), and the client is from Canada and is temporarily in that state (which Beatrice is), and had a relationship with the Canadian broker-dealer before entering the state (which Beatrice did), then an agent or broker-dealer may use a limited registration. Nigel has a good many hoops to jump through to get that limited registration, but because Beatrice is a big client, you would advise him to do so.

Question 116

Projecting the future investment performance of a security based upon past investment performance of that security is:

A. permitted only with the use of 90-day moving averages

B.permitted when at least 10 years of historical performance is used to make the projection

C.strictly prohibited

D.permitted only when supplied by the issuer

Answer 116

C.strictly prohibited

Projecting future performance is not permitted. Historical performance may be shown to investors as long as proper disclosure is provided indicating that historical performance DOES NOT predict future results.

Question 117

Which of the following are prohibited in advertisements offered by investment advisers?

A. All of the choices are prohibited

B.Offering free services with the intention of delivering those services

C.Listing the performance of all past stock picks in the last 12 months and stating that past performance does not reflect future performance

D.Testimonials from customers

Answer 117

D.Testimonials from customers

An investment adviser cannot use testimonials from customers in its advertisements. An IA can list the performance of past stock picks as long as it lists all of the picks it provided over the past twelve months. An IA must also state that past performance does not reflect future performance, and have a comparison to the market in general. It also needs to state whether the performance includes management fees.

Question 118

A broker-dealer specializing in Canadian government bonds wishes to advertise a new issue to prospective investors. The Administrator will most likely:

A. do nothing

B.request approval of the advertisement from the Canadian government

C.require filing of the advertisement

D.refuse the advertisement

Answer 118

A. do nothing

Securities of foreign governments are exempt under the Uniform Securities Act. As such, the Administrator has no authority over their advertisement.

Question 119

According to the Uniform Securities Act, when a firm registers as a broker-dealer, did all of the partners, officers, directors, and employees automatically become registered as agents?

A. Only those partners, officers, and directors who are actively engaged in the business and performing the functions of an agent would automatically become registered as agents.

B.All of the partners, officers, and directors were automatically registered as agents of the broker-dealer.

C.Yes, all were automatically registered as agents of the broker-dealer.

D.Each person who is actively engaged in the business and performing the functions of an agent would register separately as necessary.

Answer 119

A. Only those partners, officers, and directors who are actively engaged in the business and performing the functions of an agent would automatically become registered as agents.

According to the Uniform Securities Act, only those partners, officers, and directors who qualify by being actively engaged in the business and performing the functions of an agent would automatically become registered as agents. Harry would not automatically become an agent, since he is a silent partner. Probably Sam wouldn’t either, since the COO focuses mostly on internal matters such as human resources. Some of the employees of the broker-dealer also would not need to be registered, as they would be performing clerical functions without soliciting or accepting orders.