Unit 3

Question 1

Under the Uniform Securities Act, which of the following is responsible for notifying the Administrator when an agent changes his place of employment from one broker-dealer to another?

A) The agent, the former employer, and the new employer
B) New broker-dealer
C) Agent
D) Former broker-dealer

Answer 1

A) The agent, the former employer, and the new employer

All three parties must notify the Administrator.

Question 2

Which of the following must register as an agent when representing a broker-dealer?

A) An employee who accepts unsolicited orders from institutional clients
B) A partner of a broker-dealer who has no securities sales functions
C) The telephone switchboard operator who directs orders to the appropriate extension
D) An individual who represents an underwriter only in transactions between an issuer and the underwriter

Answer 2

A) An employee who accepts unsolicited orders from institutional clients

An employee of a broker-dealer who accepts orders must register as an agent. The fact that it is unsolicited and/or from an institution (making them exempt transactions) has no bearing on the requirement for the individual to register as an agent. A partner of a broker-dealer with no securities sales functions and an individual who represents an underwriter only in transactions between an issuer and the underwriter need not register. Individuals whose function is strictly clerical do not register as agents.

Question 3

Under federal law, an application for becoming an associated person of a broker-dealer would be denied for an individual

A) pleading no contest to a misdemeanor involving a financial matter 65 months ago
B) who is not a citizen of the United States
C) convicted of a felony 122 months ago
D) accused of a securities-related felony 110 months ago

Answer 3

A) pleading no contest to a misdemeanor involving a financial matter 65 months ago

An individual who is convicted of, or has pleaded guilty or no contest to, any felony or certain misdemeanors in the previous 10 years (120 months) is subject to statutory disqualification. Therefore, the misdemeanor involving a financial matter within the past 10 years is a cause for disqualification. A conviction made more than 10 years ago is part of the record but not cause for disqualification. One is presumed innocent until proven guilty so merely being accused is not the same as being convicted. There is no requirement that a registrant be a U.S. citizen.

Question 4

Angelo lives and votes in State W. He winters in State C, splitting his time 60/40 between the 2 states. Angelo has a brokerage account with Sunset Investment Securities (SIS) and trades with an agent housed in SIS’s State W office. SIS is also registered in States M and I but, having no place of business there, is not registered in State C. In order for Angelo’s agent to handle the account, registration as an agent is required

A) in State W.
B) in State W and State C.
C) solely with FINRA.
D) in State C.

Answer 4

A) in State W.

By not having a place of business in State C and only having a client who is temporarily in the state, SIS (and those functioning as its agents) qualify for the “snowbird” exemption.

Question 5

A Canadian broker-dealer is registered in Province Q. The firm has clients who vacation in several New England states and they would like to continue to do business with them while on their holidays. Under the Uniform Securities Act,

A) this is permissible only if the broker-dealer is registered with the SEC
B) the broker-dealer may only accept unsolicited orders from their existing clients while they are vacationing in the United States
C) this is permissible if the broker-dealer is properly registered in Province Q, deals only with existing clients, and registers in each of the states where their clients are vacationing
D) this would only be permitted if the trades were executed through an affiliated domestic broker-dealer who is licensed in those states

Answer 5

C) this is permissible if the broker-dealer is properly registered in Province Q, deals only with existing clients, and registers in each of the states where their clients are vacationing

The Uniform Securities Act provides for a form of limited registration for Canadian broker-dealers wishing to do business with their clients who are vacationing or otherwise traveling through the United States. In order to qualify for the limited registration, the BD must be properly licensed in its home province and their only dealing in the states is with an existing client.

Question 6

A broker-dealer would most likely hire an agent to

A) implement the firm’s new recordkeeping program
B) sell securities to clients
C) solicit for advisory clients
D) engage in marketing for the broker-dealer

Answer 6

B) sell securities to clients

The Uniform Securities Act defines an agent as follows: “‘Agent’ means 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.” They are not there to do marketing or handle recordkeeping. Soliciting for advisory clients would be done by an investment adviser representative, not an agent.

Question 7

If Somerville Discount Securities has its principal office in New Jersey and recently registered a branch office in Minnesota, which of the following statements is TRUE?

A) Each agent must be registered in the appropriate state before soliciting or taking orders.
B) Each agent is automatically registered in both states.
C) Agents working in the branch office that are licensed only in Minnesota may take unsolicited orders from New Jersey residents.
D) Agents working in the principal office that are licensed only in New Jersey may take unsolicited orders from Minnesota residents.

Answer 7

A) Each agent must be registered in the appropriate state before soliciting or taking orders.

Agents must be registered in every state in which they do business. An agent is not automatically registered in a state just because his employer is registered in that state.

Question 8

A local customer of broker-dealer A is on vacation in Nevada. Broker-dealer A, who is registered in and maintains offices only in Florida, wishes to make the customer aware of an investment opportunity that has just become available. Which of the following is TRUE?

A) Broker-dealer A must notify the Nevada Administrator before calling this customer in Nevada.
B) Broker-dealer A may not solicit this customer in Nevada unless broker-dealer A and the agent making the call are registered in Nevada.
C) Broker-dealer A may not solicit this customer in Nevada unless the broker-dealer has a branch office registered in Nevada.
D) Broker-dealer A may solicit this customer in Nevada.

Answer 8

D) Broker-dealer A may solicit this customer in Nevada.

This is an example of the Uniform Securities Act’s position that, in certain situations, a broker-dealer is not a broker-dealer. If a broker-dealer registered in one state contacts an existing customer in another state and that customer is not a resident of the other state, the broker-dealer is not defined as a broker-dealer in the state in which the contact is made and is therefore not subject to the laws of that state. Of course, this is only true when the broker-dealer does not have an office in that state.

Question 9

If information filed with the Administrator by a broker-dealer as part of its registration changes in a material way, the registrant must

A) update the information on the registration on the next annual renewal date
B) amend the registration statement within 60 days of the material change
C) submit an entirely new registration form within 30 days of the material change in information
D) amend or update the information promptly regardless of the renewal date

Answer 9

D) amend or update the information promptly regardless of the renewal date

When material information changes, the registrant must promptly amend or update the information regardless of the renewal date. The requirement to amend a registration applies to investment advisers, broker-dealers, and securities. However, the Uniform Securities Act does not define the term “promptly.”

Question 10

Broker-dealers, investment advisers, agents, and investment adviser representatives who use the internet to distribute information on available products and services that are directed generally to anyone having access to the internet and transmitted through postings on bulletin boards, displays on homepages, or similar methods are not deemed to be transacting business in this state for purposes of the Uniform Securities Act solely on the basis of that fact if which of the following conditions are observed?

I. The internet communication contains a legend in which it is clearly stated that the broker-dealer, investment adviser, agent, or IAR in question may transact business in this state only if first registered, excluded, or exempted from state broker-dealer, investment adviser, agent, or IAR registration requirements, as may be the case.
II. The internet communication contains a legend in which it is clearly stated that follow-up; individualized responses to persons in this state by the broker-dealer, investment adviser, agent, or IAR that involve either the effecting or attempting to effect transactions in securities; or the rendering of personalized investment advice for compensation, as may be, will not be made absent compliance with state broker-dealer, investment adviser, agent, or IAR registration requirements, or an applicable exemption or exclusion.
III. The internet communication contains a mechanism, including and without limitation, technical firewalls or other implemented policies and procedures, designed reasonably to ensure that before any subsequent, direct communication with prospective customers or clients in this state, the broker-dealer, investment adviser, agent, or IAR is first registered in this state or qualifies for an exemption or exclusion from such requirement.
IV. The internet communication does not involve either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, as may be, in this state over the internet, but is limited to the dissemination of general information on products and services being offered.

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

Answer 10

D) I, II, III, and IV

With the growth of the internet, NASAA developed an interpretive order concerning broker-dealers, investment advisers, agents, and investment adviser representatives using the internet for general dissemination of information on products and services. The primary focus of this order was to set the parameters under which securities professionals could communicate on the internet or use their websites in states in which they were not registered. Meeting all of the requirements stated in the answer is necessary.

Question 11

GEMCO Securities, Inc., a broker-dealer registered in the state, has over 10,000 clients ranging from small individual accounts to substantial institutions. GEMCO has determined that the most efficient way to maintain contact with its clients is through electronic communications. Under the USA, these emails must be retained by the broker-dealer for a minimum of

A) 5 years
B) 8 years
C) 2 years
D) 3 years

Answer 11

D) 3 years

The USA specifies that all records, including electronic communications (emails), must be maintained for a minimum of 3 years. For investment advisers, the requirement is 5 years.

Question 12

When applying for registration as an agent, which of the following must be disclosed?

A) Highest educational level achieved and the institution attended.
B) Complete employment history for the past 5 years.
C) Certain financial information such as any unsatisfied judgments or liens against the applicant.
D) Residential history for the past 3 years.

Answer 12

C) Certain financial information such as any unsatisfied judgments or liens against the applicant.

This question probably contains more detailed information than will be covered on the exam. Negative financial information, such as unsatisfied judgments or liens and bankruptcy filings must be disclosed. Employment history for the past 10 years and residential history for the past 5 years must be shown. If, during the past 10 years, the applicant was a full-time student, then that must be shown, but that is the extent of educational information required.

Question 13

Under the Uniform Securities Act, unless renewed, the registration of which of the following securities professionals expires on December 31?

I. Agents
II. Broker-dealers
III. Investment advisers
IV. Investment adviser representatives

Answer 13

D) I, II, III, and IV

State registration of any securities professional expires on December 31, unless renewed.

Question 14

One of the terms defined in the Uniform Securities Act is “broker-dealer.” Which of the following is NOT included in that definition?

I. An individual employed by a corporate entity to open new customer accounts for the purpose of trading securities
II. A business entity seeking to raise additional capital using the regulated securities markets
III. A person whose primary function is buying securities for his own account and for the accounts of others
IV. A person whose primary function is providing advice on what assets belong in clients’ investment portfolios

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

Answer 14

C) I, II, and IV

A broker-dealer is defined as a person in the business of effectuating securities transactions for its own account or the account of others. Those employed to open new accounts are defined as agents. Those seeking to raise new capital are issuers, and a person who provides investment advice is an investment adviser.

Question 15

An agent with a broker-dealer is suddenly called out of town on a personal family matter. While away, the agent’s unregistered sales assistant receives a phone call from an existing client wishing to purchase 200 shares of a listed stock. What would be the most appropriate action for the sales assistant to take?

A) Explain that the agent is out of town and request the client to call back with the order next week
B) Accept the order because it is from an existing customer
C) Accept and place the order because it is unsolicited
D) Route the call to a licensed agent in the office

Answer 15

D) Route the call to a licensed agent in the office

The fact that the order is unsolicited does not preclude the rule that under no circumstances may an unregistered individual accept and place orders.

Question 16

A broker-dealer is registered in States A and B. An agent of theirs is registered in State A, and one of the agent’s clients moves from State A to State C. If the agent wishes to continue to do business with this client, which of the following statements is CORRECT?

A) Both the broker-dealer and the agent must register in State C.
B) Only the broker-dealer must register in State C.
C) Only the agent must register in State C.
D) As long as they have 5 or fewer retail clients in State C, neither the broker-dealer nor the agent must register there.

Answer 16

A) Both the broker-dealer and the agent must register in State C.

As long as a broker-dealer has at least 1 retail client in a state, registration is required. Furthermore, an agent cannot do business with a client who has become a resident of a state unless she is registered as an agent of a registered broker-dealer in that state. Unlike investment advisers, there is no de minimis exemption for broker-dealers and agents.

Question 17

Under the Uniform Securities Act, which of the following is a broker-dealer?

A) An issuer
B) A credit union that sells its own stock
C) An agent
D) A corporation that sells interests in an oil and gas limited partnership to investors with the proceeds going to the issuer

Answer 17

D) A corporation that sells interests in an oil and gas limited partnership to investors with the proceeds going to the issuer

A broker-dealer is any person that buys or sells for the accounts of others or for his own account. In this case, an entity structured as a corporation is selling , on behalf of the issuer, a security in the form of limited partnership units and is therefore a broker-dealer. A broker-dealer is not an issuer or an agent.

Question 18

Creative Financial Solutions (CFS) is a broker-dealer registered with the SEC. CFS has its principal and only office in State A. CFS also does business with clients in State B. Which of these clients would cause CFS to have to register in State B?

A) 1 mutual fund registered with the SEC
B) 15 other broker-dealers
C) 4 retail clients residing in State B
D) 6 banks doing business in State B

Answer 18

C) 4 retail clients residing in State B

Excluded from the definition of broker-dealer under the Uniform Securities Act is a broker-dealer with no place of business in a given state whose clientele consists exclusively of other broker-dealers, financial institutions (banks, investment companies), or existing customers who are temporarily in the state. However, once the BD has even 1 retail (noninstitutional) client who resides in the state, registration is required. There is no de minimis exemption for broker-dealers (unlike investment advisers).

Question 19

Under the USA, a person who has passed the appropriate NASAA examination but whose license has not yet been issued can participate in

A) filing payroll report
B) prospecting for new clients by mail
C) accepting unsolicited orders
D) prospecting for new clients in person

Answer 19

A) filing payroll report

A person who has passed the NASAA exam cannot transact securities business until the Administrator notifies the employer that the registration is effective. Filing payroll reports is a clerical activity, and registration would not be required to perform that function.

Question 20

Which of the following statements referring to renewal of a broker-dealer’s registration under the Uniform Securities Act are CORRECT?

I. Annual renewal takes place on the anniversary of the registrant’s initial registration.
II. Each renewal application must be accompanied by the appropriate fee.
III. Each renewal application must be accompanied by a consent to service of process signed by an authorized supervisory person of the firm.
IV. Registrations expire December 31 unless renewed or canceled.

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

Answer 20

B) II and IV

The consent to service of process is filed with the initial application for registration and becomes a permanent part of the registrant’s file. The USA states that all registrations of persons expire on December 31 unless renewed, withdrawn, or canceled.

Question 21

Prompt notification to the Administrator must be made when

A) a nonexempt issuer’s dividend is reduced
B) there is a change to the marital status of an agent
C) there is a material change to any information contained in a broker-dealer’s application for registration that is on file with the state
D) a federal covered adviser with a place of business in the state relocates that office to a different city

Answer 21

C) there is a material change to any information contained in a broker-dealer’s application for registration that is on file with the state

Whenever there is a material change to the information contained in the registration application of a securities professional, the Administrator must be promptly notified. Marital status is not included on the Form U4. Federal covered investment advisers are not under the Administrator’s jurisdiction.

Question 22

Anyone who represents an issuer in effecting transactions between the underwriter and the issuer:

A) must be registered as an agent.
B) must be registered as an investment adviser.
C) must be registered as an administrator.
D) is excluded from the definition of agent under the Uniform Securities Act.

Answer 22

D) is excluded from the definition of agent under the Uniform Securities Act.

When an individual represents an issuer (not a broker-dealer), the Uniform Securities Act provides several exclusions from the definition of an agent. One of those is representing the issuer in an exempt transaction. A transaction between the issuer and the underwriter of its securities is an example of the exempt transactions we’ll cover again in U4LO3.

Question 23

The Uniform Securities Act would NOT consider who of the following to be securities professionals?

A) Persons in the business of buying or selling securities for their own account
B) Individual investors actively trading their own accounts
C) Persons in the business of buying or selling securities on behalf of others
D) Persons in the business of advising others regarding securities investments

Answer 23

B) Individual investors actively trading their own accounts

“In the business” generally means persons compensated by others for securities activities and would exclude individual investors trading their own accounts. Persons in the business of buying or selling securities for their own account or on behalf of others are broker-dealers. Persons in the business of advising others regarding securities are investment advisers.

Question 24

An individual has been registered in State C and State D as an agent of a broker-dealer for the past three years. Due to a number of this agent’s clients moving to State F, the agent registers there in early November. The individual’s new registration in State F will expire

A) on every anniversary date of the initial registration.
B) on December 31 of the same year.
C) on December 31 of the following year.
D) automatically within 30 days after the withdrawal of registration if the state securities Administrator has initiated proceedings against the registrant.

Answer 24

B) on December 31 of the same year.

State registration for all securities professionals expires on December 31 next following the date of registration. The next December 31 after a November registration is December 31 of that same year. If the state Administrator initiates a proceeding, the withdrawal is put on hold until the results of the hearing are final.

Question 25

Under what conditions may an unregistered employee of a broker-dealer receive bonuses or incentives?

A) When such bonuses or incentives are not tied to transactions, commission activity, or referrals generated by the unregistered person
B) When such bonuses or incentives are tied to transactions, commission activity, or referrals generated by the unregistered person
C) Under no circumstances if the employee is not registered
D) Only when the employee’s contract calls for being compensated in such a manner

Answer 25

A) When such bonuses or incentives are not tied to transactions, commission activity, or referrals generated by the unregistered person

Unregistered persons are regarded as employees of the member and should not be compensated on any basis other than a salary or hourly wage. However, the payment of performance bonuses or other forms of incentive compensation, such as through participation in a member’s profit-sharing plan, are permitted as long as such bonuses or incentives are not tied to transactions, commission activity, or referrals generated by the unregistered person.

Question 26

Which of the following statements is (are) TRUE regarding the jurisdiction of the SEC under the Securities Exchange Act of 1934?

I. The SEC has jurisdiction over exchanges and SROs.
II. The SEC has jurisdiction over broker-dealers, investment advisers, and associated persons that are required to be registered under federal law.
III. The SEC has jurisdiction over banks and savings and loans regarding their securities activities.

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

Answer 26

A) I and II

The SEC was created by the Securities Exchange Act of 1934 and has the responsibility of administering all federal securities laws. The SEC has jurisdiction over exchanges, SROs, and all persons required to be registered under federal law. The SEC does not enforce state securities statutes, nor does it have jurisdiction over banks or savings and loans regarding their securities activities. Banking authorities, such as the Federal Reserve Board, the Federal Deposit Insurance Corporation, and others, regulate banks and savings and loans.

Question 27

Both state and federal law have record keeping requirements for broker-dealers. When it comes to email correspondence, the requirements are

A) that a receipt that the email has been read is sufficient.
B) the firm must keep the correspondence in cloud storage for three years.
C) the same as they would be for written correspondence.
D) only that the correspondence be reviewed by a principal.

Answer 27

C) the same as they would be for written correspondence.

Email correspondence is treated the same as written correspondence. The records must be kept for three years. One method is “the cloud”, but there are other acceptable methods as well.

Question 28

An individual wishing to register as an agent with a broker-dealer may have to

I. pass an examination
II. post a bond
III. maintain minimum net capital
IV. meet minimum state educational requirements

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

Answer 28

A) I and II

In almost all cases, an individual wishing to register as an agent must pass an examination. Many Administrators require that all agents post a bond, whereas others only require bonding for those with investment discretion in customer accounts. Minimum net capital requirements apply to broker-dealers, not agents.

Question 29

Under the Uniform Securities Act, a broker-dealer is defined as any person who

A) is in the business of effecting securities transactions for its own account or for the accounts of others
B) sells securities
C) buys securities
D) is registered with the SEC

Answer 29

A) is in the business of effecting securities transactions for its own account or for the accounts of others

A broker-dealer is any person, partner, officer, director, or securities firm engaged in the business of effecting securities transactions for the accounts of others (broker) or for its own account (dealer).

Question 30

Under the Uniform Securities Act, the Administrator may require a broker-dealer to post a surety bond of

A) an amount not in excess of that set by the SEC
B) $25,000.00
C) $10,000.00
D) $50,000.00

Answer 30

A) an amount not in excess of that set by the SEC

Unlike investment advisers where the USA specifies posting a surety bond in the amount of $35,000, the Uniform Securities Act does not specify an amount for broker-dealers. However, the NSMIA states that the Administrator may not require a broker-dealer be bonded in an amount above that set by the SEC. Furthermore, bonds will not be required of broker-dealers that maintain a specified net capital.

Question 31

An individual has been employed by a broker-dealer to solicit new subscriptions for the firm’s free monthly stock market report. The individual is paid a salary plus bonus based on his success rate with signing up subscribers. Under the USA, this person would

A) only be allowed to contact existing clients of the broker-dealer
B) have to be registered as an investment adviser representative
C) not have to be registered as an agent of the broker-dealer
D) have to be registered as an agent of the broker-dealer

Answer 31

C) not have to be registered as an agent of the broker-dealer

Agents of broker-dealers are in the business of securities-related transactions on behalf of clients of the firm. A free-market report is not a security, so this individual is not soliciting securities business.

Question 32

Under the Securities Exchange Act of 1934, the term associated person would include each of the following EXCEPT a person who is associated with a broker-dealer

A) as a branch office manager
B) in the capacity of a partner solely by virtue of a contribution of capital
C) as an agent
D) and whose functions are solely ministerial

Answer 32

D) and whose functions are solely ministerial

According to the act, the phrases “person associated with a broker or dealer” and “associated person of a broker or dealer” mean any partner, officer, director, or branch manager of such broker or dealer (or any person occupying a similar status or performing similar functions); any person directly or indirectly controlling, controlled by, or under common control with such broker or dealer; or any employee of such broker or dealer. However, a person who is associated with a broker or dealer but whose functions are solely clerical or ministerial shall not be included in the meaning of such term.

Question 33

All of the following statements regarding broker-dealers are true except

A) they are regulated by the SEC as well as individual stock exchanges
B) they employ only registered investment adviser representatives
C) they act in an agency capacity when executing orders to buy and sell securities on the various stock exchanges in the secondary market
D) they may act as dealers who buy and sell securities for their own account

Answer 33

B) they employ only registered investment adviser representatives

Agents work for broker-dealers, while investment adviser representatives work for investment advisers. The term broker-dealer is used because they sometimes act in an agency capacity (brokers) and other times in a principal capacity (dealers).

Question 34

A broker-dealer registered with State A created a website 2 years ago to promote its services. Recently, they hired a new media person who totally redesigned the site. Under the recordkeeping requirements of the Uniform Securities Act,

A) copies of both the original and the new website page must be maintained for 5 years after original use
B) a copy of the original website page must be maintained for 3 years from original use
C) a copy of the new website page must be maintained for a period of 3 years from the first use of the original site
D) there are no requirements for storage of electronic data

Answer 34

B) a copy of the original website page must be maintained for 3 years from original use

Websites are treated as would be any other advertisement. So, the original site design is kept for 3 years and, whenever revised, the new copy is maintained and starts a new retention requirement for that copy. Therefore, you will likely have several different versions in your advertising file at the same time.

Question 35

Under the USA, which of the following statements regarding the posting of surety bonds is NOT true?

A) The Administrator requires all broker-dealers to post bonds even if they maintain net capital in excess of minimum amounts.
B) The Administrator requires the posting of bonds primarily to cover the cost of civil liabilities associated with violations of the Uniform Securities Act.
C) The Administrator can accept securities instead of cash if the posting of a bond is required.
D) Bonds may be required for agents of broker-dealers.

Answer 35

A) The Administrator requires all broker-dealers to post bonds even if they maintain net capital in excess of minimum amounts.

Firms that maintain net capital in excess of minimum requirements may be exempted from the requirement of posting surety bonds. Agents exercising discretion over client accounts may be required to post a surety bond.

Question 36

With regard to the state registration requirements of agents of registered broker-dealers, all of the following statements are correct except

A) registration is not required in a state where the agent has no place of business and only deals with existing clients who are vacationing in that state
B) registration is required if they solicit the sale of securities by telephone to fewer than 6 individuals residing in that state
C) registration is required when they limit their activity to the sale of exempt securities
D) registration is required in each state in which the employing broker-dealer has a place of business

Answer 36

D) registration is required in each state in which the employing broker-dealer has a place of business

The fact that the broker-dealer does business in a state has nothing to do with a specific agent. Many broker-dealers are registered in all states; very few agents are. Agents must register in each state where they are selling or offering securities, even if the security or the transaction is exempt. That exemption only applies to the need for the security to be registered, not the agent. Soliciting the sale of securities by telephone is considered making an offer, and there is no de minimis exemption available. Finally, registration is not required when making use of the “snowbird” exemption.

Question 37

Which of the following statements regarding an agent’s registration is most accurate?

A) If the broker-dealer with which that agent is registered should have its registration revoked, the agent may continue to do business only with existing clients and may not acquire any new ones until registered with an active broker-dealer.
B) If the broker-dealer with which that agent is registered should have its registration revoked, the agent’s license will be held by the Administrator and the agent will be required to register with an active broker-dealer within 30 days.
C) Revocation of the registration of that agent’s broker-dealer will result in cancellation of that agent’s effective registration.
D) Registration of a broker-dealer in a specific state automatically registers all the firm’s agents in that state as well.

Answer 37

C) Revocation of the registration of that agent’s broker-dealer will result in cancellation of that agent’s effective registration.

The registration of an agent is not effective during any period when he is not associated with a particular broker-dealer registered under the Uniform Securities Act. Therefore, when the broker-dealer’s registration is revoked, the agent’s license is no longer in effect. The Administrator does not “hold” licenses. Agents must register in each state in which they wish to do business; there is no automatic registration other than for certain officers and partners when the firm first registers.

Question 38

Under Section 401 of the Uniform Securities act, the term “agent” does not include an individual who represents an issuer in effecting transactions in a security

A) issued by and representing an interest in or a debt of, or guaranteed by, any federal savings and loan association, or any building and loan or similar association organized under the laws of any state and authorized to do business in this state
B) issued or guaranteed by any federal credit union or any credit union, industrial loan association, or similar association organized and supervised under the laws of this state
C) issued by and representing an interest in or a debt of, or guaranteed by, any bank organized under the laws of the United States, or any bank, savings institution, or trust company organized and supervised under the laws of any state
D) issued by any person organized and operated not for private profit but exclusively for religious, educational, benevolent, charitable, fraternal, social, athletic, or reformatory purposes, or as a chamber of commerce or trade or professional association

Answer 38

C) issued by and representing an interest in or a debt of, or guaranteed by, any bank organized under the laws of the United States, or any bank, savings institution, or trust company organized and supervised under the laws of any state

An individual representing an issuer in the sale of that issuer’s security is not defined as an agent if the security is:

issued by and representing an interest in or a debt of, or guaranteed by, any bank organized under the laws of the United States, or any bank, savings institution, or trust company organized and supervised under the laws of any state;
issued or guaranteed by the United States, any state, any political subdivision of a state, or any agency of the foregoing;
any security issued or guaranteed by Canada, any Canadian province, any political subdivision of any such province, any agency of the foregoing, or any other foreign government with which the United States currently maintains diplomatic relations, if the security is recognized as a valid obligation by the issuer or guarantor;
a promissory note, draft, bill of exchange or bankers’ acceptance that evidences an obligation to pay cash within 9 months after the date of issuance, is issued in denominations of at least $50,000, and receives a rating in one of the 3 highest rating categories from a nationally recognized statistical rating organization; or
any investment contract issued in connection with an employees’ stock purchase, savings, pension, profit-sharing, or similar benefit plan if the Administrator is notified in writing 30 days before the inception of the plan.
It is not just any exempt security that qualifies the individual for the exemption—only the five listed above. A confusing point is that the individual is not an agent when the sales are made in any exemption transaction with no exceptions.

Question 39

A sales assistant employed by a full service broker-dealer would be required to register as an agent when accepting orders for

A) fixed annuities.
B) direct participation programs.
C) commodity futures contracts.
D) gold coins.

Answer 39

B) direct participation programs.

An individual employed by a broker-dealer who is involved in the sale of securities must register as an agent. The security here is the DPP.

Question 40

A publicly traded corporation offers its employees an opportunity to purchase shares of the company’s common stock directly from the issuer. A specific employee of the company is designated to process any orders for that stock. Under the USA, the employee

A) may receive commissions without registration
B) must register as an agent only if he will receive commissions or remuneration, either directly or indirectly related to the volume of sales
C) need not register as an agent of the issuer under any circumstances
D) must register as an agent of the issuer

Answer 40

B) must register as an agent only if he will receive commissions or remuneration, either directly or indirectly related to the volume of sales

Under the USA, an individual is an agent when effecting transactions with an issuer’s existing employees if commissions or other remuneration related to the sale are paid. Therefore, there are cases where the employee would have to register as an agent. When the individual is paid a straight salary for this work, no registration is required.