S63 - 2/15
Jamal is registered as an agent with Dearborn Distinctive Investments (DDI), a broker-dealer registered with the SEC and a number of states. Due to some poor management mishaps, the SEC revokes DDI's registration as a broker-dealer. How does this affect Jamal's registration as an agent? A) His registration is no longer active. B) His registration is not affected. C) His registration is revoked. D) His registration remains active as long as he registers with an active broker-dealer within 30 days.
A) His registration is no longer active. An agent of a broker-dealer is just that: a representative of a registered BD. If something happens to eliminate that BD's registration, any agent with that firm is no longer registered. If Jamal wants to remain in the business, as long as he finds employment with a registered BD within two years, he will not have to pass the exam again. The only time the agent's registration would be revoked is if he is a named party to the legal action, but nothing in the question hints at that. On the exam, you might see terms describing Jamal's position as in suspense, in limbo, or on hold. LO 2.g
All of the following would be defined as exempt transactions except A) Joe Smith, an employee in the consumer lending department of Amalgamated National Bank, buys securities from ABC Securities, a broker-dealer registered in the state. B) Amalgamated National Bank sells its publicly traded bond portfolio to ABC Insurance Company. C) First National Bank sells its entire publicly traded bond portfolio to Amalgamated National Bank. D) ABC Securities, a registered broker-dealer functioning as an underwriter, purchases securities from XYZ corporation.
A) Joe Smith, an employee in the consumer lending department of Amalgamated National Bank, buys securities from ABC Securities, a broker-dealer registered in the state. The purchase of securities from a broker-dealer by an employee of a bank is a nonexempt transaction because it is a sale of a security by a BD to a member of the public. Transactions between BDs and issuers, between banks, and between banks and insurance companies are exempt because they occur between financial institutions. An exempt transaction is most often identified by the transaction's parties, rather than the type of security involved. LO 4.f
Online Securities Trading, Inc. (OSTI) is a broker-dealer registered in several states. Their initial website was created two years ago. Due to an increase in customer "hits," OSTI has revised its website. Under the Uniform Securities Act, what copy will be retained in the records? A) The original website for another year and the revision for three years B) As an electronic record, there are no filing requirements. C) The original website can be discarded and the new one kept for three years D) Both the original and the revised website for three years from today
A) The original website for another year and the revision for three years Websites are treated as any other advertisement. The original site design is kept for three years, and, whenever revised, the new copy is maintained and starts a new retention requirement for that copy. Therefore, a broker-dealer will likely have several different versions in its advertising file at the same time. LO 2.c
An agent can avoid civil liability under the Uniform Securities Act for soliciting and selling unregistered securities A) if an offer of rescission is accepted. B) by having the customer's attorney approve the transaction. C) by having the purchaser waive compliance with the law at the time of sale. D) by requiring the customer to acknowledge the sale was unsolicited.
A) if an offer of rescission is accepted. If an offer of rescission is accepted, the client has been made "whole" and has nothing further to claim. LO 5.c
According to the North American Securities Administrators Association's (NASAA's) Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the following practices is not unethical? A) To protect the client in a declining market, an agent sold all shares in the client's account when the client had only authorized the sale of 30% of the shares. B) An agent of a broker-dealer exercised discretion in deciding the time that a sale took place during the trading day without express written discretionary authority. C) Within the first 10 days of a client's initial transaction, an agent accepted oral discretion and purchased securities on behalf of the client. D) An agent sold shares at a price less than authorized by a client.
B) An agent of a broker-dealer exercised discretion in deciding the time that a sale took place during the trading day without express written discretionary authority. An agent of a broker-dealer (BD) may exercise discretion in deciding the time or the price at which a sale takes place during the trading day without express written discretionary authority. Such action is not unethical because time and price are not considered true discretion. An agent may not exercise discretion over the number of shares to be sold without prior written discretionary authority. Oral discretion is only permitted for investment advisers and their representatives (never BDs or agents) during the first 10 business days after the initial discretionary transaction in the account. LO 8.a
Which of the following are allowable activities of an agent of a registered broker-dealer? A) Borrowing money from a retail client at the broker-dealer B) Borrowing money from a colleague at the agent's broker-dealer C) Establishing a joint account with a customer without consent of the broker-dealer D) Splitting commissions with an agent registered with another broker-dealer
B) Borrowing money from a colleague at the agent's broker-dealer When it comes to borrowing money, you can borrow from someone else who works at the same firm you do, even if that individual is your client. Unless something indicates that the client is a lending institution (retail clients would not be), you cannot borrow from them. Splitting commissions with another agent is an allowable activity only when that agent is registered with the same or an affiliated broker-dealer (BD). An agent cannot establish a joint account with a client without the written consent of the BD and the client. LO 7.b
When does a customer have to receive the options disclosure document? A) Within 5 business days of the first options trade B) Within 15 days of account approval by the firm's designated options supervisor C) Before the first order D) With the confirmation of the first options transaction Explanation
C) Before the first order When opening an account to trade options, the owner must be told about the risks involved with trading options. By providing the owner with an options disclosure document entitled "Understanding the Risks and Uses of Options," the broker-dealer satisfies the risk disclosure requirements. Please note, the rules call for two delivery choices—either before the first options trade or at (or before) the time the options account is approved. LO 6.e
Under the Uniform Securities Act, the term investment adviser does not exclude A) a lawyer. B) a person who is paid a commission for selling securities. C) a person who is paid a fee for advising customers on securities. D) a publisher of a magazine.
C) a person who is paid a fee for advising customers on securities. An investment adviser is any person who is in the business of selling investment advice and is paid a fee for doing so. LO 3.b
The president of a manufacturing company sells shares of the company's common stock to the public and receives a commission substantially lower than others selling that stock. Under the Uniform Securities Act, the president is acting A) as a broker-dealer. B) as an agent of a broker-dealer. C) as an agent of the issuer. D) in a capacity that excludes her from the definition of an agent.
C) as an agent of the issuer. Unless the security is in one of the five listed categories of exempt securities, or the transaction is exempt (neither of which apply here), the exclusion from the definition of an agent only applies when the employee of an issuer sells the issuer's securities to employees and does not receive sales-related compensation. LO 2.f
Under the Uniform Securities Act, which of the following is not required to be in writing in an advisory contract? A) The terms of the advisory contract B) The method used for computing the adviser's compensation C) The amount of prepaid fees to be returned in the event of contract termination D) The names and titles of all principals in the advisory firm
D) The names and titles of all principals in the advisory firm The other choices are specifically required to be in writing in the advisory contract. LO 6.e
A broker-dealer with an office in this state must register as an investment adviser if it charges I. commissions for selling securities. II. commissions for selling securities while offering investment advice incidental to the sale of the securities. III. a fee for selling investment research and additional fees in the form of commissions for the sale of securities. IV. fees for investment research sold exclusively to institutions located in this state.
III and IV A broker-dealer must register as an investment adviser if it charges a fee for selling investment research or any other form of investment advice, even to institutions. If a person is in the business of selling research for a fee, that person or firm must register as an IA. If a BD charges commissions for selling securities and offers investment advice incidental to the sale of the securities, the BD need not register as an IA because it is not compensated for the research. LO 3.b
Which of the following are not specifically excluded from the definition of an investment adviser under the Uniform Securities Act? I. An investment adviser representative of an advisory firm who makes securities recommendations on a regular basis for compensation II. A temporary employee hired to assist in administrative responsibilities of an advisory firm III. Any person who is a federal covered investment adviser IV. A person who, on a regular basis for compensation, offers specific investment advice to clients as to the value of securities
IV only Clerical and ministerial personnel, full time or temporary, are not included in the definition of either investment adviser representatives (supervised persons) or investment advisers. Other persons associated with an investment adviser, including officers of the firm, are generally considered to be IARs. An IAR is not an IA in the same manner that an agent is not a broker-dealer. A federal covered adviser is not, for definitional purposes, considered an adviser under the USA to avoid duplicate regulation by both the state and the federal government. LO 3.b
