Series 63 Unit 5

All of the following are prohibited actions EXCEPT A) executing a transaction in a nonexempt security in a discretionary account B) sharing in profits of an account as a reward for the agent's recommendations exceeding the S&P 500 C) failing to record exempt transactions on the broker-dealer's books and records D) trading in the account of a conservative client exclusively in speculative public offerings with proper trading authorization from the client

A) executing a transaction in a nonexempt security in a discretionary account Discretionary (and nondiscretionary) accounts may contain nonexempt securities. All transactions, whether exempt or non-exempt, must be recorded on the books of the broker-dealer. Trading the account of a conservative client only in speculative public offerings is unsuitable and, therefore, a prohibited business practice. The only time sharing in the profits of a client's account would be permitted is with consent of both the client and the employing broker-dealer. Such consent must be stated in the choice.

An investment adviser with custody of customer funds and securities must send the customer a statement of account activity no less frequently than A) with every transaction B) quarterly C) monthly D) annually

B) quarterly An investment adviser in possession of customer assets must send a statement to the customer at least every three months. The statement must list the securities and funds held by the adviser, their location, and must show all transactions in the account since the last statement date.

Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, it would be considered a prohibited practice for a broker-dealer to A) maintain an office in the state, but fail to register with the Administrator B) have a history of repeatedly delaying the delivery of securities to its customers C) inform customers that past performance is no guarantee of future results D) fail to maintain the required net capital

B) have a history of repeatedly delaying the delivery of securities to its customers A broker-dealer that has a pattern of delaying delivery of certificates or money to clients is displaying unethical business behavior. Failing to meet net capital requirements or register is not unethical, it is against the law.

An agent inflates a client's financial information so that the client will meet the firm's minimum financial requirements to trade on margin. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, this would be A) prohibited because it is obvious that if he has to do that, margin trading is not suitable for this client B) prohibited because the agent is entering fictitious information on the client account form C) permitted because margin trading can lead to greater client profits D) prohibited only if this is done without the client's written consent

B) prohibited because the agent is entering fictitious information on the client account form Even though the agent thinks this action is beneficial for the client, the NASAA policy prohibits entering any fictitious information on a client's account records even when suggested by the customer.

Pat Conway, a risk-averse investor, has never invested money outside of bank instruments. Recognizing Pat's conservative nature, his agent recommends Treasury notes, pointing out that federal government-backed securities are riskless securities. In the above situation, the agent has acted A) lawfully, because Treasury notes carry no risk of principal default B) unlawfully, because the agent failed to disclose that the customer retains interest rate risk C) unlawfully, because Treasury notes are unsuitable for a risk-averse customer D) lawfully, because Treasury notes are suitable for a risk-averse customer

B) unlawfully, because the agent failed to disclose that the customer retains interest rate risk Although Treasury securities (such as T-notes) issued by the federal government do not carry default risk, the customer who buys them retains interest rate risk because the value of the notes will fall if interest rates rise. The agent has acted unlawfully in not disclosing this to the customer.

Which of the following is NOT a prohibited practice under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents? A) Failing to identify a customer's financial objectives B) Borrowing money or securities from the account of a former banker with express written permission C) Selling stock rights received in a client's account at the direction of the client D) Supplying funds to a client's account only when or if it declines below a pre-agreed-upon level

C) Selling stock rights received in a client's account at the direction of the client It is permissible to sell rights, which are securities. Borrowing money or securities from other than a bank or broker-dealer in the business of lending, failing to identify a customer's financial objectives, and guaranteeing a customer's account against losses are prohibited practices.

All of the following activities could result in being charged with a fraudulent or unethical practice EXCEPT A) borrowing from retail customers B) excessively trading for the purpose of generating commissions C) failing to state all known facts about an investment when presenting it to a client D) making recommendations based on material nonpublic inside information

C) failing to state all known facts about an investment when presenting it to a client Failure to state all known facts about an investment is not a violation of the Uniform Securities Act; omitting material facts, however, would be a violation of the act. Excessive trading, making recommendations on material nonpublic information, and borrowing from retail customers are prohibited business practices that could result in revocation of a registration.

Which of the following is an unethical practice for agents of broker-dealers? A) Failure to make a bona fide public offering of all securities acquired as an underwriter B) Effecting securities transactions not recorded on the books of the employing broker-dealer with the employing broker-dealers' approval in writing C) Borrowing money from a commercial bank that has investment accounts at the broker-dealer D) Effecting securities transactions not recorded on the books of the employing broker-dealer without prior written authorization

D) Effecting securities transactions not recorded on the books of the employing broker-dealer without prior written authorization It is an unethical practice for an agent of a broker-dealer to effect securities transactions not recorded on the books of the employing broker-dealer unless prior written authorization is secured. Broker-dealers, acting in the capacity of underwriters, not their agents, must make a bona fide public offering in underwritings.