Test 3 (91.67%)
In some instances, rather than use an investment banker to distribute its securities to the public, an issuer will hire a sales force or use its own employees to make the sales. The individuals involved in the selling in this state would NOT be defined as agents under the Uniform Securities Act if selling on behalf of which of the following issuers?
A savings institution organized and supervised under the laws of any state Although each of the answer choices meets the USA's definition of exempt security, the savings association is the only issuer where the act grants an exemption from the definition of agent to those individuals selling on its behalf. Please note that a savings institution is not the same as a savings and loan or building and loan association.
Unless qualifying for an exemption, which of the following advisory fee structures is NOT allowed under the USA?
Fees based on a percentage of the change in value of funds from quarter to quarter Unless a specific exception is referred to in the question, fees based on a share of capital gains or appreciation in an account are prohibited. The other choices are acceptable fee structures.
An individual living in this state would like to become registered as an agent for a broker-dealer. Which of the following conditions must be met? I.The applicant must be eligible to register in this state. II.The broker-dealer selected must be registered in this state. III.The applicant must meet minimum net worth requirements. IV.The individual must be registered as an agent in at least one other state.
I and II It is possible that an individual may not be eligible for registration. For example, if the applicant has been convicted of a felony or securities-related misdemeanor in the past ten years, registration will be denied. An agent may only be registered with a broker-dealer that is also registered in this state. Agents have no minimum net worth requirements.
Under the Uniform Securities Act, an investment adviser may legally have custody of money or securities belonging to a client I.if the Administrator has not prohibited this practice II.if the investment adviser has notified the Administrator that it has custody III.as long as the adviser does not also have discretionary authority over the account
I and II The Administrator may prohibit investment advisers from having custody of client securities or funds. If no such prohibition applies, the Administrator must be notified in writing if the investment adviser has custody. However, custody has NOTHING to do with investment discretion.
Which of the following statements regarding agent registration under the Uniform Securities Act are TRUE? I.In the absence of any action by the Administrator, the effective date of a registration is noon of the 30th day after the filing of a completed application. II.The Administrator may initiate a disciplinary action within two years of an agent's withdrawal of registration. III.The administrator may request the agent furnish a statement of assets and liabilities. IV.If, before the effective date of the registration, the Administrator requires amendments to the application, the registration will be considered to have first been filed upon filing of those amendments.
I and IV Normally, registration of persons becomes effective at noon of the 30th day following filing. If the Administrator requires the filing of amendments, the clock starts over again with the filing of those amendments. Agents do not have financial requirements and the Administrator has a maximum of one year after termination to initiate any actions.
Under the Uniform Securities Act, if an investment adviser takes custody of client assets, which of the following statements are TRUE? I.Clients must receive monthly statements. II.Clients must receive quarterly statements. III.The adviser must be audited at least annually. IV.The adviser must be audited at least semiannually.
II and III If an investment adviser takes custody of client assets, those assets must be segregated from those of the investment adviser. Clients must be sent statements quarterly and the investment adviser must be audited at least annually.
Watson, a customer of Gibraltar Securities, wishes to place an order to buy 50 shares of a thinly traded stock priced at $8 per share. Because the stock is so thinly traded, Gibraltar Securities feels it needs to charge Watson a commission of $100 to justify the time it must spend locating a seller of the stock. Which of the following statements best describes this action?
It would not be considered a prohibited practice for Gibraltar to charge Watson $100 to complete the transaction, provided Gibraltar disclosed the $100 commission prior to the transaction and Watson chose to proceed with the trade. It would not be considered a prohibited practice for Gibraltar to charge Watson $100 to complete the transaction, provided Gibraltar informed Watson of the $100 commission prior to the transaction and Watson proceeded with the trade. However, charging larger than normal commissions WITHOUT informing the customer of such intent in advance is a prohibited practice under the Uniform Securities Act. There is no requirement for administrative clearance prior to charging larger than normal commissions.
Under the Uniform Securities Act, the term broker-dealer would include
a person with no office in the state who effects securities transactions with no more than 5 individual residents of the state in any 12-month period NOT a person with no office in the state who effects securities transactions with over 50 different banks domiciled in the state Although the person has no office in the state, transactions are effected with individual residents of the state. Under the USA, this person is defined as a broker-dealer. There is no de minimis exemption for broker-dealers. A person is exempt from the definition of broker-dealer if there is no office in the state and securities trades are confined to institutional clients, without a numerical limit, or existing individual clients not residents of that state. The agents are merely selling their own stock as would any other individual; that does not make one a broker-dealer. YOU MISREAD THIS. ASKING WHO WOULD INCLUDE THE BROKER DEALER, NOT WHO WOULD BE EXEMPT
Consent of the client before completion of a trade made between the firm and a client must be made when
an investment adviser will be acting in the capacity of a principal NOT a broker-dealer will be acting as a contra-party to the trade In those uncommon cases where an investment adviser acts in the capacity of a principal (or agent) with an advisory client, CONSENT of the client before completion of the transaction is REQUIRED. In the case of broker-dealers, DISCLOSURE of capacity, (acting as a broker [agency] or dealer [principal]) on the trade confirmation, BUT NOT CONSENT, is needed.
Under industry rules, customers who wish to trade options must receive a copy of the Options Disclosure Document (ODD):
at or before account approval. All prospective options customers must receive a copy of the ODD at or before the time the account is approved to trade options. It is the options account agreement that must be signed and returned to the broker-dealer within 15 days of account approval.
An agent puts together a recommendation for a customer but is unable to attend the meeting. Another agent from the firm meets with the customer and presents the recommendation, but omits some material facts. According to the Uniform Securities Act, this is
considered a fraudulent act The agent making a recommendation to a customer is responsible for presenting all of the material facts. To do otherwise is committing fraud. Material facts must be presented to a customer regardless of the type of security sold or whether a commission is to be earned or not. Remember, a material fact is one that is critical to the investment decision making of a client.
In addition to transaction costs (e.g., commissions or markups), most broker-dealers have a schedule of miscellaneous fees. The purpose of these fees is to
help to reimburse the broker-dealer for expenses incurred in performing the transaction or a service for the client NOT keep commissions low while making up the difference with fees Executing a transaction for clients frequently incurs expenses that commissions don't cover, such as clearing fees and execution facility fees. There are services performed for clients, such as postage and handling, for which expenses are incurred. Although charging these fees does have a positive effect on the firm's bottom line, they are designed for REIMBURSEMENT PURPOSES, NOT AS an additional source of INCOME
One major difference between the customer identification program (CIP) and the new account opening rules of the regulatory bodies is that
the CIP requires date of birth while the regulators only require proof of legal age The CIP requires the actual date of birth, not just proof of legal age. The CIP has no interest in the goals of the investor, just the identity. In both cases, a PO Box may only be used after supplying a physical residence address and both the CIP and the rules of the regulators apply to retail and institutional accounts.
Each of the following requirements is common to the registration of agents, investment adviser representatives, state-registered investment advisers, and broker-dealers under the Uniform Securities Act EXCEPT
the registration for all is two years in length Registrations of persons renew annually each December 31st.
An agent may borrow securities from a customer
only if the client is in the business of lending securities NOT only with the customer's written permission Borrowing securities from customers is prohibited unless the client is in the business of lending securities. This would include certain broker-dealers and institutions. YOU GOT CONFUSED HERE. KNEW THAT HAVE TO BORROW FROM A CLIENT IN THE BUSINESS OF LENDING BUT YOU THOUGHT OF MARGIN ACCOUNTS WHERE AGENT DOES THEORETICALLY BORROW FROM THE CUSTOMER. BASICALLY, YOU OVERCOMPLICATED IT
All of the following actions must be completed by the time customers enter their first option trade EXCEPT:
receipt of a completed options agreement. While other option account requirements must be met no later than the time customers enter their initial options trade, under current rules, the agreement must be signed and returned by the customer within 15 days of account approval. Reference: 4.4.2.2.1 in the License Exam Manual
All of the following are exempt securities under the Uniform Securities Act EXCEPT
securities issued by a bank holding company NOT securities issued by a federal savings and loan association Securities issued by a bank are exempt. However, this answer refers to a bank holding company that is considered to be an ordinary company subject to state registration if not otherwise exempt. NOTE: BANK HOLDINGS COMPANIES ARE NOT SEEN AS BANKS IN THE EYES OF THE LAW BUT ARE JUST REGULAR COMPANIES AND ARE REGULATED SUBJECT TO STATE REGISTRATION
Under the Uniform Securities Act, a client who purchased securities from a broker-dealer may request the trade be rescinded if the
security was sold in violation of the USA Under the USA, a client who purchased securities from a broker-dealer may request the trade be rescinded if the security was sold in violation of the USA. In such a case, the purchaser is entitled to compensation for the original purchase price, plus interest (less any income received from the security) and reasonable attorney's fees.
An agent in Illinois, Missouri, and Iowa has a client move from Chicago to Detroit on July 1, 2014. On September 1 of that year, he buys 100 shares of a nonexempt security in a nonexempt transaction. On August 1, 2015, the client discovered that the agent's firm never licensed him in Michigan and therefore, he is subject to civil liability to the purchaser. The statute of limitations for this sale runs out
8/1/2017 The statute of limitations for civil liability is the earlier of three years after the date of the sale, or two years after discovery of the violation. In this case, the earliest date is two years after the discovery date of August 1, 2015.
Under the National Securities Markets Improvement Act of 1996 (NSMIA), states are prevented from I.registering securities II.establishing capital and custody requirements that exceed those provided for in the Securities Exchange Act of 1934 III.establishing recordkeeping requirements for broker-dealers or investment advisers that exceed those required under federal securities law IV.registering investment advisers
II and III The NSMIA streamlined much of federal and state securities law and specifically prevented dual regulation. As a result, states may not impose capital, custody, and recordkeeping requirements that exceed requirements under federal securities law. States can register securities and investment advisers that are not covered by the registration requirements of federal legislation.
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.
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.
An agent registered in one state may solicit business in another state provided
both the agent and the broker-dealer are properly registered in the other state An agent holding registration in one state may solicit and/or transact business in another state only if registered in that state and the employing broker-dealer is also registered in that state, unless an exemption is available.
Traditionally, banks have been excluded from the definition of a broker-dealer. However, under recent federal legislation, a bank is included in the definition if it
bought and sold securities on behalf of customers in a wholly owned brokerage subsidiary Under financial modernization legislation (known as the Gramm-Leach-Bliley Act), banks can have wholly owned brokerage subsidiaries. In such cases, the bank would be a broker-dealer subject to registration. The bank is not a broker-dealer if it refers securities to unrelated third-party brokerage houses or limits its securities-related activities to trust and custodial activities.
First Securities Advisers, Inc., a subsidiary of First Securities Broker-Dealers, Inc., requires customers to have a minimum of $250,000 under management and charges them 1% in advisory fees based on the amount of assets in their accounts. Clients also pay commissions for securities transactions in their accounts at First Securities Broker-Dealers, Inc. First Securities Advisers, Inc., has
not violated the prohibition against performance fees First Securities Advisers Inc. has not violated the prohibition against charging performance fees because it did not base its fees on a share of capital gains or losses in their clients' accounts. First Securities charged on the basis of assets under management. The 1% in advisory fees charged appears reasonable. The commissions charged by the affiliated broker-dealer have nothing to do with the question. The client would have to pay commissions wherever the transactions were executed.
An Administrator may issue a stop order if it is in the public interest and the
registrant is subject to an administrative stop order of a neighboring state An Administrator has the authority under the USA to issue a stop order if a registrant is subject to a stop order in another state. The Administrator does not have the authority to approve or disapprove of the quality of products manufactured by a registrant. The Administrator may not use the office for personal gain and therefore may not request personal fees. The Administrator may not deny a registration on the basis of its lack of registration in other states. Reference: 3.2.4.2 in the License Exam Manual
All of the following may be required of broker-dealers by the postregistration provisions of the act EXCEPT
requiring a broker-dealer to maintain records for a period longer than specified in the Securities Exchange Act of 1934 One of the specific provisions of the National Securities Markets Improvement Act of 1996 was that no state had the authority to impose financial or recordkeeping requirements on a broker-dealer that were in excess of those stated in the federal Securities Exchange Act of 1934.
One way in which an investment adviser acting in the capacity of an agent in a transaction with a client differs from a broker-dealer performing the same task is that the investment adviser
shall obtain client consent before completion of the transaction In order to act as an agent (or principal) in a trade with an advisory client, there are 2 requirements: •The client receives full written disclosure as to the capacity in which the adviser proposes to act •Consent of the client Both of these are required before the completion of the transaction.
The USA defines all of the following as securities EXCEPT
term life insurance Term life insurance is an insurance contract, not a security. Remember the short list of those items which are not securities.
According to the Uniform Securities Act, a state-registered investment adviser may have custody of a customer's funds and securities if
the Administrator has been informed of the custody As long as retaining custody of funds is not prohibited, a state-registered investment adviser may have custody of a customer's account after providing notice to the Administrator. Notice to the SEC is not required for federal covered advisers who maintain custody (but that will not be tested).
