66 Chapter 1: Uniform Securities Act - Definitions
Which of the following is excluded from the definition of "security" according to the USA? [A] A futures contract in grains [B] A pre-organization certificate [C] A certificate or interest in a mining title [D] Certificates of interest in profit-sharing agreements
[A] A futures contract in grains EXPLANATION Futures contracts are not "securities" under the USA.
Of the following list, which would be considered to be a State under the Uniform Securities Act? I.Puerto Rico II.Oregon III.District of Columbia IV.Texas [A] I & III [B] II & IV [C] II, III, IV [D] I, II, III, IV
[D] I, II, III, IV EXPLANATION Under the Uniform Securities Act, the definition of a State means any state, territory, or possession of the United States including the District of Columbia and Puerto Rico. Therefore all choices are included in the definition.
According to the Uniform Securities Act, there is an exemption from registration for investment advisers who solely service institutional investors. Institutional investors are defined as [A] people who have assets totaling more than $2,000,000. [B] people who directly purchase their inventories of securities from issuers. [C] people who are solely involved in the purchase of securities that are exempt. [D] people who have been designated as such by the state Administrator either by rule or order.
[D] people who have been designated as such by the state Administrator either by rule or order. EXPLANATION Institutional investors are those who have been designated as such by the rule or order of the state Administrator.
An agent is hired by a company for the upcoming issuance of securities to the public. The company has registered the issue in States A, B, and C. The agent is currently registered in State A only. Which of the following is true of this situation? [A] The agent would be best served to register in States A, B, and C, in order to offer the securities to the largest number of potential buyers. [B] The agent would be permitted to sell the securities in States A, B, and C under the registration of the issuer. [C] The agent would need to be dually registered with the issuer and with a broker/dealer firm. [D] The agent would need to register as an issuer in order to issue these securities.
[A] The agent would be best served to register in States A, B, and C, in order to offer the securities to the largest number of potential buyers. EXPLANATION An agent must be registered in all states where they act within the scope of an agent. If an agent is working for an issuer on an upcoming new issue of securities, the agent would be best served to register in all states where the issuer intends to offer securities. This would provide the most opportunity to sell the new issue. Agents are not permitted to sell under the registration of the issuer. As well, dual registration or registration as an issuer would not be required for the agent.
Joe is employed as an independent Agent for a small broker-dealer in Mississippi. He also has several clients in Texas. According to the regulations of the Uniform Securities Act, which of the following is true? I.Joe, as an agent with clients in Texas, would be required to register in Texas. II.Joe, as an agent of a broker-dealer registered in Mississippi, would not be required to register in Texas. III.Joe's broker-dealer would be required to register in Texas as well as Mississippi. IV.Joe's broker-dealer would not be required to register in Texas. [A] I & II [B] I & III [C] II & III [D] II & IV
[B] I.Joe, as an agent with clients in Texas, would be required to register in Texas. & III.Joe's broker-dealer would be required to register in Texas as well as Mississippi. EXPLANATION An agent is any individual who represents a BD as an employee or independent contractor in a state. Both agent and firm would have to register in the state before the agent can do business.
According to the Uniform Securities Act, when an application for registration as an agent is pending, the person may do which of the following? [A] offer mutual funds but not accept commissions [B] sell fixed annuity insurance contracts [C] sell securities when such orders are unsolicited [D] sell securities which are exempt from registration
[B] sell fixed annuity insurance contracts EXPLANATION Since a fixed annuity is an insurance product and not a security, a person would be allowed to sell those without being registered as an agent.
Under the Uniform Securities Act, an investment adviser includes anyone who for compensation advises others as to the value of I.A certificate of interest II.Participation of interest in an oil & gas, mining title or lease III.Investment contract [A] I [B] II [C] II and III [D] I, II, III
[D] I, II, III EXPLANATION All choices are correct with regard to giving advice since all choices represent securities under the definition of a security under the Uniform Securities Act.
Under the Uniform Securities Act, an investment adviser would be required to be registered if they provided advice about which of the following? I.Income producing Real Estate II.Fixed Annuities III.Common Stock IV.Equity Options [A] I & II only [B] III & IV only [C] I, II & IV only [D] I, II, III, IV
[B] III.Common Stock & IV.Equity Options EXPLANATION Of the choices offered, only common stock and equity options are defined as a "Security" under the USA and would therefore require that the IA be registered before the IA could give advice to investors. Real Estate and Fixed Annuity contracts are excluded from the definition of a security under the USA and therefore would not require IA registration.
An individual gives advice to clients regarding fixed annuity contracts. This individual also gives advice related to other fixed insurance products. Which of the following is TRUE of this individual? [A] The individual would not be required to register under the Uniform Securities Act. [B] The individual would not be required to register in any capacity with any regulatory body. [C] The individual would be required to register under the Uniform Securities Act. [D] The individual would be required to register under the Investment Advisors Act of 1940
[A] The individual would not be required to register under the Uniform Securities Act. EXPLANATION Individuals who are giving advice on fixed products do not need to register under the Uniform Securities Act, which regulates the securities industry at the State level. For purposes of the USA, fixed annuities and fixed insurance products would not be considered securities. It is incorrect to state that this individual would not be required to register in any capacity with any regulatory body. A person who is providing advice and selling insurance products generally will be required to complete competency exams in insurance and register at the state level with the insurance commissioner. Registration under the Uniform Securities Act and the Investment Advisors Act of 1940 would NOT be required with the information provided.
What constitutes an "offer" by Uniform Securities Act standards? [A] An individual who lives in New Jersey subscribes to a paper that is published in New York and has over 80% of its subscribers in New York. The paper contains a solicitation. [B] An individual who lives in Texas receives a solicitation from a person in Texas. [C] An individual in Los Angeles receives a financial publication that contains solicitations that originate in New York. [D] An individual who lives in Nevada hears a promotion on a radio station that is broadcast from Arizona.
[B] An individual who lives in Texas receives a solicitation from a person in Texas. EXPLANATION A buy or sell offer has been made in a state when the offer originates in that state and is made to an individual in that state. In each of the other scenarios, the solicitation is either originating in another state, or is intended for an audience in another state.
According to the Definitions listed under the Uniform Securities Act, which of the following is a broker-dealer? [A] Any person who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities. [B] Any person engaged in the business of effecting transactions in securities for the account of others or for his own account. [C] Any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities. [D] Any person who issues or proposes to issue any security.
[B] Any person engaged in the business of effecting transactions in securities for the account of others or for his own account. EXPLANATION The Uniform Securities Act defines a broker-dealer as any person engaged in the business of effecting transactions in securities accounts for the account of others or for his own account. The person representing the broker-dealer would be an agent, not a broker-dealer. The person engaged in advising others would be an investment advisory firm. The person issuing or proposing to issue securities would be an issuer.
Under the Uniform Securities Act a "sale" would include which of the following? I.Receipt of a stock dividend II.A gift of securities of stock subject to future assessments III.A pledge of securities as loan collateral IV.Receipt of rights to buy another security [A] I & III [B] II & IV [C] I, II & III [D] I, II, III, IV
[B] II.A gift of securities of stock subject to future assessments & IV.Receipt of rights to buy another security EXPLANATION Any contract of sale or contract to sell a security for value would be considered to be a Sell or Sale. This includes receiving a security as a bonus for buying another security, receiving rights or warrants to buy another security, and a gift of assessable stock. Receipt of a stock dividend or pledging securities as collateral for a loan would not be considered to be a sell or sale.
Under the Uniform Securities Act, which of the following are NOT included in the definition of a "security"? I.Certificates of Interest II.Fixed annuities III.Real Estate Investment Trusts IV.Endowment policies [A] I & III [B] II & IV [C] I, II, & III [D] I, II, III, IV
[B] II.Fixed annuities & IV.Endowment policies EXPLANATION In the USA, Certificates of Interest and Real Estate Investment Trusts ARE included in the definition of a security. Endowment Policies and Fixed Annuities are NOT included in the definition of a security. Endowment Policy is a specialized insurance product that acts like a savings plan and can be used to meet specific goals like a child's college education.
Which of the following transactions are considered to be a "sale" under the Securities Act of 1933 and/or the Uniform Securities Act? I.A child receives 3,000 shares of stock in trust from a parent II.An investor converts a bond into stock III.A car buyer receives one share of the automotive company stock with the purchase of a new car [A] I only [B] III only [C] I and III only [D] I, II, and III
[B] III.A car buyer receives one share of the automotive company stock with the purchase of a new car EXPLANATION For this question, make sure to make the distinction between a gift and a sale. A Gift is given willingly without payment. A Sale, is not a gift, but an exchange of value. Answer I, is a true gift of regular stock. There are no strings attached (A "Gift" of Assessable stock is not a true gift. Assessable Stock was abolished over 50 years ago, but you may see that term on the exam. Assessable stock is a purported "gift" which is not a gift at all. When I give away the assessable stock, I am getting rid of a huge liability. It is not a true gift of stock.) Today's common stock does not have additional liabilities attached.
An investment adviser is defined under the Uniform Securities Act to be any person who is compensated for engaging in the business of advising others as to the value of all of the following EXCEPT: [A] an investment contract [B] a fixed annuity contract [C] a certificate of interest in any profit sharing agreement [D] a certificate of interest in an oil, gas, or mining title or lease
[B] a fixed annuity contract EXPLANATION The USA defines a "security" to include all of the above except a fixed annuity contract. A fixed annuity contract is not defined as a security.
You work for the only branch of Johnny's Broker-Dealer which is located in State X. Several of your agents have accounts in nearby State Y. Johnny's Broker-Dealer would only have to license its agents in State Y if clients in State Y were [A] other broker-dealers. [B] government employees of State Y. [C] registered investment advisers. [D] financial institutions or banks.
[B] government employees of State Y. EXPLANATION Other broker-dealers, registered investment advisers, and financial institutions such as banks do not warrant the need for licensing in the outside state, in this case State Y. Regardless of who employs them, individuals not falling into any exclusionary list, must be represented by agents that are properly licensed in their respective states.
Which of the following persons would be included in the definition of an "investment adviser" under the Uniform Securities Act? [A] A financial planner who gives advice on fixed life insurance policies for an hourly fee. [B] A lawyer who gives investment advice as part of his or her estate planning practice. [C] A college professor who gives investment advice to other professors for an established flat fee. [D] An accountant who gives investment advice as part of his or her tax practice.
[C] A college professor who gives investment advice to other professors for an established flat fee. EXPLANATION The college professor is not excluded from the definition of an IA as a "teacher" if he or she as advising for a fee. A person is only an IA if he or she gives advice about securities, not life insurance.
Which of the following falls within the definition of "broker-dealer" for purposes of the Uniform Securities Act? [A] A person who, for compensation, engages in the business of advising others, either directly or through publications, as to the value of securities and/or the advisability of investing in securities. [B] An individual who represents an issuer in effecting or attempting to effect purchases and sales of securities. [C] A person engaged in the business of effecting transactions in securities for the account of others or for his own account. [D] An individual employed by or associated with an investment adviser who makes recommendations or renders advice regarding securities.
[C] A person engaged in the business of effecting transactions in securities for the account of others or for his own account. EXPLANATION If a person, which includes individuals, is engaged in the business of effecting transactions in securities for their account or for the accounts of others, that person or individual would fall under the definition of a broker/dealer under the Uniform Securities Act.
Regulated by the Uniform Securities Act, "person" refers to [A] An individual only [B] An individual or a partnership only [C] Almost any entity [D] Only an individual, partnership, corporation, or association
[C] Almost any entity EXPLANATION Under the Uniform Securities Act, the term "person" means an individual, a corporation, partnership, association, joint stock company, trust, unincorporated organization, government, or political sub-division of a government.
Which of the following is the Uniform Securities Act definition of a "guarantee"? [A] Guaranteed means any guarantee, by an issuer, investment adviser, or broker/dealer. [B] Guaranteed means that regardless of actual performance, the client will, at a minimum, receive their principal back. [C] Guaranteed means guaranteed as to payment of principal, interest, or dividends. [D] Guaranteed means that regardless of actual performance, the client will, at a minimum, receive their principal and the guaranteed return.
[C] Guaranteed means guaranteed as to payment of principal, interest, or dividends. EXPLANATION The Uniform Securities Act definition is, "Guaranteed means guaranteed as to payment of principal, interest, or dividends."
According to the USA, which of the following does not fall under the definition of an IAR? [A] A supervisor in charge of overseeing IARs [B] An individual who gives advice about securities [C] Someone who performs securities transactions for other people's accounts [D] Someone associated with a federal covered adviser in the business of managing the portfolios of clients
[C] Someone who performs securities transactions for other people's accounts EXPLANATION A person who effects securities transactions for the accounts of others is a broker/dealer.
A Purported Gift: I.Is considered to be a bona fide gift II.Is not considered to be a bona fide gift III.Is considered to be a sell or sale IV.Is not considered to be a sell or sale [A] I & III [B] II & IV [C] I & II [D] II & III
[D] II.Is not considered to be a bona fide gift & III.Is considered to be a sell or sale EXPLANATION A Purported Gift is a gift where the person who receives the "gift" has to do something to get it, and it is therefore not a true or bona fide gift. For example, if a company said to an investor that "if the investor purchased a bond they would receive a gift of 5 shares of common stock", the 5 shares of common stock is not a true gift because the investor has to buy the bond to get the stock. It would also be considered a Sell or Sale.
According to the Uniform Securities Act, which of the following would be specifically excluded in the definition of a Broker-Dealer? [A] Investment Advisers and Investment Advisor Representatives [B] Accountants [C] Lawyers [D] Issuers
[D] Issuers EXPLANATION Of the choices offered the only one that is "specifically" excluded from the definition of Broker-Dealer is an issuer.
According to the Uniform Securities Act, which of the following are included in the definition of a broker/dealer? [A] Agents [B] Issuers of securities [C] Out-of-state broker/dealers servicing only other broker/dealers [D] One who effects transactions in securities for the accounts of others or solely for the firm's own account
[D] One who effects transactions in securities for the accounts of others or solely for the firm's own account EXPLANATION Choice 'A', 'B', and 'C' are specifically excluded from the definition of broker/dealer, but choice 'D' defines a firm acting in the capacity of a broker (accounts of others) and a dealer (the firm's own account) and would therefore be considered a broker/dealer by definition.
The term agent, according to the Uniform Securities Act, would include all of the following people EXCEPT [A] one who effects transactions of registered securities with clients who are members of the public. [B] one who works for a broker-dealer involved in selling securities that have been listed on a securities exchange. [C] one who represents a broker-dealer and performs securities transactions where no transaction-based fees are charged or paid. [D] one who represents an issuing body in effecting transactions that are exempt.
[D] one who represents an issuing body in effecting transactions that are exempt. EXPLANATION A person representing an issuer in effecting transactions that are exempt or exempt transactions, is not considered an "agent." All of the other people listed would be considered agents because they either work for a broker-dealer effecting transactions, or because they conduct commissions-based transactions for the public.
