Series 63 Exam
Furnishing fictitious quotations
A false quote that is offered to a client/this is fraud
Which of the following is not required to register as an agent under the Uniform Securities Act?
A person who represents the issuer selling U.S. government or municipal bonds
Which of the following could be an agent of a broker-dealer?
An individual over the age of majority (has to be a natural person but cannot be a minor)
Which securities are exempt from registration?
Anything involving a bank (savings, loan, credit union), anything listed by the government(municipal bonds, treasury bills, etc...) anything on a stock exchange (New York Stock Exchange)
Bonus vs. Compensation
Bonuses based on the company profits can be paid to everyone / compensation from sales can only be paid to registered agents
excessive transactions (key word is excessive)
Churning
Which of the following exemptions describes the sale of securities to institutions that are regarded as professional investors?
Exempt transaction
Under the Uniform Securities Act, which of the following activities is an example of churning?
Following a practice of purchasing Class A shares of a mutual fund for a client, holding them for no more than one month, and liquidating and using the proceeds to purchase Class A shares of another mutual fund offered by a different underwriter
When does a deliberate omission of a fact in a securities sale constitute fraud?
If a reasonable person would base an investment decision on the omitted information
When may an individual sell securities as a registered agent for more than one broker-dealer?
If the broker-dealers are under common control (The Administrator also has the power to grant dual registration even if the firms are not related)
What is right of rescission?
In the case of an agent who mistakenly sells an unregistered nonexempt security, the broker-dealer should offer to buy back the security from the customer and pay the customer interest on the amount invested in the security for the period from the original purchase to the resale back to the firm, minus any income or profit realized by the client on the security.
Among the many exempt transactions under the Uniform Securities Act are the private placement and the preorganization certificate or subscription. While these two exemptions have several requirements in common, they have which of the following differences?
Payment for the purchase may be made in the case of a private placement, while no money changes hands in a preorganization subscription / It is expected that noninstitutional buyers of the private placement are purchasing for investment only, while no such requirement exists for the investors in a preorganization certificate
If a state-registered investment adviser moves to another location, the Administrator must be notified
Promptly
Pension Fund Managers
Register with state if: Under $200 million managed Register with SEC if: $200 million or more managed
Under the Uniform Securities Act, what remedy does a client have against a firm that sold him an unregistered nonexempt security?
Rescission
According to the Uniform Securities Act, a person representing an issuer in the sale of which of the following securities would have to be registered as an agent?
Securities issued by a federal credit union
The Administrator of a state securities department conducted a hearing regarding misconduct by an investment adviser registered at the state level. The Administrator required the adviser, as well as several clients who had lodged complaints against the adviser, to take a sworn oath that their testimony was true. Does the Administrator have the power to require sworn oaths?
The USA empowers Administrators to administer oaths. Sworn oaths typically occur in conjunction with hearings
Borrowing from a customer is always prohibited except?
The customer is a lending institution
It is common for a registered broker-dealer to maintain a website. Which of the following statements is true?
The original site design is kept for three years.
Because the Series 63 is a law exam, it is incumbent on Series 63 students to recognize the difference between several similar terms. For example, in which of these cases would a person not be defined as a broker-dealer?
The person is excluded from the definition of a broker-dealer.
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 five individual residents of the state in any 12-month period.
All of the following are exempt transactions under the Uniform Securities Act except
an agent soliciting a customer to buy a new issue of corporate bonds
SEC Regulation S-ID describes a broker-dealer's or investment adviser's duties regarding the detection, prevention, and mitigation of identity theft. The rule applies to an investment adviser when it
is permitted to direct transfers or payments from accounts belonging to individuals to third parties upon the individuals' instructions
Under the Uniform Securities Act, the Administrator has the authority to...
issue stop orders / review standard registration forms
Under the Uniform Securities Act, a registered investment adviser may
use the statement "registered with the Administrator of State X" in advertisements
Which of the following persons are excluded from the definition of, or exempt from registration as, a broker-dealer under the Uniform Securities Act?
A broker-dealer with no office in the state that effects trades exclusively with other broker-dealers in the state / A trust company with an office in the state that deals with the general public / A broker-dealer with no office in the state that effects securities trades exclusively with trust companies or other broker-dealers
Strategic Capital Asset Managers (SCAM) is an investment adviser registered in five states. In lieu of preparing a fancy brochure, SCAM is permitted to provide its clients with a copy of its
Form ADV Part 2A and Part 2B (The Form ADV Part 2 (both parts) is acceptable for use as the firm's brochure. Part 1 is for registration purposes, and Part 1B is only used by state-registered advisers (as this firm is). Part 2, Appendix 1 is used for investment advisers (IAs) who offer wrap fee programs. As a state-registered IA, SCAM does not file any forms with the SEC)
Foster Advisers, based in New Jersey, manages $135 million in funds for New Jersey-based clients. As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which of the following statements best describes the registration requirement for Foster Advisers?
Foster Advisers is required to register as an adviser with the SEC and notify the Administrator of the New Jersey Department of Securities of its operation.
Which of the following activities are violations of the Uniform Securities Act?
Front running / Disseminating false trading information
Which of the following practices does not violate NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents?
Hypothecating customer securities held in margin accounts
NSMIA (National Securities Markets Improvement Act of 1996)
Streamlined much of the federal and state securities laws/eliminated dual registration (either state or SEC/not both)
Contra Party
The BD is the principal, meaning it's the buyer and the seller in a trade
Administrators can never insist financial requirements that are higher than what?
The SEC requirements
The Administrator of State X receives a phone call warning that, within the next couple of weeks, a scam is going to be perpetrated in his state by someone from State Y. The tipster even supplies the Administrator with names of people who will be involved and ends the conversation by telling the Administrator that he himself is a resident of State Z. Which of the following would most likely be done?
The State X Administrator would immediately begin an investigation.
Under the Uniform Securities Act, which of the following would not be an appropriate cause for an agent's registration to be canceled by the Administrator?
The agent is found by a court to have violated a securities statute. (The key word is canceled. The Administrator would cancel an agent's registration in the event of death or mental incompetence of the registrant. Failure to locate an agent, such as mail being returned without a forwarding address, is also a cause for cancellation. Cancellation carries no connotation of wrongdoing; for violations, the appropriate action is revocation.)
A working group convened by NASAA has developed a model fee disclosure schedule to help investors better understand the costs involved in doing business with their broker-dealer. The template has broker-dealers disclose all of the following except
advisory fees
A state-registered investment adviser must deliver the Part 2A brochure and any Part 2B brochure supplements required by the rule to a prospective advisory client
at the time of entering into any such contract, if the advisory client has a right to terminate the contract without penalty within five business days after entering into the contract.
A client is interested in purchasing a thinly traded equity security where, due to the extra effort involved in obtaining the issue, the commission charged will be somewhat higher than normal. The compensation to the broker-dealer must be disclosed
before the order is placed / on the trade confirmation
An agent receives a complaint letter from a customer. The agent has not committed any violation of the Uniform Securities Act, nor does the letter accuse him of any. The customer is simply angry about having to pay certain charges in connection with a transaction that have been established by the agent's broker-dealer and that were disclosed to the customer in advance. The agent should
bring the letter to the attention of the agent's immediate supervisor
Gamma Delta LLC (GDL) is a broker-dealer registered with the Administrator. The nature of Gamma Delta's business is such that the Administrator requires a $30,000 surety bond. In lieu of the bond, GDL could
deposit $30,000 cash
All of the following are prohibited actions except
executing a transaction in a registered nonexempt security in a discretionary account.
Foster Advisers operates as an investment adviser that is registered in a state where the Administrator, by rule, prohibits investment advisers from holding custody of client funds and securities. This means that Foster Advisers may not
have physical custody over its clients' monies and certificates
2 exemptions from receiving the annual adviser's brochure
impersonal advisory service fee is less than $500 annually / the advisory contract is with an investment company (like a mutual fund)
The recordkeeping rules of the Uniform Securities Act contain specific retention requirements. Among those is a stated period during which the records must be readily accessible. Readily accessible means the records are located
in the broker-dealer's principal office.
One way to make money is to buy low and sell high. If an investment adviser has developed a proprietary charting system that has had a very high degree of success in picking stocks near their market bottoms, any advertisement about the system must
indicate that there are limitations and difficulties to using the system.
Active Technicians (AT) is a state-registered investment adviser. In its brochure supplement, it would include information relating to each of the following individuals except
members of AT's board of directors who are active in the firm's business
Who is not defined as a person under the Uniformed Securities Act?
minor children, deceased individuals, and mentally incompetent individuals
Under the Uniform Securities Act, those persons carrying out a broker-dealer's supervisory regimen over agents
must be registered as agents
Janice is applying for registration as an agent with a broker-dealer. Twenty years ago, she was present at an altercation that resulted in the death of one of her friends. At the time, she was arrested and charged with felony assault. Witnesses later supported Janice's claim that she was just a bystander and the charges were dropped. Janice
must disclose the arrest on her Form U4
Sarah has not yet passed the Series 63 exam. As Jack's assistant, Sarah has frequent telephone contact with Jack's customers, to whom she provides account information and current stock quotes. In this situation, Sarah is
not in violation of any applicable statutes (she is not soliciting business, offering advice, or accepting orders)
An open-end investment company registered under the Investment Company Act of 1940 would most likely use the process known as
notice filing
When a broker-dealer furnishes clearance, settlement, and custody services for an investment adviser who directs client brokerage transactions to that broker-dealer, the adviser is
receiving soft dollar compensation.
An agent engages in a practice prohibited under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents by doing any of the following except
recording small transactions with clients on the books of the employing broker-dealer (cannot borrow from client, share profits, or fail to disclose risks)
Under the National Securities Markets Improvement Act of 1996 (NSMIA), states are prevented from all of the following except
registering investment advisers
Among the powers granted to the Administrator under the Uniform Securities Act is the power to
subpoena witnesses or documents
An agent would be engaging in a fraudulent or prohibited business practice under the Uniform Securities Act if she made recommendations that...
that were based on material nonpublic information / of a blanket nature
An applicant for registration as a broker-dealer realized that material information was omitted from the initial application. In that case,
the 30-day period begins when the application containing that information is submitted (Registration as a broker-dealer (or any securities professional) takes effect at noon of the 30th day after submission of a complete application. If the initial application has omitted material information, the 30-day period begins with the filing of the corrected application)
Trade confirmations sent by broker-dealers to their customers must always include
the amount of commission charged
Adrian sells life insurance as an independent licensed insurance producer for several large insurance companies. Selling variable life insurance also requires registration as an agent with a broker-dealer handling that product. Supervisory responsibility over Adrian's sales of variable life is that of
the broker-dealer with whom Adrian is registered
A prospective customer enters a branch office of Extraordinary Profits, Inc. (EPI), a broker-dealer registered with the Administrator. If the prospect wants to know the cost of obtaining certificates for securities she plans to purchase, the firm would most likely hand her a copy of
the broker-dealer's fee disclosure document.
In a margin account, broker-dealers lend money to clients to enable them to leverage their investments. The account document that is evidence of the debtor-creditor relationship is
the credit agreement
Under the Uniform Securities Act, an agent's license is effective for
the time remaining until December 31 of that year, at which time it must be renewed
An agent wishes to share commissions with an administrative assistant who provides many useful services. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents,
this is permitted if the assistant is properly licensed
In general, the Uniform Securities Act requires broker-dealers to keep most records for
three years with the first two in an easily accessible location.
Under the Uniform Securities Act, the state Administrator may, by order, deny, suspend, or revoke an investment adviser's registration for
violation of another state's securities laws within the last 5 years.
According to the Uniform Securities Act, once an individual passes the appropriate exam, asset-based compensation is permitted
when registration has been granted by the state Administrator / after notification of investment adviser representative status by the appropriate supervisory person of the firm
