Series 63 Part 2
Under the Uniform Securities Act, which of the following is a broker-dealer? A) Corporation that sells interests in an oil and gas limited partnership to investors with the proceeds going to the issuer B) Credit union that sells its own stock C) Agent D) Issuer
A) A broker-dealer is any person that buys or sells for the accounts of others or for his own account. In this case, an entity structured as a corporation is selling a security in the form of limited partnership units and is therefore a broker-dealer. A broker-dealer is not an issuer or an agent.
An agent has a conservative investor looking for income. The agent recommends a bond of a company the investor has never heard of. To allay the client's fear of loss, the agent states that the payment of interest and principal is guaranteed by a well-known blue chip company. Under the Uniform Securities Act, A) the agent is describing a guaranteed security B) the agent is possibly committing fraud C) a guaranteed security only guarantees payment of interest or dividends D) agents should always recommend securities that are familiar to the investor
A) A guaranteed security is one where the interest and principal (in the case of a bond) are guaranteed by a third party. If a guaranteed stock, it is the dividends that are the subject of the third-party guarantee. With tens of thousands of publicly traded securities, it is unlikely that your client will be familiar with most of them, but that doesn't prohibit the agent from making the recommendation if suitable.
A broker-dealer is running a sales contest offering a bonus to any agent who sells a specified amount of a money market mutual fund. An agent is only a few sales short of reaching the target. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, it would be prohibited for the agent to A) imply that the money market fund is similar to a savings account B) contact existing clients and suggest that they refer family members who might open accounts C) participate in this contest D) ask the members of his golf foursome to purchase fund shares to help him reach the goal
A) NASAA has a special Statement of Policy dealing with unethical business practices related to investment companies. One of the provisions considers it unethical is comparing money market mutual funds to savings accounts. The nature of money market funds is such that there generally would not be any suitability problems recommending friends or clients ask others to open an account with you.
Under the Uniform Securities Act, an individual representing an issuer in the sale of its securities to the general public is defined as an agent if the issuer is A) a trust company organized and supervised under the laws of any state B) an insurance company authorized to do business in the state
B) Explanation Agents represent broker-dealers or issuers. However, an individual representing an issuer in the sale of certain exempt securities or in an exempt transaction is not an agent. Even when authorized to do business in the state, an insurance company is not one of the exempt issuers qualifying for the exemption from agent's registration for those who selling the company's securities while representing the company. Banks and trust companies, yes, but not insurance companies. Please see the list in your LEM.
An agent has a good customer with a margin account who informs the agent that he is taking a business trip for a month and to handle the account. While the customer is gone, if the stock market goes down and the customer receives a margin call for $1,200, the agent should A) arrange a loan from a local bank to cover the margin call B) try to make contact with the customer and, failing that, inform his principal and do nothing until instructed C) pay the $1,200 on behalf of his customer and collect at a later date D) sell some securities in the account and use the proceeds to cover the margin call
B) If a margin account falls below the minimum maintenance amount required and the customer cannot be reached, the agent should inform his principal, who then determines which and how many securities must be sold to maintain the margin requirement as set by the appropriate regulatory agency. An agent may not contribute to a client's account or arrange a loan on behalf of a client. Without written discretionary authority, an agent may not sell securities in a client's account. AGENT may not do the selling. Must be the principal
An investment adviser is registered in New Jersey and has offices in Georgia and Arkansas. One of their IARs lives in Georgia and in addition to his local clients, has one client who lives in Arkansas. The IAR would be required to register in A) Georgia and New Jersey B) Georgia C) Georgia, Arkansas and New Jersey D) Georgia and Arkansas
B) NOT required to register in arkansas because it s a retail investor and there's only 1 of them. NOTE when it's an IA versus a BD
A new client is opening a margin account and notices the following wording in the documentation: "You are authorized to lend to yourself or others any securities held by you in my margin account and to carry all securities lent as general loans, and you shall have no obligation to retain under your possession and control a like amount of such securities". When the client asks you what this is about, you would respond that A) this is the credit agreement B) this is the loan consent agreement C) this is the hypothecation agreement D) if the client does not sign the document, the account cannot be opened
B) No broker-dealer shall lend securities that are held on margin for a customer and that are eligible to be pledged or loaned, unless the broker-dealer shall first have obtained a written authorization from such customer permitting the lending of such securities. That written authorization is known as the loan consent agreement and is the only one of the margin documents that is optional.
If required by the Administrator, a prospectus for securities registered by qualification must be given to each offeree A) prior to or concurrent with the filing of the registration statement B) only upon request of the offeree C) prior to the sale D) prior to or concurrent with the effective date
C) There is no prospectus prior to the filing. The USA specifically states that the Administrator may require delivery prior to the sale.
Under the Uniform Securities Act, an offer to sell would NOT include 1) stock acquired through a merger 2) the issuance of warrants or convertible securities 3) the issuance of stock rights to existing shareholders A) II and III B) I and III C) I only D) I, II, and III
C) An offer to sell is any activity in an effort to dispose of a security for value. The issuance of warrants or convertible securities to anyone or stock rights to existing shareholders is considered an offer to sell the underlying security because, unlike stock dividends, mergers, and bona fide loans, they involve the payment of money to acquire the stock, thereby making them an offer to sell.
The National Securities Markets Improvement Act of 1996 (NSMIA) A) created the concept of fraud, as used in the Uniform Securities Act B) overcame the restrictions of selling securities in interstate commerce C) defined the term "federal covered adviser" D) created a national market system
C) The NSMIA defined the term "federal covered adviser" (sometimes just shown as covered adviser on the exam), referring to advisers who must register with the SEC or who are excluded from the definition of investment adviser under the Investment Advisers Act of 1940. Fraud is a legal concept which is prohibited by the Uniform Securities Act. Selling securities in interstate commerce is not fraudulent provided the antifraud provisions securities laws are observed. The roots of a national market system began with the Securities Amendments Act of 1975.
Under the Uniform Securities Act, which of the following is NOT a requirement for a preorganization subscription to be an exempt transaction? A) The offer of the security may not be advertised. B) No commission may be paid to anyone for soliciting potential subscribers. C) There may be no more than ten subscribers. D) No payment may be made by any subscriber.
C) There are three requirements for a preorganization subscription to qualify as an exempt transaction. A preorganization subscription may be advertised.
SIPC offers protection for the net account value, up to the SIPC limits, in the event of a broker-dealer's insolvency
SIPC is the member owned insurance company that provides protection to clients in the event of a broker-dealer bankruptcy. The clients are entitled to receive the market value of their securities, less any indebtedness, plus any cash in their accounts up to a specified limit, currently $500,000. SIPC does not protect against losses in the market.
The Administrator may, by rule or by order, prescribe the filing of financial reports by which of the following persons registered in his state? 1) Agents 2) Broker-dealers 3) Investment Advisers
Zack Hope you've been well since speaking. Wanted to update you I moved from SF to Chicago! Finishing training in NY now before joining JPM on Dearborn/Madison. Have always been interested in the work you're doing in Education. Hope to catch you these coming few months in Chicago. Evan
Under the Uniform Securities Act, the Administrator may designate another officer to A) issue a cease and desist order B) set recordkeeping requirements C) serve subpoenas D) grant registration exemptions
C) An official designated by the Administrator may serve subpoenas since that is basically an administrative function: however, an Administrator may not designate another official to grant registration exemptions or issue cease and desist orders. The recordkeeping requirements are set by law and cannot be altered by the Administrator.
Under the Uniform Securities Act, which of the following statements are TRUE about the authority of an Administrator? 1) A cease and desist order may be issued prior to a hearing. 2) A cease and desist order may be issued after a hearing. 3) A cease and desist order is valid for a maximum of 30 days. 4) A cease and desist order may be used to suspend the offering of a security. A) II and IV B) I only C) I, II and III D) I and II
D) In issuing a cease and desist order, the Administrator may provide prior notice and hearing or may issue the order without prior notice or hearing (summarily). There is no time period associated with the order. AFTER is okay too!! Cease and desist orders are directed against persons; it is stop orders that are directed against securities.
Covered account does not apply to institutional customers, such as banks, pension funds, and investment companies.
For purposes of safeguarding customer information, which of the following would be considered a covered account? A) An account in the name of the State of X employee pension fund B) A margin account in the name of the Interglobal Hedge Fund C) An account in the name of the Wells Morgan Bank D) A margin account in the name of MaryBeth Simmons D
A Canadian broker-dealer is registered in the Province of Alberta. The firm has clients who vacation in Arizona, New Mexico and Texas and they would like to continue to do business with them while on their holidays. Under the Uniform Securities Act, A) this is permissible if the broker-dealer is properly registered in Alberta, deals only with existing clients, and registers in each of the states B) the broker-dealer may only accept unsolicited orders from their existing clients while they are vacationing in the U.S
A) The Uniform Securities Act provides for a type of limited registration for Canadian broker-dealers and their agents. They must be properly registered in their home Canadian province, file a consent to service of process, and file the appropriate application form.
The First Fidelity Building and Loan association, organized in State A and authorized to do business in State B, has an offering of common stock being made in State B. In order for an individual selling the offering to be excluded from the definition of agent in State B, the individual A) would have to be employed by a broker-dealer registered in State B B) could not sell without being registered as an agent in State B C) would have to be employed by First Fidelity D) would have to be employed by a broker-dealer registered in State A
Although securities issued by a building and loan association are included in the Uniform Securities Act's list of exempt securities, they are not included in the group of exempt securities where employees selling on behalf of the issuer are excluded from the definition of agent. Please see your LEM for the 5 categories of exempt securities that qualify for that exclusion.
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.
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 A) considered a fraudulent act
Which of the following statements regarding unsolicited, nonissuer transactions is TRUE? A) An agent may only accept unsolicited orders with prior approval of a principal. B) An Administrator may require representatives to obtain customer signatures acknowledging that orders were unsolicited.
B) Administrators are authorized by the USA to require agents to obtain written client acknowledgment of unsolicited transactions. An agent may accept unsolicited orders in secondary transactions in either exempt or nonexempt securities. An agent may accept unsolicited orders without prior approval of a principal; approval is necessary after the trade.
KNOW THIS ONE!!! Consent of the client before completion of a trade made between the firm and a client must be made when A) a broker-dealer will be acting in the capacity of a principal B) an investment adviser will be acting in the capacity of a principal C) a broker-dealer will be acting as a contra-party to the trade D) a broker-dealer will be acting in the capacity of an agent
B) 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. IMPORTANT
Which of the following statements regarding Form ADV Part 2 is TRUE? A) It must always accompany the investment adviser's brochure. B) It must be delivered no later than 48 hours prior to entering into an investment advisory contract. C) Unless there are no material changes, it must be delivered to clients annually. D) It must be delivered no later than receipt of the client's funds.
C) Unless there have been no material changes, a copy of the adviser's brochure or brochure supplement must be delivered to all current clients within 120 days of the end of the adviser's fiscal year. If it is not delivered 48 hours in advance of the initial contract, the client has a 5-day penalty-free termination clause. It does not accompany the brochure-it is the brochure.
Which of the following would be least likely to meet the cyber security definition of a covered account? A) A business account held by a company listed on the NYSE B) A customer with an automobile loan at a bank C) A customer with a margin account at a broker-dealer D) An account with a registered investment company that permits the owner to wire funds to a third party
D) In general, business accounts are not included in the term covered account. There could be an exception for a sole proprietorship or other small business where there is a reasonably foreseeable risk to customers due to the inability of the customer to provide adequate internal safeguards. That is unlikely to be the case with a listed company.
A transactional exemption would be available when a sale is made in all of the following situations EXCEPT A) by a federal marshal to individual investors B) to a broker-dealer by a non-affiliated broker-dealer C) to a federally chartered credit union D) to a lawyer as an incidental part of his legal practice
D) Unless we are told the order was unsolicited or effected in some other way to qualify for an exemption, a sale to a lawyer is treated like any other sale to a retail client. Don't confuse this with the lawyer's exclusion from the definition of an investment adviser. Under the USA, any sale made by a marshal or sheriff, as well as a sale to a financial institution, such as a credit union, is considered an exempt transaction. Transactions between broker-dealers are included in the list of exempt transactions.
Which of the following practices is considered unlawful under the Uniform Securities Act? A) An individual, with no place of business in the state, claiming to be registered and authorized to solicit business in the state in which the prospective client resides B) An agent accepting indications of interest in securities that are in the process of registering with the SEC C) An agent soliciting orders from retail clients for unregistered, nonexempt securities D) A broker-dealer maintaining its records electronically
Unless the transaction is exempt (generally with an institution or unsolicited from retail clients), it is unlawful under the USA for an agent to solicit orders for securities that must be registered (nonexempt) unless those securities are registered. An individual may claim that he is registered to conduct business in a state, if that is true (it is not necessary to have a place of business in a state in order to be registered there). Records may be kept electronically (most are today). An agent may accept indications of interest for securities during the registration process. The red herring prospectus is used during this period and neither offers to sell nor orders to buy may be accepted prior to the effective date.
Not prohibited a) Allowing the customer to place an order to sell 100 shares of ABC in the client's discretionary account b) Buying a security on behalf of a customer and then reselling it before the customer has paid for it c) Buying a security on one exchange and simultaneously selling it on another to take advantage of a price disparity Prohibited Prohibited a) Purchasing a security in a discretionary account while awaiting written receipt of trading authority
Written receipt of trading authority is required before conducting any trade on a discretionary basis. Oral authorization is not sufficient; it must be in writing. It is not a prohibited practice to sell a security before the customer has paid for it (day trading), and arbitrage (buying securities on one exchange and selling them on another to take advantage of temporary price differences) is also an acceptable practice. Although the agent may have trading authority in a discretionary account, nothing prohibits the client from making his own trades.
A sales agent who is only registered in Nebraska works for a broker-dealer that is registered in all 50 states. A customer who is a resident of North Dakota calls the representative in Nebraska and offers to purchase securities. Under the Uniform Securities Act, the agent should A) accept the order because it is unsolicited B) accept the order because her broker-dealer is registered in all 50 states C) accept the order because she received it in Nebraska D) reject the order because she is not registered in North Dakota
d) Both the broker-dealer and the agent must be registered in each state where they plan to do business. Although the broker-dealer is properly registered, in order for the agent to accept the order, she must be registered in North Dakota. Even though the order is unsolicited, making this an exempt transaction, agents must still be licensed in the state where the client is a resident.
Securities issued by which of the following are exempt from registration? 1) Any savings and loan association organized under the laws of any state 2) Any bank organized and supervised under the laws of any state 3) Any bank organized under the laws of the United States 4) Any federal credit union
savings and loan associations organized under state laws are only exempt if the S&L is authorized to do business in this state. 2, 3, 4
An agent is registered in Illinois and Ohio. One of her substantial clients has just moved from Ohio to Arizona, and the agent would like to continue to do business with her. Under the Uniform Securities Act, which of the following statements is TRUE? 1) The agent's broker-dealer must already be registered in Arizona or complete the Arizona registration process within a time period specified by the act. 2) The agent must complete the Arizona registration process within a time period specified by the ac
An investment company registered under the Investment Company Act of 1940 is one of the securities defined as federal covered under the NSMIA of 1996. Futures contracts, such as precious metals, collectibles, and real estate, may be used as investment vehicles but are generally not considered to be securities, so they could not be federal covered securities. Securities issued by a foreign government and municipal securities within the issuer's home state are not federal covered securities.
Which of the following securities are exempt from registration at the state level? Bonds issued by the American Red Cross United States Treasury bonds American Advisers Unit Investment Trust Common Stock in AAA Commercial Bank, member of the FDIC A) II and III B) I and II C) I, II, III, and IV D) I, II, and III
C) Securities offered by nonprofit organizations, the United States government, or investment companies registered under the Investment Company Act of 1940, as well as securities issued by commercial banks are exempt from registration with the states under the Uniform Securities Act and the NSMIA.
Under the Uniform Securities Act, the Administrator is empowered to do all of the following EXCEPT A) require an agent to submit a written statement relating to an investigation B) issue a cease and desist order C) publish information relating to violations committed in the state NOT DO: D) file a civil suit against a broker-dealer who has sold an unregistered non-exempt security to a resident of this state
If you follow our exam-tips blog, you know that we have a poor opinion of some of NASAA's questions. This is a prime example. Nowhere in the Uniform Securities Act does it specifically state that the Administrator may initiate a civil action. However, if you check the court dockets of many states, you will see that, in fact, a number of civil cases have been brought by the Administrator. When you have a question like this, you get it right by knowing that, without question, the Administrator is empowered to perform the other listed actions.
In order for a surety bond to meet the requirements of the Uniform Securities Act, it must provide that A) any customer who can prove a violation is entitled to collect against the bond
Under the USA, every bond shall provide for suit thereon by any person who has a cause of action under the provisions of the Act. The Administrator must accept cash or securities in lieu of the surety bond, BUTT cash is not a requirement - the bond will do just fine.
investment adviser representatives are ALLOWED to recommend EXCLUSIVELY proprietary products They are prohibited from charging a fee for investment advice and then earning commissions on recommended trades without disclosing the nature of the dual relationship
When acting as a representative of an investment adviser as well as a broker-dealer, the relationship must be disclosed. IARs are permitted to recommend proprietary products only but must make disclosure of that fact. There is nothing to prohibit an investment adviser representative from telling clients what securities the IAR is or is not buying, as long as the IAR is not divulging material non-public (inside) information. The only time IARs are required to disclose their personal trading activity is when it is inconsistent with that recommended to clients. This could occur, for example, when the IAR is recommending clients buy a particular stock at the same time he has just sold his personal holdings in it.
A registered investment adviser advertises that it is offering a free 6-month subscription to their advisory newsletter. Which of the following qualifiers is acceptable under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers? A) Your free subscription will start upon receipt of your completed financial profile. B) Your free subscription will start once we have received your name and mailing or email address. C) Your free subscription will start after your 3rd trade with our affiliated broker-dealer. D) Your free subscription will start once you have furnished us with the names and addresses of three of your friends.
B) A free offer must not only be free of financial cost, it must be free of any other burden or commitment.
Under the Uniform Securities Act, as a result of a hearing, the disciplinary actions that may be taken by the Administrator include which of the following? 1) Permanent revocation of a registration 2) Bar from employment with any registrant 3) Restriction on a registrant's performance of any activity in the advisory or brokerage business A) I and II B) II and III C) I and III D) I, II, and III
1, 2, 3 Permanent!! even after 10 years
According to the Uniform Securities Act, to determine whether an investment adviser is trading excessively in a customer's account, regulators primarily examine whether the A) transactions matched the investor's objectives B) investment adviser acted as a principal or an agent C) investment adviser received compensation for the trades D) customer approved the transactions in writing
A) Trading in a customer's account must not be excessive in terms of size or frequency with respect to the customer's investment objectives and financial ability. For example, if the client's objective was speculative trading, a higher than normal volume would be expected. It could also be important to know whether the investment adviser was receiving trade-based compensation (which could be the reason for the possible churning), but that would be secondary to customer objectives.
A potential client is not very forthcoming with financial information, objectives and goals. In order to be able to make suitable recommendations to a client, A) you would make reasonable inquiry about the client's financial situation, objectives and needs B) you are limited to use only the documents provided by the client C) you should refuse to open the account D) you would probably run a credit check on the client
A) Under the suitability requirements of the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, you must make reasonable inquiry into a client's objectives, financial status and needs prior to making any recommendations. Of course, if the client is not forthcoming with this information, all you can do is accept unsolicited orders. One important point missing from this question is that we must assume this is the client of an agent. If the question told us it was an IA or IAR, then they would have to refuse the account. Why? Because the IA is paid for advice and you can't possibly give advice if you don't have the information that is being withheld here.
Disclosure to the client of a potential conflict of interest is required when an investment adviser representative, in preparing a recommendation, uses research provided by the broker-dealer with whom the IAR is affiliated an investment adviser representative intends to sell the client the insurance policy he recommended for his financial plan and receive a commission for doing so transactions recommended to the client are not the same as those for other clients with similar objectives recommending a new issue where the major stockholder is the investment adviser's brother A) I and III B) II and IV C) I, II, III, and IV D) I, II, and III
B) An investment adviser representative must provide full disclosure to his client if there would be even a hint of conflict of interest. This will include the case where a recommended product will generate a commission or other source of income to the IAR, as well as full disclosure if a recommendation of security where a family member is involved. The IAR can use any source of information to create his own analysis, and disclosure of that source is required only if the IAR uses the product of a third party as the presentation to the client. Even though 2 clients may have similar objectives, there are many factors that would dictate different investment styles, such as age, risk tolerance, and current financial situation.
According to the NASAA investor advisory regarding fees charged by broker-dealer firms for services and maintenance of investment accounts, A) as long as the schedule is available in electronic form, it is not necessary to provide a paper version to retail customers B) the schedule should be made available on the broker-dealer's public website without requiring any login or password
B) Transparency requires that obtaining the fee schedule should be a simple process for retail customers and prospects. That means access without logging in to the broker-dealer's website or needing a password. Paper copies should always be available and cyber security is not a threat because there is no confidential information included.
Certain securities transactions are considered exempt from the registration and advertising filing requirements of the Uniform Securities Act. Included in that group would be all of the following EXCEPT A) a purchase of stock by an underwriter from the issuer in a firm commitment underwriting B) a sale of stock to a pension trust with assets of $3 million C) sale of a security limited in its offering to no more than 10 retail investors in any calendar year D) an offer of preorganization certificates made to 25 persons with 8 of them subscribing, but making no payment
C) 12 month period!! Not calendar year
An agent submits a list of recommendations to a customer that includes 5 different securities. The customer chooses to buy a round lot of 1 of the 5 securities recommended (a stock in which the agent's broker-dealer makes a market). The firm, in completing the trade, charges a markup that is larger than normal for a stock transaction. Is this allowable under the Uniform Securities Act? A) Yes, it is allowable, but proper disclosure is required. B) No, the markup schedule is set and cannot be changed for an individual trade. C) No, under the circumstances given, it is a prohibited practice to charge a higher than normal markup. D) Yes, markup schedules are dependent upon the type of security, broker-dealer risk, services that the broker-dealer provides, and effort in acquiring the security.
C) Higher than average markups or commissions are not prohibited if they are justifiable and disclosed. However, in this case, there would appear to be no justification because the customer bought a round lot, the normal trading unit of stock. The firm is a market maker, so the security is being sold from their inventory and the stock is on the company's recommended list.
An investment adviser has its home office in State C. Their only business is with registered investment companies, large employee benefit plans, and broker-dealers. They have no place of business in State D, but provide investment advice to several registered investment companies in that state. State D has recently adopted the Uniform Securities Act and the Administrator feels that the IA should be required to register there. Under the USA A) this firm would be exempt from registration with the State D Administrator since it is doing business in more than one state B) the Administrator is correct, the firm must register C) as long as the IA does not have an office in State D, there are no conditions that would mandate registration there D) the firm does not have to register because they have no place of business in the state and their only clients in that state are registered investment companies
D) the firm does not have to register because they have no place of business in the state and their only clients in that state are registered investment companies As a federal covered adviser (they have investment companies as clients), they would not have to register with the state, other than perhaps do a notice filing. However, with no office in the state, even that would not be required.
Bryan, an agent registered with a broker-dealer, buys 1,000 shares of XYZ Corp. in his own account. In recommending XYZ Corp. to his customers, Bryan informs them that he believes in the company so much that he put his own money in the stock. This practice is A) only problematic if Bryan sells his shares after informing the other investors B) only problematic if investors lose money in the investment C) an illegitimate sales tactic D) not an unethical sales practice
D) It would be expected that when Bryan decides to sell his position, he would not do so prior to notifying his clients with a position in that stock. Otherwise, this would be an ethical problem.
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? The private placement exemption places a limit on the number of sales to retail investors while the preorganization certificate places a limit on the number of offers to all investors. 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. Commissions may be paid on the sale of a private placement to noninstitutional clients, while no remuneration is payable on the sale of a preorganization subscription. A) I and III B) I and IV C) II and IV D) II and III
D) No money changes hands in the sale of a preorganization certificate or subscription, while the seller receives payment in the case of a private placement. The state will consider a private placement an exempt transaction if it is anticipated that individual (noninstitutional) investors are purchasing for investment only, not immediate resale. No holding period restrictions are placed on preorganization certificates. Only in the case of a sale of a private placement to an institutional client is it permissible to pay commissions. Finally, choice I has it backwards. When referring to retail (noninstitutional) investors, there is a limit to the number of offers (10), while in the preorganization certificate, the number of sales (subscribers) is limited to 10 regardless of whether they are retail or institutional.
State laws provide for exclusions from the definition of investment adviser. Which of the following persons is specifically excluded under the Uniform Securities Act? A) A wholly owned subsidiary of a commercial bank that is in the business of offering investment advice B) Broker-dealers receiving special compensation C) Economists whose advice is strictly incidental to their professional activity D) Investment adviser representatives
D) The USA specifically excludes IARs from its definition of investment adviser. Excluded are banks but not subsidiaries offering investment advice. Once broker-dealers receive special compensation, such as in a wrap fee program, they lose their exclusion. Economists are not included in the list of exclusions.
Agent A with Firm Y and Agent B with Firm Z conduct a joint seminar. They agree to share the commissions on any resulting business. Under the Uniform Securities Act, which of the following statements regarding sharing commissions is CORRECT? A) Sharing commissions that are a result of a joint seminar is never permitted. B) Only an agent who makes a sale is eligible to earn a commission. C) In this instance, sharing of commissions could only be done with the approval of both firms. D) Sharing of commissions by agents of two unrelated firms is prohibited
D) Unless an exception is granted by the Administrator, it is prohibited for an agent to share commissions with any person not also registered as an agent for the same or affiliated broker-dealer.
Sharon Smith is an agent for Highwater Securities, a broker-dealer registered in all 50 states. Sharon receives an unsolicited order from a bank located in State X, a state in which she has no place of business. Under the Uniform Securities Act, A) because Sharon has no place of business in State X and the client is an institution, Sharon may accept the order without registering in State X B) Sharon must be registered in State X in order to accept the order C) because Sharon has no place of business in State X and the order is unsolicited, Sharon may accept the order without registering in State X D) because Highwater Securities is registered in all 50 states, Sharon must also be registered in all of them
Regardless of whether the security is exempt or the transaction is exempt, one must be licensed in any state which is the domicile of a client placing an order. One does not have to be registered as an agent in every state the BD is, only in those where she expects clients to reside.
An individual employed by a federal covered adviser would be required to become registered as an IAR in the state if A) the only clients receiving the individual's advice are banks located in states where the individual does not maintain a place of business B) the only function performed by the individual is preparing the layout of a research report prepared by the firm C) the only clients receiving the individual's advice are large pension plans organized for employees of municipalities located in the state where that individual maintains an office D) the only clients receiving the individual's advice are insurance companies located in states where the individual does not maintain a place of business
d) Individuals performing the duties of an IAR for a federal covered investment adviser are only required to register in states in which they maintain a place of business. Although pension plans (as long as the total assets of the plan are at least $1 million) are considered institutional investors for exemption purposes, that exemption only applies when the individual has no place of business in the state.
