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If an investment adviser buys out another investment advisory firm, which statement is TRUE about filing fees paid to the State? A) Two additional separate filing fees must be paid for each of the advisory firms B) A new filing fee covering the entire year must be paid for the combined advisory firm C) An additional pro-rata filing fee covering the balance of the year for the combined advisory firm must be paid D) No additional filing fee is required

If an investment adviser "buys out" another advisory firm, then the firm that is "bought out" ceases to exist; and the accounts of the firm that is "bought out" become part of the existing acquiring advisory firm. No additional filing fee must be paid by the acquiring advisory firm, since a new firm is not being created. As an additional note, if a new "successor" firm were created from the merger of 2 firms, the State Administrator will allow the successor firm to complete the predecessor firm's filing year, so no additional fee would be required either.

Under the Uniform Securities Act, which persons are EXCLUDED from the definition of an investment adviser? A person who gives advice about: I U.S. Government bonds II Agency bonds III Municipal bonds IV Corporate bonds A) I and II only B) III and IV only C) I, II, III D) I, II, III, IV

The best answer is A. A person who gives investment advice relating solely to U.S. Government securities (including Agency securities), is excluded from Federal registration under the Investment Advisers Act of 1940. Any person excluded from registration with the SEC under the Investment Advisers Act of 1940 is a "federal covered adviser" and cannot be required to register in the State.

Which of the following individuals would be defined as an agent under the Uniform Securities Act? I An insurance salesperson who sells variable annuities to customers II A sales assistant at a broker-dealer who only accepts unsolicited orders III A salaried employee of an issuer that handles the sale of the issuer's securities to its employees through the issuer's ESOPIV A Chief Financial Officer of the issuer that negotiates with an investment banker to set the terms of an additional share offering A I and II only B III and IV only C II and IV only D I, II, III, IV

The best answer is A. An "agent" is an individual (not a "person" as defined by the Uniform Securities Act) who represents a broker-dealer or issuer in effecting securities transactions. An insurance sales person who sells variable annuities is an agent because variable annuities are defined as a security. A sales assistant at a broker-dealer who only accepts unsolicited orders is also an "agent," since the definition does not distinguish between solicited or unsolicited transactions. Employees of issuers who deal only with the issuer's employees in sales of that issuer's securities are exempt as long as no special remuneration is paid to the employee. This employee is salaried and is handling the sale of the issuer's securities to its employees in its ESOP - Employee Stock Option Plan - so it meets the exemption. Finally, an officer of the broker-dealer is only considered to be an "agent" if he or she is representing the issuer in effecting securities transactions. The CFO negotiating the terms of a proposed underwriting with an investment banker is not effecting a securities transaction (however, the underwriter's employees that will sell the issue to the public are defined as "agents.")

Under Uniform State Law, as adopted in most states, an agent may be affiliated with more than one broker-dealer at the same time: A) if both broker-dealers are under common control B) if each broker-dealer has consented to the arrangement in writing C) if the Administrator consents to the arrangement in writing D) under no circumstances

The best answer is A. As a general rule, an agent cannot be affiliated with more than 1 broker-dealer at the same time (though a few States do permit so-called "dual registration"). However, it is permitted for an agent to be affiliated with more than 1 broker-dealer when both broker-dealers are under "common control." For example, an insurance company may have a mutual fund broker-dealer and a separate general securities broker-dealer. An agent of the insurance company could be affiliated with both broker-dealers without violating the Act.

A broker-dealer located in State A makes an offer of securities to a customer whose principal residence is in State B. The customer has temporarily moved to State C and has asked the post office in State B to forward the mail to the customer's address in State C. Which State Administrator(s) has (have) jurisdiction over the offer? I State A II State B III State C A) I only B) I and II only C) I and III only D) II and III only

The best answer is A. Because the broker-dealer is located in State A, that State Administrator has jurisdiction. Normally, if an offer is received in a State (B in this case), then State B's Administrator would have jurisdiction. But the offer was never received in State B because it was forwarded by the post office on to State C. Thus, an offer was never made in State B and that State Administrator does not have jurisdiction. One would think that because the offer was ultimately received in State C, that it would have jurisdiction, but this is not the case either. In this situation, the Uniform Securities Act makes an exception. The issue here is that the broker-dealer had no idea that the mail was forwarded to State C and should not be subject to the law of State C on this offer. The intent is to make sure that an innocent broker-dealer is not "entrapped" by a State and made subject to that State's law when an offer of securities is forwarded into that State by a third party without the broker-dealer's knowledge.

All of the following are EXCLUDED from the definition of a broker-dealer under the Uniform Securities Act EXCEPT a firm with no place of business in the State that: A has a few clients in the State with a de minimis exemption B deals exclusively with issuers of securities C deals exclusively with other broker-dealers D deals exclusively with insurance companies

The best answer is A. Excluded from the definition of a broker-dealer under Uniform State Law are persons with no place of business in the State that effect transactions exclusively with issuers; other broker-dealers; depository institutions; insurance companies; investment companies; and pension trusts. These persons are not dealing with the general public. Note that if the broker-dealer has an office in the State and deals with any of these persons - it would be required to register in that State. Now for the picky part! The "de minimis" exemption for broker-dealers is only offered in a minority of States, and typically applies to out-of-state broker-dealers who only have 3 or fewer clients in that State. Thus. Choice A qualifies for the exemption and does not have to register because it is exempt from registration (as opposed to being excluded from the definition and therefore not being required to register). Thus, Choice A is defined as a broker-dealer, but it is one that is exempt from registration in that State. Yes, this must be known for the exam.

If an individual works for either a broker-dealer or an issuer and sells securities of that issuer earning a commission, that individual is defined as a(n): A) agent B) broker-dealer C) issuer D) Administrator

The best answer is A. If an individual works for either a broker-dealer or an issuer and sells securities of that issuer and receives a commission, that individual is defined as an agent under the Act. An individual is excluded from the definition of an agent of an issuer only if that person effects transactions with existing employees or officers of the issuer and no commissions are paid; or that individual effects an exempt transaction.

Which Act can be used to coordinate a securities registration filing under the provisions of the Uniform Securities Act? A) Securities Act of 1933 B) Securities Exchange Act of 1934 C) Investment Company Act of 1940 D) Investment Advisers Act of 1940

The best answer is A. If an issuer is registering securities with the SEC under the Securities Act of 1933, the Uniform Securities Act permits so-called "registration by coordination" where the Federal SEC registration filing is used as the registration document in the State. When the SEC registration becomes effective, the State registration is automatically effective as well (as long as the required State filing fees have been paid).

Under the provisions of the Uniform Securities Act, if an investment adviser wishes to take custody of client funds, the RIA must: A) take out a surety bond B) have a minimum net worth of $2 million C) also be registered as a broker-dealer D) file a consent to service of process

The best answer is A. Under State law, if an investment adviser will not take custody of a client's funds, there is no surety bond requirement. However, if the adviser will take custody, it must have a minimum net worth or minimum surety bond coverage of $35,000.

Which of the following statements are TRUE about an offer of rescission? I The offer can only be made prior to the institution of a lawsuit alleging a securities violation II The offer can only be made after the institution of a lawsuit alleging a securities violation III An offer must be made to buy back the security at the original purchase price and the customer must be paid interest at the legal rate in the State, less any dividend or interest income received from that security IV An offer must be made to buy back the security at the current market price and the customer must be paid interest at the legal rate in the State, less any dividend or interest income received from that security A) I and III B) I and IV C) II and III D) II and IV

The best answer is A. If an offer of rescission is made on the inadvertent sale of a non-exempt security that should have been registered under the Act, the offer can only be made prior to the institution of a lawsuit alleging a securities violation. An offer must be made to buy back the security at the original purchase price, plus the customer must be paid interest at the legal rate in the State (6%), less any dividend or interest income received from that security. Any offer of rescission must be accepted within 30 days of the offer.

Under NASAA recordkeeping rules for investment advisers, a communication to a client must be retained if it is circulated to MORE than: A 1 person B 5 persons C 10 persons D 35 persons

The best answer is A. NASAA does not set recordkeeping rules for broker-dealers and for federal covered advisers, because these are set under federal law. NASAA does set recordkeeping rules for state-registered advisers. Under the NASAA model rule, advertisements, circulars, bulletins or other communications circulated by the adviser to 2 or more persons must be retained for 5 years.

An Investment Adviser has adopted an internal Business Succession Plan. Who is responsible for servicing the IA's client accounts if the managing director of the Investment Adviser suddenly dies? A) Another Investment Adviser Representative currently in the firm B) Another Investment Advisory Firm to which investment management has been transferred C) The custodian bank that holds client funds and securities positions D) An immediate family member of the deceased managing director

The best answer is A. NASAA has a model rule on "Business Continuity and Succession Planning" for Investment Advisors. The rule requires IAs to draft a plan for the actions to be taken in the event of an unexpected major negative event occurring at the IA firm. One of the issues that must be addressed in the plan is the death or disability of key personnel. To continue servicing client accounts in such an instance, the IA can adopt either an "internal" or "external" Succession Plan. In an "internal plan," the Adviser transfers the advisory responsibilities to another IAR currently in the firm. With an "external" Succession Plan, the Adviser transfers client management to another firm.

Under the Uniform Securities Act, all of the following statements about penalties are true EXCEPT: A) Criminal liability may be offset by rescission B) Civil liability may be offset by rescission C) the statute of limitations on criminal actions is 5 years D) the statute of limitations on civil actions is 3 years

The best answer is A. Only civil liability can be offset by rescission. Criminal liability cannot be offset by rescission. The statute of limitations on civil cases is 3 years (but no later than 2 years after discovery); for criminal cases it is 5 years.

Which statements are TRUE regarding the post-registration requirements of the Uniform Securities Act? I Broker-dealers are subject to post-registration requirements II Broker-dealers are not subject to post-registration requirements III Investment advisers are subject to post-registration requirements IV Investment advisers are not subject to post-registration requirements A I and III B I and IV C II and III D II and IV

The best answer is A. Post-registration requirements cover such things as maintaining books and records; making required filings with the Administrator; giving reports to customers; and filing advertising and sales literature with the State. These are requirements for both broker-dealers and investment advisers. This portion of the Uniform Securities Act does not apply to their agents, however.

A registered securities agent solicits a customer to buy mutual fund shares. The customer buys 200 shares, sending a check made out to the fund's custodian bank to the agent. The agent does not record the trade on the books of the broker-dealer. Under the Uniform Securities Act, this action is: A) a prohibited business practice B) allowed, since the transaction is recorded on the books of the mutual fund C) allowed, since mutual funds are exempt from the requirement to record all transactions on the books of the broker-dealer D) allowed as long as no commission is taken on the trade

The best answer is A. Private securities transactions are a prohibited business practice under the Act. All trades effected by an agent must be recorded on the books of the broker-dealer.

An investment adviser has been formed and the firm and its representatives file their first registration with the State on April 30th. On May 1st of the following year, the firm files renewal registrations for itself and its representatives. Which statement is TRUE under the Uniform Securities Act? A) Both the investment adviser's registration and the investment adviser representatives' registrations are out of compliance B) Both the investment adviser's registration and the investment adviser representatives' registrations are in compliance C) The investment adviser's registration is in compliance but the investment adviser representatives' registrations are out of compliance D) The investment adviser's registration is out of compliance but the investment adviser representatives' registrations are in compliance

The best answer is A. Registration of broker-dealers, investment advisers, and their agents expires on December 31st of each year. This way, the States know that they will be getting those annual registration renewal checks at year end, year after year after year!! If the renewal check is not received by December 31st, registration lapses.

The State Administrator is supervised by: A Secretary of State B Governor of the State C NSMIA D NASAA

The best answer is A. The State Administrator is part of the Secretary of State's office in the majority of States. Also note in some States, the State Administrator is part of the Attorney General's office, or the State Department of Corporations, Commerce, Business Services, or the State Securities Commission, none of which are offered as choices.

The person named as the executor over an estate would be found in the: A) affidavit of domicile B) letters testamentary C) proof of domicile D) certificate of incumbency

The best answer is B. Letters testamentary is the legal term for the will (as in "last will and testament"). The name of the executor chosen by the person who is now deceased would be found in the will.

If an adviser's registration filing is made electronically with the State, the requirement to affix a signature to an application is met by the applicant: A) typing his or her name in the appropriate fields and submitting the filing electronically to IARD B) signing a separate written document in the presence of a notary public, evidenced by the notary's seal C) faxing an application that has been signed by the applicant in ink, with the same return fax phone number as that given on the application D) validating his or her identity by telephoning the State Securities Administrator's office and answering questions correctly

The best answer is A. The States are attempting to streamline the registration process by requiring electronic registration filing and payment of fees. They don't want any more paper! Paper forms are only accepted for reasons of "hardship." Typing of one's name into the required field on the electronic form constitutes a proper filing. The electronic database for investment adviser filing at the State level is "IARD" - Investment Adviser Registration Depository.

Who is responsible for filing a U-5 Form with IARD when an investment adviser representative is terminated and associates with another advisory firm? A) The investment adviser that is the former employer is responsible B) The investment adviser that is the new employer is responsible C) The Investment adviser representative is responsible D) No one is responsible for notifying IARD when the investment adviser representative is terminated

The best answer is A. The U-5 is a securities industry termination form that is filed by the former employer, terminating that individual's registration. If that individual associates with another advisory firm, the new employer reactivates that person's registration by filing a U-4 with IARD. The employee does not notify in this case because he or she does not have direct access to the CRD or IARD database. The Form U-5 is filed by the former employer on the terminated employee's behalf.

On January 2nd, an issuer files a registration statement with the State Administrator for a new issue of common stock. 14 months later, the offering has not been completed and the issuer wishes to continue selling the securities until all of the common shares have been placed with the public. Which statement is TRUE? A) The issuer can continue to sell the shares because the registration expires only when the sale is complete B) The issuer cannot continue the sale of the issue because each securities registration automatically expires after 180 days C) The issuer cannot continue the sale of the issue because each securities registration automatically expires after 12 months D) The issuer can continue to sell the shares because each securities registration never expires

The best answer is A. The basic rule for registration statements filed with the Administrator for securities offerings is that they are good for 12 months. However, if the offering takes longer than 12 months, the registration is still good until the sale is complete. The exact wording of the Uniform Securities Act is: "Every registration statement is effective for one year from its effective date, or any longer period during which the security is being offered or distributed in a non-exempted transaction by or for the account of the issuer or other person on whose behalf the offering is being made or by any underwriter or broker-dealer who is still offering part of an unsold allotment or subscription taken by him as a participant in the distribution, except during the time a stop order is in effect."

A broker-dealer offers 4 summer passes to an amusement park to each of its agents who sell at least $10,000 of bonds during the month of June. This action: A) is allowed B) is not allowed C) may trigger a "pay to play" disclosure to customers D) may trigger a "soft dollar" disclosure to customers

The best answer is A. There is no prohibition on a broker-dealer compensating its agents with prizes for meeting a sales contest requirement. The broker-dealer will have to report the compensation value as taxable income to the IRS, but this is not part of the question. "Pay to play" refers to the illegal investment adviser practice of "hiring" a third party solicitor (for "pay") who works for, or who has recently left, a government entity such as a government, state or municipal pension plan. For "pay," this person steers that pension plan's advisory business to the adviser (the "play" part of the term). Soft dollar compensation is where a broker-dealer offers "free" services to a mutual fund or investment adviser in return for "directed brokerage" (which is the mutual fund or investment adviser directing its portfolio trades at full commission rates to that broker-dealer). The SEC requires that mutual funds can only accept soft dollars if the services benefit all shareholders of the fund. The SEC requires that investment advisers that accept soft dollars disclose this on Form ADV and the disclosure must be specific.

An individual acts as a finder, facilitating mergers and acquisitions of companies that are both publicly and privately held. The individual searches for companies that appear to be compatible and that will either enjoy a revenue enhancement or cost reduction benefit from the transaction. The individual just introduces the parties to the proposed transaction, but has no involvement in the agreements or valuation. Upon the closing of the deal, the individual is paid a percentage of the transaction. Under NASAA rules, this individual A) needs to register as a broker-dealer in the State because he or she is receiving transaction based compensation B) needs to register as an investment adviser in the State because he or she is giving advice about investing in securities C) does not need to register as a broker-dealer in the State because the clients involved are institutional investors D) does not need to register as an investment adviser in the State because he or she has no involvement in the agreements or valuation

The best answer is A. This is a bit vague, but NASAA's (and the SEC's) stance on finders is that if they receive compensation that is "transaction based" - such as in this case because the finder will be paid a fee contingent on the closing of the deal - then the finder is a "statutory broker-dealer" that must be registered. This individual is not an investment adviser, because investment advisers do not earn transaction-based compensation. They earn an advisory fee, that is either a flat fee or a percentage fee - but they cannot earn a fee on each transaction (otherwise they become broker-dealers).

Under the Uniform Securities Act, the omission of material facts when offering or selling a security can result in: I Civil liability II Criminal liability III Criminal penalties A) I only B) II only C) II and III only D) I, II, III

The best answer is A. This is a subtle question. The omission of material facts when offering or selling a security results in Civil Liability under the Act. The willful omission of material facts can result in Criminal Liability and Criminal Penalties.

Under the Uniform Securities Act, if a broker-dealer receives an unsolicited customer order to buy a security for a customer, this is an: A) exempt transaction, whether the security involved is exempt or non-exempt B) exempt transaction only for transactions in exempt securities C) exempt transaction only for transactions in non-exempt securities D) exempt security

The best answer is A. Unsolicited customer orders are defined as an "exempt transaction" under the Act, whether the securities involved are exempt or non-exempt.

Under the Uniform Securities Act, securities that are sold through a private placement: A are unregistered B must be registered by filing in the State C must be registered by coordination in the State D must be registered by qualification in the State

The best answer is A. Securities sold through a private placement are unregistered; this is an exempt transaction. Under Uniform State Law, a private placement is defined as an offer to no more than 10 persons in a 12 month period.

Under the Uniform Securities Act, which of the following could NOT be considered to be a "broker-dealer"? A Credit union B Attorney C Investment adviser D Market maker

The best answer is A. The term "broker-dealer" is defined as a person who: Engages in the business of effecting securities transactions for the account of others Engages in the business of trading for his own account (known as "proprietary trading") Persons NOT considered to be "broker-dealers" include: Agents: These are individuals who represent the broker-dealer when performing securities transactions, basically sales representatives Banks, Savings Institutions, and Trust Companies: These firms are separately regulated under State and Federal banking laws. Issuers: (except when an issuer effects transactions other than with respect to its own securities). A credit union is a savings institution, so it is excluded from the definition and CANNOT be defined as a broker-dealer. This is the case because banks and savings institutions are already regulated by the State, so this avoids double regulation. On the other hand, an attorney or an investment adviser is not excluded from the definition and would be defined as a broker-dealer if that person were to offer securities in the State for compensation. Finally, a market maker is a dealer in the securities and clearly falls under the definition.

Under the Uniform Securities Act, "consent to service of process" means that the: A) Administrator is empowered to fine or penalize an agent or broker-dealer B) Administrator is authorized to receive suits on behalf of an agent or broker-dealer C) registrant is under the jurisdiction of the Administrator for up to 1 year after withdrawal from registration D) registrant cannot be compelled to give testimony in an investigation

The best answer is B. A "consent to service of process" in an initial registration application appoints the State Administrator as attorney for the registrant, authorizing the Administrator to receive any lawsuits on behalf of the registrant. If such occurs, then the Administrator will, in turn, notify the registrant that he or she (or "it" in the case of a corporation or partnership) is being sued.

A non-registered agent of a broker-dealer can sell: A warrants B certificates of deposit C real estate partnership units D fixed annuities

The best answer is B. A non-registered agent of a broker-dealer cannot sell securities, making both Choices A and C wrong. So we are down to whether a non-registered agent of a broker-dealer can sell a certificate of deposit or a fixed annuity. A certificate of deposit is a bank product, and because it has all of the protections of a bank product, there is no State registration required to sell it. Regarding a fixed annuity, this is an insurance product, so there is no registration required as an agent of a broker-dealer to sell it; however, a State insurance license is required. Since you only get to pick one, Choice B is better and unfortunately, this is very close to an exam-type question!

If a sole proprietor wishes to register with the State as an Investment Adviser, which of the following documents are required? I Financial statement of the sole proprietor II Income statement of the sole proprietor III An auditor's opinion that the document filed is true and current IV An affirmation made by the sole proprietor that the document filed is true and current A I and III B I and IV C II and III D II and IV

The best answer is B. A sole proprietorship is an unincorporated business that consists of 1 person. Sole proprietors can register in a State as a broker-dealer or as an investment adviser. Each applicant for initial registration that is a sole proprietor must file an original statement of financial condition (a balance sheet) with the Administrator, along with an oath or affirmation made by the sole proprietor that the financial statement is true and current. Note that there is no requirement for an income statement or for audited financial statements of the sole proprietor.

A person who renders advice on variable annuities for a fee; and who then sells the annuities, charging a commission, MUST: I register as an investment adviser in that State II register as a broker-dealer in that State III register as an agent in that State A I only B I and II C I and III D None of the above

The best answer is B. A variable annuity is defined as a non-exempt security under the Uniform Securities Act. If advice is rendered for a fee about variable annuities, then registration as an investment adviser would be required. If a variable annuity is sold for a commission, then the firm must register as a broker-dealer as well.

A Registered Investment Adviser is also a registered representative that manages a client's account. The customer is paying a fixed annual advisory fee and is paying a commission for each execution of a recommended trade, both of which have been disclosed to the customer. Which statements are TRUE? I The account may be charged both the advisory fee and a commission on each trade II The account may not be charged an advisory fee and a commission on each trade III This is an unethical practice IV This is not an unethical practice A I and III B I and IV C II and III D II and IV

The best answer is B. An investment adviser can charge advisory fees to a client for recommending securities; and then can charge commissions to that client on trades performed, as long as both of these fees are disclosed to the customer. The overriding theme here is that all charges to customers must be disclosed. Note that 2 fees are permitted because the firm is acting in 2 capacities - for recommendations it is acting as an adviser; while for trade executions it is acting as a broker. Also note that if disclosure was not made of the 2 fees and "double capacity," then this would be an unethical practice.

Under the Uniform Securities Act, an investment adviser who has no place of business in a State is exempt from registration if the: I firm's clients consist solely of institutional investors in the State II firm has no more than 5 clients other than financial or institutional investors within a 12 month period III firm's advice relates solely to municipal securities A) I only B) I and II C) II and III D) I, II, III

The best answer is B. An investment adviser with no place of business in a State is exempt from registration if its clients consist solely of institutional investors; or if the firm has no more than 5 clients in a 12 month period other than institutional investors. Under State law, no exemption from registration as an investment adviser is permitted if the firm's advice relates solely to exempt securities, such as municipals. Please note, however, that an adviser that gives advice solely about U.S. government securities is a type of federal covered adviser that is not required to register in the State.

A Registered Investment Adviser enters into an agreement with a Certified Public Accountant, where the CPA will refer clients that need the services of an investment adviser. For each client referral, the CPA will be paid a fee. The CPA is: A) required to register in the State as an agent B) required to register in the State as an investment adviser representative C) not required to register in the State because he already has an independently conferred professional designation D) not required to register in the State because he is regulated by the AICPA

The best answer is B. Any person retained by an investment adviser to "find" new clients, if he or she is paid for doing so, is defined as an IAR who must be registered in the State. Choice C gets at the exemption provided under the Investment Advisers Act of 1940, where professionals such as lawyers or CPAs that do not separately charge for advice are excluded from the definition of an adviser. However, this does not apply here because the CPA is getting separate compensation for each referral made to the investment adviser.

An investment adviser registered in State Y effects all of its portfolio transactions through a broker-dealer registered with the SEC and State Y. Regarding required filings from the broker-dealer in State Y, the Administrator of State Y: A) can only require the same filings as it requires from the investment adviser that does its portfolio trades through that broker-dealer B) can only require the filing of the broker-dealer's reports that are filed with the SEC C) can require the filing of any records demanded by the Administrator of State Y D) cannot require the filing of any records because of the federal supremacy of the broker-dealer filings that are required with the SEC

The best answer is B. Broker-dealers are registered federally with the SEC under the Securities Exchange Act of 1934 and, additionally, must register in each State where they have a physical presence or where they solicit securities business. As part of the National Securities Markets Improvements Act of 1996, it was made clear that because broker-dealers are regulated at the federal level, the States cannot require anything that is already required federally. Broker-dealer recordkeeping and reporting rules are set under Section 17 of the Securities Exchange Act of 1934 - so these rules prevail. All that the State can do is ask for a copy of any record or report that the broker-dealer keeps in accordance with the 1934 Act.

A market maker in ABCD stock is currently quoting the stock in the OTCPink Open Market at:$42.00 Bid (500 shares); $43.00 Ask (1,000 shares) If the market maker receives a customer order to sell 800 shares of ABCD at $42.50, the market maker: A) must update its quote to: $42.50 Bid (800 shares); $43.00 Ask (1,000 shares) B) must update its quote to: $42.00 Bid (500 shares); $42.50 Ask (800 shares) C) must send the order to a stock exchange floor for execution D) is not required to take any action

The best answer is B. Customer limit orders that are better priced than the current quote must be displayed in the marketplace. This dealer is currently offering the stock at $43.00 - this is the price at which he is willing to sell up to 1,000 shares. Since this customer is willing to accept less to sell - $42.50 for up to 800 shares, the customer's offer must be displayed in the market. Note that NYSE, AMEX (NYSE American), and NASDAQ systems automatically comply with this rule - they require all orders to be electronically submitted where the exchange systems sequence and display them. So this rule really only applies to quotes for non-listed stocks placed OTC.

A Federal Covered Adviser discovers a material error in its Form ADV. When must Form ADV be amended with the State to correct the error? A) There is no requirement to amend the filing in the State because the investment adviser is Federal covered B) Within 30 days C) Within 60 days D) Within 90 days

The best answer is B. Form ADV is filed through the IARD Investment Adviser Registration Depository) system run by FINRA - this is used by both Federal Covered and State-registered advisers. In IARD, the adviser details whether this is a Federal or State registration and IARD reports to the correct regulator. In addition, for Federal Covered Advisers, the adviser details which States get "notice" filings. When a Form ADV is filed or updated by a Federal covered adviser, this is reported to the SEC, and at the same time, this is also reported to the designated States that get notice filings. The annual updating amendment to Form ADV must be filed within 90 calendar days of the adviser's fiscal year end - note that this is the same rule for both NASAA (State registered advisers) and the SEC (Federal Covered Advisers). For material changes that occur during the year, an "other than annual amendment" must be filed via IARD. Here, the SEC states that it must be filed "promptly" for Federal Covered Advisers, while NASAA requires that it be filed within 30 days of the change for State registered advisers and for notice filings made by Federal Covered Advisers. (Yes, it would be nice if NASAA and the SEC "got together" on their rule writing, but they don't!)

A fee payment is NOT required to be made when a(n): A) agent of a broker-dealer registers in a State for the first time B) new broker-dealer files as a successor to a firm that has ceased operations C) renewal registration is filed by an investment adviser by December 31st of that year D) notice filing is made in the State by a Federal Covered Adviser

The best answer is B. If a new broker-dealer is created as a successor firm to an existing registered broker-dealer that has ceased business operations at some point during the year, then the State does not require a new filing fee to be paid. The fee is paid at the initial registration and for every annual (on December 31st) renewal registration thereafter. When the successor firm files its year-end registration renewal, the full fee for the next year must be paid.

A sales representative who intentionally embezzles funds from a customer: I has committed a felony II has committed a fraudulent and misleading Act III is subject to civil liability IV is subject to possible fines and/or imprisonment A) I and III only B) I and IV only C) II and III only D) II and IV only

The best answer is B. If a sales representative intentionally embezzles monies from a customer, that is considered to be a felony, since the action was willful (theft is theft!). In this case, the individual is subject to possible fines and/or imprisonment.

An Investment Adviser Representative has started a blog on the Internet to promote her services to interested parties. The blog discloses that the IAR is associated by DEF Advisers, an RIA registered in the State where the IAR is also registered and conducts business. Which statement is TRUE about this? A This action is prohibited under NASAA rules because blogs can only be sponsored by RIAs, not IARs B This action is prohibited because the RIA must approve the content of the blog and authorize its distribution C This action is prohibited because FINRA has jurisdiction over Internet communications and FINRA approval is required D This action is permitted because both the RIA and IAR are State-registered

The best answer is B. If an agent of a broker-dealer or an investment adviser representative wishes to publish any content on the Internet, either as a website or on a blog, the Agent or IAR: must disclose his or her affiliation with the Broker-Dealer or Investment Advisory firm; the Broker-Dealer or Investment Adviser (the firm) must approve the content of the Internet Communication; the Broker-Dealer or Investment Adviser (the firm) must authorize the distribution of the Internet Communication; and the Agent or IAR must act within the scope of authority granted by the Broker-Dealer or Investment Adviser (the firm).

An Investment Adviser Representative (IAR) who was terminated by his firm 4 months ago was hired 1 month later by another Registered Investment Adviser (RIA). This IAR has just received notice from the State Administrator that his registration with the new RIA firm has been revoked. This could occur because the IAR: A) is the subject of a written customer complaint alleging that the IAR has made material misrepresentations regarding services offered by the RIA B) failed to disclose a misdemeanor conviction involving a security that occurred 3 years previously C) was terminated by the previous RIA employer for failing to comply with the firm's internal policies and procedures D) was convicted of a shoplifting felony 11 years ago in another State

The best answer is B. If an individual has been convicted within the past 10 years of a misdemeanor involving a security, or any felony, then under Uniform State Law, that individual's registration will be denied or revoked. A written customer complaint is not a reason for denial or revocation of registration; nor is termination for violating a firm's internal policies. Regarding the shoplifting felony conviction, this occurred 11 years ago, and denial or revocation of registration can only be based on felony convictions that occurred in the past 10 years.

Which of the following would constitute an "involuntary assignment" of an investment advisory contract under the Uniform Securities Act? I An investment adviser formed as a corporation sells all of its stock to an acquiring broker-dealer II An investment adviser formed as a partnership has a partner with a 25% interest resign III An investment adviser formed as a partnership has 1 partner leave and take the contract to a new advisory firm A I only B I and III C II and III D I, II, III

The best answer is B. If an investment advisory contract is assigned to someone else, the customer must sign a new contract with whoever takes control of that contract. If an investment adviser formed as a corporation sells all of its stock to an acquiring broker-dealer, then all of the investment adviser's contracts have legally been assumed by that broker-dealer. This is the same as an assignment. If a minority partner leaves an adviser formed as a partnership, this is not considered to be an assignment (note that if this was a majority partner leaving, then technically this would be an assignment). If a partner at an advisory firm leaves and takes the contract with him or her to a new firm, again this is an assignment of the contract to the new firm.

Under the Uniform Securities Act, if the Administrator prohibits an investment adviser from taking custody of customer funds or securities, the investment adviser would be permitted to: A) buy securities for a customer using the investment adviser's monies, and then delay delivery of those securities to the customer B) buy securities for a customer who has given a limited power of attorney to the adviser using monies deposited by that customer to an account established by the adviser specifically for that purpose C) hold customer funds in accounts established and maintained by the adviser that have been segregated and properly identified D) accept a prepaid advisory fee of $500 from the client covering a period of up to 1 year

The best answer is B. If the adviser is prohibited from taking custody of client funds or securities by the State Administrator, the adviser can trade the customer account under a limited power of attorney - this is normal practice. So Choice B is the correct answer. The adviser cannot buy securities for a customer and then delay delivery of the securities to the client - this is an unethical practice. If an adviser is prohibited from taking custody, it cannot hold customer funds and securities, making Choice C incorrect. There is nothing precluding an adviser from taking a prepaid advisory fee, but if the adviser accepts $500 or more of prepaid fees, 6 months or more in advance of rendering services, this is defined as "taking custody" under NASAA rules.

The CEO of a publicly traded company is a large client of an investment adviser representative. The CEO, who is a member of the prestigious River Rocks Country Club, tells the IAR that he will refer other club members to the IAR if the IAR will give the referred clients a discount, and will give the CEO the same discounted rate. Which statement is TRUE about this situation? A) The IAR is prohibited from giving a group of individuals a discount that is not being offered to all of the IAR's clients B) The IAR can offer the discount as long as the fact that non-club members pay a higher fee is disclosed in the Form ADV Part 2A C) The IAR can offer the discount as long as charges to all of the IAR's customers are fair and reasonable D) The IAR is prohibited from offering the CEO the discount since he or she is an existing client, but can offer the discounted rate to any new clients that belong to the country club

The best answer is B. Investment advisers do not have to offer the same rates to all their customers - they are permitted to pursue group business by offering defined groups a discounted rate. However they must offer these discounts to all customers that qualify for the terms of the discount (in this case, they must be members of the country club); and the adviser must disclose the existence and terms of the discounts in the Form ADV Part 2A ("the brochure") that is given to clients.

NASAA Model Rule 502 (c) applies to: I State registered advisers in its entirety II State Covered advisers only to the extent that the conduct is fraudulent or deceptive III Federal Covered advisers in its entirety IV Federal Covered advisers only to the extent that the conduct is fraudulent or deceptive A I and III B I and IV C II and III D II and IV

The best answer is B. NASAA Rule 502 (c) sets the rules for investment advisory contracts. As a NASAA rule, it only covers State-registered advisers. Federal covered advisers are subject the rules of the Investment Advisers Act of 1940, however the rule says that it applies to Federal covered advisers to the extent that the alleged conduct is fraudulent or deceptive. The rule requires that advisory contracts provide in writing: The services to be provided, the term of the contract, the fee formula, the amount of prepaid fee to be returned for early termination and any grant of discretionary power; That no direct or indirect assignment or transfer of the contract is permitted without consent of the client; That the investment adviser shall not be compensated based on capital gains (unless the client is wealthy, with either $1MM of assets under management or $2.1MM of net worth - this is set under the Investment Advisers Act of 1940); and That if the investment adviser is a partnership, the adviser will notify the client within a reasonable time of any change in the membership of the partnership. The rule also prohibits any provision that waives compliance with the rule or with the Investment Advisers Act of 1940; and prohibits an advisory contract that is contrary to Section 205 of the Investment Advisers Act of 1940 (Section 205 prohibits compensation based on gain or loss).

Under Uniform State Law, the State Administrator can require an investment adviser to retain certain records and can mandate the form in which these records are to be maintained. Regarding these records, which statement is TRUE? A) The Administrator can require the RIA to keep almost any record that the Administrator wishes B) The Administrator can require any record to be maintained that it believes is in the public's best interest but it cannot require records to be maintained that contravene Federal rules C) The Administrator can only require those records to be kept that relate to the solicitation of customer orders in that State D) The Administrator can require any record to be maintained that it believes is in the public's best interest regardless of any SEC rules that cover the same recordkeeping requirements

The best answer is B. NSMIA (National Securities Markets Improvement Act) states that SEC (Federal) recordkeeping rules have supremacy over State recordkeeping rules. The Administrator cannot, by rule, require records to be kept by a broker-dealer or investment adviser, if such a rule violates the Federal requirement.

Which of the following is defined as advertising? A Prospectus B Website C Letter to a Client D Internet Chat Room

The best answer is B. Non-password protected websites can be seen by the general public, so they are defined as advertising. In contrast, a password-protected website is defined as sales literature, because it is seen by a specific audience. A Letter to a client is correspondence. A Prospectus is neither advertising nor sales literature, because it is a lawyer-prepared disclosure document.

Which statements are TRUE regarding the post-registration requirements of the Uniform Securities Act? I Investment advisers are subject to post-registration requirements II Investment advisers are not subject to post-registration requirements III Agents of investment advisers are subject to post-registration requirements IV Agents of investment advisers are not subject to post-registration requirements A) I and III B) I and IV C) II and III D) II and IV

The best answer is B. Post-registration requirements cover such things as maintaining books and records; making required filings with the Administrator; giving reports to customers; and filing advertising and sales literature with the State. These are requirements for both broker-dealers and investment advisers. This portion of the Uniform Securities Act does not apply to their agents, however.

An agent for a broker-dealer, both of which are registered in the State of Illinois, receives a telephone call from an existing customer who is on a layover in the airport in Atlanta, Georgia. The customer directs the agent to buy 1,000 shares of ABCD stock at the market. Which statement is TRUE? A) In order to accept this order, the agent must be registered in the State of Georgia only B) In order to accept this order, the agent must be registered in the State of Illinois only C) In order to accept this order, the agent must be registered in both the State of Georgia and the State of Illinois D) The agent can accept this order without needing registration in any jurisdiction because it was unsolicited

The best answer is B. Since the agent and broker-dealer are physically located in Illinois, they must be registered in the State of Illinois. This is an existing customer who is calling from an airport in Georgia. There is no requirement for the agent or the broker-dealer to be registered in Georgia to take this order. If the State of Georgia inquired about this transaction, the agent and broker-dealer could claim the exemption available when an existing customer is temporarily located in another State.

A broker-dealer is physically located and registered in State A. The broker-dealer has an existing client in State A who is a student finishing undergraduate studies. The client has just been accepted to medical school in State B. Which statement is TRUE about the broker-dealer contacting the client while she is in medical school in State B? A) The broker-dealer can contact the client while she is in medical school in State B without having to register in State B using the "existing customer" exemption B) The broker-dealer can contact the client while she is in medical school in State B without having to register in State B because students are considered to be residents of the State where they live with their parents; not the State where they go to school C) The broker-dealer can contact the client while she is in medical school in State B without having to register in State B because of the reciprocity agreements that all States maintain regarding registration requirements D) The broker-dealer must be registered in State B in order to contact the client while she is in medical school in State B

The best answer is B. Students are considered to be residents of the State where they live with their parents; not the State where they are going to school. Therefore, the broker-dealer is only required to be registered in State A in this example, but not in State B. Note that if the student actually became a resident of State B, such as by renting an apartment in State B, changing the mailing address to that apartment, changing her voter registration to State B and changing her driver's license to one issued in State B, then she becomes a resident of State B. But this is not where the question is going!

Which State-registered investment adviser MUST report that it takes custody on Form ADV? A) An adviser that is affiliated with a parent bank or trust company B) An adviser that directly deducts management fees each quarter from client accounts C) An adviser that has discretionary authority over client accounts under a limited power of attorney D) An adviser that receives payments from clients at the time that services are rendered

The best answer is B. Taking custody means that the adviser is holding customer funds or securities or has the ability to access customer funds or securities. If an adviser is permitted to directly deduct fees from client accounts, it meets this definition. A limited power of attorney limits the adviser to trading the customer account, but the adviser has no power to withdraw funds from the client account. Thus, a limited power of attorney is not taking custody. In contrast, if the adviser has a full power of attorney over an account which allows the adviser to withdraw funds, this is considered to be taking custody.

The Administrator can require the filing of sales literature related to which of the following transactions? A An underwriter purchasing the stock of an issuer in a firm commitment underwriting B A for-profit company issuing securities that are not exchange listed C An investment company that is making purchases of listed stock in the secondary market D An offer of bonds made by a State government that guarantees payment of interest and principal

The best answer is B. The Administrator can require the filing of sales literature, unless the security, or transaction, is exempt. Transactions between an underwriter and an issuer are exempt; secondary market transactions of listed securities are exempt; and municipal securities are exempt. A corporation issuing securities that are not exchange listed is a non-exempt transaction where the securities must be registered, so the Administrator can require the filing of sales literature used in connection with the offer of these securities.

The Administrator can subpoena the records of a broker-dealer or agent: A) only after a violation has occurred B) if he suspects that a violation has occurred C) only if written customer complaints are received by the Administrator D) only if criminal charges are being filed against that person

The best answer is B. The Administrator can subpoena the records of a broker-dealer if he suspects that a violation has occurred or after it is known that a violation has occurred. There is no requirement that records can be subpoenaed only if written customer complaints are received by the Administrator or if criminal charges are filed.

Which statements are TRUE regarding rules and orders that are entered by the Administrator? I Rules are general in applicability II Rules are specific in applicability III Orders are general in applicability IV Orders are specific in applicability A I and III B I and IV C II and III D II and IV

The best answer is B. The Administrator is empowered to interpret the Uniform Securities Act by writing rules that give further depth to the Acts provisions - these are general in applicability - that is, they apply to everyone. The Administrator is empowered under the Act to issue orders, such as "Stop" orders or "Cease and Desist" orders. These are directed at a specific person that the Administrator believes has violated the Act, or is about to violate the Act.

The Uniform Securities Act subjects agents and broker-dealers who violate the Act's provisions to all of the following EXCEPT: A) Civil Liability B) Civil Penalties C) Criminal Liability D) Criminal Penalties

The best answer is B. The Uniform Securities Act provides for civil liability for unintentional violations of the Act (refund of customer's money plus 6% interest and attorney's fees). For intentional (and serious) violations, the Act provides for criminal liability (jail!) and criminal penalties ($5,000 fine per offense). The Act does not provide for civil penalties (that is, civil fines). These could only be imposed if an action were taken in civil court and the judge imposed punitive damages.

A BD application is received by the State Administrator for a new broker-dealer subsidiary of a British securities firm. The application includes the disclosure that the parent firm was suspended from membership on the London Stock Exchange 4 years ago because of unauthorized trading by its Singapore branch. The State Administrator A cannot deny registration based on a suspension that was imposed by a foreign regulator B can deny registration based on the suspension by the foreign regulator C must grant registration because the U.S. subsidiary is a legally separate entity from the parent company that is based in Britain D can deny registration only if the actions of the parent company were a criminal offense

The best answer is B. The Uniform Securities Act sets a 10 year statute of limitations for securities related violations as a cause for denial of registration. This is based on violations of U.S. law. It also includes a provision regarding violations of the law of a foreign jurisdiction. In this case, it sets a 5 year statute of limitations. (Why? - Who knows!) The wording includes willfully violating the law of a foreign jurisdiction governing any aspect of the securities or banking business within the past 5 years; or being the subject of an action by a foreign regulator in the past 5 years denying, revoking or suspending the right to engage in the securities business as a broker-dealer, investment adviser or agent.

An investment adviser has 1 main office and 3 branch offices, all located in different States. Which statement is TRUE about recordkeeping requirement for the adviser under the Uniform Securities Act? A) The adviser must keep separate records in each State based on that State's requirements B) The adviser must keep its records based on the rules of the State where its main office is located C) The adviser must keep its records based on the rules of the State where it has the greatest number of customers D) The adviser must keep its records based on the rules of the State where it has the greatest dollar amount of customer assets

The best answer is B. The Uniform Securities Act states that if an adviser complies with the provisions of the Act as adopted in the State where the adviser has its principal office, then other States cannot impose more stringent recordkeeping requirements or minimum net worth requirements on that investment adviser, even if the adviser has offices in those States.

Under the Uniform Securities Act, an investment adviser is prohibited from taking custody of a client's funds if the: I Administrator prohibits this by rule II firm fails to notify the Administrator that it has custody or may take custody III firm is registered as a broker-dealer as well as an investment adviser A I only B I and II C II and III D I, II, III

The best answer is B. The fact that a broker-dealer can also be registered as an investment adviser has no bearing on whether an investment adviser can take custody of a customer's securities. An investment adviser can take custody of a customer's securities, if the firm notifies the Administrator that it has custody or may take custody. However, if the Administrator prohibits taking custody, then obviously the firm cannot do so.

An agent of a broker-dealer may: I increase a commission retroactively if a recommendation performs well II decrease a commission retroactively if a recommendation performs poorly III not increase a commission retroactively if a recommendation performs well IV not decrease a commission retroactively if a recommendation performs poorly A I and II B III and IV C I and IV D II and III

The best answer is B. The only fee that can be accepted is the original commission charged. It is prohibited to be paid based on the gains in a customer's account - so the commission cannot be increased retroactively for good performance. Similarly, a commission cannot be reduced retroactively if a recommendation performs poorly.

An investment adviser wants to charge a monthly fee to customers that engage in frequent options trading, equal to 6% of monthly options transaction volume. The adviser includes the options transaction fee in the brochure filed with the Administrator and discusses the fee with each customer that engages in options transactions. Which statement is TRUE? A) The monthly options transaction fee can be charged to customers because it has been disclosed to both the adviser's customers and to the State Administrator B) The monthly options transaction fee cannot be charged to customers because it is excessive C) The charging of a monthly options transaction fee is permitted without restriction D) The monthly options transaction fee is not permitted because such fees can only be charged quarterly or annually

The best answer is B. The overriding issue here is the fact that charging excessive fees is a prohibited practice - and a fee equal to 6% of options transactions is excessive. You could make an argument that because the fee was discussed with the customers and disclosed in the adviser's brochure, that makes it OK - but this is not the case.

A customer that buys a non-exempt new issue must be delivered a prospectus at, or prior to, the time of: A being solicited to purchase the new issue B entering into the contract to purchase the new issue C completion of the purchase of the new issue D settlement of the purchase of the new issue

The best answer is B. The rule for prospectuses is that they must be delivered at, or prior to, confirmation of sale. The generation of the confirm is the time that the customer is legally entering into the "contract" to buy the security, so this is the best answer. Settlement is the date (typically 2 business days after the confirm is generated) when the customer actually makes the payment for the purchase. This is when the transaction is legally "complete."

Under Uniform State Law, an agent is permitted to sell securities for more than 1 broker-dealer: A) only if the types of securities offered by each broker-dealer are mutually exclusive B) only if the agent is separately registered with each broker-dealer C) only if one broker-dealer solely offers exempt securities and the other broker-dealer solely offers non-exempt securities D) under no circumstances

The best answer is B. The typical arrangement is that an agent is only registered with one broker-dealer, both at the Federal and State level. However, in rare cases, an agent may be "dual registered." This occurs most often if one broker-dealer sells a very limited product range (say limited partnerships only) and the individual wants to be licensed to sell another type of product (say mutual funds) to his customers. He or she can associate with another broker-dealer that only sells mutual funds. To do so, the dual affiliation is disclosed on both the Federal and State registration applications submitted by each of the broker-dealers to register that agent.

Which form(s) MUST be signed by the customer in order to open a margin account? A) New Account Form B) Hypothecation Agreement C) Loan Consent Agreement D) All of the above

The best answer is B. There is no customer signature required on a new account form - this allows cash accounts to be opened over the phone, if a firm so desires. However, a customer signature is required on the hypothecation agreement - this is the legal pledge of securities in the account as collateral for the margin loan from the broker-dealer to the customer. There is no legal requirement for the customer to sign a loan consent agreement (where the customer agrees to permit the lending of the securities held in the account to someone else who wishes to effect a short sale). The customer can choose to sign the loan consent; or can choose not to sign.

To protect against identity theft and theft of funds, client instructions received electronically must be: A encrypted B authenticated C monitored D refused

The best answer is B. To protect against identity theft and theft of funds, customer instructions received electronically must be authenticated, to make sure that the instruction actually came from that client.

Transactions that violate the Uniform Securities Act are voidable at the option of the: A) Issuer B) Purchaser C) Seller D) Administrator

The best answer is B. Transactions that violate the Act are voidable by the purchaser. The seller is obligated under civil liabilities to pay the investor the original cost of the securities plus 6% interest.

A broker-dealer is a syndicate member in a best efforts underwriting of ABC Common stock. The issue is oversubscribed. The broker-dealer may allocate sales of the issue to all of the following EXCEPT: A) employees of the issuer B) employees of the broker-dealer C) employees of suppliers of the issuer D) persons who have no affiliation with the broker-dealer or issuer

The best answer is B. When a broker-dealer does a new issue offering, it must make a "bona-fide" sale to the investing public and cannot retain part of the issue for itself or for its employees. If this were permitted, the broker-dealer would have the incentive to "underprice" the issue and then buy it for itself; intending to turn around and resell it for a profit. This would be in addition to any underwriting fees earned by the broker-dealer. Thus, broker-dealers in the underwriting group, their officers and their employees cannot buy the issue. There is nothing stopping the employees and officers of the issuer from buying the issue (they are likely to be large purchasers!).

All of the following are defined as a "State" under the Uniform Securities Act EXCEPT: A California B British Columbia C District of Columbia D Puerto Rico

The best answer is B. "State" is defined under the Act to be any state, territory, possession of the United States, the District of Columbia, and Puerto Rico. British Columbia is part of Canada; not part of the United States.

Registration by Coordination permits: A simultaneous registration in different states B simultaneous Federal and State registration C registration for intrastate issues D registration for issues of small dollar size

The best answer is B. Registration by Coordination permits the same information that is filed with the SEC to register a new issue under Federal law, to be filed with the State for simultaneous State registration.

The gift of an assessable security is defined under the Uniform Securities Act as a(n): A exempt transaction B sale of a security C unsolicited transaction D issuer transaction

The best answer is B. The gift of an assessable security is not a gift - the issuer has the right to assess the holder for more monies, if they are needed to run the business. This gift relieves the giver of a liability to pay; which is the same thing as the recipient of the "gift" - the buyer - actually paying for the security. Thus, a buyer paying for a security; or relieving the seller of a liability; is a "sale" of that security.

Which of the following is a federal covered adviser? A) An investment adviser with $10,000,000 of assets B) An investment adviser with $50,000,000 or less of assets C) An investment adviser with $100,000,000 of international assets D) An investment adviser to individuals that are accredited investors under Regulation D

The best answer is C. A "Federal covered investment adviser" is one that must register with the SEC only; and that is not required to register with the State (though the State can still require a notice filing). These are the larger investment advisers and include any adviser to an investment company; and any adviser with $100,000,000 or more of assets under management. In this question, the best choice offered is the adviser with $100,000,000 of assets under management must register with the SEC. It makes no difference if the assets are international securities - if the adviser is based in the U.S., which we must assume, and meets the minimum asset test, then it must register with the SEC.

Which of the following actions on the part of an agent is unethical in a margin account that does not have a written trading authorization from the customer? The customer directing that the agent: A) buy 1,000 shares of ABCD sometime during that day and the agent executing the trade at the market close that day B) sell short 500 shares of DEF whenever he thinks the time is right and the agent executing the trade at 2:00 PM ET that day C) buy 1,000 shares of a high dividend paying stock as soon as possible and the agent executing the purchase of 1,000 shares of PDQQ 10 minutes later D) sell his entire holding of DEFF stock at whatever the agent thinks is the best price that day and the agent immediately places a market order to sell that is executed 1 minute later

The best answer is C. A broker is always permitted to choose price or time of execution without needing a written authorization from the customer. However, to choose either the security or the size of the trade, a written authorization is needed.

Which of the following persons would be defined as an "agent" under the Uniform Securities Act? A April Showers, an administrative assistant in the Treasurer's Department at Rainwear Industries, who sells Rainwear common stock to Rainwear employees under Rainwear's ESOP B John Q. Public, a municipal employee that accepts tender offers from the public for new issues of general obligation bonds being sold by New York City C Marvin Mercenary, the President of Capital Industries, who sells Capital Industries common stock to the public D Ima Pigg, the Controller of Pork Pie Products, who negotiates and sells a private placement of Pork Pie stock to institutional investors

The best answer is C. An "agent" is an individual who represents a broker-dealer or issuer in effecting securities transactions. Under this definition, the President of Capital Industries offering common stock to the public is defined as an agent. The Act specifically EXCLUDES from the definition of an agent, any individual who represents issuers in trading specified exempt securities. Thus, the employee of New York City offering its bonds is excluded from the definition. Also, the Act excludes from the definition of an "agent," any individual who represents an issuer offering securities issued in connection with Savings, Pension, Profit Sharing Plans, and Employee Stock Option Plans (ESOPs). The Act also EXCLUDES from the definition of an "agent," those individuals who represent issuers in "exempt transactions." These individuals do not have to be registered in the State. Generally, exempt transactions are trades that do not involve the public. Transactions with financial or institutional investors, as defined under the Act (including banks, financial institutions, trusts, insurance companies, investment companies, underwriters, and pension plans) are exempt because the investors are sophisticated, and are not deemed to require legislative protection.

An Investment Adviser (IA) has its headquarters in State A. The IA has 4 natural clients in States B, C and D - all States where it does not have an office location. An Investment Adviser Representative (IAR) associated with the IA does most of her business in State A. To expand her business, the IAR holds a monthly seminar in State B, inviting interested individuals to attend. In which States must be IAR be registered? A) State A only B) State B only C) States A and B D) States A, B, C and D

The best answer is C. Because the IAR is physically located in State A, she must be registered in State A. Because the IAR is regularly in State B soliciting customers, the IAR must be registered in State B. Regarding States C and D, the IA and IAR are not physically there, and can rely on the "de minimis" exemption to avoid registration (no IA registration required if the IA has no place of business in the State and has 5 or fewer retail clients in the State).

A Registered Investment Adviser with 25 clients in State A is expanding its operations to States B, C, and D. It currently has 6 clients in State B, but has not opened an office in that State. It currently has 3 clients in State C, where a small office has been opened. It has 5 clients in State D, and is considering opening an office there. In which States is the RIA required to register? A) State A only B) States B and C only C) States A, B, and C D) States A, B, C and D

The best answer is C. Because the RIA has offices in States A and C, it must register in those States. The "de minimis" exemption from registration only applies to advisers with no office in the State that have 5 or fewer clients in that State. Since the adviser has 6 clients in State B, it must register in State B. The fact that it has no office there has no bearing on this. On the other hand, the "de minimis" exemption applies to State D, since the adviser has no office there and has the maximum permitted number of clients (5) before registration is required.

Which action is a prohibited practice under the Uniform Securities Act? A) Verbally communicating facts included in sales material to a customer B) Verbally communicating material information included in a prospectus to a customer C) Verbally communicating material inside information to a customer D) Verbally communicating a purchase recommendation to a customer for a non-exempt security

The best answer is C. Communicating material "inside information" is a prohibited practice under the Uniform Securities Act, as well as a violation of the Securities Exchange Act of 1934. Of course, it would be permitted to verbally communicate to a customer, facts included in sales material, facts included in prospectuses, or recommendations of non-exempt securities (assuming that the security is properly registered in the State).

Which of the following must be included in an investment advisory contract under NASAA rules? I The fact that prepaid fees will not be returned if the contract is terminated early II The fact that assignment of the contract is only permitted with customer consent III Whether the contract grants discretionary authority to the adviser IV Disclosure that the fee for managing fixed income securities may be higher than for managing equity securities A I and II only B III and IV only C I, II, III only D I, II, III, IV

The best answer is C. Consider this to be a learning question. The advisory contract, under NASAA rules, must include: Description of services provided; Term of contract; Formula for computing fees; Amount of prepaid fees to be returned if contract is terminated early; Assignment of the contract is not permitted unless the customer approves; Whether the contract grants discretionary authority to the adviser; and Disclosure that the fee for managing equity securities may be higher than the fee for managing debt securities (NOT the other way around!).

Which of the following is NOT EXCLUDED from the definition of an "investment adviser"? A Broker-dealer B Trust company C Insurance company D Savings and loan

The best answer is C. Excluded from the definition of an investment adviser are: investment adviser representatives, broker-dealers, depository institutions (banks, trusts, savings and loans), professionals (lawyers, accountants, teachers, engineers) and newsletters that do not render advice based upon a specific client situation. Insurance companies and investment companies are not excluded from the definition (though they may be exempt from registration under certain circumstances).

All of the following securities are subject to registration under the Uniform Securities Act EXCEPT: A) Subordinated debentures of a Canadian Paper company B) Preferred stock of a bank holding company C) Equipment trust certificate of a railroad subject to Interstate Commerce Commission regulations D) Limited partnership investing in issues of Federally chartered savings and loans

The best answer is C. Exempt securities under the Uniform Securities Act include: Canadian Government Securities (not common stocks of Canadian companies); Bank Issues (not securities issued by bank holding companies!); and Savings and Loan issues (not limited partnerships that invest in such securities!). Thus, Choices A, B, and D are all non-exempt and must be registered under Uniform State Law. Choice C, securities issued by common carriers subject to Interstate Commerce Commission regulation, are an exempt issue.

All of the following are federal covered securities EXCEPT: A) NYSE listed issues B) NASDAQ listed issues C) SEC registered issues D) Registered investment company issues

The best answer is C. Federal covered securities that cannot be required to be registered in each State include NYSE listed issues, NASDAQ listed issues and registered investment company issues. SEC registered issues are not necessarily "federal covered" securities. For example, issues quoted in the Pink OTC Market are SEC registered, but they are not "federal covered" securities. These issues do not meet NASDAQ listing standards and represent the speculative (risky) side of the marketplace. It is specifically these issues that are in the state regulators' crosshairs. These issues are SEC registered, but they also are required to be registered in each State where offered.

Which of the following individuals is defined as an Investment Adviser under the provisions of the Uniform Securities Act? A) The publisher of a financial newsletter that covers the relative merits of different insurance policies B) An accountant that offers advice on investing in fixed annuity contracts for an additional charge C) A lawyer that offers advice about investments in corporate stocks and bonds for an additional charge D) The publisher of research reports about corporate stocks that are distributed only to institutional investors

The best answer is C. For a lawyer or accountant to be excluded from the definition of an investment adviser, he or she must only give incidental advice about investing in securities and cannot charge separately for the advice. Choices A and B are not required to register as investment advisers in the State because they are giving advice about insurance products, not about securities. Choice D does not have to register because only financial publications that tailor their recommendations to specific client situations fall under the definition.

A broker-dealer located in State A has all of its agents registered in State A. The broker-dealer has no office in neighboring State B. The broker-dealer would be required to register in State B if its clients in State B consisted solely of: A) broker-dealers B) investment advisers C) government employees of State B D) deposit taking institutions

The best answer is C. If a broker-dealer has no office in a State; and it only deals with institutional customers in that State, then it is excluded from registration in that State. Broker-dealers, investment advisers and deposit taking institutions such as banks are all institutional clients. On the other hand, the sale of securities to government employees of State B would require that broker-dealer to be registered in the State, since the broker-dealer is now dealing with "average investors."

An investment adviser is opening that day's mail and receives a check from a customer for $5,000; however there is no payment due from the customer. The customer mailed the check in error. The same day, the investment adviser mails the check back to the customer. Under NASAA rules, the investment adviser: I is deemed to have taken custody of the customer's funds II has not taken custody of the customer's funds III must keep a record of the check received IV is not required to keep a record of the check received A I and III B I and IV C II and III D II and IV

The best answer is C. If a client inadvertently gives securities or funds to an investment adviser, as long as they are returned within 3 business days, then the adviser has NOT taken custody. This is the situation in this question. If the adviser inadvertently receives a check made out to a third party, as long as the adviser mails the check to the third party within 3 business days, then the adviser has NOT taken custody. Regardless, the adviser must keep a record of the receipt of the check.

If an agent does not obey a subpoena to testify in court, as required by the Administrator, the court may do which of the following? I Hold the agent in contempt of court II Order the agent to appear before the Administrator III Grant injunctive relief restricting the sale or offer of securities IV Incarcerate the agent for up to 60 days to compel attendance A I and II B III and IV C I, II, III D I, II, III, IV

The best answer is C. If an agent does not obey a subpoena (which is issued by a court of law at the request of the Administrator), then the court can issue an order compelling the agent to appear (otherwise the agent could be arrested); can grant injunctive relief restricting or stopping the sale or offer of securities by the agent; and can hold the agent in contempt of court. The court will not throw the agent into jail for 60 days!

For initial registration as an agent in a State, which can be required? I Consent to Service of Process II Filing Fee III Registration Application IV Birth Certificate Copy A I and II only B III and IV only C I, II, III D I, II, III, IV

The best answer is C. In an initial registration with the State, a consent to service of process must be filed, in addition to the registration application (which can include fingerprints) and any filing fees designated by the Administrator. There is no requirement for a copy of one's birth certificate to be registered.

An Investment Adviser can give advice on: I NYSE listed securities II Options III Commodity futures IV Variable annuities A) I only B) II and III only C) I, II and IV D) I, II, III, IV

The best answer is C. Investment Advisers and IARs give advice about securities, not commodities or futures contracts. Choice I, II and IV are all securities. Commodities futures are not securities.

An investment adviser may NOT be compensated with which of the following? A) Wrap fees charged to customers for all services rendered by the adviser B) Soft dollars paid by an executing broker to the adviser in return for trades sent to the broker by the adviser C) Bid-Ask spreads earned when position trades are executed D) Commissions paid to an affiliated broker-dealer on trades recommended by the adviser

The best answer is C. Investment advisers can collect wrap fees. This is a flat annual fee covering all services rendered, including recommendations, asset allocation and trade execution - so all services are "wrapped" into a flat annual fee. Investment advisers can receive "soft dollar" compensation. In return for directing full commission trades to an executing broker, the executing broker gives the adviser research, recommendations, trading algorithms, and similar items of value. The SEC permits these "soft dollar" items to be given by the broker-dealer to the adviser as long as they ultimately benefit the adviser's investors. Investment advisers cannot take commissions on trades that they do, but they can direct their trades to an affiliated broker-dealer for execution. The affiliated broker-dealer is permitted to charge commissions. Also note that such an arrangement is a conflict of interest that must be disclosed to the customer at the time of entering into the advisory contract. Bid-ask spreads are earned by securities dealers that buy securities into their inventory and sell securities out of their inventory. These are called "position trades" because the broker-dealer is taking positions in its inventory account. Broker-dealers earn these; investment advisers are prohibited from receiving these.

An Investment Adviser MUST inform a client about: I Change of address II Change of phone number III Addition of client accounts from another advisory firm that was "bought out" IV Change in a majority of the partners of the advisory firm A I and III B II and IV C I, II, IV D I, II, III, IV

The best answer is C. Investment advisers must inform their clients about a change of address or a change or phone number (this is common sense). It is also a requirement to inform clients about the addition of new partners to an advisory partnership. There is no requirement to notify customers of the addition of new advisory clients, since this has no impact on the customer.

Which of the following would NOT be considered to be fraudulent under the Uniform Securities Act? A) A seller of a security misstates a material fact about that issue to the potential buyer, but a trade does not result B) A seller of a security misstates a material fact about that issue to the potential buyer, and a trade results C) An uninterested third party, in connection with the sale of a security, misstates a material fact to the potential buyer, but a trade does not result D) An interested third party, in connection with the sale of a security, misstates a material fact to the potential buyer, and a trade results

The best answer is C. Misstatements of material fact, made in connection with an offer to sell a security, are fraud. It makes no difference if a trade resulted from the offer. An uninterested third party has no financial incentive to make a misstatement of material fact in connection with the sale of a security, so this is not fraudulent. However, an "interested" third party does have a financial incentive to sell that security, so a misstatement of material fact made by that person in connection with the offer or sale of that security is fraudulent.

Which statements are TRUE about the applicability of NASAA recordkeeping rules to investment advisers? I NASAA recordkeeping rules apply to Federal Covered advisers II NASAA recordkeeping rules do not apply to Federal Covered advisers III NASAA recordkeeping rules apply to State-registered advisers IV NASAA recordkeeping rules do not apply to State-registered advisers A I and III B I and IV C II and III D II and IV

The best answer is C. NASAA does not set rules for federal covered advisers - only the Investment Advisers Act of 1940 applies! Federal covered advisers are those with $100 million or more of assets under management and advisers to investment companies. NASAA rules for IAs only apply to State-registered advisers (those advisers with less than $100 million of assets under management).

Which statements are TRUE about the applicability of NASAA recordkeeping rules to investment advisers? I NASAA recordkeeping rules apply to Federal Covered advisers II NASAA recordkeeping rules do not apply to Federal Covered advisers III NASAA recordkeeping rules apply to State-registered advisers IV NASAA recordkeeping rules do not apply to State-registered advisers A) I and III B) I and IV C) II and III D) II and IV

The best answer is C. NASAA does not set rules for federal covered advisers - only the Investment Advisers Act of 1940 applies! Federal covered advisers are those with $100 million or more of assets under management and advisers to investment companies. NASAA rules for IAs only apply to State-registered advisers (those advisers with less than $100 million of assets under management).

Under the NASAA Model Rule covering Investment Adviser records, the adviser's articles of incorporation must be retained for: A 3 years B 5 years C for the life of the firm plus an additional 3 years D for the life of the firm plus an additional 5 years

The best answer is C. NASAA's recordkeeping rule for investment advisers requires that "partnership articles and any amendments, articles of incorporation, charters, minute books and stock certificate books of any investment adviser be preserved for at least 3 years after termination of the enterprise."

Which of the following is (are) defined as federal covered securities? I Common stock of ABC Corp. - which is listed on the NYSE II Preferred stock of ABC Corp. - whose common stock is listed on the NYSE III Bonds of ABC Corp. - whose common stock is listed on the NYSE A) I only B) I and II C) II and III D) I, II, III

The best answer is D. Federal covered securities include NYSE listed, AMEX (NYSE American) listed and NASDAQ listed securities of an issuer; and any senior securities (preferred stock and bonds) of that issuer.

An investment adviser's office located along the coast of Texas is severely damaged in a hurricane. The firm's personnel cannot come to the office and they find that they cannot access the firm's business continuity plan remotely. Some of the personnel working remotely have access to client phone numbers kept on their own computers and use this to call clients and let them know the details of the business disruption. Is this a violation of NASAA rules? A) No, because natural disasters do not come under NASAA's Business Continuity Plan Rule B) No, because customers can be called and given the details of the business disruption C) Yes, because the rule requires that alternate means of accessing records and communicating with customers be provided D) Yes, because the rule requires that a second physical back-up location be available to be put into service in the event of a severe business disruption

The best answer is C. One of the key points about NASAA's "Business Continuity Plan" requirement is that it is mainly focused on business disruptions due to natural disasters. It requires the firm to keep records accessible in an alternate place (typically now in the "cloud") and provide alternate means of accessing these records and communicating with clients. In this example, because records cannot be accessed, this is a violation of the NASAA BCP rule.

An Investment Adviser has just submitted a U-4 registration application for a newly hired salesperson to be registered as an Investment Adviser Representative of the firm. This individual can start soliciting potential clients: A) immediately because the U-4 application has been filed with the State B) once the appropriate licensing test has been passed C) once the State Administrator approves the application D) once the appropriate licensing fee has been paid

The best answer is C. Registration applications filed with the Administrator become effective in 30 days, or sooner, if the Administrator approves the application more quickly. This is the best choice given. Of course, to be registered, a licensing fee must be paid and a licensing test must be passed in most States, but Choice C is the best one offered.

Which of the following statements are TRUE about Registration by Filing? I The issuer must have minimum earnings levels for the 2 of the past 3 years II Copies of any offering materials must be included in the registration filing III The issuer must not have defaulted on any interest payments within the past year IV Registration becomes effective 10 business days after the filing is complete A) I and II only B) III and IV only C) I, II, III D) I, II, III, IV

The best answer is C. Registration by Filing becomes effective 5 business days after the filing is complete (not 10). To qualify, the issuer must be in business continuously for the past 3 years, and be profitable in 2 of the last 3 years. The issuer cannot have defaulted on any interest payments in the last year and must include copies of the offering materials (Prospectus) in the filing.

An agent would be denied registration for all of the following reasons EXCEPT the agent: A) is insolvent B) failed to pay registration filing fees C) was convicted of a securities misdemeanor 11 years ago D) is not affiliated with a broker-dealer

The best answer is C. Registration can be denied to those convicted of a misdemeanor involving the securities business or any felony within the past 10 years. After 10 years have elapsed, that person can re-enter the business. If the agent is insolvent; does not pay filing fees; or is not affiliated with a broker-dealer; registration will be denied.

All of the following individuals are EXCLUDED from the definition of an investment adviser EXCEPT a(n): A) lawyer B) engineer C) geologist D) accountant

The best answer is C. Specifically excluded from the definition of an investment adviser are the following professionals who only give advice about securities that is incidental to their regular practice and who do not charge separately for giving such advice: lawyers, accountants, teachers, and engineers. Note that geologists are not on this list (nor are doctors!).

Under the Prudent Investor Act, a fiduciary is: A) not permitted to delegate investment authority over trust assets B) obligated to make investments in securities that are rated "BBB" or better C) obligated to maximize overall portfolio return consistent with the level of risk assumed D) required to register with the Administrator in the State where the trust is formed

The best answer is C. The "Prudent Investor Act" gives fiduciaries much broader latitude in terms of their ability to allocate trust assets to various investment classes, as compared to the obsolete "prudent man rule" that simply required that investments be of low risk. The concept is that modern portfolio theory can be used to diversify assets and to achieve a greater return that justifies any extra "risk" assumed by the strategy - as long as the strategy is consistent with the investment objectives and needs of the beneficiaries. The fiduciary is judged by overall portfolio performance - not by the performance of each single investment. Since a higher level of expertise may be needed to manage trust assets in this manner, the Act allows the fiduciary to contract with an outside investment adviser to provide asset management. There is no requirement for the trust to be registered with the State Administrator - this is only required for broker-dealers, investment advisers, and their agents.

A Registered Investment Adviser uses a solicitor to refer clients and pays the solicitor for each client referred. Under the Uniform Securities Act of 1956 as amended, the solicitor: A must register as an agent in the State B is not required to register as an agent in the State C must register as an investment adviser representative in the State D is not required to register as an investment adviser representative in the State

The best answer is C. The Act defines an "investment adviser representative" as any partner, officer, director, or other individual employed by an investment adviser, who: Makes recommendations or renders advice regarding securities; Manages accounts or portfolios of clients; Determines which recommendations or advice regarding securities should be given; Solicits, offers, or negotiates for the sale of investment advisory services; or Supervises employees who perform any of the functions listed above. This individual is selling advisory services for the investment adviser and must register in the State as an IAR (Investment Adviser Representative).

Which of the following can be required by the Administrator to register as a broker-dealer? I Minimum dollar amount of net capital II Minimum dollar amount of surety bond coverage III Passing a written examination by the firm's officers IV Meeting minimum experience standards A I and II only B III and IV only C I, II, III D I, II, III, IV

The best answer is C. To register as a broker-dealer, the Administrator can require minimum dollar amounts of net capital; minimum dollar amounts of surety bond coverage; and the passing of an examination. There are no minimum experience standards. By passing the exam, enough knowledge is shown about the law that there is no need for an "experience" standard.

The Administrator would revoke the license of an agent for all of the following reasons EXCEPT the Administrator: A) has attempted to locate the agent at his or her last known address and has determined that the agent is no longer at that location B) finds that the agent has willfully violated a provision of the Uniform Securities Act C) determines that the agent does not have the required experience to act as an agent in that State D) finds that the agent has unknowingly violated a provision of the Uniform Securities Act

The best answer is C. The Administrator cannot revoke the registration of an agent based solely on lack of experience. Registration can be revoked if the Administrator cannot locate the agent (e.g., the agent has moved, but has not notified the Administrator of his or her new address). Of course, registration can be revoked if the agent violates the Uniform Securities Act - it makes no difference if the violation was willful or not.

The Administrator is authorized to do all of the following EXCEPT: A) revoke the registration of all agents associated with a broker-dealer when the broker-dealer's registration is revoked B) subpoena the books and records of a broker-dealer after a suspension order is issued C) suspend a registration pending a hearing without stating a reason for the suspension D) obtain an injunction against any person suspected of violating the Act

The best answer is C. The Administrator cannot suspend a registration pending a hearing unless a reason for the suspension is stated. The Administrator can revoke the registration of all agents associated with a broker-dealer if the broker-dealer's registration is revoked. This must happen because an agent must be affiliated with a broker-dealer to be registered. The Administrator can subpoena books and records; and can obtain an injunction in court against any person suspected of violating the Act.

Federal securities laws supersede the provisions of the Uniform Securities Act in which of the following? I Registration requirements applicable to securities offerings II Registration requirements applicable to investment advisers III Broker-dealer capital, custody, financial responsibility and recordkeeping requirements IV Investigation and bringing enforcement action against broker-dealers for unlawful conduct A) I and II B) III and IV C) I, II, III D) I, II, III, IV

The best answer is C. The National Securities Markets Improvement Act of 1996 (NSMIA) was passed to reduce the overlap of Federal and State securities regulation. As a general rule, States have jurisdiction over securities transactions that occur within the State; while Federal legislation applies to "interstate" transactions. In addition, Federal securities law supersedes State securities law - since under the Constitution's "Supremacy Clause," if any State law impedes Federal legislation, the Federal law prevails. NSMIA formalized this structure by defining: Federal Covered Securities - securities registered with the SEC that cannot be required to be registered with the State (but the State can require a "notice" filing). Essentially, these are exchange and NASDAQ listed issues. Federal Covered Advisers - investment advisers that are registered with the SEC that cannot be required to be registered with the State (but the State can require a "notice" filing). These are investment advisers to investment companies and advisers with $100,000,000 or more of assets under management. Activities That State Law Cannot Preempt - broker-dealer net capital requirements, custody rules, margin rules, financial responsibility rules and recordkeeping rules (all set by the SEC or FRB) cannot be preempted by State rules. However, States are specifically permitted to retain the right to require notice filings; require registration of broker-dealers and their agents; require the registration of advisers with less than $100,000,000 of assets under management; require the registration of all investment adviser representatives (whether the investment adviser is "federally covered" or not); and the State is empowered to "investigate and bring enforcement actions with respect to fraud or deceit; or any unlawful conduct by a broker or dealer or investment adviser; in connection with securities or securities transactions."

Under the National Securities Markets Improvement Act of 1996, which statement is FALSE? A) Federal covered advisers cannot be required to be registered in the State B) Federal covered securities cannot be required to be registered in the State C) Federal covered advisers cannot be investigated by the State Administrator D) Federal laws supersede State laws covering the same actions

The best answer is C. The National Securities Markets Improvement Act of 1996 (NSMIA) was passed to reduce the overlap of Federal and State securities regulation. As a general rule, States have jurisdiction over securities transactions that occur within the State; while Federal legislation applies to "interstate" transactions. In addition, Federal securities law supersedes State securities law - since under the Constitution's "Supremacy Clause," if any State law impedes Federal legislation, the Federal law prevails. NSMIA formalized this structure by defining: Federal Covered Securities - securities registered with the SEC that cannot be required to be registered with the State (but the State can require a "notice" filing). Essentially, these are exchange and NASDAQ listed issues. Federal Covered Advisers - investment advisers that are registered with the SEC that cannot be required to be registered with the State (but the State can require a "notice" filing). These are investment advisers to investment companies and advisers with $100,000,000 or more of assets under management. Activities That State Law Cannot Preempt - broker-dealer net capital requirements, custody rules, margin rules, financial responsibility rules and recordkeeping rules (all set by the SEC or FRB) cannot be preempted by State rules. However, States are specifically permitted to retain the right to require notice filings; require registration of broker-dealers and their agents; require the registration of advisers with less than $100,000,000 of assets under management; require the registration of all investment adviser representatives (whether the investment adviser is "federally covered" or not); and the State is empowered to "investigate and bring enforcement actions with respect to fraud or deceit; or any unlawful conduct by a broker or dealer or investment adviser; in connection with securities or securities transactions."

An institutional buyer is defined under the Uniform Securities Act as: A) an institution with at least $100 million of assets available for investment B) an accredited investor as defined under Rule 506 of Regulation D of the Securities Act of 1933 C) any person defined by the Administrator by rule or order D) any institution that is regulated by the Federal Reserve, SEC, or State Insurance or Banking Commissioners

The best answer is C. The Uniform Securities Act exempts from registration in a State, any broker-dealer or investment adviser that does not have an office in the State and that only deals with "institutional buyers." These institutional buyers include banks, savings and loans, trust companies, insurance companies, investment companies, pension and profit sharing plans, other financial institutions, and anyone so defined by the State Administrator by rule or order. The Uniform Securities Act does not set minimum capital standards to be defined as an institutional buyer.

An agent of a broker-dealer may: I charge a fee for investment advice in addition to any commission charged if a recommendation performs well II not charge a fee for investment advice in addition to any commission charged if a recommendation performs well III charge for clerical services where the charge is not based on performance IV not charge for clerical services A I and III B I and IV C II and III D II and IV

The best answer is C. The only fee that can be accepted for executing a transaction is the original commission charged. A broker-dealer cannot charge separately for investment advice; any charge for investment advice is included in the broker's commission charge. Charges for clerical services are permitted as long as the charges are fair and reasonable and do not discriminate among customers.

Filing of advertising with the Administrator is NOT required for: I U.S. Government securities II Municipal securities III Investment company securities IV NYSE-listed securities A IV only B I and II only C III and IV only D I, II, III, IV

The best answer is D. Filing of advertising with the State cannot be required for exempt securities; exempt transactions; or for federal covered securities. U.S. Governments and municipals are exempt securities. NYSE listed, NASDAQ listed and investment company securities are federal covered securities.

Under NASAA, investment advisers must update their ADV filing made with the State :I yearly, within 90 days of calendar year end II yearly, within 90 days of fiscal year end III within 30 days of any significant material change IV within 90 days of any significant material change A I and III B I and IV C II and III D II and IV

The best answer is C. Under NASAA rules, investment advisers must update their Form ADV (State registration form) annually, within 90 days of fiscal year end, to reflect current and accurate information and must send the updated Form ADV to its clients within 120 days of year end if there is a material change. In addition, if there is a significant material change in the ADV information that occurs during the year, the filing must be amended within 30 days. The Form ADV is stored in the IARD (Investment Adviser Registration Depository) system. It is used to register both State registered advisers and Federal covered advisers, and to send notice filings to States by Federal covered advisers. Also note that while the annual updating amendment required for both Federal covered and State registered advisers must be filed within 90 days of fiscal year end for either; the filing rule for an "other-then-year" end material change notification is "promptly" under SEC rules for Federal covered advisers; while NASAA requires that it be filed within 30 days for State registered advisers.

Under Regulation SP, customers must be given a privacy notice: A) prior to each recommendation B) prior to each trade execution C) prior to the first transaction D) with each statement of account

The best answer is C. Under Regulation SP ("Statement of Privacy"), customers must be given a privacy notice at, or prior to, account opening. An account is considered to be opened with the first transaction. Once the account is opened, the privacy notice must be presented to the customer at least annually thereafter.

ABC Corporation has its common stock listed on the New York Stock Exchange. Which of the following ABC issues is (are) EXEMPT from State registration? I ABC preferred stock II ABC Convertible debentures III Warrants to buy ABC common stock IV Limited partnership units where ABC is the general partner in the venture A II only B I and III C I, II, III D I, II, III, IV

The best answer is C. Under the "blue chip" exemption, if a corporation has its stock listed on a national securities exchange, then any securities offerings of that issuer are exempt from registration under State law. Thus, if ABC Corporation has its common stock listed on the New York Stock Exchange, then ABC preferred stock, ABC bonds, and ABC rights and warrants would all be exempt as well. Thus, Choices I, II, and III are true. Also note that under the National Securities Markets Improvement Act of 1996, these are now defined as federal covered securities, which are only registered with the SEC; the States cannot require registration for these issues. Choice IV is a very different animal. A partnership where ABC Corporation is a general partner is a different legal entity than ABC Corporation itself; and the securities sold by the partnership are not an issue of ABC Corp. - rather, they are an issue of that partnership. Thus, these limited partnership units are a non-exempt offering under this interpretation and must be registered (unless another exemption is available).

Under the Uniform Securities Act, it is unlawful for any person to offer or sell any security in a State unless the: I security is registered in the State II security is exempt from registration in the State III transaction is exempt in the State IV transaction is non-exempt in the State A) I only B) II and III only C) I, II, III D) I, II, III, IV

The best answer is C. Uniform State law requires that for a security to be sold or offered in a State, it must be registered in that State; or it must be a federal covered security; or it must be exempt from registration; or it must be sold in an exempt transaction. If a security is sold in a non-exempt transaction, then that security must be registered in the State. Also, please note that if an agent of a broker-dealer offers a security in a transaction that is either exempt or non-exempt - that agent must still be registered in the State!

All of the following statements are true about unsolicited customer transactions effected through a broker-dealer EXCEPT: A the Administrator may require that the customer acknowledge the transaction with a written statement B the transaction is exempt under State law r C no commissions may be paid to the broker effecting the transaction D the transaction is defined as a "non-issuer" transaction

The best answer is C. Unsolicited customer transactions effected through at broker-dealer are exempt under State law. Note that this only means that there is no requirement that the security involved be registered; the broker-dealer effecting the trade must still be registered in the State or must be eligible for an exemption/exclusion if it is not registered in the State. This is a "non-issuer" transaction, since the issuer does not receive the proceeds of the sale. The State may require that the broker-dealer have the customer sign a "non-solicitation" letter proving that the trade was, indeed, unsolicited. There is no restriction on the paying of commissions in unsolicited trades. This restriction only applies to the private placement exemption; and the exemption that is given to sales where no commissions are paid.

Misstatements of material fact in a securities registration are violations of the Act for which of the following persons? I Issuer II Directors of the issuer III Underwriter IV Agents of the underwriter A I and II only B III and IV only C I, II, III D I, II, III, IV

The best answer is C. Agents are not involved in the filing of registration statements for securities; therefore, they are not responsible for the contents of the registration statement. However, issuers, directors of issuers, and underwriters are all involved in preparing a securities registration statement and have liability for material omissions under the Act.

Under the Uniform Securities Act, an offering of a limited partnership made to a bank trust department is: I a transaction that is exempt from registration II exempt from the advertising filing rules III exempt from the anti-fraud rules A I only B II only C I and II D I, II, III

The best answer is C. An offering of a limited partnership interest to a bank trust department is an exempt transaction. If the security or transaction is exempt, the State Administrator cannot require filing of advertising related to that offer or sale. However, all transactions are subject to the anti-fraud rules.

Transactions in which of the following securities are exempt from the anti-fraud provisions of the Uniform Securities Act? I U.S. Government bonds II U.S. Government agency bonds III Municipal bonds IV Corporate bonds A I and II only B III and IV only C I, II, III D None of the above

The best answer is D. Fraud is fraud is fraud for all securities and transactions, whether exempt or non-exempt. Nothing is exempt from the anti-fraud provisions of the Uniform Securities Act.

When is a bank considered to be a broker-dealer? A Never, because banks are excluded from the definition of a broker-dealer under the Uniform Securities Act B If an assistant manager at the bank solicits a customer to obtain a mortgage from the bank, which the bank then sells to Fannie Mae, which packages the mortgage into a pass-through certificate C If a teller of the bank, when assisting a customer that is making a deposit of a payroll check, offers the customer a money market mutual fund that is primarily invested in Treasury Bills D If a customer service representative at a bank call center offers a bank certificate of deposit of a customer that asks about an investment that is FDIC-insured and that cannot lose value

The best answer is C. Even though banks are excluded from the definition of broker-dealers and their employees are excluded from the definition of an agent when selling bank products, this is most definitely not the case when the bank and its agents are offering securities. If securities are being sold by the bank, then the bank must establish a separate broker-dealer subsidiary and its employees selling the securities must be registered as agents of the broker-dealer. Mutual funds are a security - it makes no difference that the mutual fund is holding money market instruments (which are exempt securities). Note, in contrast, that a mortgage and a CD are bank products - not securities.

Federal covered securities are subject to which of the following? I SEC registration requirements II SEC anti-fraud statutes III State registration requirements IV State anti-fraud statutes A I and II B III and IV C I, II, IV D I, II, III, IV

The best answer is C. Federal covered securities are major exchange listed companies and investment company securities that are registered federally with the SEC. These are no longer required to be separately registered in each State; however the State can still require a notice filing for these offerings. Nothing is exempt from federal and state anti-fraud statutes.

Filing of advertising with the Administrator is NOT required for: I U.S. Government securities II Municipal securities III Investment company securities IV Options Clearing Corporation securities A I and II only B III and IV only C I, II, III D I, II, III, IV

The best answer is C. Filing of advertising with the State cannot be required for exempt securities; exempt transactions; or for federal covered securities. U.S. Governments and municipals are exempt securities. NYSE listed, NASDAQ listed and investment company securities are federal covered securities. Options are non-exempt securities and are not federal covered, so the Administrator can require filing of advertising for these.

Registration of a security in a State means all of the following EXCEPT: A disclosure documents have been filed with the Administrator B the Administrator has reviewed the content and accuracy of the filing C the Administrator has approved of the securities being offered D the appropriate filing fees have been paid to the state

The best answer is C. Registration of a security does not mean that the Administrator approves of the issue. Registration means that required papers have been filed and reviewed by the Administrator; and that the appropriate filing fees have been paid to the state.

The Administrator may issue a stop order for a securities issue "in registration" for which of the following reasons? I The spread taken by the underwriters is excessive II The sale of the securities tends to work a fraud on investors III The issuer's business is illegal in that State IV The issuer's business is unproven in that State A I and II only B III and IV only C I, II, III D I, II, III, IV

The best answer is C. The Administrator may issue a stop order for an issue "in registration" if it is in the public interest and the sale works a fraud on investors; or the underwriter's compensation (spread) is excessive; or the issuer's business is illegal in the State. The issuer's business being unproven in the State has no bearing on halting registration.

Which person is EXCLUDED from the definition of a broker-dealer under the Uniform Securities Act? A A person with no place of business in the State who solely effects exempt transactions for customers that reside in the State B A person with no place of business in the State who solely effects transactions in federal covered securities in the State C A person with no place of business in the State that effects underwriting transactions with other broker-dealers in the State D A person with no place of business in the State who only effects securities transactions with accredited investors in the State

The best answer is C. The Uniform Securities Act excludes from the definition of a broker-dealer, any person who has no place of business in the State and who transacts business exclusively with: issuers of securities involved in the transaction; or other broker-dealers; or banks, savings institutions, trust companies, insurance companies, investment companies, or pension plans. Basically, this provision states that an "out-of-state" broker-dealer that is not dealing with the public, will not have to register in the State. Choices A and B are broker-dealers that are dealing in either exempt transactions or federal covered securities. These are not excluded from the definition, since they can be dealing with the general public. Choice D is a broker-dealer that is only dealing with accredited investors (an individual with either $200,000 annual income or $1,000,000 net worth under Federal law). These persons are also considered to be the "public" - since these dollar limits are not that high. The broker-dealer with no place of business in the State that only deals with other broker-dealers in the State clearly meets the exclusion.

"Persons," as defined under the Uniform Securities Act, include which of the following? I Joint Ventures II Individuals III Unincorporated businesses IV Municipalities A) I and III only B) II and III only C) I, II, and IV D) I, II, III, IV

The best answer is D. "Persons," as defined under the Uniform Securities Act, include Joint Ventures, Individuals, Unincorporated Businesses, and Municipalities. It is important to know who are defined as "persons," since these entities may then be further defined as "agents" (which can only be individuals), "broker-dealers" (which can be incorporated or unincorporated businesses); or "issuers" (which can be incorporated or unincorporated businesses, joint ventures, municipalities etc.).

Which issue would be subject to registration under the Uniform Securities Act? A) Harris Bank, selling an additional common stock offering B) Travelers Insurance Company, selling a debenture offering C) San Francisco, California, selling a general obligation bond offering D) Nanotech Corporation, (OTC Pink Open Market quoted), selling an additional common stock issue

The best answer is D. Exempt securities under the Uniform Securities Act include bank issues, insurance company issues and municipal issues. The corporate issues that are exempt under State law must be either exchange or NASDAQ listed. Note that the OTC Pink Open Market consists of stocks that do not meet NASDAQ listing standards - basically penny stocks - and these are non-exempt under State law.

Which of the following statements are TRUE regarding customer funds or securities and broker-dealer's funds or securities? I Broker-dealers are allowed to commingle customer funds or securities with their own funds or securities positions II Broker-dealers are prohibited from commingling customer funds or securities with their own funds or securities positions III An agent can take customer securities into his or her own possession to deliver to the broker-dealer IV An agent cannot take customer securities into his or her possession to deliver to the broker-dealer A I and III B I and IV C II and III D II and IV

The best answer is D. Agents and broker-dealers are prohibited from commingling customer funds and securities with their own funds and securities. The agent cannot take these customer securities into his possession - this is a violation. He can have the customer send them directly to the broker-dealer for delivery on the sale, however.

An agent receives a strongly worded complaint letter from a customer. The agent discards the letter, deciding to handle the situation only if the customer shows up in person. Which statement is TRUE? A) This is acceptable, since it is up to the agent to decide the best method for handling customer complaints B) This is permitted, since written customer complaints must be sent by the customer to the State Administrator for resolution C) This is prohibited, since all written customer complaints must be forwarded by the agent or broker-dealer to the State Administrator for resolution D) This is prohibited, since all written customer complaints must be forwarded to the manager or principal of the firm for resolution

The best answer is D. All written customer complaints must be forwarded to the manager or principal of the firm for resolution. They cannot be "buried" by agents, hoping they will go away!

Which of the following would be defined as an investment adviser under the Uniform Securities Act? A) U.S. Trust Corp. B) Washington Savings and Loan Corp. C) AIM Investment Advisers, a firm with $400,000,000,000 of assets under management D) Greenwich Investment Counsel, a firm that offers research and asset allocation services to accredited investors

The best answer is D. Any deposit-taking institution is excluded from the definition of an investment adviser under the Uniform Securities Act (USA), making Choice A and Choice B incorrect. Federal covered advisers are also excluded from the definition of an investment adviser under USA. Since any adviser with $100,000,000 of assets or more under management is a Federal covered adviser, Choice C is incorrect as well. There is no exclusion from the definition of an investment adviser for advisers that only deal with accredited (wealthy) investors. Note, however, that there is an exemption available for investment advisers that have no business location in the State and that only deal with other advisers or with institutions. This exemption is not available to advisers that deal with wealthy individuals, however.

A NASDAQ listed issuer plans on offering 5,000,000 new shares in an "add on" offering that will be sold by its underwriters in all 50 States. Which statements are TRUE? I The security must be registered in each State II A notice filing and filing fee are required in each State III A prospectus must be filed in each State IV A consent to service of process must be filed in each State A) I and III B) I and IV C) II and III D) II and IV

The best answer is D. Because this is an offering of a "federal covered" security (exchange listed or NASDAQ listed), the States cannot require a registration filing. The only registration filing is with the SEC. However, each State will still require a "notice" filing and payment of a filing fee; along with the filing of a consent to service of process.

A Chinese Wall must be maintained by a broker-dealer between all of the following EXCEPT: A) Research and Trading B) Research and Sales C) Investment Banking and Research D) Investment Banking and Mergers and Acquisitions

The best answer is D. Chinese Walls to stop information flow must be maintained between :Investment Banking and each of the following: Trading, Sales and Research Trading and each of the following: Research and Sales. The intent of the information barriers around investment banking is to stop the flow of information on upcoming underwritings, mergers or takeover deals being done by the underwriting department to others that might trade on the information for a profit before the public knows about the upcoming deal. Regarding the Chinese Wall required between investment banking and research, the intent is to make sure that research is truly independent and not influenced by the investment bankers at that firm that might demand a "favorable" research report on an issuer so that they can curry favor with that issuer to get future underwriting business. The M & A department and the underwriting department are usually one and the same at investment banking firms. There are no barriers required between these two groups. The intent of the information barrier between research and trading is to stop a trading desk from getting advance knowledge of a research report that the firm will issue and trading on that information before it is publicly released. The intent of the information barrier between trading and retail sales is that if retail brokers know in advance of a broker-dealer's trading strategy, they could use the information to front-run those trades.

A person who offers or sells securities that result in a violation of Uniform State Law has civil liability to: I buy back the security at the original purchase price II pay any reasonable court and attorney's costs III pay interest at the legal rate in the State for the period the security was held; reduced by any income derived from that security A) I only B) I and II only C) II and III only D) I, II, III

The best answer is D. Civil liability under the Uniform Securities Act requires the violator to:buy back the security at the original purchase pricepay any reasonable court and attorney's costs, andpay interest at the legal rate (6%) in the State for the period the security was held; reduced by any income derived from that security.

Which of the following information would be found in a registration statement for a security that is going to be registered by qualification in a State? I Current equity and debt capital of the issuer II Description of issuer's business, product lines and competitive environment III Use of proceeds of the offering IV Offering terms A) I and III only B) II and IV only C) I, II, III only D) I, II, III, IV

The best answer is D. Consider this to be a learning question: Any registration statement for a securities offering includes: Current balance sheet and income statement; Business description; Use of proceeds of offering; Offering Terms; Legal Opinion; Accountant's Opinion.

HYIPs are typically: A) registered securities sold by licensed individuals B) registered securities sold by unlicensed individuals C) unregistered securities sold by licensed individuals D) unregistered securities sold by unlicensed individuals

The best answer is D. High Yield Investment Programs (HYIPs) are unregistered investments sold by unlicensed individuals promising incredible returns, often of 1-2% per day, at little or no risk. Fraudsters use social media to promote HYIP websites, offering "lucrative" returns and "guaranteed profits" and encourage their followers to use a referral link to share the HYIP website with others, in return for a referral fee. These programs are a "hot button" item for NASAA and FINRA.

If a broker-dealer with no office in a State with a de minimis exemption is not registered in a State, then it may effect: A) trades municipal bonds in that State with customers in that State B) trades in corporate bonds in that State with customers in that State C) a trade in a municipal bond in that State with a customer that has recently moved to that State D) an isolated trade in a corporate bond in that State with a customer in that State

The best answer is D. If a broker-dealer with no office in a State is not registered in a State, then it cannot effect securities transactions in that State - it makes no difference if the securities involved are exempt (such as municipal bonds) or non-exempt (such as common stock). Thus, Choices A and B are incorrect.If the broker-dealer is contacting a customer who is temporarily vacationing in a State in which the broker-dealer is not registered, this is OK. The exclusion does not apply when an existing customer has moved to another State, only if they are vacationing there. Thus Choice C is incorrect. Choice D is only correct if that State has adopted a "de minimis" exemption for broker-dealers (some States have done this, others have not). Most States that have "de minimis" exemptions typically allow up to 3 clients in the State for a non-resident broker-dealer and that broker-dealer is not required to be registered in the State. Thus, Choice D is a true statement, since this State has a "de minimis" exemption. Finally, if the broker-dealer with no office in the State only effects transactions with institutional investors in the State, then the general public is not being solicited and the firm is excluded from the definition of a broker-dealer.

Which of the following statements are TRUE? I The Administrator may suspend or revoke a registration for the sole reason that it is "in the public good" II If a broker-dealer registration is suspended, the agent's license is suspended III If an agent's license is suspended, the broker-dealer's license is suspended IV Broker-dealers, but not agents, may have their registration revoked for failing to supervise subordinates A) I and II only B) I and IV only C) II and III only D) II and IV only

The best answer is D. If a broker-dealer's registration is suspended, the agent's registration through that broker-dealer ceases to be effective. However, if an agent's registration is suspended, it has no effect on the broker-dealer's registration. The Administrator may revoke a registration if it is in the public good and the person has violated some aspect of the Act. Registration cannot be revoked solely because it is in the public good. Broker-dealers can have their registration revoked for failing to supervise subordinates. This does not apply to agents, since they have no supervisory capacity.

An IAR has a customer with $1 million under management. The customer is experiencing a cash flow shortfall but does not want to liquidate part of the portfolio because it is performing so well. The client calls the IAR and asks for a short-term loan of $25,000. What should the IAR do? A) The IAR should lend the customer the money because the client has sufficient assets under management to ensure that the loan will be repaid B) The IAR should arrange for the customer to rehypothecate a sufficient amount of securities to a bank to secure the loan C) The IAR should co-sign a loan with the client at a bank D) The IAR should refuse the client's request

The best answer is D. Investment adviser representatives cannot lend money to customers - no exceptions! Note that if the employing advisory firm is a unit of a bank or brokerage firm, there is nothing stopping the bank or brokerage firm from lending money to the customer, as long as the terms and conditions of the loan are no different than that offered to anyone else.

All of the following are defined as securities under the Uniform Securities Act EXCEPT: A Variable Annuity Contracts B Investment Contracts C Mortgage Bonds D Mortgages

The best answer is D. Investment contracts are defined as securities. Variable annuities are defined as securities; fixed annuities are not. Mortgage bonds are defined as securities; mortgages are not.

When is an investment adviser deemed to have custody of client funds? A) When the adviser holds a check payable to the client from the client's broker-dealer B) When the adviser holds a full power of attorney over the client's account C) When the adviser acts as a trustee where the client is the beneficiary of the trust D) All of the above

The best answer is D. NASAA has specific rules to be followed if an adviser takes custody of client funds. "Custody" does not only include accepting client funds or securities, but also includes:accepting prepaid advisory fees of $500 or more, 6 months or more in advance of rendering services (note that the IA Act of 1940 sets this at $1,200 for Federal Covered Advisers);an account that gives the adviser a full power of attorney, which allows the adviser to withdraw funds and trade (but not an account that gives the adviser a limited power of attorney where the adviser can trade only);a trustee for the client - by definition, a trustee has custody, since the trustee has full control over the assets in the account; andinadvertent receipts of customer funds or checks that are not returned within 3 business days.

Under NASAA rules for State-registered advisers, transactions must be recorded in customer account records no later than: A) trade date B) settlement date C) 10 business days following the end of the month in which the transaction was effected D) 10 business days following the end of the quarter in which the transaction was effected

The best answer is D. NASAA rules for State-registered advisers require that customer account records be posted no later than 10 business days following the end of each calendar quarter. Again, note that this is very different than the requirement of Federal securities law that applies to broker-dealers and Federal covered advisers.

The Administrator CANNOT deny an exemption from registration for a(n): A sale of securities to a bank trust department Incorrect answer B. You did not choose this answer. B isolated non-issuer transaction Incorrect answer C. You did not choose this answer. C private placement Correct answer D. You chose this answer D U.S. Government bond

The best answer is D. The Administrator is permitted to modify the Uniform Securities Act in his or her State, and thus, can change any "exempt" transaction. However, the Administrator cannot change the exemption from registration given to the securities specified as exempt under the Act, such as U.S. Government or municipal bonds.

Which statement is TRUE? A) Both password-protected and non-password protected websites are defined as advertising B) Both password-protected and non-password protected websites are defined as sales literature C) Password-protected websites are defined as advertising and non-password protected websites are defined as sales literature D) Password-protected websites are defined as sales literature and non-password protected websites are defined as advertising

The best answer is D. Non-password protected websites can be seen by the general public, so they are defined as advertising. In contrast, a password-protected website is defined as sales literature, because it is seen by a specific audience.

Which of the following securities can be registered by qualification in a State? I Limited Partnership II Fractional Interest in an Oil and Gas Program III Certificate of Deposit for a security IV Real Estate Investment Trust A) I and IV only B) II and III only C) I, II, III D) I, II, III, IV

The best answer is D. Registration by Qualification in a State is the most difficult method and can be used for ANY security - and all of the choices listed are defined as securities. It is typically used for a company's initial public offering where there is no Federal SEC registration, so the State has no other information about the issuer and the issuer must "qualify" to have its securities registered in the State. In contrast, if an issuer is registering with the SEC, it can use the Federal SEC registration as its State registration document under "Registration by Coordination." If an issuer has previously registered securities with the SEC and State, it is a "seasoned issuer" and the State knows who the issuer is. Then the issuer can use the simpler method of Registration by Filing (Notification) in the State.

Which of the following securities can be registered by qualification in a State? A Limited Partnership B Fractional Interest in an Oil and Gas Program C Certificate of Deposit for a security D All of the above

The best answer is D. Registration by Qualification in a State is the most difficult method and can be used for ANY security - and all of the choices listed are defined as securities. It is typically used for a company's initial public offering where there is no Federal SEC registration, so the State has no other information about the issuer and the issuer must "qualify" to have its securities registered in the State. In contrast, if an issuer is registering with the SEC, it can use the Federal SEC registration as its State registration document under "Registration by Coordination." If an issuer has previously registered securities with the SEC and State, it is a "seasoned issuer" and the State knows who the issuer is. Then the issuer can use the simpler method of Registration by Filing (Notification) in the State.

Registration by Qualification would most likely be used for a(n): A issue that is being registered in another State B issue that is being registered with the SEC C secondary offering from an established company D primary offering from a new company

The best answer is D. Registration by Qualification would be used by a first time issuer in a state that has never previously registered securities with the state. Since the state knows nothing about the registrant, the registrant must "qualify" in the state. Registration by coordination allows the coordination of an SEC registration with the state registration (Choice B). Registration by filing would be used by an issuer that has already registered issues in that state - since the state "knows" the issuer, it can simply register a subsequent securities offering in that state by "filing" (Choice C).

An agent living in Alaska solicits customers in California to buy an issue. One customer has a second home in Hawaii, and the agent solicits that person at that address. Which State Administrator(s) have jurisdiction? A) Alaska only B) California only C) Alaska and California D) Alaska, California, and Hawaii

The best answer is D. State Administrators have jurisdiction over any offers that come into the State or that originate from the State. Thus, all 3 State Administrators have jurisdiction. An exemption from registering in Hawaii would be provided only if the customer were briefly vacationing in that State. Because he has a second home in that State, he would be regularly receiving offers in Hawaii, and that State Administrator would thus have jurisdiction, in addition to the Administrators of Alaska and California also having jurisdiction.

All of the following securities are exempt from registration under the Uniform Securities Act EXCEPT: A) unlisted debentures of a company whose common stock is listed on the NASDAQ market B) equipment trust certificates issued by a railroad subject to ICC regulation C) common stock issued by savings and loans D) preferred stock issued by industrial corporations

The best answer is D. Stock issued by industrial corporations is non-exempt. Under State law, senior securities (bonds and preferred stock) of companies listed on a recognized stock exchange are exempt. This is termed a blue chip exemption. Also note that the securities of issuers listed on the major exchanges (NYSE, AMEX (NYSE American) and NASDAQ) are now federal covered securities and cannot be required to be registered in the State. Securities of issuers subject to ICC regulation (common carriers) are exempt. Issues of banks and savings and loans are exempt (these are regulated by the State banking laws).

What can the State Securities Administrator do during an investigation? I Subpoena individuals II Request documents and records III Issue a warrant for an individual's arrest IV Compel testimony of an individual A) II only B) I and III only C) II and IV only D) I, II and IV

The best answer is D. The Administrator cannot issue an arrest warrant - this must be issued by a court of law. The Administrator has the power to subpoena individuals, can require the production of documents and records and can require (compel) an individual to testify.

Under the provisions of the Uniform Securities Act, for willful violations, the State Administrator can: A) institute criminal proceedings B) impose a monetary fine C) file suit under civil liability provisions D) revoke registration of persons

The best answer is D. The State Administrator may, by order, deny, suspend or revoke any registration in the State. The Administrator does not have the power to institute criminal or civil proceedings, or to impose a monetary fine. The Administrator may refer a case to the State Attorney General for criminal prosecution, and if a conviction results, a court of law can impose a fine and a jail sentence.

Which term is NOT defined under the Uniform Securities Act? A) Investment Adviser B) Investment Adviser Representative C) Broker-Dealer D) Broker-Dealer Representative Explanation

The best answer is D. The Uniform Securities Act defines a "broker-dealer;" it defines an "agent" of a broker-dealer (which is a representative, but this is the federal name, not the State name); it defines an "investment adviser;" and it defines an "investment adviser representative" (the agent of an investment adviser). Note the inconsistency here!

Under the provisions of the Uniform Securities Act, NAFTA and GATS, the State Administrator has the power to designate all of the following non-issuer transactions as "exempt" EXCEPT: A) trades effected on the Toronto Stock Exchange B) trades effected on the American Stock Exchange C) trades effected on the Mexico Stock Exchange D) trades effected on the London Stock Exchange

The best answer is D. The Uniform Securities Act exempts secondary market trades of securities that occur on registered stock exchanges from State securities registration requirements (however, remember that the IPO of these issues was either registered in the State or a notice filing was made). Under the provisions of NAFTA (North American Free Trade Agreement between the U.S., Canada and Mexico) and GATS (General Agreement on Trade in Services), the Administrator is empowered to exempt trades that occur on stock exchanges in these other 2 countries. Currently, only trades on the Toronto Stock Exchange are exempted. The Administrator has no power to exempt trades that take place on the London stock exchange.

An agent of a broker-dealer has her office in State A and has customers in States B and C, in which she is also registered. She has a group of customers who are dual citizens of the U.S. and Chile and has been referred business in Chile by some of these clients. To sell securities to these clients in Chile, she files a registration application with the Chilean securities regulator, who denies the application. Which statement is TRUE? A) The action of the Chilean securities regulator has no bearing on this individual's State agent registrations B) The action of the Chilean regulator can cause the Administrator of State A only to revoke her registration C) The action of the Chilean regulator can cause the Administrators of States B and C only to revoke her registration D) The action of the Chilean regulator can cause the Administrators of States A, B and C only to revoke her registration

The best answer is D. The Uniform Securities Act permits the Administrator to deny registration to an applicant or to revoke the registration of an agent based on actions taken by another securities or banking regulator, including foreign regulators.

Under the Uniform Securities Act, which methods of storage are permitted to retain required records? I Microfilm II Microfiche III Digital Storage IV Computer Tapes A I and II B III and IV C II, III, IV D I, II, III, IV

The best answer is D. The Uniform Securities Act states that any records that must be retained must be kept in compliance with SEC rules on recordkeeping. The SEC updated its recordkeeping rules to allow electronic recordkeeping (but paper records, as well as microfilms or microfiches, are still permitted). Electronic storage is permitted on computer disks, computer tapes, or any other digital storage medium.

A broker-dealer that has a place of business in State A would be required to register in State A if it: I sold securities to customers in State AII made an offer to sell securities to customers in State AIII effects securities transactions solely with institutional investors in State AIV effects securities transactions solely with issuers in State A A I and II only B III and IV only C I, II, III D I, II, III, IV

The best answer is D. This one comes down to 1 simple fact. Because the broker-dealer has a place of business in State A, it must register in State A. End of story.

Which statement about the posting of a surety bond as a condition of a broker-dealer's registration in a State is TRUE? A) A surety bond is not required if the broker-dealer does not take custody of client funds or securities B) A surety bond is not required if the broker-dealer is registered in at least 5 other States C) A surety bond is not required if the broker-dealer has been in business for at least 10 years in another State D) A surety bond is not required if the broker-dealer has net capital that is more than the surety bond amount

The best answer is D. To register as a broker-dealer, a surety bond must be posted (typically $10,000); and if the broker-dealer takes custody, a higher bond must be posted (typically $35,000). Thus, Choice A is false - whether a broker-dealer does, or does not take custody, a surety bond is required. (Note that is not the case of investment adviser registration - only advisers that take custody must post a surety bond).There is no exemption from posting a surety bond if a firm is registered in another State or if it has been in business for a minimum time period. Thus, Choices B and C are false. Only Choice D is true - if a broker-dealer maintains minimum net capital, then the Administrator can waive the surety bond requirement.

The common stock of ABC Corporation is listed on the American Stock Exchange (NYSE American). Which of the following securities issued by ABC is EXEMPT under Uniform State Law? I Common Stock II Preferred Stock III Mortgage Bonds IV Warrants A I only B I and II only C II and III only D I, II, III, IV

The best answer is D. Under the "Blue Chip" exemption, if a common stock of an issuer has an exchange listing, it is exempt under the Act. In addition, all senior securities of that issuer are exempt (preferred stock and bonds), as well as rights and warrants of that issuer. Also note that under the National Securities Markets Improvement Act of 1996, these are now defined as federal covered securities, which are only registered with the SEC; the States cannot require registration for these issues.

Under the provisions of the Uniform Securities Act, the ability to make a civil claim is lost: A) upon the death of a customer who purchased the issue B) upon the death of the person who gave the investment advice to purchase that issue C) if the purchaser signs a waiver of rights at, or prior to, completion of the purchase D) if three years have elapsed since the security was purchased

The best answer is D. Under the provisions of the Uniform Securities Act, civil claims must be made within 3 years of the contract of sale, but no later than 2 years of discovery of the facts constituting the violation.

The Administrator, in regards to the registration of securities, may: I impound the proceeds from the sale of the securities until the issuer receives a specified dollar amount II require the filing of original copies of confirmed subscription agreements III require the delivery of a prospectus A I only B I and II only C II and III only D I, II, III

The best answer is D. Regarding registration of securities in a State, the Administrator is empowered to impound the proceeds of the sale of the securities until a specified dollar amount is sold (this is typical for so-called "all or none" underwritings, where, if the entire issue is not sold, the deal is canceled). The Administrator can require the filing of original copies of confirmed subscription agreements (these are completed by customers who wish to "subscribe" to the new offering of securities); and can require that a disclosure document (prospectus) be provided to customers.

A customer enters a bank branch where he has a savings account and is approached by the branch manager who asks: "Are you interested in earning a higher rate of return than we offer on our savings accounts? Let me introduce you to our securities representative." If the customer opens a securities account, which disclosure is NOT required to be made? A) Securities products are not insured by the Federal Deposit Insurance Corporation B) Securities products are not deposits or other obligations of the financial institution C) Securities products are subject to investment risks, including possible loss of principal D) Securities products are subject to taxation of income and capital gains

The best answer is D. When a customer enters a bank that has a securities "kiosk," this is called a securities branch in a bank setting. Any salesperson selling the securities in the branch must be properly registered and licensed. Note that this person can be both a bank employee and an employee of a broker-dealer, usually owned by the bank, at the same time. When a customer wishes to buy securities in that location, the sales representative must comply with the "Not-Not-May" Rule. The salesperson must inform the customer verbally and in writing (this is done by giving the customer a written brochure) that:Securities are NOT FDIC insured;Securities are NOT bank deposits; andSecurities are subject to investment risk and MAY lose value. In addition, the representative must attempt to get the customer to sign a statement that he or she understands this. There is no requirement to disclose the tax consequences of the investment.

An agent of a broker-dealer recommends a specific stock to a customer and says that the stock will most likely increase substantially in value within the next couple of months. The customer invests in the stock and its market price plummets. The customer is upset about the decline in value and wants all of his original commission refunded. Which statement is TRUE? A) The agent is allowed to refund all of the commission originally received from the transaction with the specific authorization of the agent's broker-dealer B) The agent is only allowed to refund a portion of the commission originally received from the transaction with the specific authorization of the agent's broker-dealer C) The agent is allowed to discount the commission based on a formula set forth by the State Administrator D) The agent cannot refund the commission

The best answer is D. When an agent recommends the purchase of a stock, he or she is only allowed to accept the normal commission for the transaction. The agent cannot rebate any commission if the stock decreases in value; nor can the agent accept any larger commission based on an increase in value of the recommended stock. The only time that a refund would be made is if there was an error made by the agent or the firm, which is not the case here. The recommendation was made in good faith by the representative.

Which of the following are defined as "persons" under the Uniform Securities Act? I Joint Stock Company II Partnership III Estates IV Unincorporated Organization A II only B I and IV only C I, III, and IV D I, II, III, IV

The best answer is D. "Persons," as defined under the Uniform Securities Act, include Joint Stock Companies, Partnerships, Estates, and Unincorporated Businesses. It is important to know who are defined as "persons," since these entities may then be further defined as "agents" (which can only be individuals), "broker-dealers" (which can be incorporated or unincorporated businesses); or "issuers" (which can be incorporated or unincorporated businesses, joint ventures, municipalities etc.).

All of the following conditions must be met for an investment to be defined as a "security" under the Uniform Securities Act EXCEPT: A investment in a common enterprise B expectation of earning a profit C management by a third party D guaranteed rate of return

The best answer is D. A "security" is defined as an investment in a common enterprise for profit with management provided by another party (that would be a "third" party). Generally, securities do not have a guaranteed rate of return.

Under the Uniform Securities Act, an agent that sells securities to a customer in a transaction that is not recorded on the books and records of his or her broker-dealer: A can only do so if the securities involved, or the transactions, are exempt B can only do so if the transactions are unsolicited C will cause the agent's registration to be revoked D will cause the agent to become a statutory broker-dealer

The best answer is D. Agents are prohibited from effecting securities transactions for customers unless the trades are known to the broker-dealer; are supervised by the broker-dealer; and are recorded on the books and records of the broker-dealer. This agent is "selling away" from his firm and is executing trades for customers that are not being recorded by the broker-dealer. He or she becomes a "statutory broker-dealer" under the Uniform Securities Act and is required to register in the State as such.

A Canadian agent lives in British Columbia. The agent has a client who is on holiday in the United States for a month during the winter. Can the Canadian agent affect trades for the client while that client is in the United States? A No B Only if the Canadian broker-dealer is partnered with a U.S. broker-dealer who is registered in the State where the client is vacationing C Only if the Canadian broker-dealer is a subsidiary of a U.S. broker-dealer that is registered in the State where the client is vacationing D Yes

The best answer is D. An exemption from registration is given to Canadian broker-dealers that have no place of business in a State that are dealing with pre-existing customers who are vacationing in that State. This addresses the fact that Canadian citizens often visit the United States and if that Canadian citizen effects a securities transaction with his or her existing Canadian broker-dealer, then the State will not require the Canadian broker-dealer and its agents to register. Note that the exemption does not apply to new customers; only to pre-existing customers.

If a registration is found to be incomplete, which of the following statements are TRUE? I The issuer must send the Administrator a complete new filing II The issuer must send the Administrator an amendment to the original filing III A new consent to service of process is required IV A new consent to service of process is not required . A I and III B I and IV C II and III D II and IV

The best answer is D. If a registration statement is found to be incomplete, there is no requirement for a complete new filing. The additional information is provided by filing an amendment with the Administrator. A consent to service of process is required for the initial application of a broker-dealer, agent, investment adviser, and investment adviser representatives, and is also required for securities registration. This form appoints the State Administrator to be the "attorney" for the registrant. If a person is sued, the State Administrator would receive the summons and then notify the person being sued.

Rescission

a person who has sold securities in a State in violation of State law can offer to rescind the sale to any purchaser. This must be done prior to any purchaser instituting suit. With an offer of rescission, the seller offers in writing, to return all monies paid by the customer for the security. The customer has 30 days to accept the offer; if the offer is not accepted by the customer, it becomes void after 30 days, and the customer can no longer sue for recovery of monies.