Series 63
Which statements are TRUE about the use of testimonials in advertising?
-Testimonials are permitted in broker-dealer advertising -Testimonials are prohibitied in investment-adviser advertising
Registration by qualification:
- Is used by issuers for their first time registration in that State when no SEC registration is required (that is, they must "qualify" their issue for registration in the State). -Registration becomes effective when the Administrator so determines (which is normally 30 days after filing, if there are no "problems" with the filing).
Which statements are TRUE regarding the post-registration requirements of the Uniform Securities Act?
-Agents of broker-dealers are not subject to post-registration requirements -Agents of investment advisers are not subject to post-registration requirements
Which records MUST be retained in a state-registered investment adviser's principal office?
-Customer securities positions -Records of customer purchases and sales orders
Which statements are TRUE about the retention of customer account records for broker-dealers under Uniform State Law?
-Customer trade confirmations must be retained for 3 years -Customer account statements must be retained for 6 years
Which statements are TRUE regarding the post-registration requirements of the Uniform Securities Act?
-Investment advisers are subject to post-registration requirements -Agents of investment advisers are not subject to post-registration requirements
NASAA states that Investment Adviser order tickets must contain:
-Name of the person at the IA who recommended the transaction; -Name of the person who placed the order; -Date of order entry; -Name of account for which order was entered; -Name of broker-dealer or bank to which the order was sent for execution; -Whether the order was discretionary.
All of the following are defined as securities under the Uniform Securities Act EXCEPT:
-Physical commodities (e.g., gold, wheat, etc.), -futures contracts that trade on these commodities in such markets as the Chicago Board of Trade
A Certified Public Accountant offers clients financial planning services, for which a separate fee is charged. Which statement is TRUE?
-The accountant must register in the State as an Investment Adviser -If this accountant did not separately charge for financial planning, then he (or she) would not be defined as an investment adviser. Because a separate fee is being charged, the CPA is defined as an Investment Adviser who must register in the State. If the CPA has any employees that sell financial plans, they would have to register as Investment Adviser Representatives (IARs).
offer to sell" is:
-The gift of an assessable security (which obligates the recipient to make future payments) -A security that is "given" in consideration for the purchase of another security, since by tying the "gift" to the purchase of the other security, that person is really buying both, and both must be registered in that State -A rights or warrants offering on an underlying security, since the rights give the holder the right to buy the underlying stock from the issuer at a pre-determined price.
Securities sold through a private placement are:
-Unregistered; -Exempt transaction -An offer to no more than 10 persons in a 12 month period.
Under the provisions of the Uniform Securities Act, the determinant of whether an investment adviser can take custody of client funds is whether the RIA:
-has taken out a surety bond -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.
Under NASAA recordkeeping rules for investment advisers, any advertisement, circular or other communication:
-must be retained if it is circulated to 2 or more persons -can recommend the purchase or sale of a specific security and if it does not state the reasons for the recommendation, a memo must be retained indicating the reasons for the recommendation
A research report on an issuer CANNOT be published by the underwriter of that issuer's securities for the time period encompassing:
10 days following the effective date for an initial public offering 3 days following the effective date for a secondary offering
The statute of limitations for filing claims under the Uniform Securities Act is:
5 years (Note, in contrast, that Federal law is 3 years).
Suits alleging criminal violations of the Uniform Securities Act must be brought within
5 years of the occurrence of the alleged violation.
To use Registration by Coordination, an issuer must file a registration statement with the:
I Securities and Exchange Commission II Administrator of another State III Administrator of that State (I & III)
An Investment Adviser Representative (IAR) is permitted to borrow money from:
A close relative
Which of the following does NOT qualify as an exempt transaction under the Uniform Securities Act?
A. A sale of common stock to an insurance company B. A sale of preferred stock by an executor of an estate C. A sale of an outstanding security that is listed on the New York Stock Exchange D. An isolated sale of corporate bonds on behalf of an issuer (Correct Answer)
Under NASAA rules, which of the following records must be retained for 5 years by a Federal Covered Adviser?
A. Communications to 2 or more persons B. Order memoranda C. Canceled checks D. None of the above (Correct Answer)
Under the Uniform Securities Act, which of the following securities is non-exempt?
A. Equipment trust certificates issued by a railroad subject to ICC regulation B. Common stock issued by savings and loans C. Warrants issued by industrial corporations (Correct Answer)
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 (Correct)
Which form(s) MUST be signed by the customer in order to open a margin account?
A. New Account Form B. Hypothecation Agreement (CA) C. Loan Consent Agreement D. All of the above
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 (CA)
Which of the following securities is NOT exempt from the registration requirements of the Uniform Securities Act?
A. U.S. Government Bonds B. Debentures of a New York Stock Exchange listed company C. Stock issued by a charitable corporation D. Limited Partnership Interests (Correct Answer)
Filing of advertising with the Administrator is required for which one of the following?
A. U.S. Government securities B. Municipal securities C. Investment company securities D. Options Clearing Corporation securities (Correct)
All 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:
A. a current balance sheet of issuer B. the price of the security being offered C. the use of proceeds of the offering
All of the following are true statements about managed wrap accounts EXCEPT:
A. a single annual fee is charged for account maintenance B. no separate commission charges are imposed for each transaction performed in the account C. no separate charges are imposed for safekeeping of securities in the account D. no options transactions are permitted in such account types (CA)
All of the following State-registered advisers must file an annual audited financial statement with the Administrator within 120 days of completion of a surprise audit EXCEPT an adviser that:
A. accepts $500 or more of prepaid advisory fees, 6 months or more in advance of rendering services B. uses a qualified custodian to hold customer assets C. maintains custody of customer assets D. exercises discretion in customer accounts under a limited power of attorney (CA)
It is an unethical business practice for an investment adviser to borrow money from a:
A. bank that is the adviser's client B. broker-dealer that is the adviser's client C. pension fund that is the adviser's client D. any of the above Investment advisers and their agents are prohibited from borrowing money from customers - unless the customer is in the business of lending money (which is the case with banks and broker-dealers).
All of the following orders must be retained as a record by broker-dealers EXCEPT:
A. executed orders B. unexecuted orders C. canceled orders D. subscription orders (CA)
All of the following are defined as "persons" under the Uniform Securities Act EXCEPT:
A. individuals B. joint stock companies C. unincorporated organizations D. trusts where the interests of the beneficiaries are not evidenced by a security (CA)
In order for a promissory note to be an exempt security under the Uniform Securities Act:
A. it must mature within 9 months B. it must be issued in minimum denominations of $50,000 C. it must be rated in one of the 3 highest categories by Moody's D. all of the above (Correct)
An individual's registration as an agent would be denied under the Uniform Securities Act for all of the following reasons EXCEPT the individual was convicted:
A. of a drug misdemeanor 8 years ago (Correct Answer) B. of a drunk driving felony 8 years ago C. of a securities misdemeanor 8 years ago D. in a lawsuit brought by the Securities and Exchange Commission 8 years ago
All of the following statements are true about an offer of rescission EXCEPT:
A. the offer can only be made prior to the institution of a lawsuit alleging a securities violation B. an offer must be made to buy back the security at the original purchase price C. the customer must be paid interest at the legal rate in the State, less any dividend or interest income received from that security
Under NASAA rules, each Registered Investment Adviser must establish, implement and maintain a Business Continuity and Succession Plan that covers all of the following items:
A. the protection, backup, and recovery of books and records B. alternate means of communicating with customers, key personnel, employees, vendors, service providers and regulators, including providing notice to these persons of significant business interruption, cessation of business activities or death or unavailability of key personnel C. minimization of service disruptions and client harm that could result from a significant business disruption
NASAA Model Rule 502 (c) applies to:
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.
Under the Uniform Securities Act, "consent to service of process" means that the
Administrator is authorized to receive suits on behalf of an agent or broker-dealer
An agent is conducting securities activities on the premises of a bank. Which statement is TRUE?
Both oral and written disclosure is required that the products offered are not FDIC insured; are not deposits; and are subject to risk of loss of principal
Administrators can require minimum Net Capital and Net Worth for
Broker-Dealers
Regarding the Administrator's ability to inspect the books and records of a broker-dealer, which statement is TRUE?
Broker-dealer records may be examined in any State in which the firm does business
The state administrator would revoke an investment adviser's registration if the adviser:
Convictions during the past 10 years for securities or money related misdemeanors, or any felony, will cause the State to deny registration.
A company that has never previously issued securities registered with the Securities and Exchange Commission, can register in a State by:
Coordination & Qualification Registration by Filing is only available to "seasoned" companies that have previously registered securities with the SEC. If a company has never issued securities before, this method cannot be used. Registration by Coordination coordinates State registration with a current Federal registration. This method is available to a company that has never registered securities in the State, as long as a current SEC filing is being made. Registration by Qualification is a detailed filing in that State for any issuer and is also available for first time registrants.
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:
Correct Answer (A) 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
State "blue sky" laws provide for:
I Registration of broker-dealers II Registration of agents III Registration of investment advisers NOT ISSUERS
A client of an investment adviser representative has enjoyed excellent returns on his portfolio over the past 5 years. The client needs $25,000 of cash, but does not want to sell securities from his portfolio since it is performing so well. He asks the investment adviser representative for a loan, which the investment adviser representative gives. The investment adviser representative is guilty of a:
Fiduciary Violation
The Administrator, by order, can deny any exemption from registration for which of the following?
I A municipal bond issued by another state, sold in the Administrator's state II An isolated non-issuer transaction III A sale of securities to a bank trust department IV A private placement (II, III, IV)
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 (I, II, III)
Which of the following MUST notify the Administrator if an agent of a broker-dealer is terminated?
I Agent II Ex-employer
Misstatements of material fact in a securities registration are violations of the Act for which of the following persons?
I Broker-dealer underwriting the securities II Agents of the broker-dealer underwriting the securities III Issuer of the securities IV Directors of the issuer of the securities (I, III, IV)
Under the Uniform Securities Act, an investment adviser may be formed as which of the following?
I Corporation II Partnership III Association CANNOT BE FORMED AS BD. AND VICE VERSA
Which information is required to be on an order ticket prior to entry of the order?
I Customer name or account number II Customer address III Customer social security number IV Registered representative name or number (I & IV)
Which of the following are defined as securities under the Uniform Securities Act?
I Individual Retirement Accounts II Keogh Plans III Commercial Paper IV Real Estate Condominium Investments (Correct III & IV)
Which of the following can be filed electronically?
I Registration application information II Signature requirement III Payment of fees IV Answer to a subpoena (I, II, III)
Which of the following statements are TRUE about unsolicited customer transactions effected through a broker-dealer?
I The Administrator may require that the customer acknowledge the transaction with a written statement II The transaction is exempt under State law III The transaction is defined as a "non-issuer" transaction IV Commissions may be paid to the broker effecting the transaction
An agent of a broker-dealer wishes to create a website to solicit securities business from customers. Based on each customer's responses to questions asked, appropriate investment recommendations will be made. Which statements are TRUE?
I The broker-dealer must review and approve the content of the website II The Administrator must review and approve the content of the website III The broker-dealer must be registered in each State where a customer responds to the website IV The agent must be registered in each State where a customer responds to the website (I, III & IV)
If an adviser is suspicious about a customer's account activity and believes that there may be illegal activity, then the adviser:
I must file a CTR report with FinCEN II must file an SAR report with FinCEN III in 15 days IV in 30 days (II & IV)
An agent of a broker-dealer puts up a website that promotes the benefits of dollar cost averaging, including the caveat that it is suitable for investors only if they can maintain their periodic payments regardless of economic conditions and that it requires a long-term investment time horizon. If the website is viewed by an individual in another State where both the broker-dealer and agent are not registered, which of the following disclosures are required on the site in order not to be in violation of the Uniform Securities Act in that State?
I. "The broker-dealer or agent may only transact business in the State if registered in the State or if exempted or excluded from registration" II. "Follow ups or individualized responses to persons in the State that involve either effecting or attempting to effect transactions in securities will not be made absent compliance with State registration requirements or an applicable exemption or exclusion"
Which of the following investment advisers are NOT required to register in a State?
I. An investment adviser that has no place of business in the State and which has no more than 5 clients in that State within a 12 month period II. An investment adviser with at least $100,000,000 of assets under management registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940 III. An investment adviser that has no place of business in the State that deals solely with Investment Companies as defined under the Investment Company Act of 1940 IV. An investment adviser that has no place of business in the State that deals solely with other investment advisers
Which of the following securities qualify for a Blue Chip exemption under the Uniform Securities Act?
I. Common stock listed on the American Stock Exchange (NYSE American) II. Common stock listed on the NASDAQ III. Limited partnership offering where the general partner is a company listed on the American Stock Exchange (NYSE American) IV. Unlisted mortgage bonds of a company whose common stock is listed on the American Stock Exchange (NYSE American) I, II, IV
Which of the following statements are TRUE regarding the suspension of a broker-dealer's registration and an agent's registration through that broker-dealer?
I. If a broker-dealer's registration is suspended, the agent's registration through that broker-dealer ceases to be effective
Under NASAA rules, advertisements by investment advisers:
II cannot contain testimonials III can unconditionally make an offer of free services
The Administrator
II cannot deny an exemption retroactively III can vacate a stop order retroactively
Which of the following items would be included in the computation of an investment adviser's net capital?
II. Furniture and fixtures III. Automobiles
The Administrator may NOT deny effectiveness to a securities registration if:
II. an officer of the issuer has previously filed for bankruptcy IV. the issuer's liabilities exceed assets
If an investment adviser finds that its Net Capital is below the minimum requirement, it MUST:
II. give notice to the Administrator no later than the next business day III. file a report of financial condition with the Administrator no later than the day after notice is given
Registration by Coordination
If the issuer is registering the issue with the SEC, it can use the SEC documents as the registration application in the State under
Registration by Filing
If the issuer previously registered securities in the State, then the State knows this issuer. Then, the issuer can register by the simpler method of
A broker-dealer located in New York makes an offer of securities to a customer whose principal residence is in New Jersey. The customer has temporarily moved to Ohio and has asked the post office in New Jersey to forward the mail to the customer's address in Ohio. Which State Administrator(s) has (have) jurisdiction over the offer?
New York only Because the broker-dealer is located in New York, that State Administrator has jurisdiction. Normally, if an offer is received in a State (New Jersey in this case), then New Jersey's Administrator would have jurisdiction. But the offer was never received in New Jersey because it was forwarded by the post office on to Ohio. Thus, an offer was never made in New Jersey and that State Administrator does not have jurisdiction. One would think that because the offer was ultimately received in Ohio, 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 Ohio and should not be subject to the law of Ohio on this offer
If an investment adviser buys out another investment advisory firm, which statement is TRUE about filing fees paid to the State?
No additional filing fee is required
If a representative that transacts business in a State terminates employment with a federal covered adviser:
Notice must be given to the Administrator by the representative only
Under the Uniform Securities Act, in a civil suit brought by a purchaser against a seller that is alleged to have violated the Uniform Securities Act, the burden of proof rests with the:
Plaintiff The burden of proof in any lawsuit is placed on the plaintiff - not the defendant. The buyer of the securities is the plaintiff in the suit and must prove to the satisfaction of the court, that the seller (the defendant) violated the Uniform Securities Act.
Transactions that violate the Uniform Securities Act are voidable at the option of the:
Purchaser
Which Act can be used to coordinate a securities registration filing under the provisions of the Uniform Securities Act?
Securities Act of 1933
Registration of a security in a State is required if the:
Security has been registered with the Securities and Exchange Commission under the 1933 Act
A registered investment adviser lives in State X. The adviser does business with 1 client in State A and 1 client in State B. The adviser gives seminars about investing to groups of potential customers in State C. The adviser is required to register in:
States X and C only
Which statement is TRUE regarding the State Administrator's authority to establish recordkeeping rules for broker-dealers?
The Administrator can only establish recordkeeping rules that are the same as those set by the SEC
In order for an Internet Communication of a Broker-Dealer Agent NOT to be considered to be an offering of securities in a State, which statement is FALSE?
The Administrator retains responsibility for reviewing and approving the content of any Internet Communication
An investment adviser wishes to borrow money on behalf of his advisory business. Which statement is TRUE?
The adviser is prohibited from borrowing money The adviser may borrow the money from any customers that have free credit balances in their accounts The adviser may borrow the money from a bank (CA) The adviser may borrow the money from any customer that gives written consent Investment advisers are prohibited from borrowing money from customers. They can borrow from parent companies; and they can borrow from third party lenders in an arm's length arrangement.
A broker-dealer registered in States A and B has an agent that is registered in State A. The agent takes an unsolicited order from a customer in State B. The agent will have to register in State B if:
the customer is an accredited investor
FINRA requires that the margin agreement be signed and returned
prior to settlement of the first transaction in the account
Under NASAA rules, a customer must sign and return the margin agreement:
promptly after the initial transaction in the account
The Administrator alleges that an agent of an out-of-state broker-dealer solicited the sale of an unregistered security within that State. The broker-dealer must:
provide evidence that the security was exempt from registration
An investment adviser is considered to "take custody" of funds or securities from a customer if it:
receives quarterly management fees from the custodian by direct deduction with client consent
Under the Uniform Securities Act, the financial records of a broker-dealer must be retained for:
the time period specified by the Securities Exchange Act of 1934 and if the record is not specified in the 1934 Act, then the time period specified by the Administrator
Bonds issued by a church located in Sullivan County, in the State of Indiana, are being offered to congregants of affiliated churches in the State of Illinois. Which statement is TRUE?
The bonds are only exempt securities in either Indiana or Illinois, as long as a notice filing specifying the material terms of the offer is made in the State
A customer holds 52% of ABCD Corp. common stock, a thinly traded stock listed in the OTCBB. The customer wishes to sell 1% of her holding and requests that the broker display her offering quote. Which statement is TRUE?
The dealer can enter the quote only if it is bona-fide
An investment adviser has researched a privately held company and is extremely bullish on the company's prospects. She makes a personal investment of $100,000, for which the investment adviser received privately placed common stock with a Rule 144 restriction legend. One year later, the company goes public and the investment adviser, still being very bullish on the company, recommends the purchase of the IPO shares to her clients. Which statement is TRUE about this situation?
The investment adviser has created a conflict of interest that must be disclosed to clients who receive the recommendation
An agent owns an ice cream and sweets shop that has been extremely successful. She wants to expand and open new locations, and wants to sell shares of the shop to her friends and other family members. Which statement is TRUE about this activity?
This is an unethical activity unless the agent obtains permission in writing from her employing broker-dealer to sell the shares
An agent of a broker-dealer maintains accounts for immediate family members, including an account for his brother-in-law. The agent is having a bad year, and his brother-in-law offers to lend him $20,000 until things get "better." Which statement is TRUE regarding this offer?
This offer cannot be accepted because borrowing money from a customer is an unethical business practice
Which of the following is the MOST appropriate investment for an estate account?
Treasury Bills The objective of an estate account is to preserve principal and to effect a timely distribution of estate assets. The best investment of the choices offered is Treasury Bills - they are liquid and have little market risk. Long term bonds (the 3 other choices), even if they are liquid and safe, are subject to substantial market risk.
When can an agent represent that a mutual fund is "no load"?
Under both FINRA and NASAA rules, a mutual fund can be called "no load" only if it has no up-front sales charge; no contingent deferred sales charge; and annual 12b-1 fees of no more than .25%.
Under the provisions of the Uniform Securities Act, the Administrator, in connection with a securities registration, is prohibited from revoking a:
registration retroactively
If a person disagrees with a final order of the Administrator, he or she must petition the appropriate court
Within 60 days
criminal violations of Uniform Securities Act are punishable by
a $5,000 fine per offense and up to 3 years in prison.
criminal violations of Federal law are punishable
by a $10,000 fine per offense and up to 5 years in prison.
A person who renders investment advice relating solely about municipal securities is:
defined as an investment adviser and must register under the Act
A Registered Investment Adviser and a Broker-Dealer are owned by the same parent company. The RIA has received information from the BD's research department that it is about to change its rating of DEF Corporation from Neutral to Negative. The RIA sells its holding of DEF Corporation and then has its IARs call its list of clients to advise them that they may want to consider selling the security. The RIA has engaged in:
front running
A registered representative recommends a stock that is not registered in the State that should have been registered in the State. The representative has told his clients that it is a good investment that should be profitable in the near term. The representative:
has not committed a felony or a fraudulent act because he did not know the security should have been registered
An investment adviser will always be considered to have taken custody if the adviser:
is the trustee for the client in a trust account
An Investment Adviser is set up as a sole proprietorship. The owner has hired an Investment Adviser Representative (IAR) to market the firm to potential clients. The most important consideration in the firm's Business Continuity and Succession Plan would be:
making provision for the IAR to contact clients to get their permission to assign advisory contracts to a 3rd party in the event that the owner dies or is unexpectedly unavailable
The amount of commission charged to a customer to effect a securities transaction:
must be disclosed on the trade confirmation
An employee of a company is being paid to assist in the sale of stock options to the company's employees and will receive a bonus based on sales results. This company employee:
must register as an Agent in the State
A market maker in ABCD stock is currently quoting the stock in the OTCBB 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:
must update its quote to: $42.00 Bid (500 shares); $42.50 Ask (800 shares)
If a representative that transacts business in a State terminates employment with an investment adviser:
notice must be given to the Administrator by the investment adviser only