Series 63 Exam 2
A radio program is broadcast from a bank on the weekend. Which of the following actions would be prohibited by the administrator? a. mentioning that the broker-dealer that sponsored this show is affiliated with the bank b. mentioning the advantages of investing in mutual funds without sending a prospectus c. omitting the name of the broker-dealer in any 30 second ads during the show d. omitting the name of the bank during any 30 second ads during the show
C. In general, the name of the broker-dealer that approved the ad is required on all advertisements. Broker-dealers and agents are not allowed to publish a blind ad unless it is a recruiting advertisement for a new hire. This is the exception. A blind ad is one where the name of the broker-dealer or agent is not mentioned in the ad
A client requests that her agent display a quote in a thinly traded security. The client is the majority shareholder in this security and the broker-dealer honors the request and displays the quote. Which of the following statements is true? a. this would be permissible if the broker-dealer believed the quote was bona fide b. this would be considered an unethical business practice c. a broker-dealer may always enter a quote on behalf of a client d. a broker-dealer is not permitted to enter quotes on behalf of its clients
a. A broker-dealer is permitted to publish quotes (bid and ask prices) on behalf of its clients or for its own account. The broker-dealer must believe the quotes are bona fide and not intended to manipulate the market price of a security. If the quotes are not bona fide and the broker-dealer publishes them, it would have committed an unethical business practice
An agent selling investment products on the premises of a bank should always a. disclose to clients that these products are not FDIC-insured b. explain the differences between the FDIC and SIPC c. collect signed waivers of compliance from clients d. disclose to clients that she is an employee of the broker-dealer and not an employee of the bank
a. An agent selling investment products on the premises of a bank must always disclose that these products are not FDIC insured, that they are not bank deposits or guaranteed by the bank, and that they are subject to investment risks, including the loss of principal
Molly has never invested in securities before, preferring to keep her funds in FDIC-insured accounts and CDs. An agent for a broke-dealer is attempting to convince Molly to invest in mutual funds. Molly states "my main concern is the safety off my money. How do I know these mutual funds are safe?" The agent responds "These products are regulated by the securities and exchange commission and state securities laws." Which of the following statements is true? a. this is misleading because it implies that being regulated assures the safety of the investment b. this is misleading because mutual funds are federal covered securities and are not regulated at the state level c. this is not unethical as long as the investment is suitable for Molly d. this is not a violation because the statement is true
a. Even though the agent's statement is true when examined in isolation, it is misleading in context, since it implies that the regulators assure the safety of the investments that they regulate. Regarding choice b, note that the antifraud sections of state securities laws apply to all securities, including exempt and federal covered securities.
All of the following securities are considered federal covered, except a(n) a. regulation D rule 505 offerings b. regulation D rule 506 offerings c. investment companies registered under the investment company act of 1940 d. bank holding companies listed on national exchanges
a. securities issued under rule 505 of regulation D are not federal covered securities. They must be registered in every state in which they are sold, unless they qualify for another exemption. Securities issued under rule 506 of regulation D however, are federal covered. All securities listed on the national exchanges are federal covered securities
A broker-dealer has filed an application to withdraw its registration. Which of the following statements is true? a. the withdrawal will become effective within 60 days after the application is received by the administrator b. the withdrawal will become effective when the administrator determines whether there is an action for revocation of the firm's license pending at the time the application was filed c. by filing an application to withdraw, the firm agrees to settle all charges currently pending without admitting or denying them d. the administrator has two years after the date of the firm's registration is withdrawn to initiate a proceeding for revocation of its license
b. An application for withdrawal generally becomes effective 30 (not 60) days after it was filed. However, the withdrawal will not become effective until the administrator declares whether there are proceedings pending or instituted against the firm at the time the application for withdrawal was filed. This is also true if the administrator institutes proceedings within 30 days after the application was filed. The administrator has one year, not two, after the registration is withdrawn to begin revocation or suspension proceedings against the firm
XYZ is an investment adviser. One of its institutional clients would like to sell 1000 shares of ABC stock. XYZ believes that this would be a suitable investment for another institutional client. XYZ proposes to arrange a trade between the two clients and would charge each customer a small fee for its services. This would allow each client to receive a better price than either could obtain in the open market. Which of the following statements is true in the situation? a. this is permitted since the two clients are institutional investors, but would not be permitted if they were not institutional investors b. this is permitted if XYZ discloses to each client that it us acting as a broker for both parties in the trade and receives each client's written consent d. this is not permitted under any circumstances unless XYZ waives any fee for arranging the transaction
b. An investment adviser that wishes to act as a broker for both a client and another person when effecting a securities transaction for a client must disclose the capacity in which it is acting prior to the completion of the transaction and obtain the client's written consent. Since both parties to the trade are clients, the disclosure and consent requirements apply to both
A sole proprietor who was registered as a broker-dealer is not charging a separate fee for securities advice. According to the uniform securities act, the sole proprietor a. has an exemption from registration as an investment adviser b. would need to register as an investment adviser c. must change from sold proprietor to another business structure in order to become an investment adviser d. must only register if the actives are called financial planning
b. Any business entity not specifically exempted from registration and charging a separate fee for administering advice, is subject to registration as an investment adviser. Broker-dealers are excluded from the definition of an investment adviser if they provided only incidental advice with no separate, identifiable charge
An agent, offered and sold an unregistered, nonexempt securities to several of his clients in State A. These clients subsequently lost a considerable amount of money in this investment. Under the USA, which of the following statements is true? a. the clients may initiate a civil lawsuit to recover their losses with treble damages b. the clients may initiate a civil lawsuit to recover their losses c. this is not a violation of the USA if the security is registered within 30 days of the sale d. the clients may initiate a criminal action against both the agent and the broker-dealer
b. Clients may sue in civil court on the basis that the security was unregistered and nonexempt in an attempt to recover their financial losses, reasonable attorney fees and interest. Treble damages apply only to insider trading. Even if the security is subsequently registered, if it was not registered at the time of the trade, it is prohibited. Clients do not initiate criminal actions. Criminal action must be initiated by a governmental authority
A broker-dealer may need to file all of the following material with the administrator except a. the prospectus for an oil and gas limited partnership b. the marketing materials for a new issue of municipal bonds c. the sales literature for an issue that will be sold within the administrator's state only d. a form letter distributed to an adviser's current clients explaining the benefits of a variable annuity
b. Generally, the administrator may require the filing of "any prospectus, pamphlet, circular, form letter, advertisement or other sales literature or advertising communication" intended for distribution to investors or prospective investor's. However, the administrator may not require that sales materials related to exempt securities, exempt transactions, or federal covered securities be filed. Municipal securities, choice b, are exempt securities
Under the USA, which of the following choices is not a security? a. non-traded REITs b. stock futures c. Keogh participation units d. options on currency futures
b. Under the USA, futures, forwards, currencies, and commodities are not considered securities. Although futures are not securities, options on futures are. While a Keogh Plan is not a security, a participation unit in the plan is defined as a security. A real estate investment trust is a security regardless of how or if it is traded
When a broker-dealer exercises discretion in a client's account a. a power of attorney should be obtained before the settlement date b. a power of attorney should be obtained before the first order is submitted c. the state requires that a client provide the firm with a cash deposit d. the state must be notified that an agent will exercise discretion
b. a power of attorney should be obtained before the first order is entered
A broker-dealer must keep all the following records except a. original copies of all income client correspondence b. from ADV for any investment adviser for which the broker-dealer provides safekeeping services c. signed copies of all discretionary account agreements executed by clients d. copies of all order tickets
b. according to the securities exchange act of 1934, a broker-dealer must keep all these records except for form ADV. Investment advisers who have custody of client assets must place these assets with a qualified custodian for safekeeping and must notify the regulators that is has custody using form ADV.
Which of the following statements is not true regarding licensing and registration standards for broker-dealers? a. the administrator may require that a broker-dealer have a minimum net capital as a condition of registration b. a broker-dealer must notify the SEC that it intends doing business in a state before it can transact any business c. the administrator may require registered broker-dealers to post bonds and may determine their conditions d. the administrator may provide for a qualification exam
b. licensing and registration standards for broker-dealers does no include SEC notification of intent to transact business in a particular state. All the other choices are correct
A broker-dealer is a syndicate member involved in a firm-commitment underwriting of a highly anticipated upcoming initial public offering. During the underwriting, the broker-dealer holds onto some of the shares in order to sell them at a later date since the shares are expected to rise in value. The broker-dealer's conduct is a. acceptable if the issuer approves of the trade b. unethical and prohibited under the USA c. allowable only if the shares will be listed on a national exchange d. acceptable since the broker-dealer is accepting risk that the shares may fall in value
b. this situation is known as withholding and is prohibited by both the USA and the securities act of 1933. When a broker-dealer participates in a firm-commitment underwriting, it must sell the shares at the POP as soon as possible
What action may the state securities administrator take without giving the registrant an opportunity for a hearing? a. revoke a registration b. suspend a registration c. cancel a registration d. bar a registrant
c. An administrator may cancel a registration without a hearing if the registration is deceased, judged mentally incompetent, or is missing and cannot be located after a reasonable search. If the administrator revokes or suspends a registration, or bars a registrant, then that person must be given the opportunity for a hearing to contest the administrator's action
An investment adviser with no place of business in a state will not be required to register with the administrator under which of the following conditions? a. the adviser has not been the subject of any disciplinary action b. the adviser has been in business for 10 years c. the adviser will provide advice only to mutual funds d. the adviser will provide advice only to 4401k plans with assets of at least 500,000
c. An adviser who no place of business in a state who only provides advice to mutual funds, other investment advisers, broker-dealers, banks, trust companies, insurance companies, savings and loan associations, and employee benefit plans where the minimum amount of the assets is 1M is exempt from registration
A newly hired employee is applying for registration as an agent in state Z. What information does the agent need to disclose on his application for registration (form U4)? I. any alias that the agent has used II. a real estate partnership that the agent controlled that declared bankruptcy five years ago III. the agent has an unsatisfied judgment against him as the result of an auto accident IV. the fact the agent's house is in foreclosure a. I and II b. II and III c. I, II and III d. I, II, III and IV
c. An applicant for registration must disclose any alias used. The applicant must also disclose any personal bankruptcies or bankruptcies of entities that he controlled during the last 10 years and unsatisfied judgments. Tax liens must also be reported. A foreclosure is not a reportable item on form U4.
Under the USA, which of the following is not considered an offer or an offer to sell? a. an agent attempts to sell a security but the client refuses b. a solicitation to buy a security for value c. a gift of nonassessable securities d. the receipt of a warrant with the purchase of a bond
c. An offer is any attempt to buy or sell a security for value. A gift of nonassesable securities is not considered a sale or an offer to sell. Nonassessable means that the issuer of the security has no legal claim on the owner for additional payments. A warrant that is attached to another offering is also considered an offer.
Which of the following statements is not true regarding the sharing of profits and losses in a client's account by an agent? a. the client's consent is required b. the consent of the agent's employer is required c. the sharing is strictly prohibited d. the agent's profits and losses must be in proportion to the percentage of her contribution
c. If an agent opens a join account with a client, the agent may share in the profits, proportionate to her investment, provided her employer and client approval was obtained
According to the USA, which two of the following statements are true? I. when an agent's license is suspended, the broker-dealer will be sanctioned II. when an investment adviser's license is suspended, the investment adviser representative's license is no longer in effect III. when a broker-dealer is suspended, the agent's license is no longer in effect IV. when an investment adviser representative's license is suspended, the investment adviser will be sanctioned
c. If an agent's license is suspended, the broker-dealer's registration remains intact. However, an agent's license is only effective when the broker-dealer's registration remains in effect. When an investment adviser's license is suspended, the investment adviser representative's license is no longer in effect. While it is possible that a firm may be sanctioned for failure to supervise, this is not always true. Therefore, it is wrong to say that a broker-dealer or investment adviser will be sanctioned
An agent promoting a new issue knows that one of the officers of the company concerning was previously with another company that prospered because of her. The agent may a. compare these two companies in reference to growth, past and future, because of this officer b. not disclose this information c. make reference that this certain officer was with another company d. none of the above
c. In attempting to promote a new issue, the agent may not claim that since the officer helped a former company prosper, the same will happen with the new company. However, the agent may make reference to the fact that the officer was with the other company
Market manipulation includes I. disseminating false quotations or information II. buying a security on one exchange and selling it short on another III. creating a misleading appearance of trading in a stock a. III b. I and II c. I and III d. I, II and III
c. Market manipulation would include disseminating false quotations or information, or creating a misleading appearance of trading in a stock. Buying a security on one exchange and selling it short on another (arbitrage) would not be considered market manipulation.
Which of the following actions would not be prohibited under the USA? a. telling clients that they are buying municipal general obligation bonds when they are really buying municipal revenue bonds b. knowingly backdating a confirmation c. telling a client that certain securities issued by banks are exempt and that a prospectus is not required d. soliciting transaction in unregistered, nonexempt securities while acting as an agent of a broker-dealer
c. Securities issued by banks are exempt from registration and a prospectus is not required. All of the other activities are prohibited
According to the USA, administrator is not allowed to demand that broker-dealers do which of the following? a. approve their advertising prior to use b. ensure that their advertising is maintained and available for inspection c. file their advertising related to federal covered securities with their state administrator prior to use d. review their advertising for accuracy prior to use
c. according to the USA, all advertising used by a broker-dealer must be supervised and checked for errors. They are also required to keep a file that is subject to audit by the administrator. However, the administrator does not regulate advertising that addresses only federal covered securities
Allies advisory service is a registered investment adviser with its home office in the state of Virginia. The minimum financial requirement for an investment adviser in Virginia is a net worth of 50,000. The firm would like to open an office and provide advisory services in Maryland. However, the minimum net worth requirement in Maryland is 100,000. What action should the firm take in order to open an office in Maryland? a. increase its net worth by another 50,000 b. increase its net wroth to 150,000 to cover both states c. leave its current net worth as is d. post a 50,000 bond to cover the additional requirement in Maryland
c. according to the USA, the minimum financial requirements in a state where an investment adviser maintains its principal place of business sets its registration requirements. No other state may impose a higher requirement than the adviser's home state. Since allied is already registered in Virginia, it is assumed that is its principal state, and that it has already met the net wroth requirements. As a result, Allied cannot be forced to meet Maryland's requirement of 100,000
After buying a large block of stock for herself, an agent is overheard telling another employee that after her purchase she recommended the same stock to a number of her clients who also purchased it. After completing the clients' orders, the agent sold her stock for a large profit. The agent's prohibited action is best described as a. cross trading b. making unsuitable recommendations c. front-running d. excessive trading
c. front-running is the prohibited practice of a broker-dealer or agent buying or selling stock before the public release of proprietary information concerning a large block order. In this question, another form of front-running is exemplified by the agent buying a stock and then recommending that her clients buy the same stock. After the recommendation to her clients, the agent would likely benefit from the potential increase in the stock's price. Even if the client recommendations are suitable, it is unethical for the agent to put herself before her clients.
Under the USA, a person who sells securities in violation of the state securities law is civilly liable for which two of the following penalties? I. fines II. interest III. punitive damages IV. attorney fees a. I and III b. I and IV c. II and III d. II and IV
d. A person who sells securities in violation of state securities law is civilly liable for principal, interest, reasonable attorney fees, and court costs
All order tickets must include which information? I. whether the order was solicited or unsolicited II. the time and price at which the order was executed III. the time at which the order was received and entered IV. the account for which the order was entered a. I and II b. I, II and III c. II, III and IV d. I, II, III and IV
d. All order tickets must contain - the terms and conditions of the order - whether the order is solicited or unsolicited - the account name or designation for which the order is entered - the identity of the RR if any - identify of anyone else who accepted or entered the order for the client - whether the order involved the exercise of discretionary authority - the time at which the firm received the order - the time and price at which the order was executed, or modified or cancelled
Gene is an agent of broker-dealer Z. Broker-dealer Z is underwriting a new offering of stock for ShortSight company and gene has sold some of the stock to one of his clients. The client quickly decides she does not want to keep the stock and tells gene to sell it at the market. Broker-dealer Z has worked hard to win ShortSight's investment banking business and does not want to alienate the company. It has, therefore, told its agents to discourage customers from reselling the new stock too quickly. Gene holds on to his client's sell order for several days before finally executing it. The client actually receives a better price than she would have obtained if the order had been entered immediately. Which of the following statements is true in this situation? a. Gene acted improperly since new issues may not be resold within the first 6 months b. Gene acted properly in getting best execution for the client c. Gene would have acted improperly only if the customer had lost money on the trade d. Gene acted improperly
d. Gene acted improperly because it is always an unethical practice to knowingly fail to follow the customer's instructions. Even if the agent believes that not following the customer's instructions would be in the best interests of the client, the agent is not permitted to ignore the customer's directions. Private placements sold under regulation D may not be sold for six months.
Z Best, a broker-dealer, has filed an application for registration with the administrator of NY. Three years ago, the firm was suspended from trading on the London stock exchange, due to the activities of a rough trader. The firm's clients were not affected in any way. Upon receipt of the application, the administrator may a. grant registration since foreign governments have no jurisdiction in the US b. deny registration since any suspension is a securities-related misdemeanor c. grant registration because the evidence would be inadmissible in court d. deny registration as any action by a foreign securities regulator may result in a denial by the administrator
d. Under SEC 204 of the USA, the administrator may, by order, deny, suspend, revoke, cancel, or withdraw the registration of any registrant that has been the subject of a foreign securities regulator's disciplinary action, within the past 5 years. The fact that foreign governments have no jurisdiction or that evidence may be inadmissible
According to the USA, when does a broker-dealer registration expire? a. when the administrator declares it to no longer be effective b. when the broker-dealer notifies the administrator that it no longer has an office in the state c. one year from the effective date d. on December 31
d. Under the USA, all securities professionals' registrations expire annually on December 31. Thereafter, they must be renewed by the firm. Choice c applies to registration of securities by the issuers
C. Under the USA, an investment adviser who has no place of business in a state is exempt from registration in that state if the adviser provides advice in which of the following situation? I. the adviser had no more than 5 clients in that state within the last 12 months II. the adviser had no more than 15 clients in that state within the last 12 months III. the adviser provided advice only to investment companies in that state IV. the adviser provided advice only to insurance companies in that state a. I and IV b. II and IV c. III and IV d. I, III and IV
d. an adviser whose clients are all institutions or who has no more than 5 clients in a state is exempt from registration, provided that the adviser has no place of business in that state
Which two of the following factors should be considered by an investment adviser when making recommendations to a client? I. a client's educational background II. a client's attitude and values about investing III. the client's professional experience IV. the client's investment experience a. I and III b. I and IV c. II and III d. II and IV
d. investment advisers should consider all relevant information about a customer when making specific investment recommendations. The educational background of a client and her professional experience (work history) are not as important as understanding her investing experience, attitudes, and values (risk tolerance, social standards etc)