Series 63 Final Exam 3

When trading on margin, clients are required to deposit:

50% of the market value of the security

An instrument that permits legal documents served to the Administrator to have the same force as if served to an agent is called:

A Consent to Service of Process

Which of the following choices is not considered a security?

A Treasury bond futures contract

A hedge fund is being sold to investors as a private placement under Regulation D. An agent believes that this fund would be an excellent investment opportunity for several of his clients. The agent may discuss the fund with which of the following clients?

A middle-aged couple who are both physicians with a joint annual income of $400,000

All of the following practices are prohibited, EXCEPT:

A sales assistant relays a message that a customer wishes to buy securities

Which of the following choices is NOT a security?

A universal life insurance policy

Which of the following statements is NOT TRUE?

Agent refers to a person who represents an issuer in an exempt transaction

Which of the following persons is NOT excluded from the definition of a broker-dealer under the Uniform Securities Act?

An investment adviser

An advertisement is printed in State A and circulated in State B. A client in State B feels that she has been treated in an unethical manner by the agent who created the advertisement. Which state has the authority to investigate the agent?

Both States A and B

A broker-dealer keeps customer-owned, street-name securities and the broker-dealer's securities together in a way that may not clearly indicate who owns which shares. This could be considered:

Commingling

Broker-dealer A holds customer registered stock in its vault. It also holds its own inventory of stock in the same vault. To save on space and expense, it does not separate customer stock from the broker-dealer's own stock. This practice is called:

Commingling and is prohibited

Which of the following choices is considered a person under the USA?

I. A customer II. A broker-dealer III. An estate IV. An issuer

A fraudulent transaction was initiated by an agent in State Y with a customer who lives in State X. The transaction took place in State Z, where the customer was visiting a relative. Under the Uniform Securities Act, which Administrators have authority over the transaction?

I. The State X Administrator II. The State Y Administrator III. The State Z Administrator

When opening a margin account, which TWO of the following MUST be signed?

II. A hypothecation agreement III. A margin account form

A no-load mutual fund has no:

II. Front-end sales charges III. Contingent deferred sales charges

Under the Uniform Securities Act, which of the following statements is/are FALSE concerning the definition of a broker-dealer?

III. A person who has no place of business in a state and effects transactions with fewer than five clients is not considered a broker-dealer

All the following descriptions would meet the definition of agent under the Uniform Securities Act, EXCEPT:

III. A subsidiary of a bank, registered as a broker-dealer that sells nonexempt securities to the public IV. A broker-dealer that sells only exempt securities within the state

A client has a $5,000,000 account with an objective of income only. Under the Uniform Securities Act, an agent who has discretionary authorization for the account could:

Not buy a speculative stock without the client's approval

An agent is employed by a broker-dealer. Both the agent and the broker-dealer are registered in State X. The agent wants to begin soliciting high net worth retail clients in State Y, where she already has many institutional customers. The CEO of the broker-dealer, who is also the firm's chief compliance officer, approves the agent's activities. The agent may start soliciting retail clients in State Y:

Only after she is registered in State Y

Paul is an investment adviser representative for Bruce Asset Management, a federal covered investment adviser. Although Paul's office is located in State A, he conducts business with clients from State A, State B, and State C. Which of the following choices reflect(s) the state registration requirements in this situation?

Paul must be registered in State A

According to the Uniform Securities Act, which of the following actions accomplishes renewal of an agent's license?

Paying a fee

A broker-dealer agent enters an order ticket for a customer. The order ticket must contain all of the following information, EXCEPT the:

Price of the security at the time of receipt

An agent just received insider information that Company X has been awarded a huge government contract. The CEO of Company X is expected to announce this information to the public tomorrow. All of a sudden, the agent receives a call from one of his long-time clients telling him to purchase shares in Company X for the client. What should the agent do?

Process the client's order without disclosing the information

Which of the following investors may be charged performance fees by investment advisers?

Qualified clients

All of the following practices are prohibited, EXCEPT:

Sharing of a commission on a trade by two agents of a broker-dealer

According to the Uniform Prudent Investor Act (UPIA), what would be of LEAST concern to an investment adviser?

The length of the adviser's contract and amount of fees collected

ACE Investments is a registered investment adviser. Which of its employees are considered investment adviser representatives?

The portfolio managers

Mr. Brown is a client who must fulfill a $300,000 obligation in two years. He currently has the $300,000 and would like your advice on how to invest these funds temporarily. Which of the following choices should you advise?

U.S. government securities

An unregistered agent who is an employee of a licensed broker-dealer is allowed to sell exempt securities to the public:

Under no circumstances

When must action be taken for recovery on a transaction made in violation of a registration provision?

Within three years of occurrence or two years of discovery, whichever occurs first

Monetary disputes between registered persons and their customers are usually settled by:

Arbitration

Which of the following securities offerings would use registration by coordination?

An IPO that will be distributed in 12 states and not listed on any of the national exchanges

Under the Uniform Securities Act, which of the following statements is NOT TRUE concerning the state registration of an agent?

An agent's registration to sell securities in a given state expires at the end of the broker-dealer's fiscal year

Prior felony convictions must be disclosed on Form U4 if the conviction occurred:

At any time

Chris is an agent with D&D Securities. The Administrator has revoked Chris' registration for unsuitability and churning. Based on these facts, which of the following statements is TRUE?

D&D's registration may be suspended as well if the Administrator determines that D&D failed to properly supervise Chris

An investment advisory firm has done extensive research on the pharmaceutical industry and is in the process of buying shares of several companies. Many of the stocks are speculative issues but several of the firm's accounts are conservative. According to the Uniform Securities Act, the placement of shares in any of the clients' accounts:

Is permitted as long as it is consistent with the clients' objectives

An investment adviser is registered in State A and State B. A broker-dealer is registered only in State A. The client of the investment adviser is a resident of State B. The investment adviser asks the broker-dealer to purchase a nonexempt security, which is registered in State B, for the advisory client. The broker-dealer:

May accept the order if the broker-dealer has no place of business in State B

In reviewing prices for a mutual fund, an investor notices that the fund has three listings, one for Class A shares, another for Class B shares, and a third for Class C shares. The distinctions among the three classes of shares would most likely reflect different:

Sales charges and 12b-1 fees

Micro Manager Partners is an investment advisory firm. Micro is creating a new standard contract for its advisory clients. Which of the following clauses should NOT appear in the contract?

The Client agrees to pay a quarterly fee to the Adviser consisting of (i) .25% times the value of the portfolio at the end of each quarter, plus (ii) 2% of any increase in the value of the portfolio compared to the end of the previous quarter. Part (ii) of the fee will not be assessed if the portfolio declines in value

An agent received a written complaint from a client. The next day, the client called the agent to apologize for the anger and tells the agent to disregard it. Which of the following statements is TRUE?

The agent must forward the complaint to a supervisor

An agent of a broker-dealer executes a securities transaction that is not recorded on the broker-dealer's books and records. According to NASAA Statements of Policy, this would NOT be an unethical business practice if the agent had done which of the following?

The agent received the broker-dealer's written authorization prior to the execution of the transaction

Ron X, an agent, offered and sold an unregistered security to several of his clients in State W. These clients subsequently lost a considerable amount of money in this investment. Under the Uniform Securities Act, which of the following statements is TRUE?

The clients may initiate a civil lawsuit to recover their losses

In a soft-dollar arrangement between an adviser and a broker-dealer, the broker-dealer would be permitted to pay:

The cost of a conference concerning the future of the computer software industry

Under the Uniform Securities Act, when would the sale of an unregistered, nonexempt security not be a violation?

The customer provided a written statement that the order was unsolicited

The state Administrator has suspended Heathrow Securities, a broker-dealer. Which of the following statements concerning the broker-dealer is TRUE?

The firm may apply to the state court for a review of the order

Under the Uniform Securities Act, which of the following sale would be considered a nonissuer transaction?

The sale of an outstanding security on the New York Stock Exchange

An agent receives insider information about a stock. Out of nowhere, a customer calls her and places an order to sell the same stock. The agent must:

Execute the client order without mentioning the information

LMRT is a broker-dealer registered in State J. An existing client of the firm who is a resident of State J is on a ski vacation in State C. Under the Uniform Securities Act, if a securities transaction is effected with the client in State C, LMRT would:

Not be required to register as a broker-dealer in State C if it has no office there

According to the NASAA Model Rules for Sales of Securities at Financial Institutions, a networking arrangement between a financial institution and a broker-dealer must:

Set forth the compensation schedule for both parties

According to the Uniform Securities Act, if an employee of an issuer is soliciting employees of that issuer for the purpose of selling securities, which of the following statements is TRUE?

The employee would be considered an agent if she received commissions or other remuneration

An agent takes the prospectus for a new issue and creates a marketing piece that includes all the positive facts from the prospectus but none of the risk factors. According to NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, the agent may give this marketing piece to a client:

This type of communication may never be provided to a client

Under what circumstances may an agent registered in State A sell securities to an investor who is a resident of State B?

Both the agent and broker-dealer are registered in that state

A broker-dealer's registration may be revoked or suspended if the Administrator determines that this action is in the public interest and the:

Broker-dealer violated federal commodities laws within the past 10 years

John is an agent who just opened an account for Mary, a new client. Unfortunately, Mary is very tight-lipped about her finances. She gives John very little information, saying only that she is a conservative investor whose objective is growth. What type of securities may John recommend for her account?

Mutual funds that meet her risk tolerance and investment objectives

An investment adviser is entering into a contract with a new client. The adviser wants to include a provision in the contract that says it will be compensated based on a share of the capital gains or capital appreciation of the account. According to the NASAA Model Rule on Performance-Based Compensation Exemption for Investment Advisers, the adviser may insert this provision in the contract if the client is:

A natural person who has a net worth of $2.1 million excluding the value of that person's primary residence

According to the Uniform Securities Act, which of the following investment advisers would be exempt from registration?

An adviser with no place of business in the state and fewer than six retail clients

Which of the following persons is NOT considered an investment adviser representative under the Uniform Securities Act?

A person who assists clients by entering orders for securities transactions

An agent may NOT:

Call a prospective client after 9:00 p.m.

An investment adviser representative is managing a portfolio for a client on a discretionary basis. The client's objective is conservative growth. According to prudent investor standards, which of the following statements is TRUE about including options in such a portfolio?

Certain types of options strategies may be appropriate as part of a conservative portfolio

If an investment adviser representative is instructed by an existing customer to limit losses in the customer's account, he should:

Consider rebalancing the customer's portfolio and using options to limit risk on existing stock positions

A broker-dealer is a registered market maker in a Nasdaq security. The broker-dealer's current quote states that the firm is prepared to sell to clients 200 shares at $21.00 per share and buy from clients 200 shares at $20.50 per share. Which of the following activities by the broker-dealer would NOT be considered an unethical or dishonest business practice?

Failing to sell 200 shares to a client at $20.75 per share

Under the Uniform Securities Act, which of the following activities of an investment adviser would constitute impersonal advisory services?

Giving a client a list of mutual funds with the lowest expense ratios for the past five years

Sales of viatical investments can be made only to suitable investors. Which TWO of the following investors are considered suitable?

I. An accredited investor under Regulation D II. Anyone with a minimum net worth of $150,000 and gross income last year of at least $100,000, or a minimum net worth of $250,000

Which TWO of the following choices describe an unethical business practice?

I. An agent tells clients that the broker-dealer will rebate their commissions if an IPO does not increase by 10% during its first month of trading IV. An agent highlights the important parts of a prospectus at the client's request

Under the Uniform Securities Act, a state's Administrator may require the filing of which of the following documents by rule or order?

I. Form letters II. Pamphlets and/or circulars III. A prospectus