Series 65 Midterm
A broker-dealer (BD) registered in multiple states must meet the record retention requirements of
The SEC
Which of the following circumstances must be met for a fiduciary to trade options in a trust account? (A) Special circumstances determined by the broker-dealer (B) The trust agreement states the trustee has the power to trade options (C) The trust's investment objectives are determined to be compatible with options trading (D) Only covered options may be traded by a fiduciary
The trust agreement states the trustee has the power to trade options The trust's investment objectives are determined to be compatible with options trading
Only when an investment adviser provides investment supervisory service, and the adviser's principal business activity is the giving of advice, may the term _____ be used.
"investment counsel"
Withdrawal
a form of non-punitive termination and cannot be employed once an investigation has begun.
A large-cap growth fund is the most appropriate choice for
a moderate-risk client because large capitalization stocks are generally less volatile than small-cap stocks and provide long-term capital growth.
The inflation rate
a percentage change in a price index such as the CPI.
Computer disk storage is acceptable provided
a printed copy can be readily obtained and the information on the disk cannot be overwritten.
To determine the total return on this zero-coupon bond,
$50 capital appreciation is divided by the cost of the bond
Churning
(Excessive Trading) inducing trading in a customer's account which is excessive in size or frequently in view of the financial recourses, objectives, and character of the account
The Investment Advisers Act of 1940 provides for an exemption from registration to investment advisers whose clients are residents of the state in which the adviser has its principal office and only place of business and who do not give advice dealing with securities listed on any national exchange (e.g., New York Stock Exchange). This exemption is denied to any investment adviser meeting all of the requirements, but having as a client
a private fund
Section 28(e) of the Securities Exchange Act of 1934 provides
a safe harbor for research and brokerage services provided in exchange for directed transactions.
orders apply to
a specific broker-dealer
Standard deviation measure
a stock's combined systematic (market) and unsystematic (diversifiable) risk
agency cross transaction for an advisory client means
a transaction in which a person acts as an investment adviser in relation to a transaction in which the investment adviser, including an investment adviser representative, acts as a an agent for both the advisory client and another person on the other side of the transaction
In the case of a corporation's liquidation, here is the order that is followed for paying off creditors and stockholders:
1) secured (senior) claims like mortgage bonds, equipment trust certificates, and collateral trust bonds; 2) unsecured liabilities (debentures) and general creditors; 3) subordinated debt; 4) preferred stockholders (regardless of how many adjectives are used to describe the stock); and 5) common stockholders.
Consumers buy fewer________ during recessions and buy more during _______.
1-durable goods, such as furniture, 2-expansions.
When a check is made payable to the investment adviser, it must be returned to the sender within
3 business days or else it will be considered maintaining custody
support level
A technical analysis term describing the bottom of a stock's historical trading range
resistance level
A technical analysis term describing the top of a stock's historical trading range. A price at which selling pressure emerges that stops an uptrend
Which of the following persons is required to register with the SEC as a federal covered adviser? A) An adviser that gives advice to registered investment companies only B) An adviser that manages assets of $90 million or more C) An adviser who gives advice only related to U.S. government securities D) A publisher that gives incidental investment advice only
An adviser that gives advice to registered investment companies only
The Uniform Securities Act considers which of the following to be investment advisers subject to registration in the state? (A) adviser with no place of business in the state who advises wealthy customers in the state on a fee basis only (B) An adviser with a place of business in the state whose total fee income in the state amounts to $150 (C) An adviser with no place of business in a state who only provides advice on fixed annuities (D) An adviser with a place of business in the state who only provides advice to open-end investment management companies registered under the Investment Company Act of 1940
An adviser with no place of business in the state who advises wealthy customers in the state on a fee basis only An adviser with a place of business in the state whose total fee income in the state amounts to $150
Who would likely be civilly liable for making false registration statements, using a prospectus that is untrue, or failing to meet the prospectus delivery requirements of the act
Anyone who has signed the registration statement, anyone who is named in the statement as an expert, and every underwriter may be liable to the purchasers of the securities if the statement contains false information. (officer, director, or expert)
forms of custody
Authority to withdraw funds or securities from the custodian or automatic deduction for fee payments
Where do we find a company's assets, liabilities, and retained earnings?
Balance Sheet
Which of the following corporate actions would have an effect on the company's working capital? A) Paying a utility bill B) Borrowing money from the bank on a 90-date note C) Calling in a portion of a 20-year bond at par D) Declaring a 15% stock dividend
C) Calling in a portion of a 20-year bond at par
Which of the following qualifies under the Section 28(e) safe harbor provisions for soft-dollar compensation? A) Reimbursement for travel expenses incurred to attend a seminar on the latest compliance trends for registered investment advisers B) Rent-free use of unused space in the broker-dealer's office C) Clearance and settlement services provided by the broker-dealer D) Providing access to the broker-dealer's computerized accounting system, allowing the investment adviser to prepare its financial statements
Clearance and settlement services provided by the broker-dealer
impersonal advisory services
General nonspecific advice given across the board
An agent of a broker-dealer is currently doing business in one state and would like to conduct business in another state. When checking with the firm's compliance department, the agent would be told
If the agent is a partner, officer, or director and held that position at the time the broker-dealer was registered in that state, the individual need not register separately.
As a market maker, the firm is permitted to
adjust the size of its inventory to take advantage of market conditions.
Investment adviser representatives are not allowed to share in the capital appreciation or depreciation of their customers' accounts in the same manner as
agents
Registrants must indicate
all other states in which the security is to be registered. The amount of securities to be offered in the state, for which a specific registration is sought, must be disclosed in addition to any adverse rulings related to the offering.
Anyone who sells the underlying security without providing a valid prospectus, uses a prospectus that is false, or omits material information is
also civilly liable to the purchase
The exclusion from the definition of investment adviser is lost only when
an agent (or broker-dealer) receives special compensation for rendering investment advice.
The Uniform Securities Act permits filing an amendment to
an existing registration, increasing the number of shares to be offered and sold, if the public offering price and underwriter's discounts and commissions remain unchanged.
In an agency cross transaction
an investment adviser affiliated with, or under the control of, a broker-dealer represents both sides of a transaction. Therefore, in addition to the advisory fee, commissions are earned
If the common stock is a covered security, as one listed on the NYSE would be, then
any security with a senior claim, such as preferred stock or bonds, would also be considered federal covered.
The consumer price index is best described as
average cost of a basket of goods and services, weighted to represent the purchases of a typical household and indexed to a reference base period
A consent to service of process allows the Administrator to
be the registrant's attorney to receive service of any lawful process in any noncriminal suit, action, or proceeding against the registrant, or the registrant's successor
when an agent of a broker-dealer begins or terminates employment, _______ must promptly notify the Administrator.
both the agent and the broker-dealer
The greatest level of diversification will occur when the correlation coefficient is
closest to -1.0
When a bond (long-term liability) is called in
current assets are reduced, but there is no offsetting reduction to current liabilities. This causes working capital to decrease
Declaration of a stock dividend has no effect on
current assets or liabilities because the payment will be of additional shares, not cash.
Paying a utility bill reduces
current assets with an equal reduction to current liabilities
The term used to describe the processes and policies followed by a financial institution to protect firm and customer data in electronic form from criminal or unauthorized use is
cybersecurity- Identity theft is a part of the cybersecurity program, and one of the tools used to protect is antivirus software.
Working capital
difference between the corporation's current assets and its current liabilities
If a broker-dealer is registered in her state, the Administrator can examine that firm's books and records
during normal business hours without prior notice. To minimize expenses, Administrators usually ask the Administrator of the state in which the broker-dealer has its principal office to ask on their behalf. Alternatively, the Administrator may call on a self-regulatory organization (SRO) like FINRA to examine one of its member firms on behalf of the Administrator.
One of the effects of the NSMIA was to
establish the preemption of federal law over state law.
The intrastate exemption offered under the Investment Advisers Act of 1940 does not apply to an investment adviser with
even a single private fund as a client
Rules apply to
everyone
Two exemptions from the brochure rule
first is if the client is an investment company. The other is if the advice being rendered is impersonal and the charge is less than $500 ($500 as well under the USA) per year.
change in polarity principle
holds that breached support levels become resistance and breached resistance levels become support
If a country's current account shows a trade deficit, it is most likely that
imports are greater than exports.
investment supervisory service
individualized service delivered to a specific client on a continual basis
A broker-dealer with no office in the state is not defined as a broker-dealer in that state if its only business is with
institutions, other broker-dealers, and issuers when engaged in underwriting their securities. There is no de minimis exemption, and any solicitation of individuals into the state, whether in person or by radio, television, or any publication, requires registration in the state.
When an investment adviser representative begins or terminates employment with an adviser registered under the USA, the ______ must notify the Administrator.
investment adviser
When an investment adviser representative begins or terminates employment with a federal covered adviser, the _____must notify the Administrator.
investment adviser representative
Anyone who represents an issuer in effecting transactions between the underwriter and the issuer
is excluded from the definition of agent under the Uniform Securities Act
Mortgage brokers are not in the business of
lending money
unsystematic risk
may be effectively managed through portfolio diversification
Although these investment company securities are exempt from registration in any state, the state
may still require a notice filing, including a consent to service of process and payment of fees, for these offerings to be sold in the state
standard deviation
measures the deviation from the mean (average) Higher standard deviation means higher deviation from the mean
Persons associated with an investment adviser include
members of the board of directors, officers, partners, or managers of an investment advisory firm. Sales representatives and other employees whose duties are not limited to clerical or ministerial functions are included as well
When an investment adviser fails to meet its minimum financial requirements, it must
notify the Administrator by the end of business on the day after discovery and then must file a report of its financial condition by the end of the next business day. Included in the report must be the number of client accounts.
Investment advisers that act as advisers to investment companies registered under the Investment Company Act of 1940
regardless of their size, are required to register with the SEC
A sales agent who is only registered in State A works for a broker-dealer that is registered in all 50 states. A customer who is a resident of State B calls the agent in State A and offers to purchase securities. Under the Uniform Securities Act, the agent should
reject the order because she is not registered in State B
The USA specifically grants the Administrator the authority to make a rule
requiring written acknowledgment of unsolicited orders be recorded on a designated form
Gross profit
sales (or revenues) minus the cost of goods sold (COGS)
senior debt (or senior notes) always refers to
secured debt because the term senior means it comes first.
market makers buy at the bid and
sell at the ask earning the spread.
When a corporation files for bankruptcy, heading the priority for payment would be holders of
senior debt
Federal covered securities, as defined under the Uniform Securities Act, includes
shares of an investment company registered with the SEC under the Investment Company Act of 1940. the term also includes those exempt from registration, such as government and municipal bonds
A stock has been in a downtrend for several days. When its price decreases to near $30, many investors enter orders to buy the stock and the price increases to $31. This is most likely an example of
support level
This power of attorney does not grant the Administrator the authority to
terminate the registration at will nor does it empower the Administrator to verify information or expedite the registration process.
Modern Portfolio Theory (MPT) preaches
that higher returns are accompanied by higher levels of risk.
It is unlawful for any investment adviser to take or have custody of any securities or funds of any client if
the Administrator, by rule, prohibits custody; or in the absence of rule, the investment adviser fails to notify the Administrator that he has or may have custody.
When executing an agency cross transaction, prior written approval from
the client is required
Taking out a short-term loan increases
the current liabilities, but the borrowed money is a current asset of an equal amount.
Total return of a zero-coupon bond is made up entirely of
the difference between the cost of the bond and the sale or maturity price of the bond.
internal rate of return (IRR) is
the discount rate that makes the future value of an investment equal to its present value
An investment adviser cannot lend money to a customer unless
the loan is made through a regulated lender such as an affiliated broker-dealer or an affiliated bank.
The NASAA Model Rule dealing with business continuity plans is concerned with
the protection, backup, and recovery of the investment adviser's books and records, office relocation in the event of temporary or permanent loss of a principal place of business, assignment of duties to qualified individuals in the event of the death or unavailability of key personnel
Beta indicates
the relative volatility of a stock or portfolio to the market
Rescission
the return of the customer's money, plus interest, less any income received from the investment. The customer has 30 days to accept or reject the offer. After that, all rights of recovery are forfeited.
Agency cross transactions are prohibited when
the securities in the transaction have been recommended to both parties by the adviser.
Performing wash trades involves
the simultaneous or near-simultaneous selling and repurchase of the same security for the purpose of generating the appearance of trading activity and increasing the price. This is one of the most common forms of market manipulation
The effective date is determined by
the state Administrator or the SEC, not the person registering the security.
An Investment Adviser (registered on the state level) registered in multiple states must meet the record retention requirements of
the state where the principal office of the adviser is located.
All underwriters purchase new issue shares at one price and
then resell at the public offering price, (that is their underwriting compensation),
Both the broker-dealer and the agent must be registered in the state where business is to be transacted, unless
they both qualify for an exemption from registration in that state (e.g., they have no place of business in the state and their only clients are institutions)
Mortgage brokers
they help parties negotiate terms of a loan, which is why they are called brokers
An agent discovers that he has sold a customer an unregistered, nonexempt security that she thought was exempt. The broker-dealer offers to buy it back on behalf of the agent. Under the Uniform Securities Act,
this is legal and is called rescission
If the yield curve becomes inverted, a likely cause would be that the Fed has
tightened short-term credit
It is only when the compensation is not
transaction-based that it becomes special
The balance of payments tracks
transactions between a country and the rest of the world over a period of time, usually a year.
Seven years ago, Sarah Smith was convicted of possession of a controlled substance in a state where that violation is considered a felony. Sarah has just filed an application for registration as an agent with Kapco Securities, a registered broker-dealer in a state where that violation is only considered a misdemeanor. When viewing this agent's application, the Administrator will
treat the crime as any felony
An investment adviser representative may share in the profits and losses of a customer's account
under no conditions
An investment adviser structured as a partnership lends money to a customer to buy recommended securities. Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, this activity is
unethical
American Depository Receipts (ADR)
vehicle for trading foreign securities in U.S. Foreign companies can "list" their shares for trading on stock exchanges in the U.S.
The NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents includes prohibitions against certain practices designed to manipulate market prices of securities. An activity that would fall within the spectrum of the prohibitions would be
wash trades
Members of the underwriting syndicate on an IPO are prohibited from
withholding shares of that issue in their own accounts; they must make a bona fide public offering
