Series 63 Practice Exams Missed Questions

When does an agency cross transaction occur?

An agency cross transaction occurs when an investment adviser acts as both adviser and broker-dealer and requires prior written approval from the client and special reporting requirements. The adviser cannot recommend the transaction to both parties, only one side or the other.

An individual is an agent for a broker-dealer. He takes and passes the appropriate examinations and forms a sole proprietorship investment adviser. Some time later, he terminates his registration with the broker-dealer. This action would require A) affiliating with another broker-dealer within 30 days B) terminating the IA registration C) amending the Form ADV D) qualifying by re-examination

C

Which of the following constitutes an offer or sale of stock? Solicitation of a tender offer by a corporation. Gift of assessable stock Purchase of shares through the exercise of a warrant. Exchange of shares in a corporate reorganization, such as a merger. A) I and II B) I, II and IV C) III and IV D) II and III

C Assessable stock is considered a sale of stock because the issuer of the stock can bill shareholders for cash representing the par value shortfall at a future date.

Under the Uniform Securities Act, the Administrator may designate another officer to A) set recordkeeping requirements B) grant registration exemptions C) issue a cease and desist order D) serve subpoenas

D An official designated by the Administrator may serve subpoenas since that is basically an administrative function: however, an Administrator may not designate another official to grant registration exemptions or issue cease and desist orders. The recordkeeping requirements are set by law and cannot be altered by the Administrator.

Under the Uniform Securities Act, the definition of an investment adviser does NOT include investment adviser representatives lawyers and accountants whose investment advisory services are solely incidental to their practices broker-dealers who offer investment advice on an incidental basis without special compensation for the advice provided federal covered investment advisers A) I, II and III B) II and III C) I only D) I, II, III and IV

D.) Federal covered investment advisers are those that are registered with the SEC and not at the state level

The term "security" includes all of the following EXCEPT a A) right or warrant to subscribe to any security B) whiskey warehouse receipt C) debenture D) Keogh plan invested exclusively in mutual funds

D.) A Keogh plan, or any other retirement plan, is not defined as a security under the USA. A right or warrant, whiskey warehouse receipts, and debentures are defined as securities.

Under the Uniform Securities Act, when do registration of securities professionals expire?

Every December 31st, unless renewed

What is one of the main requirements of coordination?

One of the requirements of coordination is that a statement of the maximum and minimum expected offering prices and maximum underwriting compensation must be on file with the Administrator for at least two full business days prior to the effective date.

What type of registration do you use if you only have inner state offerings?

Qualification

What are four things that prohibit a fund from being called no load?

There are four things that will prohibit a fund from being referred to as no-load: ANY front-end load Any CDSC A 12b-1 charge in excess of .25% of average net fund assets per year A service fee in excess of .25% of average net fund assets per year

What is notice filing?

When an Adminstrator by rule or order requires federal covered securities to file with the state they are located in

What must the advisory contract include?

Written advisory contracts must disclose services provided; the term of the contract; the amount of the fee or the formula used to compute it; the amount of fee to be refunded, if any, if the advisory fee is prepaid and the contract is terminated; provisions as to whether the adviser has discretionary authority and to what extent; and provisions requiring consent of the client to assign the contract.

Are securities issued by regulated public companies exempt?

Yes

State laws provide for exclusions from the definition of investment adviser. Which of the following persons is specifically excluded under the Uniform Securities Act? A) Investment adviser representatives B) A wholly owned subsidiary of a commercial bank that is in the business of offering investment advice C) Economists whose advice is strictly incidental to their professional activity D) Broker-dealers receiving special compensation

A The USA specifically excludes IARs from its definition of investment adviser. Excluded are banks but not subsidiaries offering investment advice. Once broker-dealers receive special compensation, such as in a wrap fee program, they lose their exclusion. Economists are not included in the list of exclusions.

Under Section 401(j) of the Uniform Securities Act, which of the following are included in the definition of a "person"? An individual An unincorporated association A political subdivision An LLC A) I, II, III and IV B) I only C) III and IV D) I, II and III

A) For test purposes, focus on the three non-persons; deceased individuals, those declared incompetent, and minors. By the way, don't ever pay attention to Section numbers of the Act - those are there for technical accuracy, but you never have to know them for the exam.

Which of the following statements regarding email communications are CORRECT? They are sometimes referred to as electronic communications. Customer complaints received by email are not considered to be in writing. Once received and reviewed, they may be discarded. They must be retained in the same fashion as any other record. A) I and IV B) II and III C) III and IV D) I and II

A) Emails are generally referred to as electronic communications on the exam and meet the requirement for customer complaints to be in writing. Just as with any other written record, these must be kept for the time periods specified in the Uniform Securities Act.

Which of the following statements concerning transactions exempt from registration under the Uniform Securities Act is TRUE? A) The antifraud provisions of the Uniform Securities Act apply to exempt transactions. B) A security sold under an exempt transaction must be registered. C) An unregistered, nonexempt security may be lawfully sold in a nonexempt transaction. D) The Administrator may require that a security be registered and a prospectus delivered in an exempt transaction.

A) The antifraud provisions of the act are always applicable, even if the securities or the transaction are exempt from the registration provisions of the act. Fraud is a crime, and no criminal acts are exempt from the law. If a security is nonexempt, it is required to be registered before sale. The term "exempt transaction" means that a determination of whether the security is registered or is exempt from registration is not necessary to do the transaction. Exempt transactions avoid the necessity of registration and prospectus delivery.

Out-of-state investment advisers with no office in this state are not required to be registered if only giving advice A) on preferred stock B) on growth issues C) to insurance companies D) on securities issued by open-end investment management companies registered with the SEC under the Investment Company Act of 1940

C) It is not the securities they advise on but who the clients are that count. Out-of-state investment advisers with no office in this state must be registered under the Uniform Securities Act unless their only clients are insurance companies, registered investment companies, banks or other institutional investors, broker-dealers, and other investment advisers.

Investment advisers who have custody of customer funds are usually required to have a net worth in the amount of A) $10,000 B) $5,000 C) $50,000 D) $35,000

C.) The rule requires investment advisors with custody over customer funds or securities to have a minimum net worth of $35,000.

It would not be a prohibited practice under the Uniform Securities Act for an agent to tell a client that A) registration of securities implies tacit approval of the Administrator B) the fact that she passed her licensing exams is ample proof of her qualifications C) my commissions are structured so I make money only if the client makes money D) registered nonexempt securities may properly be sold in the state

D)

The term "sale" includes which of the following? A contract of sale A contract to sell The disposition for value of an interest in a security A warrant (for common stock of the issuer) given with the purchase of a bond A) I, III and IV B) II and III C) I and III D) I, II, III and IV

D) "Sale", used interchangeably with "sell", is defined in the Uniform Securities Act as any contract of sale, any contract to sell, and any disposition of a security or interest in a security. The sale of a corporate bond is a sale with or without a warrant attached and involves the disposition of an interest in a security of the issuer. Because the distribution of the warrant is conditional upon the purchase of the bond, the acquisition of the warrant is considered to be a sale.

Under the USA, a person who has passed the appropriate NASAA examination but whose license has not yet been issued can participate in A) accepting unsolicited orders B) prospecting for new clients by mail C) prospecting for new clients in person D) giving a seminar on the benefits of whole life insurance versus term insurance

D) A person who has passed the NASAA exam cannot transact securities business until the Administrator notifies the employer that the registration is effective. Insurance, unless variable, is not a security.

Which of the following statements best reflects how front running is regarded by NASAA? A) Front running is a prohibited practice for the agent, but not for the broker-dealer. B) Front running is a prohibited practice for the broker-dealer, but not for the agent. C) Front running is not a prohibited practice under the Uniform Securities Act and is considered normal practice in the securities industry. D) Front running is a prohibited practice for all securities industry professionals because it subordinates the interest of the customer.

D) Front running is a prohibited practice for all securities industry professionals because it subordinates the interest of the customer.

The Uniform Securities Act provides for civil penalties in the event of improper activities of agents. Under the act, the maximum that a purchaser would be entitled to claim would be the original consideration paid for the security interest at the state's legal rate attorney's fees court costs A) I and II B) I, III and IV C) III and IV D) I, II, III and IV

D) In the event of a civil judgment, the purchaser is able to claim for a return of the original investment plus interest at the state's legal rate. This interest is reduced, however, by any income received on that security. In addition, the agent is liable for court costs and attorney's fees.

An investment adviser representative recommends that a customer purchase shares of Silicon Switches. The representative indicates that the company has reduced market risk because it has graduated to the level of quality acceptable to the New York Stock Exchange. According to the Uniform Securities Act, the adviser's statement is A) permitted because the NYSE sets stringent earnings requirements for listed stocks B) not permitted because the transaction is not suitable for the customer C) permitted because an investment adviser may recommend listed stocks D) not permitted because it is misleading to imply that meeting listing requirements reduces market risk

D) Meeting the listing requirements of the New York Stock Exchange does not reduce the risk of loss to the client, so the agent's statement is misleading and therefore prohibited. NYSE listing requirements are numerical standards and do not imply that the exchange has passed on the quality of the issue.

Which of the following is the most appropriate action for an agent to take who receives a written complaint letter from a client? A) Commence a thorough investigation and provide a report of the results to the agent's employer B) Turn the letter over to the agent's supervisor C) Place a telephone call to the client to resolve the issue D) Forward the complaint to the Administrator and maintain a copy in the agent's records

B)

An employee of a commercial bank selling the bank's bonds to its banking clients is acting in the capacity of a(n) A) broker-dealer B) agent of a broker-dealer C) person excluded from the definition of an agent D) agent of the issuer

C Commercial bank are included in the group of issuers of exempt securities

An individual may NOT act as an agent for more than one broker-dealer A) unless the broker-dealers are unrelated B) unless the broker-dealers are exchange members C) unless the Administrator, by rule or order, authorizes such employment D) under any circumstances

C) An individual may only act as an agent for multiple broker-dealers that are affiliated with each other. If the broker-dealers are unrelated, an agent may not work for them unless the state securities Administrator, by rule or order, authorizes such employment.

When may an individual sell securities as a registered agent for more than one broker-dealer? A) If the agent sells only exempt securities B) If the agent sells different securities for each broker-dealer C) If the broker-dealers are under common control D) If the agent sells only nonexempt securities

C) The Uniform Securities Act provides for multiple registrations when the broker-dealers are under common control or otherwise affiliated. The Administrator has the authority to make an exception and allow dual registration even when there is no relationship between the firms.

Under the Uniform Securities Act, when an agent changes broker-dealers, who must notify the Administrator? The agent The former employer broker-dealer The new broker-dealer A) II and III B) I and III C) I and II D) I, II and III

D) When an agent's employment with a broker-dealer begins or ends, the agent and both broker-dealers must notify the Administrator.

Who must sign off on a joint account with a client before it can happen?

First the employer needs to Second the client needs to