series 63 practice questions
A high net worth retail investor has a lot of experience in equity trading. This investor just placed and order to buy 12,000 shares of a common stock on the NYSE and simultaneously placed an order to sell 12,000 shares of the same stock on the Boston Stock Exchange. According to the Uniform Securities Act, this investor is:
Performing an arbitrage transaction, which is allowable
Subsequent to the issuance of a stop order, the Administrator may do which of the following until all questions are resolved and disclosed?
Postpone or suspend the effective date of registration
A broker-dealer buying and selling securities for the benefit of their own account as a market maker is said to be operating in what capacity?
Principal capacity
Under the USA, form letters, correspondence, brochures, pamphlets, and prospectuses are all considered:
Sales materials
According to the Uniform Securities Act, an agent must always be registered in a state where they transact securities business, unless the agent:
Is exempted from registration
To determine if a person who provides investment advisory services in addition to other financial and non-financial services, SEC Release IA-1092 sets forth a "three-prong test" to determine if such person is required to register as an investment adviser. All the following are used to determine whether a person meets the definition of an investment adviser EXCEPT the person:
Is in the business of buying and selling securities on behalf of its customers or for its own account
Which of the following statements regarding registration by notification is true?
It is used by companies already registered with the SEC and publicly traded
An agent with B Equities, spent two hours on the phone discussing various investment opportunities with a client. Under NASAA's Statements of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the following statements is acceptable?
"Based on your financial situation, I believe that a mix of 45% domestic equities, 30% fixed income and 25% foreign equities is the best way to allocate your assets."
In order for a registration by coordination to become effective, all of the following conditions must be met, except:
1 copy of the latest prospectus
According to the USA, an administrator may deny or suspend an agent's registration if it is discovered that he/she has been convicted of a felony within the past:
10 years
The Administrator has decided to suspend the effectiveness of an issuer's registration statement. He/she has notified the applicant, which has been granted a hearing on this matter. The hearing must be scheduled within:
15 days
Which of the following is not considered an exempt security according to the USA?
15 year Mexico City bond
Over the last year a firm aggressively promoted the sale of limited partnership interests in a fish breeding farm located in State A to its customers. While reviewing the files on the transactions, the firm's general counsel, notices that eight sales have been made in states where the securities had not been registered. The general counsel recommends that the firm send letters of rescission to these customers to avoid future litigation. How long do the affected customers have to accept this firm's offer?
30 days from receipt of the letter
The Administrator of State A would like to initiate a criminal action against XYZ Investments for fraudulently selling limited partnership interests to several dozen investors. How long does the Administrator have to initiate action?
5 years
A client of an IA firm has requested a copy of the firm's brochure. The brochure must be mailed within how many days of receipt of the request?
7 days
When must a state registered IA firm file an updated Form ADV with the state?
90 days after the firm's fiscal year end
Which of the following would most likely be considered an unreasonable advisory fee?
A fee of 1% of annual gains
Which of the following is not an issuer under the Uniform Securities Act?
A broker-dealer acting as a standby underwriter in a rights offering
An order from the Administrator commanding the recipient to refrain from a fraudulent or prohibited practice, is an example of:
A cease and desist
If an agent suggests in her oral presentation that the SEC approves a particular security, this is:
A criminal offense
Which of the following is a broker-dealer agent according to the USA?
A janitor who occasionally accepts unsolicited orders at a broker-dealer
All of the following are institutional investors (buyers), except:
A natural person (and their spouse) or a family owned company with investments worth at least 1 million dollars
Which of the following is considered a dealer?
A person engaged in the business of effecting transactions in securities using its own account
Which of the following persons may not file a securities registration statement with the administrator?
A person with a criminal history of securities fraud
All of the following are not considered broker-dealers under the Uniform Securities Act, except:
A person, not an agent, who acts as a market maker in several NASDAQ securities
Which of the following would be required to register as an agent in State B?
A registered broker-dealer agent in State D and transacts business for Alfonso who lives in State D, but is in State B temporarily for 40 days
Announcing to a client that a registered security is soon to be listed on an exchange when you have no knowledge of the facts, is:
A violation of the Act
Agents' and investment adviser representatives' registrations expire:
Annually on December 31st
The duty of a registered person to disclose all material facts is addressed by which of the following?
Anti-fraud rule
A customer of a registered broker-dealer bought $50,000 of BCD, Inc. stock in her margin account, but she did not pay for the entire transaction by the settlement date. The broker-dealer lent her the balance of the purchase price. How can this practice be best described?
Acceptable
To register securities under the USA, a registration statement must be filed with the State:
Administrator
XYZ is a firm that has been registered with the SEC for 5 years. XYZ intends to offer securities in the state using registration by Filing/Notification. When does the registration becomes effective?
After a specified number of days
Which of the following would be recognized as the de minimus exemption under the USA?
An advisory firm that works with 4 retail customers in State A without having an office in the state
Which of the following best describes fraudulent market manipulation?
An agent enters multiple buy and sell orders for the same security simultaneously
Which of the following is not considered a broker-dealer?
An agent with a place of business in the state who sells only municipal securities
All of the following are sales, except:
An attempt to dispose of a security for value
According to NASAA's Model Rule on Investment Adviser Recordkeeping Requirements and the Uniform Securities Act, the books and records of an investment adviser must be kept in:
An easily accessible place for a period of not less than 5 years
When registration is not required with the State, a security is considered to be:
An exempt security
The term agent does NOT include:
An individual who is a silent partner of a broker-dealer
According to the Uniform Securities Act, which of the following individuals meets the definition of an agent in the state in which the transaction took place?
An individual who is registered in State A and executes a transaction for a client who has been on vacation in State X for 45 days
Which one of the following is excluded from the definition of an agent under the USA?
An individual who works for an issuer and sells securities only to institutions
A firm who charges a fee based upon an investment advisory contract would be defined as:
An investment adviser
Which of the following is correct regarding the responsibilities of investment advisers?
An investment adviser may not disclose a client's identity or investment transactions to a third party
Any attempt to buy or sell a security for value is defined as:
An offer
Insufficiently describing risks and other material facts regarding an investment is considered:
An omission
The purchase of securities by a person who contacts an agent of a broker-dealer after reading an article in the newspaper would be considered:
An unsolicited transaction
All of the following must be included on an agent's registration application, except:
Applicant's immediate family and business associates not affiliated with the business
Which of the following activities is NOT prohibited by the Uniform Securities Act?
Arbitrage
Under the Uniform Securities Act, when must a prospectus be delivered to a customer who is interested in purchasing 1,000 shares of an open-end fund?
At or prior to the due date of the confirmation
When does a registration by coordination become effective?
At the same time that the federal registration becomes effective, as long as the registration statement has been filed with the state for 10 days
An agent with the LMNO Investment Group has a client that is objecting to the purchase of an insurance company stock. The agent attempts to overcome the client's objection, as they believe this investment is in the best interest of the client. When is this practice acceptable?
Attempting to overcome a client's objections is acceptable as long as the recommendation is suitable for the client
Which of the following is not permitted?
Charging wrap fees if registered as a BD only
According to the Uniform Securities Act, for an agent to lawfully transact business in a state he must do which of the following?
Be registered in that state
A registered representative has just executed a discretionary order for their best client's account. When must the representative obtain written authorization for this activity?
Before the execution of the order
QRS Brokerage, a registered broker-dealer, filed a registration statement with State A, which became effective one week ago. When will QRS be required to renew its registration?
By December 31st of the current year
All of the following are true characteristics of registration by qualification, except:
Can be used for any exempt security
A registered broker-dealer is believed to be engaging in illegal activities. The State Administrator directs the firm to stop any further illegal actions immediately. Which of the following best describes the action taken by the State Administrator?
Cease and desist order
Causing or making transactions to earn more commissions in disregard for the best interests of the client, defines which of the following prohibited activities?
Churning
Which of the following is correct regarding penalties?
Civil liability may be offset by rescission
Which of the following is defined as a security?
Closed-end investment company shares
All of the following are defined as securities EXCEPT:
Commodity futures contracts
An RR has discretionary authority over several of his clients' accounts. Three of these clients are looking for a good, long-term investment in the financial services sector. The parent company of the RR's broker-dealer is a large, bank holding company. Several independent financial analysts have recently upgraded their outlook for the company. The RR reasonably believes the stock is suitable for his clients' accounts and purchases the stock for them. What is the main concern in this situation?
Conflict of interest
Which of the following forms of securities registration would most likely be used in a state when a new issuer files a registration statement with the SEC and in several states?
Coordination
Under the Uniform Securities Act and NASAA Statements of Policy and Model Rules, investment advisers are never permitted to use which of the following in their advertising?
Customer testimonials
A registered investment adviser has discretionary authority over client funds, but does not take custody. Which of the following statements is true?
It must prepare a balance sheet that must be filed with the Administrator, but it need not be audited
A broker-dealer's registration has just become effective on December 26, 2016. Unless renewed, when does its registration expire?
Its registration expires on December 31, 2016
According to the Uniform Securities Act, the advisory brochure of a registered investment adviser must include all of the following, except:
Detailed information about investment returns expected
Concerning the USA's regulation regarding an investment adviser's record preservation, what form of record retention is permissible?
Electronic storage is acceptable as long as means of making a paper copy is available on the premises
Which of the following is not a violation of the Act by agents or broker-dealers?
Engaging in any activity that is not fraudulent or unethical when advising others
According to the USA, all of the following investment advisory firms must register as investment advisers in the state if they are not federally covered, EXCEPT:
Firm D, which is located out of state but advises several major insurance companies and pension funds in the state
A client has recently granted discretionary authority to their agent. Which of the following statements would be true regarding this situation? I Discretionary authority given to an agent must be granted in writing II Orders entered on a discretionary basis must be suitable for the account III Written discretion gives the agent authority to execute any orders he thinks will be profitable
I and II
XYZ Industries has filed a registration statement with State A to offer $6,000,000 of equity securities. According to the Uniform Securities Act, this registration remains in effect:
For one year after the effective date
Upon initial agent registration with a broker-dealer, the agent must file:
Form U4
Which of the following is not a true characteristic of registration by coordination?
Frequently used when only registering in one state
XYZ Corporation has announced that it will not pay dividends for the next 2 years. A client is very close to investing in XYZ and the agent feels that if she found out about this, she wouldn't invest. Which of the following should the agent do?
Give the news to the client
When an issuer has guaranteed the security's repayment of principal and interest, a security is said to be:
Guaranteed
All of the following are true of stop orders pertaining to registration of a security, except:
Hearing request of issuer may be oral or in writing
An attorney is handling the legal work for the takeover of ABC Inc. by XYZ Corporation and tells their spouse, who is a stockbroker, about the takeover. The next day, knowing that the stock will rise because of the takeover, the spouse encourages all of their customers to buy ABC Inc. stock and purchases 500 shares for their own account. This scenario is unlawful because of which of the following? I The spouse is acting on "inside" information II The spouse is making recommendations regardless of client suitability III The spouse is misleading their customers IV The spouse has not disclosed his own purchase to these customers
I and II
Which of the following are not considered IARs? I An individual who effects transactions for institutional customers in State A, where the firm does not have an office II An individual who works for a federal covered adviser and solicits investment advisory services to customers in State B, without having an office in State B III An individual who works for an adviser located and registered in State C and supervises other investment adviser representatives in State C IV An individual who works for a federal covered adviser and solicits investment advisory services to customers in State D, where the firm has an office
I and II
Which of the following are true characteristics of accounts with which there is an agreement for a client and agent to share in profits? I Depositing client funds into an agent's personal checking account is prohibited II Only under this circumstance is it permissible for the client and agent funds to be commingled III All sharing must be in direct proportion to the contributions made by each party
I and II
A registered broker-dealer is also considering registering as and investment adviser. Prior to its registration as an IA, which of the following would be acceptable forms of compensation? I Payment of commissions to the firm by an issuer II Payment of commissions to the firm by a customer III Payment of a wrap fee to the firm by an institutional customer IV Payment of investment advisory fees to the firm by a retail customer
I and II (Broker-dealers may collect commissions from issuers on primary market transactions and from customers on secondary market trades. A broker-dealer may not collect advisory or wrap account fees unless it is also registered as an investment advisor.)
A firm is registered as a broker-dealer under the Uniform Securities Act. The firm is considering charging customers a fee for managing client accounts in addition to receiving compensation for processing transactions on a discretionary basis. Which of the following is (are) true if it decides to do so? I This is acceptable as long as the fee is reasonable II Under no circumstances may the firm charge customers for managing discretionary accounts III If the firm charges an account management fee, it must register as an investment adviser IV A broker-dealer is never required to register as an investment adviser
I and III
A trust account is set up at a full-service broker-dealer. When determining suitability for customer transactions, with which should the agent be MOST concerned? I Trust document II Trustee's attorney III Beneficiary IV Trustee
I and III
An investment adviser has recently hired a new employee. Which of the following activities would result in the employee being considered an IAR? I Soliciting new clients II Entering trades into an online order system III Conducting qualitative research to determine the firm's investment recommendations IV Supervising the IA's IT staff
I and III
An investment adviser will be publishing an advertisement which will reference past recommendations. According to the NASAA Statement of Policy, which of the following must be communicated? I A list of all recommendations made within the last year II A statement communicating the State Administrator's approval of the advertisement III A legend communicating that the reader should not assume that recommendations made in the future will equal the performance of the securities listed IV A testimonial concerning Pike Investment Advisory and their services
I and III
Under the Uniform Securities Act, which of the following are requirements for an investment advisory contract? I The contract must be in writing II The compensation must be based on capital appreciation of the client's assets III The contract may not be assigned to another adviser without the consent of the client IV The investment adviser may not change management of the company without prior approval of the client
I and III
Which of the following sales practices are violations of the Uniform Securities Act and/or NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents? I Guaranteeing your customer a profit on their first transaction at the firm II Offering a private security transaction and informing your broker-dealer promptly III Explaining to your customer that you are FINRA-approved as an investment adviser IV Engaging in arbitrage with a stock position and a convertible bond of that same corporation
I and III
Which two of the following statements are correct concerning the de minimus registration exemption for investment advisers found in the Uniform Securities Act? I The exemption only applies to firms that have no office in the state II The exemption applies to firms that have three or fewer offices in the state III The exemption allows a firm to provide advisory services to fewer than six non-institutional customers within a 12-month period IV The exemption allows a firm to execute trades for no more than five non-institutional customers within a 12-month period
I and III
A customer has set up an irrevocable living trust and has named two beneficiaries. The first named beneficiary is to receive the income generated from the trust and the second beneficiary will receive the balance of the trust upon the first beneficiary's death. Which of the following would be true regarding the trustee's fiduciary responsibility? I When making investment decisions, the trustee should rely on any hierarchy provisions or statements of intent included in the trust document II When making investment decisions, the trustee should make sure that the interests of all beneficiaries are considered equally III In the absence of hierarchies or statements of intent in the trust document, the trustee should give priority to the needs or wishes of the majority beneficiary, or income beneficiary, first IV In the absence of hierarchies or statements of intent in the trust document, the trustee should consider the interests of all beneficiaries when making investment decisions
I and IV
According to NASAA's Model Rule on Minimum Financial Requirements for Investment Advisers, which of the following are true? I Investment advisers with custody of customer assets must maintain a net worth of not less than $35,000 II Investment advisers with discretionary authority over customer assets must maintain a net worth of not less than $35,000 III Investment advisers with custody of customer assets must maintain a net worth of not less than $100,000 IV Investment advisers with discretionary authority over customer assets must maintain a net worth of not less than $10,000
I and IV
An adviser does limited advisory business in State A. It has no place of business in the state and is not currently registered in State A. According to the Uniform Securities Act, which of the following are conditions that would lead to this adviser needing to register in State A? I It provides advice to retail customers only II It provides advice to institutional customers only III It has 10 clients in State A, of which 6 are institutions IV It has 10 clients in State A, of which 6 are retail investors
I and IV
An agent sells an IPO to his friend's account, which he later takes out of the account for his own benefit. This practice is: I Parking II Interpositioning III Unethical, but not fraudulent IV Fraudulent
I and IV
Which of the following would be prohibited activities under the Uniform Securities Act and NASAA Statements of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents? I Failure to state all material facts about an investment during a sales presentation to a retail customer II Failure to state all facts about an investment during a sales presentation to a retail customer III Discussing inside information received from a customer with your branch manager IV Discussing inside information received from a customer with your brother-in-law, a securities attorney
I and IV
ABC Financial Planning Inc. is in the process of revising its fee structure. Which of the following methods of compensation would be considered acceptable? I Flat fee II Hourly rate III Percentage of assets under management IV Percentage of profits earned in the account
I, II and III
According to the Uniform Securities Act which of the following must be disclosed in writing and contained in the investment advisory contract? I The investment adviser will not share in customer profits II No assignment of the contract may be made by the investment adviser without the consent of the other party to the contract III The investment adviser, if a partnership, must notify the other party to the contract of any change in the membership of the partnership within a reasonable time after the change IV The investment adviser shall notify the other party of its current standing as either a federal covered adviser or as a state-registered adviser
I, II and III
According to the Uniform Securities Act, which of the following is included in the definition of a sale? I A contract of sale II A contract to sell III The disposition of a security for value IV An attempt to dispose of a security
I, II and III
An agent in State A calls a client that is on their way to a national park in State B. The client receives the call on their cell phone while at a rest stop in State C. The agent presents and investment opportunity to this client while speaking at the rest stop. Two days later while in State B, the client accepts the offer. Which of the following Administrators have jurisdiction over these events? I State A II State B III State C
I, II and III
An agent of a registered broker-dealer has decided to share directly in the profits and losses of their best client's account. This will require written authorization from: I The client II The agent III The firm IV The State Administrator
I, II and III
Under the USA, the Administrator may require posting of surety bonds for which of the following when they have custody of or discretionary authority over client funds or securities: I Broker-dealers II Agents III Investment advisers IV Investment adviser representatives
I, II and III
An agent completes a sale of 100 shares of ABC common stock at $10 per share to a customer. Two weeks later the customer realizes that the sale was unlawful. What is the customer entitled to recover in a civil suit? I Damages plus interest II Costs III Punitive damages IV Reasonable attorney's fees
I, II and IV
Which of the following broker-dealer practices is prohibited by the Uniform Securities Act? I A broker-dealer unreasonably delays paying a customer's free credit balance upon request II A broker-dealer does not segregate customer securities from those owned by the firm III An RR guarantees a customer a profit IV An RR guarantees a customer against a loss
I, II, III and IV
Which of the following would be included in the definition of agent under the Uniform Securities Act? I A salesperson of a broker-dealer selling stock to the public II A salesperson of a broker-dealer selling stock to an institutional investor III A salesperson of a broker-dealer selling municipal bonds to the public IV A salesperson of a broker-dealer selling a private placement to an institutional investor
I, II, III and IV
Which of the following are not true regarding an agency cross transaction? I The customer must be sent a quarterly summary of all agency cross transactions in the account II The customer cannot give the investment adviser blanket authorization III The adviser can recommend an agency cross transaction to both the buyer and the seller
I, II, and III
An agent of a broker-dealer with offices in States A, B and C, works in the office in State A and has customers in States A and B, with whom is the agent required to register? I FINRA II SEC III State A IV State B
I, III and IV
A Canadian broker-dealer firm with no place of business in the U.S. deals only with its Canadian clients who temporarily vacation in the States. Which of the following would the firm be subject to under the Uniform Securities Act? I Registration II Consent to service of process III Anti-fraud provisions
II and III
An agent with a registered broker-dealer recently came across an opportunity to make some additional money selling private placements. The agent has kept this confidential as part of an agreement with the new investment partners. Even the employing broker-dealer is unaware of their agent's activity. This activity can be described as: I Ethical II Unethical III Selling away IV A private distribution
II and III
Pursuant to the Uniform Securities Act, which of the following persons transacting business in the state would have to be registered in a state? I An individual hired by the state to solicit sales of state debt II An individual hired by a bank to sell promissory notes of various grades and terms III An individual hired by a broker-dealer to solicit purchases of government securities IV An individual who gives advice on the value of rare coins for a fee
II and III
Under the USA, all of the following are agents, except: I An individual who represents a broker-dealer in the sale of nonexempt securities II An individual who represents an issuer in the sale of exempt securities III An individual who represents an issuer in the sale of nonexempt securities in exempt transactions IV An individual who represents an issuer in sales of the issuer's common stock to employees of the issuer for commissions
II and III
Under the Uniform Securities Act, a broker-dealer need not register with a state if: I They have a place of business in the state, but deal only with institutional investors II They have no place of business in the state III They do not effect securities transactions with noninstitutional customers who reside in the state
II and III
Under the Uniform Securities Act, which of the following may an Administrator require of registered broker-dealers? I Keeping of records in excess of that required by the SEC II Submitting to state examination of records III Filing of amendments to documents that were previously filed with the administrator IV Filing of sales and advertising literature on any security subject to anti-fraud provisions
II and III
While reviewing the daily trade blotters and other reports, a principal determines that an agent sold exempt securities to a customer residing in a state in which the agent is not registered and not exempt. Which of the following are most likely? I This was a lawful transaction II This was an unlawful transaction III The broker-dealer will offer a letter of rescission IV The broker-dealer will take no action
II and III
A FINRA member broker-dealer offers, as a courtesy to its clients, personally tailored investment advice. For this service, the firm does not charge a fee but believes that it adds value to the firm in terms of retaining key customers, as well as justifying higher commissions on transactions than competing firms. According to the Uniform Securities Act, which two of the following statements are true regarding this firm? I The firm is an investment adviser and must register as such II The firm is not an investment adviser III The firm is a federal covered adviser IV The firm is not a federal covered adviser
II and IV
According to the Uniform Securities Act (USA), which of the following individuals is considered an agent? I An individual that represents an issuer in effecting transactions in municipal bonds II An individual that represents a broker-dealer in effecting transactions for resident customers III An individual that represents an issuer in effecting transactions in Treasury bonds IV An individual that represents a broker-dealer in effecting transactions in private placements
II and IV
An IAR has a long-term client that has given them discretionary authority over their account. Normally the client sees 1 to 10 trades in his account each year. This year their have been 38 trades in the account which have generated a 14% return. According to NASAA's Model Rule on Unethical Business Practices Of Investment Advisers, Investment Adviser Representatives, And Federal Covered Advisers, which two of the following are true? I The number of trades in an account is not important II The number of trades makes it likely in this situation that the account has been churned III Since Aaron created a 14% return for Sal, there is no potential violation of the Model Rule IV It appears that Aaron has violated the Model Rule
II and IV
QRS Investments is considering instituting fees for the safekeeping of securities and dividend collection. Which of the following statements concerning this activity is correct? I QRS may only charge institutional customers a fee for these services II QRS may charge both retail and institutional customers a fee for these services III QRS may charge a fee of up to 15% on bond redemptions or dividend collections IV QRS may waive the fee for accounts that perform a minimum number of transactions per year
II and IV
Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which two of the following statements concerning churning are correct? I Churning, by definition, only occurs if the client loses money II Churning may occur even if the client does not lose money III It is not possible to churn a discretionary account IV It is possible to churn a discretionary account
II and IV
Which of the following activities would be exempt from the anti-fraud provisions of the USA? I An investment newsletter advises subscribers to buy ABC stock II An individual gives a co-worker a hot tip on a stock III A broker-dealer estimates the value of a customer's securities for a fee IV An investment adviser advises a client to buy gold bars
II and IV
Which of the following communications may be required to be filed with the Administrator in a given state? I Individual letters II A general prospecting form letter III Ads for GNMAs IV Ads for CMOs
II and IV
State A's Administrator wishes to conduct an examination of a broker-dealer's books and records. According to the Uniform Securities Act, which of the following is true? I Advanced notification must be provided to the broker-dealer II No advanced notification will need to be provided to the broker-dealer III The examination can be done once per year IV The examination can be done at any time during regular business hours
II and IV only
FY Brokerage has no office in State A. Under the USA, in which of the following situations would FY Brokerage be considered a broker-dealer in this state? I FY limits its sales in State A to institutional customers II FY sells stock for a customer who is on vacation in State A III FY limits its sales to 10 or fewer retail customers in State A IV FY only engages in municipal bond transactions with its retail customers in State A
III and IV
According to the Uniform Securities Act, which of the following must be true for an exemption to exist for an isolated, non-issuer transaction? I It must be indirectly for the benefit of an issuer II It must be one and only one transaction III It must be effected through a broker-dealer IV It must be for the benefit of an entity other than the issuer
IV
An agent with XYZ financial has received a call from the EVP of ABC Corporation. The EVP claims that the company's numbers are inflated and that the agent should get out of ABC stock. What action may the agent take without violating the Uniform Securities Act? I Liquidate their personal holdings in ABC II Liquidate all shares of ABC held in discretionary accounts III Suggest to clients to "lighten up" on their positions by selling 1/2 of their ABC holdings IV Accept unsolicited sell orders for ABC
IV
Which of the following investment advisers with no place of business in the state needs to register with the State Securities Administrator? I One who deals only with federal covered advisers in the state II One who deals only with government agencies or instrumentalities located in the state III One who deals only with registered investment companies in the state IV One who deals exclusively with 10 high net worth individuals who reside in the state
IV
An issuer would be included in the definition of broker-dealer in all of the following circumstances, except:
If it is effecting transactions for its own issue of securities
A broker-dealer is registered and located in State A and wants to conduct business in State B. Registration in State B would not be necessary under which circumstances?
If the broker-dealer has no place of business in State B and deals only with insurance companies in State B
The manager of an investment adviser firm is a member of a local service club and has established relationships with other members in the legal and accounting professions. They have informally agreed to refer business exclusively to one another. The manager of the IA firm has offered to pay the other club members compensation for any referral. For the investment adviser, which of the following regarding this situation is TRUE?
If these professionals receive a fee for referring clients to the investment adviser, but they are not registered as investment adviser representatives, then the manager has paid compensation to unregistered individuals in violation of the Uniform Securities Act
An agent receives public information about a company and subsequently recommends that company to a customer. Sometime later, the agent comes upon some non-public information that he feels the customer should know about this same company. What action must an agent take?
Inform his supervisor of the non-public information
Form ADV Part 2B contains:
Information about an investment adviser representative
According to the NASAA Risk Disclosure Guidelines in the NASAA Statement of Policy, where should the risk disclosure be located in a prospectus?
Immediately following the cover
Which of the following statements is true regarding the effective date of a securities registration when done by filing?
In most states it will be effective 5 days after filing
Which of the following statements regarding investment advisers is false?
Investment advisers must obtain written customer consent before exercising discretion in an account
Unless exempt or excluded, an investment adviser and investment adviser representative must always be registered:
In the states in which they conduct business
An applicant for registration as an investment adviser representative has received notice of a summary postponement of their registration. The applicant must be granted a hearing and that hearing must be scheduled:
In writing within 15 days
Which of the following is an example of an issuer transaction?
Initial public offering
Following the discovery of an unintentional illegal sale of a security, an investor may do all of the following, except:
Initiate a criminal investigation
A person who is engaged in the business of advising clients regarding the types of securities to invest in for compensation, is considered a(n):
Investment adviser
An investor enters a trade and informs their agent that they have non-public, material information. Which action should the agent take?
Keep the information to themselves
Which of the following would be considered a broker-dealer in State X, but would be exempt from registration?
LMN Brokerage, a broker-dealer located in Toronto, Ontario, Canada who is transacting business with an existing client of LMN who is in State X temporarily
An administrator may not deny registration to a person solely on the basis of which of the following?
Lack of experience
A non-exempt, unregistered security is sold unintentionally by an agent. What corrective action may the agent take?
Make an offer of rescission to the client, and reimburse the investor in full
Which of the following best describes painting the tape?
Manipulative trading involving a series of purchases, or a series of sales, rather than paired buys and sells
Creating the impression that a security is actively trading or using false market quotations is considered:
Market manipulation
A broker-dealer has just changed its branch office location in State A. When does the firm need to file an amendment with the Administrator in State B?
Never
An investor of an advisory firm holds a large position of a thinly traded stock. This investor informs the adviser that they would like to sell 100,000 shares of this stock. The advisory firm contacts one of their institutional clients and recommends the purchase of these shares of stock. The institutional client agrees and the transaction is completed with the institutional client purchasing the 100,000 shares. All of the following are true except:
No commission may be charged to to the selling investor for this transaction
A current client at a broker-dealer contacts their representative inquiring about no-load funds. What can the representative tell this client about these securities?
No-load funds charge no sales charge
When a fixed annuity payout is in installments, rather than a lump sum, it is:
Not a security
If an agent identifies several investments, with essentially the same risks as a particular investment for his client, he/she has:
Not violated the USA
A registered representative has received a harshly worded letter from one of their biggest customers. The client is accusing the agent of pocketing a $210 check that was sent to the firm to buy some additional shares of a special situation fund. The RR is confused by this accusation because firm policy dictates that all mail be opened by the cashiering department and RRs are prohibited from handling customer funds. What would the registered representative's best course of action be in this situation?
Notify their manager of the letter, and let the principal deal with the problem
When may an agent, who becomes aware of inside information, pass this information along to customers?
Only after it becomes public knowledge
PQRS Securities is the only market maker in NBTV (an OTC equity security with very low trading volume). PQRS, has a client with a speculative investment profile that is willing to take a "few chances." PQRS has recommended, executed and confirmed a purchase of 5,000 shares of NBTV for this client "at the market," which turns out to be a price of $1.12/share. According to the Uniform Securities Act, which of the following statements is true?
PQRS has violated the USA by stating that the stock was purchased "at the market" when it actually controls the price
All of the following are acceptable of agents or broker-dealers, except:
Promising to perform certain services for clients without intending to perform those services or without being qualified to perform such services
A broker-dealer has just changed its office location within the state. When does the firm need to file an amendment with the Administrator, assuming notification has not previously been given under Section 201(b)?
Promptly
TUV Investments has increased its number of branch offices and expanded its product line due to the recent acquisition of WXY Securities. When must TUV inform the Administrator of any amendments to its registration statement?
Promptly
The Uniform Securities Act:
Provides a set of model securities laws for enactment by states
An registered representative of LMN Securities opens an account titled "Mr. Customer as custodian for Ms. Minor under the TX Uniform Transfer to Minors Act". In the context of this account, and considering the fiduciary duty Mr. Customer owes to Ms. Minor, which of the following investment strategies would be permitted?
Purchasing shares of a balanced mutual fund
Which of the following persons would be considered a broker-dealer under the USA?
QRST Trading
R & S Investments has filed a registration statement with the Administrator of State A to be registered as an investment adviser. Which of the following statements is true concerning R & S's ability to assume custody of customer funds?
R & S may take custody of customer funds as long as they meet all financial and recordkeeping requirements and they are not specifically prohibited from doing so by the Administrator
When a non-issuer corporation sells non-exempt securities, using its own employees on a commission basis, the company is required to:
Register as a broker-dealer
Whether an issuer has or had any adverse ruling by a state regulatory authority, a court, or SEC in conjunction with the offering must be included in the:
Registration statement
A trust is established where the grantor can change the trustees whenever they want. Which of the following would best describe the type of trust that was set up?
Revocable trust
Under the Risk Disclosure Guidelines in the NASAA Statements of Policy, all of the following risk factor disclosure guidelines should be applied in a prospectus, EXCEPT:
Risk factor captions should be in bold-face type in a font at least 2 points larger than the surrounding text
Which of the following regulations reminds investment advisers about their fiduciary obligation to clients?
SEC Release IA-1092
An agent registered with the state is also known as:
Securities sales person
The Administrator has knowledge that a broker-dealer is in violation of the Uniform Securities Act. The administrator can take all of the following actions, EXCEPT:
Seek an indictment for fraud
If an investment adviser has custody of a client's funds, such funds must be kept in a(n):
Segregated account
An agent with a registered broker-dealer recently came across an opportunity to work directly with an issuer on a private placement. The agent has kept this confidential as part of their agreement with the issuer. Even their broker-dealer is unaware of this activity. This activity can be described as:
Selling away
A broker-dealer who has no office in a state, would not need to register in the state, when:
Serving existing retail customers who are temporarily in the state
An IAR for a federal covered advisor has offices is state A where the IAR works. Who would the IAR need to register with?
State A
An agent in State A contacts a prospect by telephone in State B to offer securities for sale. The prospect answers the phone at his residence in State B. Which of the following State Administrators have jurisdiction over the offering?
State A and State B
JKL Brokerage Services is engaged in the business of effecting transactions in securities for the accounts of others. JKL has a place of business in State A, but not in State B. In State A, its clients include thousands of retail and institutional investors. In State B, its clients include only broker-dealers and institutional investors. In which of the following state(s) is JKL Brokerage Services required to register as a broker-dealer?
State A only
Which of the following would not be a necessary disclosure with a registration by qualification?
Statement of the issuer's competitiveness
A broker-dealer located in State M solicits business in State N. A prospect residing in State N accepts an offer and gives the broker-dealer a check drawn on a bank account located in State O. This transaction is governed by which States?
States M and N
When transactions or securities involved are exempt from state registration requirements, the agent representing a broker-dealer in such transactions:
Still must be registered
An administrator has the authority to:
Subpoena witnesses and records
Under the Uniform Securities Act, which of the following actions is permissible for investment advisers?
Take and hold client funds or securities if the adviser notifies the State Administrator
A newly formed investment adviser with $10 million of assets under management would like to begin providing IA services to registered investment companies. What would need to be filed with the State Administrator in order to do so?
The IA must register with the SEC, file notice with the administrator, and pay a state filing fee
A registered representative has a client with a non-discretionary account. The client has placed an order to buy 1,000 shares of PFE whenever the RR thinks the market for PFE has reached a bottom during the day's trading. Which of the following is true regarding this situation?
The RR can execute this order without additional documentation
Which of the following is not required in the customer disclosure document when a broker-dealer shares space with a bank?
The Securities are SIPC insured
An advertisement for a securities offering is published in a newspaper. Which of the following is true?
The advertisement is an offer in the state where the newspaper is published if at least 2/3 of the newspaper's circulation is within the state
Which of the following compensation methods is permissible for an investment adviser?
The adviser may earn a specific percentage of total assets under management in the customer's portfolio
A customer of an investment advisory firm tells the firm to sell his 5,000 share position in DEF Electronics. The advisory firm decides to place these shares in the discretionary account of another client. Which of the following statements concerning this practice is correct?
The advisory firm has executed an agency cross
Who is responsible for determining what information is material and should be given to the client in order to make an informed investment decision?
The agent
An agent with ABC Capital has a 77 year-old widowed customer who is on a fixed income. The agent recognizes that their client will need to protect themselves from inflation and suggests they invest 50% of their portfolio in a small cap growth fund. Which of the following choices best describes this agent's actions?
The agent has acted unethically
An agent with FG Securities is aggressively promoting the purchase of PQR Industries, Inc. common stock. After much debate, a customer decides to purchase 1,000 shares at $36.00 per share on Monday. Unfortunately the stock plunges to $13.12 per share the next day. On Wednesday the client calls the agent looking for a quote on the stock and the agent simply states "the stock is up 32 cents today". Evaluate the agent's statement.
The agent has made a factually accurate statement, but has omitted the fact that the stock is down significantly from the purchase price by not stating the security's current market value. This is fraudulent as the agent is willfully deceiving the client
A successful dairy farmer met with his agent. The agent is trying to convince the farmer to purchase shares of a U.S. Treasury fund. The agent has assured the farmer that the bonds held within the fund are guaranteed by the government and therefore, the client's money is safe. Evaluate this agent's sales practices.
The agent has utilized an unethical sales practice
An agent wishes to create the impression that there is active trading in a specific security. He calls a friend at another firm and they decide to trade the security back and forth a couple of times. Which is true of this situation?
The agent may not do this
An agent receives a call from one of his largest customers that is also a family friend. The customer is calling to purchase 10,000 shares of P industries for their own account. The customer also instructs the agent to purchase 1,000 shares for his wife and 500 shares for his sister. Which of the following statements is correct?
The agent may only execute the trade in the customer's personal account
An 'offer to sell' includes which of the following?
The attempt to dispose of a security for value
An established customer of a Canadian broker-dealer relocates to Arizona. The customer subsequently opens a margin account in order to use leveraging in the securities markets. Which of the following is true?
The broker-dealer must register in Arizona
What will happen to a broker-dealer's registration if an agent for that broker-dealer loses his/her registration?
The broker-dealer's registration is not affected
A principal in a registered broker-dealer notices that there are excessive trades in a client's account and investigates the circumstances. In which of the following cases would these excessive trades be permissible?
The client initiated all the trades with no encouragement from the firm or its representatives
Under which of the following cases is the broker-dealer exempt from disclosing its interest in a transaction to the client and receiving the clients advance consent?
The client places an unsolicited buy order, which the broker-dealer fills by acting as a principal in the trade
Which of the following employees of an advisory firm would be required to register with the Administrator as an IAR?
The director of training, who supervises new salespeople during their probationary period
Who benefits from a consent to service of process?
The investor
All of the following are not characteristics of registration by qualification for a security, except:
The registration is granted or becomes effective when the State Administrator deems it effective
An investment adviser is generally prohibited from paying cash referral fees to a non-employee, unless certain conditions are met. All the following are conditions required for an investment adviser to pay a referral fee to a solicitor EXCEPT:
The solicitor is required to establish and register as an investment adviser, independent of the investment adviser to whom the solicitor refers prospective clients
ABC Brokerage has several hundred shares of a specific company in its inventory. Although ABC knows that this company is teetering on the brink of bankruptcy, it continues to recommend this stock to its customers without telling them about the company's financial condition. Under what circumstances would this NOT be a violation of the Uniform Securities Act?
There are no circumstances under which this would not be a violation of the USA
A salesperson willfully provided false education information on his/her application with the State Administrator. Which of the following is true?
There may be criminal liability
A customer at XYZ brokerage recently placed an order to buy stock. The customer directed their agent to buy a large amount of LSMF stock when the price looks good. Under which circumstance can this transaction be completed?
This can be done only if the agent was given written discretionary authority
An individual manages a dividend reinvestment program for DEF Technologies and executes purchase orders for company shares in order to fulfill shareholder requests. Which of the following is accurate?
This individual is an issuer agent
A customer asks their registered representative for a recommendation on how to invest the funds in their IRA. The RR recommends the purchase of a variable annuity and explains that the tax-advantaged features of the annuity provide double-barreled protection against taxation. Which of the following best describes the RR's statements?
This is unsuitable and unethical; agents cannot use the tax-deferred status of annuities as a selling point to encourage their purchase in retirement accounts
An investment adviser requires payment of advisory fees six months or more in advance and in excess of $500 per client. Which of the following statements regarding this situation is correct?
This practice is in compliance with the Uniform Securities Act, but the investment adviser must file an audited balance sheet with the Administrator
A registered investment adviser takes custody of client funds and securities. Which of the following statements is true?
This practice is in compliance with the Uniform Securities Act, but the investment adviser must notify the Administrator and file an audited balance sheet with the Administrator
Broker-Dealer X holds a 45% equity stake in a corporation. Broker-Dealer X is recommending this stock to its customers as the stock is believed to have great potential. Which of the following statements is correct?
This represents a potential conflict of interest, and Broker-Dealer X should disclose this to its customers
Which one of the following is considered a security?
Transferable shares
Once they are registered, Canadian agents and broker-dealers must continue to do all of the following, except:
Travel to and personally meet with stateside customers at least once annually
If an Administrator wishes to deny the registration of a new securities offering, he/she must identify at least:
Two reasons
To omit a material fact when selling securities is:
Unethical and misleading if deliberate
Individuals who commit willful violations of the USA and are convicted, are subject to:
Up to 3 years of prison and a fine not to exceed $5,000
An agent who guarantees a security does which of the following?
Violates the anti-fraud provisions of the USA
An IAR with BB Advisers, has provided one of his clients with a research report on EFG Corporation. This distribution is prohibited by the Uniform Securities Act if it:
Was prepared by a third party and the IAR fails to disclose that fact
According to the Uniform Securities Act, when must the consent to service of process be filed with the State Administrator?
With the application
Which of the following business practices would not be considered fraudulent under the USA or NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents?
Without notifying his employer, an agent sells a customer a fully registered mutual fund through an outside firm because the agent's BD has no selling agreement with the fund's distributor
None of the following are broker-dealers in State A, except:
XYZ Brokerage, which transacts business with retail customers who reside in State A
