Series 63 Quiz Questions
In lieu of a surety bond, the Administrator is authorized to accept A) cash or marketable securities. B) marketable commodities. C) United States minted gold or silver coins. D) marketable real estate.
A). EXP: When a bond is required of a securities professional, instead of supplying the surety bond itself, the Uniform Securities Act permits the use of cash or marketable securities. Commodities and real estate are not securities, nor are the coins.
Under the Uniform Securities Act, a person who exclusively provides advice on commodities is A) not a registered investment adviser. B) a registered investment adviser representative. C) a registered insurance agent. D) an options representative.
A). A person who only provides advice on commodities is not a registered investment adviser. To be an IA under the Uniform Securities Act, advice must be given on securities. The act specifically excludes commodities from the definition of security.
Under the Uniform Securities Act, the state Administrator may, by order, deny, suspend, or revoke an investment adviser's registration for A) violation of another state's securities laws within the last 5 years. B) conviction of a nonsecurities-related felony more than 15 years ago. C) conviction of a securities-related misdemeanor more than 15 years ago. D) lack of experience as an investment adviser.
A). EXP: A violation of any state or federal securities or commodities law within the last 10 years is grounds for denial, suspension, or revocation of registration by order. This means that no hearing is required. Convictions are grounds for administrative action only if they occurred within the past 10 years. Lack of experience is not sufficient cause for revoking or denying registration.
An employee of a commercial bank selling the bank's bonds to its banking clients is acting in the capacity of A) a person excluded from the definition of an agent. B) a broker-dealer. C) an agent of a broker-dealer. D) an agent of the issuer.
A). EXP: Commercial banks are included in that group of issuers of exempt securities whose individuals representing them in the sale of their securities are excluded from the definition of agent.
Under the Uniform Securities Act, all of the following are required to be registered as investment adviser representatives except A) CB&G Advisers, Inc. B) an individual who furnishes investment advice to clients of CB&G Advisers, Inc. C) an employee who solicits new customers for CB&G Advisers, Inc. D) a vice president of CB&G Advisers, Inc., who serves on the firm's advisory committee.
A). EXP: The Uniform Securities Act defines an investment adviser representative as anyone who is a partner, officer, director, or other employee or person associated with an investment adviser other than clerical or ministerial personnel, who (1) makes recommendations or provides advice regarding securities; (2) manages accounts or portfolios of clients; (3) determines which recommendations or advice should be given; (4) solicits, offers, or negotiates for the sale of, or sells, advisory services; or (5) supervises any such persons. An individual or a firm may be registered as an IA, but only an individual can be an IAR.
An income-oriented customer has a discretionary account with an agent. If the agent purchases speculative growth stock on behalf of the customer, under the Uniform Securities Act, this is likely considered A) a matching activity. B) an unsuitable transaction. C) a wash sale. D) an acceptable transaction.
B). EXP :Income-oriented clients authorize their agents to buy income-producing securities, not speculative securities. Purchasing speculative securities would likely be considered an unsuitable transaction and inconsistent with the account's objectives.
Under the Uniform Securities Act, the registration requirements for agents would never include A) surety bonding. B) minimum capital. C) a consent to service of process. D) an examination.
B). EXP: Minimum capital may be required of broker-dealers and investment advisers but not agents.
If an agent recommends the purchase of a technology company with an impressive growth record but fails to inform the client that the company's technology will become obsolete pending the approval of a competitor's patent, the agent has A) not violated the Uniform Securities Act because no untrue statements were made. B) failed to disclose material information. C) not committed a prohibited business practice. D) committed a prohibited business practice by selling an unsuitable investment.
B). EXP: The agent has violated the Uniform Securities Act by fraudulently omitting material information in the sale of a security.
One of the important definitions in the Uniform Securities Act is that of a security. That term would include all of the following except A) a debenture. B) a mutual fund. C) an office building. D) shares of common stock
C). EXP: An office building is real property (real estate). Stock, debentures, and mutual funds are included in the definition of a security. In Unit 4, the list of securities, and, more importantly, those that are not securities will be covered.
A broker-dealer is underwriting an IPO. The issuer is a company under common control with the broker-dealer. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, A) the underwriter must agree to deliver a prospectus to all purchasers who request one. B) the broker-dealer must disclose the number of broker-dealers who will be involved in the distribution as syndicate members. C) the broker-dealer must disclose the fact that the new issue is of a company related to the broker-dealer. D) due to the relationship between the issuer and the underwriter, sales can be made only to institutional clients.
C). EXP: All potential conflicts of interest must be disclosed. A "family" relationship of this type clearly presents the potential for conflict. A prospectus must be delivered to purchasers, whether or not they request one.
Which of the following would be least likely to meet the cyber security definition of a covered account? A) An account with a registered investment company that permits the owner to wire funds to a third party B) A customer with an automobile loan at a bank C) A business account held by a company listed on the NYSE D) A customer with a margin account at a broker-dealer
C). EXP: In general, business accounts are not included in the term covered account. There could be an exception for a sole proprietorship or other small business where there is a reasonably foreseeable risk to customers due to the inability of the customer to provide adequate internal safeguards. That is unlikely to be the case with a listed company.
When a broker-dealer is acting as a principal in a securities transaction, it is A) earning a commission. B) acting in an agency capacity. C) a contra party to the trade. D) acting in the capacity of a broker.
C). EXP:A securities transaction is, in essence, a contract. One side is selling and the other is buying. Those are the two principals—the buyer and the seller. When a broker-dealer is acting as a principal in the trade, it is taking one of those roles. That means acting as a contra party (part of the contract). Acting as an agent or broker is two ways of saying the same capacity. In an agency capacity, the broker-dealer is representing someone else in the trade. Commissions are the form of compensation when acting in an agency capacity.
An individual is currently registered as an agent with a broker-dealer. If the agent would like to offer wrap fee programs through the firm, all of the following statements are correct except A) the broker-dealer would have to be registered as an investment adviser. B) the agent would now come under a greater fiduciary responsibility. C) the agent would be defined as an investment adviser. D) the agent would be defined as an investment adviser representative.
C). Once the broker-dealer decides to offer wrap fee programs, it is no longer excluded from the definition of an investment adviser and would become required to register on either the state or federal level. The agent would now become an IAR of the firm and, as such, would carry the additional fiduciary responsibility incurred in the advisory business.
There are several ways that a securities professional's registration can be terminated. Nonpunitive termination of a securities professional's registration could be done through... I. cancellation. II. suspension. III. revocation. IV. withdrawal.
Cancellation and Withdrawal. Cancellation and withdrawal are nonpunitive methods of termination of a person's registration. Suspension, revocation, and denial are considered forms of punishment.
The federal legislation that requires broker-dealers to verify the identity of any person opening an account is A) the Trust Indenture Act of 1939. B) the Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank). C) the Securities Exchange Act of 1934. D) the USA PATRIOT Act of 2001.
D). EXP:The USA PATRIOT Act (the full title is the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001) requires firms to obtain identifying information on each new customer, verify the identity of each new customer, maintain records relating to identity verification, and determine if any new customer appears on a list of known or suspected terrorist groups compiled by the Office of Foreign Assets Control (OFAC). This is accomplished through the customer identification program (CIP).
The Uniform Securities Act defines a guaranteed security as one with a third party guarantee. That guarantee extends to all of these except A) the interest on debt securities. B) the dividends on equity securities. C) the principal repayment at maturity on debt securities. D) the invested capital on equity issues.
D). EXP: As stated in the Uniform Securities Act, guaranteed means guaranteed as to payment of principal, interest, or dividends. There are no guarantees on the growth or avoidance of loss on an equity security.
A client of a broker-dealer is completing a new account form that contains questions about the investor's investing experience and knowledge. More than likely, what type of account is being opened? A) Investment advisory B) Wrap C) Margin D) Options
D). EXP: One question asked on a new options account form that is not required on a normal brokerage account opening is about investment experience and knowledge (e.g., number of years, size, frequency, and type of transactions) for options, stocks and bonds, commodities, and other financial instruments. When the client enters a wrap program or advisory account, this depth of detail is generally requested, but it is not part of the new account form.
A new investor is confused over the expression that a broker-dealer must disclose its capacity on a trade confirmation. You could explain that capacity refers to A) whether the firm uses the metric or the imperial method. B) the number of shares the firm was willing to buy or sell at its quoted price. C) the number of branch offices maintained by the firm. D) whether the firm acted as an agent or a principal in the transaction.
D). EXP: Securities firms are called broker-dealers (BDs) because they can act either as brokers (agency capacity) or as dealers (principal capacity). Trade confirmations must always indicate the capacity in which the BD acted in the transaction.
When performing their normal functions, the sale of a security by all of these would be an exempt transaction except A) the county sheriff. B) a person acting in the capacity of executrix. C) a federal marshal. D) an investment adviser.
D). EXP: Transactions by fiduciaries, including certain law enforcement agents, are exempt transactions under the provisions of the USA.
Under the Uniform Securities Act, which of the following are defined as sales? i. A gift of an assessable stock ii. A gift of a nonassessable stock iii. A security given as a bonus for purchasing a bond IV. An offer of securities
I&III EXP: A sale is a contract or transaction for value. Therefore, when a security is given as a bonus in connection with the sale of another security, it is also considered a sale. Because an assessable stock may require a payment made by the recipient, the gift is considered a sale. The gift of a nonassessable stock is not a sale as it is not a contract for value. An offering of securities is not a transaction or sale of securities until the offer is accepted.
