Series 65 Midterm - Incorrect Questions
ABC Securities is a broker/dealer registered with the SEC and domiciled in Missouri. ABC Securities would not be defined as a broker/dealer in Nebraska under the Uniform Securities Act if it had no offices in Nebraska and: A) its only clients were insurance companies. B) it had contact with fewer than 6 Nebraska residents in any 12-month period. C) its only solicitation of Nebraska residents was through radio advertisements originating in Missouri but received in Nebraska. D) it occasionally engaged in firm commitment underwriting with issuers based in Nebraska.
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.
A safe harbor 401(k) with a non-elective formula is?
A safe harbor 401(k) with a non-elective formula is one in which the employer must contribute a minimum of 3% of each employee's earnings, whether or not the employee participates in the plan. Furthermore, those contributions are immediately vested. As a result, these plans offer a safe harbor from being tested for being top heavy, but this is a benefit for the employer, not the employee.
Which of the following statements regarding ADRs are TRUE? i) The securities are vehicles used to facilitate U.S. trading of foreign securities. ii) Dividends are received in the foreign currency. iii) Holders have foreign currency risk. iv) The receipts are issued by a foreign branch of a domestic bank.
ADRs are vehicles that facilitate U.S. trading of foreign securities. They are issued in English in the United States by domestic banks. Dividends are declared in the foreign currency but are payable to holders in U.S. dollars, which means that ADR holders are subject to foreign currency risk.
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:
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.
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 to be a misdemeanor. When viewing this agent's application, the Administrator will:
Even though the crime is a misdemeanor in the state where registration is being sought, the applicant's record shows a felony conviction and, therefore, this individual would be subject to statutory disqualification.
Settlor is synonymous with what?
Grantor, Trustor, Donor all the same
How are things managed in a constant dollar plan?
In a constant dollar plan, an investor keeps a constant dollar amount of the portfolio in equity securities. If the equities' market value rises, the excess is transferred to fixed-income securities.
Partners with the U.S. in the creation of Brady Bonds were the:
International Monetary Fund (IMF). World Bank.
An investment adviser representative may share in the profits and losses of a customer's account
Investment adviser representatives are not allowed to share in the capital appreciation or depreciation of their customers' accounts in the same manner as are agents.
Which of the following describes an investment management style? A) Rebalancing B) Current income C) Large capitalization D) Margin
Large capitalization style distinguishes between investing in a small cap company versus a large capitalization company. Current income is an investment objective and not an investment management style. Rebalancing is used to bring asset allocations back to their desired weightings. Margin can be used in a number of investment management styles.
Agents may borrow from what types of clients?
Mortgage brokers are not in the business of lending money; they help parties negotiate terms of a loan, which is why they are called brokers. The bank, brokerage, and savings and loan association are in the normal business of lending. Agents generally may borrow funds from clients that are in the normal business of lending.
A broker-dealer registered in multiple states must meet the record retention requirements of:
One of the effects of the NSMIA was to establish the pre-emption of federal law over state law. A broker-dealer registered in multiple states is going to be registered with the SEC as well. NSMIA amended the Securities Exchange Act of 1934 (the 34 Act) to add section 15(h)(1) which reads as follows: "No law, rule, regulation, or order, or other administrative action of any State or political subdivision thereof shall establish capital, custody, margin, financial responsibility, making and keeping records, bonding, or financial or operational reporting requirements for brokers, dealers, municipal securities dealers, government securities brokers, or government securities dealers that differ from, or are in addition to, the requirements in those areas established under this title." However, had this question been dealing with an investment adviser registered on the state level, then it would have been the requirements of the state where the principal office of the adviser is located.
Which of the following qualifies under the Section 28(e) safe harbor provisions for soft-dollar compensation?
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. Clearance and settlement of trades is a qualifying brokerage service.
Pink Sheets
Stock of a small corporation that trades on the OTC Link (formerly known as the "Pink Sheets") may also have a thin trading market.
How do you calculate the real rate of return for a bond?
The real rate of return is the actual return (income received divided by the purchase price) less the inflation rate as measured by the CPI. In this example, the bond pays $50 per year on an investment of $900. That is an actual return of 5.56%. Subtracting the CPI of 2% gives us an inflation-adjusted, or real, rate of return of 3.56%.
Under the NASAA Model Custody Rule, an investment adviser would be permitted to take or have custody of any securities or funds of any client if:
notification was given to the Administrator that he has or may have custody and custody was not prohibited by that state's rules.
When an investment adviser representative begins or terminates employment with an adviser registered under the USA,
only the investment adviser must notify the Administrator.
When an investment adviser representative begins or terminates employment with a federal covered adviser,
only the investment adviser representative must notify the Administrator.
Which of the following is NOT a characteristic of a real estate investment trust (REIT)? A) Potential dividends from investment income or capital gains distributions B) Pooling of capital to purchase properties or mortgage loans C) Relatively low marketability D) Shares are traded on exchanges much like the stocks of other companies
A real estate investment trust (REIT) is a company that pools its capital to purchase properties and/or mortgage loans. Investors buy REIT shares and, in turn, receive dividends from investment income or capital gains distributions. REIT shares are traded on exchanges much like the stocks of other companies. This provides relatively high marketability, especially compared to most other types of real estate investments.
XYZ Securities, Inc., a FINRA member broker-dealer, is registered in all 50 states. XYZ has its principal office in New York and a branch office in Arizona. If the Utah Administrator wished to examine certain of XYZ's financial records, the Administrator: I) could do so during normal business hours without prior notice. II) can only examine those records located in the state of Utah. III) could ask the New York Administrator to perform the examination. IV) could ask FINRA to perform the examination.
If a broker-dealer is registered in his 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 an SRO like FINRA to examine one of its member firms on behalf of the Administrator.
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 which of the following?
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. 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). At the time the broker-dealer is registered, officers, directors, or partners of the firm who act as agents will be automatically registered as agents.
MT Securities is a broker/dealer registered in 42 states. MT Securities makes a market in over 100 different stocks and participates in the underwriting of approximately 22 IPOs per year. Which of the following actions would be prohibited under NASAA's Statement of Policy on Dishonest and Unethical Business Practices of Broker/Dealers and Agents? A) Acquiring shares of an IPO as part of the underwriting syndicate and holding a small portion for the firm's investment account, hoping to gain from market appreciation. B) Purchasing shares of an IPO from the issuer and then reselling those shares to the public at a higher price. C) Purchasing shares of a security in which it makes a market from a client at one price and then reselling those shares to another client at a higher price. D) Adding to its inventory of a stock in which it makes a market, hoping to gain from market appreciation.
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. As a market maker, the firm is permitted to adjust the size of its inventory to take advantage of market conditions. All underwriters purchase new issue shares at one price and then resell at the public offering price, and market makers buy at the bid and sell at the ask.
Under the Securities Exchange Act of 1934, the SEC is granted the power to regulate the activities of: A) custodian banks. B) federal covered investment advisers. C) securities information processors. D) transfer agents.
Securities information processors (SIPs) and transfer agents are regulated by the SEC under powers granted by the Securities Exchange Act of 1934. The power to regulate federal covered investment advisers is found in the Investment Company Act of 1940 and the NSMIA.
Your 55-year-old client owns a nonqualified variable annuity. He originally invested $50,000 four years ago. The annuity has grown to value of $60,000. If the client, who is in a 30% tax bracket, makes a random withdrawal of $15,000, what will he pay to the IRS?
Since this is a nonqualified annuity (with no tax deduction), the client pays taxes only on the growth portion or, in this case, $10,000. The tax on this amount is $3,000. However, because the client is not yet age 59-½ when making the withdrawal, he also pays a 10% tax penalty, or $1,000. This makes a total of $4,000 tax and tax penalty paid on the random withdrawal.
Which of the following statements is CORRECT regarding an unsolicited trade in an unregistered nonexempt security?
The Administrator may, by rule, require that the customer acknowledge, upon a specified form, that the sale was unsolicited and that a signed copy of each such form be preserved by the broker-dealer for a specified period.
A registration statement may be amended after its effective date so as to change which of the following?
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.
According to the efficient market hypothesis, information found when reading the Wall Street Journal would be considered
The closer to inside information, the stronger the information. Anything published in widely read media would be considered very weak.
An IA registered in multiple states must meet the record retention requirements of:
registered on the state level, then it would have been the requirements of the state where the principal office of the adviser is located.
The Uniform Securities Act requires that broker-dealers and investment advisers maintain certain records relating to their business operations. If the firm wished to upgrade to a modern system, such as disk storage:
they could do so if the system met certain requirements including that the information on the disk could not be altered.
CSP
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.
