Series 66 Uniform and Securities Act (1 and 2)

An individual acts as a finder, facilitating mergers and acquisitions of companies that are both publicly and privately held. The individual searches for companies that appear to be compatible and that will either enjoy a revenue enhancement or cost reduction benefit from the transaction. The individual just introduces the parties to the proposed transaction, but has no involvement in the agreements or valuation. Upon the closing of the deal, the individual is paid a percentage of the transaction. Under NASAA rules, this individual A. needs to register as a broker-dealer in the State because he or she is receiving transaction based compensation B. needs to register as an investment adviser in the State because he or she is giving advice about investing in securities C. does not need to register as a broker-dealer in the State because the clients involved are institutional investors D. does not need to register as an investment adviser in the State because he or she has no involvement in the agreements or valuation

Explanation The best answer is A. This is a bit vague, but NASAA's (and the SEC's) stance on finders is that if they receive compensation that is "transaction based" - such as in this case because the finder will be paid a fee contingent on the closing of the deal - then the finder is a "statutory broker-dealer" that must be registered. This individual is not an investment adviser, because investment advisers do not earn transaction-based compensation. They earn an advisory fee, that is either a flat fee or a percentage fee - but they cannot earn a fee on each transaction (otherwise they become broker-dealers).

Under the Uniform Securities Act, which persons are EXCLUDED from the definition of an investment adviser? A person who gives advice about: I U.S. Government bonds II Agency bonds III Municipal bonds IV Corporate bonds AI and II only BIII and IV only CI, II, III DI, II, III, IV

The best answer is A. A person who gives investment advice relating solely to U.S. Government securities (including Agency securities), is excluded from Federal registration under the Investment Advisers Act of 1940. Any person excluded from registration with the SEC under the Investment Advisers Act of 1940 is a "federal covered adviser" and cannot be required to register in the State.

Which of the following individuals is defined as an "agent" under the Uniform Securities Act? A. An individual who represents an issuer in sales of non-exempt securities B. A person who effects securities trades for his own account as a regular course of business C. A person who has no place of business in the State who offers a security to an existing customer who is not a resident of that State D. An individual who represents a broker-dealer in reporting completed trades to customers and answering customer account inquiries

The best answer is A. An agent is defined as an individual who represents either a broker-dealer or an issuer in effecting securities transactions with customers. An individual who represents an issuer effecting sales of exempt securities is excluded from the definition - this exclusion is not available to individuals who represent issuers in sales of non-exempt securities. For example, a salesperson hired by Ginnie Mae to market GNMA securities to institutional investors is excluded. A salesperson hired by an oil and gas limited partnership promoter to market the partnership units to broker-dealers is defined as an "agent" (of the issuer in this case). Choice B defines a broker-dealer - a person in the business of effecting securities trades for others or for its own account. Choice C is the definition of a person excluded from the definition of a broker-dealer. This exclusion is available to broker-dealers that are registered in their "home" State that are contacting existing customers who are vacationing in another State where the broker-dealer has no office and is not registered. Choice D is an individual that is only performing clerical duties and thus is not defined as an agent.

The directors of a company decide to offer shares of the company from the company's unissued stock directly to company employees. The proceeds of the sale go to the company, but the directors take a commission from the employees on these sales. All of the following statements are true EXCEPT: A. this is a non-issuer transaction B. the directors are defined as agents of the issuer C. the directors must be registered D. the securities must be registered

The best answer is A. Because the company is issuing these shares and the proceeds are going to the issuer, this is an issuer transaction. Because an agent is defined as an individual who effects securities transactions for either a broker-dealer OR an issuer, the directors are considered to be agents of the issuer and must be registered. Since common stock is a non-exempt security, it also must be registered to be sold in the State.

To raise new capital for the company, a company director decides to sell unissued shares directly to employees of the company. The director earns a commission for selling these shares. This director is defined as a(n): A. agent B. broker-dealer C. issuer D. non-issuer

The best answer is A. Because the company is issuing these shares and the proceeds are going to the issuer, this is an issuer transaction. Because an agent is defined as an individual who effects securities transactions for either a broker-dealer or an issuer, the directors are considered to be agents of the issuer and must be registered.

All of the following would be defined as a "sale" or "offer" under the Uniform Securities Act EXCEPT: A. a stock dividend given to existing shareholders B. a bonus of stock that is given for completing a securities purchase C. stock warrants given to purchasers of a debt offering D. subscription rights given to existing shareholders for a different class of securities than originally purchased

The best answer is A. Dividends paid to existing shareholders are specifically excluded from the definition of a "sale" or "offer to sell." The bonus of stock given for completing a securities purchase is a "sale" since the price of the securities would have taken into account the value of the stock "bonus" - thus, the stock bonus was also sold for value. Stock warrants given to the purchasers of a debt offering, and subscription rights given to holders of another class of securities, are also considered to have been "sold" using the same logic.

Which of the following is NOT defined as a security under the Uniform Securities Act? A. Financial futures contract B. Call option on a financial futures contract C. American Depositary Receipt for a foreign security D. Variable life insurance policy

The best answer is A. Futures contracts are not defined as securities; but call and put options on financial futures are securities. Both variable annuities and variable life policies are defined as securities because the investment risk in these products is borne by the purchaser - not the insurance company. American Depositary Receipts are the way that foreign stocks are held and traded in the U.S. These are defined as securities under the Uniform Securities Act as well.

If a representative that transacts business in a State terminates employment with a federal covered adviser: A. the representative must notify the Administrator promptly B. the federal covered adviser must notify the Administrator promptly C. both the representative and the federal covered adviser must notify the Administrator promptly D. both the representative and the federal covered adviser must notify the Administrator within 30 days

The best answer is A. If a representative of a federal covered adviser that transacts business in a State terminates employment, it is the responsibility of the representative to notify the State promptly. Remember that in this case, the advisory firm is not registered with the State; only the representative is registered with the State. Thus, it cannot be the responsibility of the advisory firm to notify the State since it is not registered there. Only the registered representative must notify the State since only the representative is registered in the State.

Under the Uniform Securities Act, which of the following would be required to register as an investment adviser representative? A person who: A. effects sales of advisory services for an Investment Adviser B. renders advice about the advisability of investing in securities C. handles the books and records of the Investment Adviser D. registers Investment Adviser Representatives in the State

The best answer is A. NASAA states that an "investment adviser representative" that must be registered is a person who:makes recommendations or otherwise renders advice regarding securities;manages accounts or portfolios of clients;determines which recommendation or advice regarding securities should be given;solicits, offers or negotiates for the sale of, or sells, investment advisory services; orsupervises employees who perform any of the foregoingNote that Choice B describes an Investment Adviser, not an Investment Adviser Representative.

Which of the following are federal covered securities? I Investment company issues II Insurance company issue III Bank company issues AI only BI and II CII and III DI, II, III

The best answer is A. Other than securities listed on major stock exchanges, the only other type of security that is federal covered is one issued by a registered investment company.

A registration statement which has been filed for a security: I is effective for 1 year II remains in effect if the issuer cancels the sale of the issue III remains in effect if a "stop" order is issued by the Administrator AI only BI and II CII and III DI, II, III

The best answer is A. Registration statements for securities are effective for 1 year. If the issuer cancels the sale of the issue, that registration becomes void. If a stop order is entered, the registration ceases to be effective and sale of the issue must stop.

The Administrator alleges that an agent of an out-of-state broker-dealer solicited the sale of an unregistered security within that State. The broker-dealer must: A. provide evidence that the security was exempt from registration B. prove that the transaction was unsolicited C. terminate the agent D. all of the above

The best answer is A. The Administrator is alleging that the broker-dealer solicited the sale of an unregistered security in that State. To solicit a transaction in the State, unless an exemption is available, the broker-dealer, agent, and security, must be registered in that State.

A BD application is received by the State Administrator for a new broker-dealer subsidiary of a Swiss securities firm. The application includes the disclosure that the parent firm was suspended from membership on the Deutsche Bourse 6 years ago because of unauthorized trading by its Hong Kong branch. The State Administrator A. cannot deny registration based on the suspension that was imposed by a foreign regulator B. can deny registration based on the suspension by the foreign regulator C. must grant registration because the U.S. subsidiary is a legally separate entity from the parent company that is based in Switzerland D. can deny registration only if the actions of the parent company were a criminal offense

The best answer is A. The Uniform Securities Act sets a 10 year statute of limitations for securities related violations as a cause for denial of registration. This is based on violations of U.S. law. It also includes a provision regarding violations of the law of a foreign jurisdiction. In this case, it sets a 5 year statute of limitations. (Why? - Who knows!) In this case, the suspension by the foreign regulator happened 6 years ago, so the State Administrator cannot deny registration based on the action taken by the foreign regulator. The wording includes willfully violating the law of a foreign jurisdiction governing any aspect of the securities or banking business within the past 5 years; or being the subject of an action by a foreign regulator in the past 5 years denying, revoking or suspending the right to engage in the securities business as a broker-dealer, investment adviser or agent.

Under the Uniform Securities Act, the basic definition of a "security" is: A. an investment in a common enterprise for profit with management by a third party B. an undivided interest in a business enterprise with other parties C. an investment that is transferable to another person D. any investment made for profit

The best answer is A. The basic definition of a security is: an investment in a common enterprise for profit, with management provided by a third party.

On January 2nd, an issuer files a registration statement with the State Administrator for a new issue of common stock. 14 months later, the offering has not been completed and the issuer wishes to continue selling the securities until all of the common shares have been placed with the public. Which statement is TRUE? A. The issuer can continue to sell the shares because the registration expires only when the sale is complete B. The issuer cannot continue the sale of the issue because each securities registration automatically expires after 180 days C. The issuer cannot continue the sale of the issue because each securities registration automatically expires after 12 months D. The issuer can continue to sell the shares because each securities registration never expires

The best answer is A. The basic rule for registration statements filed with the Administrator for securities offerings is that they are good for 12 months. However, if the offering takes longer than 12 months, the registration is still good until the sale is complete. The exact wording of the Uniform Securities Act is: "Every registration statement is effective for one year from its effective date, or any longer period during which the security is being offered or distributed in a non-exempted transaction by or for the account of the issuer or other person on whose behalf the offering is being made or by any underwriter or broker-dealer who is still offering part of an unsold allotment or subscription taken by him as a participant in the distribution, except during the time a stop order is in effect."

An investment adviser with its principal office in the State of Kentucky has 3 branch offices in Ohio and 4 branch offices in Tennessee. The State of Kentucky has a minimum net worth requirement for Investment Advisers of $30,000. The net worth requirement for the State of Ohio is $40,000 and the net worth requirement for the State of Tennessee is $35,000. Under the Uniform Securities Act, the minimum net worth that must be maintained by the Investment Adviser is: A$30,000 B$35,000 C$40,000 D$0, since this is a Federal Covered Adviser

The best answer is A. The minimum Net Worth requirement is only required in the State where the adviser has its principal place of business. If the adviser has "out of state" branches, there is no additional Net Worth requirement based on those locations. Only the net worth requirement of the adviser's State where it has its principal office applies. The information in the question does not tell us if this is a Federal Covered Adviser, so this choice is basically a "throw away."

An agent tells a customer "I cannot sell you that stock, but if you want to buy it, let me know and I can sell it to you." The agent has attempted to induce a(n): A. offer to purchase from the customer B. offer to sell from the customer C. sale from the customer D. purchase from the customer

The best answer is A. This one is interesting. If an agent is not registered in a given State, then that agent cannot solicit orders to buy or sell securities in that State. The agent appears to believe that if the transaction is unsolicited, then it is OK to take an order from that customer. However, this exemption only applies to the registration of securities and not to the registration of agents. The agent has attempted to induce an offer to buy (purchase) from the customer. This would be unethical if the agent were not registered in the customer's State.

Under the Uniform Securities Act, an investment adviser is any person who is compensated for rendering advice about which of the following? A. Investment contracts B. Endowment policies C. Annuity contracts that periodically pay a fixed amount D. Bank issued certificates of deposit

The best answer is A. To be an investment adviser, advice must be given about securities - and an investment contract is a security (e.g., a contractual monthly investment plan that requires a fixed payment amount monthly for a minimum time period to buy a designated mutual fund). Endowment policies and fixed annuities are insurance products, not securities. A bank issued certificate of deposit is a bank product and is not a security.

Which of the following is EXCLUDED from the definition of a security under the Uniform Securities Act? A. Fixed Annuity Contract B. Variable Annuity Contract C. Investment Contract D. Mortgage Bond

The best answer is A. Variable annuities are defined as securities; fixed annuities are not. Investment contracts are defined as securities. Mortgage bonds are defined as securities; mortgages are not.

A firm is in the business of assisting in mergers and acquisitions of companies. Although the firm does not structure the transactions and does not receive a set fee, the firm does receive monetary compensation in the form of a percentage of the overall deal. Under these facts, the firm is: A. defined as a broker-dealer regardless of the compensation received B. defined as a broker-dealer as the percentage of the overall deal satisfies the compensation component C. not defined as a broker-dealer because it does not receive a predetermined fee D. not defined as a broker-dealer based upon the facts of the situation

The best answer is B. A broker-dealer is defined as a person engaged in the business of effecting securities transactions for others or for its own account. A firm that assists in mergers and acquisitions is considered to be effecting a securities transaction. In a merger or acquisition, all of the equity securities of one company are being "purchased" by another company. Also, when deciding whether a firm is considered to be a "broker-dealer," the regulators look to see if compensation is being paid. If compensation is not being paid, then that firm is not "in the business" of effecting securities transactions. If it is being paid, in any form, then it is "in the business" and is defined as a broker-dealer that must register. Notice that the wording "is in the business" is how the question starts!

A customer of a broker-dealer is a sophisticated investor and is interested in purchasing the shares of XYZZ Corporation, a company that has recently gone public and is thinly traded in the Pink OTC Market. The customer contacts his agent to buy the shares, but the agent does not see any shares offered in the market so he contacts one of the officers of the company to see if that officer has shares that she wishes to sell. The officer agrees to sell some of her shares under Rule 144, so the broker recontacts the customer to tell him that he has found the shares that the customer wishes to buy. In this scenario, the agent has: A. violated the Uniform Securities Act B. made an offer to sell to the customer C. made an offer to buy to the customer D. effected an exempt transaction with the officer

The best answer is B. An "offer" or "offer to sell" is defined as any attempt to offer to dispose of a security, or a solicitation of an offer to buy a security or an interest in a security, for value. The agent has contacted the officer of the company, to see if she is interested in selling the shares that this customer wishes to buy. When the agent contacts the customer with the news that he has found an officer willing to sell the shares, the agent is making an offer to sell the securities to the client.

A Registered Investment Adviser enters into an agreement with a Certified Public Accountant, where the CPA will refer clients that need the services of an investment adviser. For each client referral, the CPA will be paid a fee. The CPA is: A. required to register in the State as an agent B. required to register in the State as an investment adviser representative C. not required to register in the State because he already has an independently conferred professional designation D. not required to register in the State because he is regulated by the AICPA

The best answer is B. Any person retained by an investment adviser to "find" new clients, if he or she is paid for doing so, is defined as an IAR who must be registered in the State. Choice C gets at the exemption provided under the Investment Advisers Act of 1940, where professionals such as lawyers or CPAs that do not separately charge for advice are excluded from the definition of an adviser. However, this does not apply here because the CPA is getting separate compensation for each referral made to the investment adviser.

Under the Uniform Securities Act, which statement is TRUE about registration as an agent for a broker-dealer? A. An unregistered agent can solicit business in a State once the agent's broker-dealer has been registered in that State B. A registered agent can only sell securities that are registered in that State or that are exempt from registration C. If an agent is not registered in a State, the agent may sell exempt securities in that State D. If a registered agent leaves the broker-dealer, only the broker-dealer is obligated to notify the Administrator of the change

The best answer is B. As an agent, one cannot solicit business in a State unless both the agent and the broker-dealer are registered in the State. Registered agents can only sell securities that are registered or are exempt from registration - they are prohibited from selling unregistered non-exempt securities. If an agent is not registered in the State, the agent may not sell any securities in that State - it makes no difference if they are exempt or non-exempt. If an agent leaves a broker-dealer, both the agent and the broker-dealer must notify the Administrator.

Under the National Securities Markets Improvement Act of 1996, a "Federal Covered Security" is defined as a(n): A. security that must be registered in the State in order to be offered or sold in that State B. security that is listed on the New York Stock Exchange C. offering of a security made solely to non-accredited investors D. security for which filing fees cannot be required to be paid in any State

The best answer is B. Currently, a Federal covered security is defined as one that is:exchange listed or NASDAQ listed, or is a senior security (preferred stock or bonds) of such an issuer;issued by a registered investment company;sold to qualified purchasers (basically a person who owns investments of at least $5,000,000 or investment managers with at least $25,000,000 of investment assets under management); orsold in exempt transactions specified by the Securities Act of 1933, such as Regulation D private placements.Thus, listed securities and investment company securities are only required to be registered with the SEC; they are not required to be registered separately in each State. In addition, securities sold to truly wealthy investors in certain exempt transactions are not required to be registered with the SEC; nor can they be required to be registered in the State. Note that non-accredited investors in a private placement are not wealthy - only the accredited investors are "wealthy," making Choice C incorrect.

If a representative that transacts business in a State terminates employment with a Federal covered adviser, notice must be given to the Administrator by the: A. Federal Covered Adviser B. Investment Adviser Representative C. both the Federal Covered Adviser and the Investment Adviser Representative D. neither the Federal Covered Adviser nor the Investment Adviser Representative

The best answer is B. If a representative of a federal covered adviser that transacts business in a State terminates employment, it is the responsibility of the representative to notify the State promptly. Remember that in this case, the advisory firm is not registered with the State; only the representative is registered with the State. Thus, it cannot be the responsibility of the advisory firm to notify the State since it is not registered there. Only the registered representative must notify the State since only the representative is registered in the State.

Under the provisions of the Uniform Securities Act, which statements are TRUE? I An investment adviser with a place of business in the State, need not register in that State if it is only dealing with insurance companies II A broker-dealer with no place of business in the State, need not register in that State if it is only dealing with insurance companies III If a broker-dealer is registered with the Financial Industry Regulatory Authority, then it is also registered in that State IV If a broker-dealer has its registration revoked, then the registration of its agents will also be revoked AI and III BII and IV CI, II, IV DI, II, III, IV

The best answer is B. If an investment adviser has no place of business in a State, and only deals with "professional investors" in that State, then it would be exempt from registration in that State. However, in Choice I, the adviser has a place of business in the State, and hence, must register. Once the adviser has an office in the State, it makes no difference who the adviser deals with - the adviser must register. Broker-dealer registration requirements are similar to the rules outlined above. If a broker-dealer has no place of business in a State, and transacts only with other broker-dealers and institutional investors, it is exempt (making choice II correct). Once a broker-dealer has an office in the State, it must register - it makes no difference who the firm's customers are. If a broker-dealer is registered with FINRA, this does not mean that the firm is registered in the State. FINRA member firms are required to register under Federal Law (Securities Exchange Act of 1934). Federal registration requirements have no bearing on State registration requirements for broker-dealers (though this is not the case with federal covered advisers!). Thus Choice III is incorrect. Finally, Choice IV is true. If a broker-dealer has its registration revoked, then its agents' registrations are also revoked (since an agent can only register through a registered broker-dealer). Note, conversely, that if an agent's registration is revoked, this has no bearing on the status of the broker-dealer's registration.

An agent of a broker-dealer is registered in a State and also is registered as an Investment Adviser operating as a sole proprietorship in the same State. The agent leaves the broker-dealer. Which statement is TRUE? A. The agent must associate with another broker-dealer within 30 days B. The agent leaving the broker-dealer will cause the State to withdraw the individual's license to be an agent of a broker-dealer but has no effect on the individual's license as an investment adviser C. The agent leaving the broker-dealer will have no effect on that individual's registration with either the broker-dealer or as an investment adviser D. The agent leaving the broker-dealer will cause the State to withdraw both the individual's license to be an agent of a broker-dealer and the individual's license as an investment adviser

The best answer is B. Investment adviser registration in a State is separate and apart from broker-dealer registration. If an agent of a broker-dealer leaves the employ of the firm, the agent's registration will be withdrawn within 30 days of notice by the State Administrator. However, this has no effect on that individual's registration as an investment adviser in the State.

Under the provisions of the Uniform Securities Act, net capital requirements for broker-dealers must be kept in accordance with the provisions of the: A. Securities Act of 1933 B. Securities Exchange Act of 1934 C. Investment Advisers Act of 1940 D. Uniform Securities Act as adopted in that State

The best answer is B. Part of NSMIA is that federal law has supremacy over state law when it comes to recordkeeping rules, capital requirements and custody rules. Since the SEC sets broker-dealer net capital rules under the Securities Exchange Act of 1934, the State can only have a rule requiring net capital standards that are in conformity with the Act of 1934's requirements.

Under the provisions of the Uniform Securities Act, required records for broker-dealers must be kept in accordance with the provisions of the: A. Securities Act of 1933 B. Securities Exchange Act of 1934 C. Investment Advisers Act of 1940 D. Uniform Securities Act as adopted in that State

The best answer is B. Part of NSMIA is that federal law has supremacy over state law when it comes to recordkeeping rules, capital requirements and custody rules. Since the SEC sets broker-dealer recordkeeping rules under the Securities Exchange Act of 1934, the State can only have a rule requiring that records be kept in conformity with the Act of 1934's requirements.

Which statements are TRUE regarding the post-registration requirements of the Uniform Securities Act? I Investment advisers are subject to post-registration requirements II Investment advisers are not subject to post-registration requirements III Agents of investment advisers are subject to post-registration requirements IV Agents of investment advisers are not subject to post-registration requirements AI and III BI and IV CII and III DII and IV

The best answer is B. Post-registration requirements cover such things as maintaining books and records; making required filings with the Administrator; giving reports to customers; and filing advertising and sales literature with the State. These are requirements for both broker-dealers and investment advisers. This portion of the Uniform Securities Act does not apply to their agents, however.

To use Registration by Coordination, an issuer must file a registration statement with: I the Securities and Exchange Commission II the Administrator of that State III FINRA AI only BI and II CII and III DI, II, III

The best answer is B. Registration by Coordination of a securities issue in a State allows the Federal registration document required under the Securities Act of 1933 (the Prospectus filed with the Securities and Exchange Commission) to be the basis for registering the issue in that State. There is no filing of registration documents with FINRA.

An investment adviser representative of a Federal Covered adviser with an office in the state only has insurance companies as clients. Where must the investment adviser representative register? A. SEC B. State C. Both the SEC and the State D. Neither the SEC nor the State

The best answer is B. Since the adviser is federal covered, that firm is only required to register with the SEC. It must give a notice filing to any State where it has a physical presence or where it offers advisory services. As far as the investment adviser representative is concerned, there is no registration of IARs with the SEC. They are only registered in the State where they are physically located and in each State where they solicit advisory business. For the IAR to be able to register in the State, the IA must have completed a notice filing in the State. The fact that the IAR only has insurance company clients is irrelevant in this case because the IAR is physically located in an office in the State and therefore the IAR must register in the State.

The Administrator can require all of the following regarding federal covered securities offered in a State EXCEPT: A. notice filing for the issue in the State B. registration of the issue in the State C. filing of documents relating to the issue in the State D. payment of a filing fee in the State

The best answer is B. The Administrator cannot require registration of federal covered securities in the State (unless the issuer fails to comply with State requirements for these issues). The State can require a notice filing; can require that the documents filed with the SEC for federal registration (or federal exemption) of the issue be filed in the State; and can require that a filing fee be paid to the State.

he State Administrator, as a condition of registration in the State as an investment adviser, can require the: A. incorporation of the investment adviser in the State B. publication of an opening announcement in a local newspaper C. filing of the names and contact information of the investment adviser's clients with the State D. sending a written notice to all other registered investment advisers in the State of the opening of the IA firm

The best answer is B. The State Administrator can require an opening announcement published in a local newspaper as a condition of registration. There is no requirement for the IA to be incorporated in the State. There is no requirement to file the names of the adviser's clients with the State. There is no requirement to send notice to the other registered Investment Advisers in the State of the opening of the firm.

Under the provisions of the Uniform Securities Act, all of the following securities can be offered in a State without registering the issue in that State EXCEPT: A. an exempt security B. a non-exempt security C. a federal covered security D. a security offered in an exempt transaction

The best answer is B. The Uniform Securities Act requires that any security offered in a State be registered in that State unless it is exempt from registration in the State; is offered in an exempt transaction in the State; or is a federal covered security (which is any major exchange listed company or any investment company security registered with the SEC).

A new broker-dealer has filed a registration application in the State. One of the officers listed in the application suddenly dies and another officer is appointed. This is: A. not a material event and no amendment need be filed with the Administrator B. a material event that requires a prompt amendment filing with the Administrator C. a material event that requires an amendment filing with the Administrator within 30 days of occurrence D. an event that only requires filing with the Administrator if the broker-dealer has been formed as a partnership

The best answer is B. The Uniform Securities Act requires that if the information contained in any document filed with the Administrator becomes inaccurate or incomplete in any material respect, the registrant shall file a correcting amendment "promptly." A change in the officers of the BD is a material event.

An investment adviser has 1 main office and 3 branch offices, all located in different States. Which statement is TRUE about recordkeeping requirement for the adviser under the Uniform Securities Act? A. The adviser must keep separate records in each State based on that State's requirements B. The adviser must keep its records based on the rules of the State where its main office is located C. The adviser must keep its records based on the rules of the State where it has the greatest number of customers D. The adviser must keep its records based on the rules of the State where it has the greatest dollar amount of customer assets

The best answer is B. The Uniform Securities Act states that if an adviser complies with the provisions of the Act as adopted in the State where the adviser has its principal office, then other States cannot impose more stringent recordkeeping requirements or minimum net worth requirements on that investment adviser, even if the adviser has offices in those States.

Limited partnership shares are sold to a bank. Under the provisions of the Uniform Securities Act of 1956, as amended, this transaction is subject to: I advertising filing requirements with the Administrator II anti-fraud provisions as promulgated in the Act III payment of filing fees with the State AI and III only BII only CII and III only DI, II, III

The best answer is B. The sale of securities to a financial institution is an "exempt transaction" under the Uniform Securities Act - because the general public is not involved. As an exempt transaction, the securities involved are not required to be registered in the State (however the person selling them must still be registered in the State). Both exempt securities and exempt transactions are specifically excluded from the Act's advertising filing requirements. Finally, filing fees are only required for securities registrations in the State (primary market); not for secondary market transactions that occur in the State.

A registration application in a State filed by an Investment Adviser becomes effective: A. on a date so determined by the Administrator B. at noon, the 30th day after the application is filed C. at noon, the 45th day after the application is filed D. at noon, the 60th day after the application is filed

The best answer is B. The wording in the Uniform Securities Act is that: "If no denial order is in effect and no proceeding is pending, registration becomes effective at noon of the thirtieth day after an application is filed." It then goes on to say that: "The Administrator may by rule or order specify an earlier effective date and may by order defer the effective date until noon of the thirtieth day after the filing of any amendment."

Under the provisions of the Uniform Securities Act, which statements are TRUE regarding surety bond coverage as a requirement for registration as an Investment Adviser? I Investment advisers that take custody are required to maintain surety bond coverage II Investment advisers that take custody are not required to maintain surety bond coverage III Investment advisers that do not take custody are required to maintain surety bond coverage IV Investment advisers that do not take custody are not required to maintain surety bond coverage AI and III BI and IV CII and III DII and IV

The best answer is B. Under State law, if an investment adviser will not take custody of a client's funds, there is no surety bond requirement. However, if the adviser will take custody, it must have a minimum net worth or minimum surety bond coverage of $35,000.

Under the Uniform Securities Act of 1956, as amended, an issuer is defined as any person: A. engaged in the sale of new issue offerings to the public B. who issues or proposes to issue a security. C. engaged in the sale of non-exempt securities offerings to the public D. engaged in the sale of secondary offerings to the public

The best answer is B. Under the Uniform Securities Act of 1956, as amended, an issuer is defined as any person who issues or proposes to issue a security. This is just a pure regurgitation of the definition.

Which of the following MUST notify the Administrator if an agent of a broker-dealer is terminated? I Agent II Ex-employer III FINRA IV SEC AII only BI and II only CI, II, III DI, II, III, IV

The best answer is B. Under the Uniform Securities Act, when an agent associates with a broker-dealer; or terminates those activities that make him or her an agent; both the agent and the broker-dealer must notify the State Administrator promptly.

What is defined as a security under Uniform State Law? A. Fixed annuity B. Dividend on a stock C. Real Estate Investment Trust D. Real Estate Condominium

The best answer is C. A fixed annuity is an insurance product - it is not a security (however, a variable annuity is a security). A dividend is not a security - it is a payment received from an equity security. A Real Estate Investment Trust is a security because the real estate is being managed by a third party for a group of passive owners. A real estate condominium is not a security - it is residential property.

Which of the following can be filed electronically? I Registration application information II Signature requirement III Payment of fees IV Answer to a subpoena AI and III BIII and IV CI, II, III DI, II, III, IV

The best answer is C. A subpoena must be answered by a personal appearance in court. All State registration information, including signature and fee payment, can be done electronically.

All of the following persons are defined as federal covered advisers EXCEPT: A. advisers with $100,000,000 or more of assets under management B. advisers to investment companies C. advisers to sophisticated investors D. advisers not subject to State regulation

The best answer is C. Advisers that manage $100,000,000 or more of assets; or that render advice to investment companies; or that are not regulated at the State level; must register with the SEC only. These are so-called federal covered advisers; and they cannot be required to register with the State. The smaller advisers are only required to be registered at the State level. If an adviser has under $100,000,000 of assets, it must register in the State. Also note that if an adviser is NOT subject to State registration requirements, then to make sure that the IA is registered with SOMEONE, it would be defined as a "federal covered adviser." This used to be the case with New York and Wyoming, but now they both require IAs to register in the State, so this really is a moot point (but it still must be known for the exam.)

An "offer" or "offer to sell" would include which of the following? I A sale of a security II An offer of a security III An offer of an interest in a security IV The solicitation of an offer to buy a security AI only BII and III CII, III, IV DI, II, III, IV

The best answer is C. An "offer" or "offer to sell" is defined as any attempt to offer to dispose of a security; or a solicitation of an offer to buy a security or an interest in a security; for value. Do not confuse an "offer" (the attempt to sell) with a "sale" (which is a "done deal"). A "sale" is defined as a contract to sell or dispose of a security, or an interest in a security, for value.

Who does NOT have to be registered in the State as an agent of a broker-dealer? A. A secretary that answers the phone and who takes orders B. A trading assistant who only accepts unsolicited customer orders C. A director of the company that is not involved in sales D. An officer of the company that oversees the firm's marketing

The best answer is C. An agent is someone who is engaged in effecting securities transactions with the public. It makes no difference if the transaction is solicited or unsolicited. Thus, the individual in both Choices A and B must be registered. A director of the broker-dealer that is not involved in sales is not an agent and is not required to be registered in the State as such. Note, however, that this individual is still named as an officer on the firm's State registration. An officer or director who oversees marketing is engaged in selling securities to the public and must be registered as an agent in the State.

The term "Investment Adviser" includes: A. lawyers who give advice about investments as part of an estate tax plan B. depository institutions that recommend bank products as investments C. publishers of reports on securities tailored to client situations D. broker-dealers who make recommendations to clients and charge commissions on the resulting trades

The best answer is C. An investment adviser is defined as a person who, for compensation, engages in the business of advising others, directly or indirectly, as to the value of securities or the advisability of investing in, buying, or selling, securities. Under this definition, persons who take fees for advising clients about investments; and newsletters that give advice based upon the specific investment situation of clients, are defined as "investment advisers." Excluded from the State definition are: investment adviser representatives; professionals such as lawyers and accountants who give incidental advice without taking a fee; broker-dealers since they also give incidental advice without taking a fee for the advice (instead they earn a commission on the trade); financial publications that are not tailored to specific client situations; and depository institutions such as banks, and savings and loans (they are already highly regulated under other laws).

Which of the following would be defined as a broker-dealer in State A? A. The municipal bond department of a bank located in State A B. A person who gives advice about investing in securities in State A C. A broker-dealer located in State B who has an existing active customer who moves to State A D. An agent of a broker-dealer who effects trades in securities in State A

The best answer is C. Banks are excluded from the definition of a broker-dealer, making Choice A incorrect. Choice B defines an investment adviser; not a broker-dealer. Choice D defines an agent of a broker-dealer; not the broker-dealer itself. Choice C gets at an interesting point. Because the customer has moved and is now located in another State (State A), and the customer is "active" -meaning the customer is trading securities, then the firm must be registered as a broker-dealer in State A (and the agent servicing the customer account must be registered in State A as well).

The directors of a company decide to offer shares of the company from the company's unissued stock directly to company employees. The proceeds of the sale go to the company, but the directors take a commission from the employees on these sales. Which of the following statements are TRUE? I This is a non-issuer transaction II The directors are defined as agents of the issuer III The directors must be registered IV The securities must be registered AI and II only BIII and IV only CII, III, IV DI, II, III, IV

The best answer is C. Because the company is issuing these shares and the proceeds are going to the issuer, this is an issuer transaction. Because an agent is defined as an individual who effects securities transactions for either a broker-dealer OR an issuer, the directors are considered to be agents of the issuer and must be registered. Since common stock is a non-exempt security, it also must be registered to be sold in the State.

All of the following securities are subject to registration under the Uniform Securities Act EXCEPT: A. Subordinated debentures of a Canadian Paper company B. Preferred stock of a bank holding company C. Equipment trust certificate of a railroad subject to Interstate Commerce Commission regulations D. Limited partnership investing in issues of Federally chartered savings and loans

The best answer is C. Exempt securities under the Uniform Securities Act include:Canadian Government Securities (not common stocks of Canadian companies);Bank Issues (not securities issued by bank holding companies!); andSavings and Loan issues (not limited partnerships that invest in such securities!).Thus, Choices A, B, and D are all non-exempt and must be registered under Uniform State Law. Choice C, securities issued by common carriers subject to Interstate Commerce Commission regulation, are an exempt issue.

Federal covered securities are subject to which of the following? I SEC registration requirements II SEC anti-fraud statutes III State registration requirements IV State anti-fraud statutes AI and II BIII and IV CI, II, IV DI, II, III, IV

The best answer is C. Federal covered securities are major exchange listed companies and investment company securities that are registered federally with the SEC. These are no longer required to be separately registered in each State; however the State can still require a notice filing for these offerings. Nothing is exempt from federal and state anti-fraud statutes.

Under the Uniform Securities Act, the financial records of a broker-dealer must be retained for: A. 5 years, with the prior 2 years records readily accessible for audit B. any time period specified by the State Administrator C. the time period specified by the Securities Exchange Act of 1934 and if the record is not specified in the 1934 Act, then the time period specified by the Administrator D. the lesser of the time period specified by the State Administrator or the time period specified in the Securities Exchange Act of 1934

The best answer is C. Financial records of a broker-dealer must be kept for the time period specified by the Administrator. In the absence of a rule by the Administrator, the retention period is the same as that required under the Securities Exchange Act of 1934. If there is a retention period for the same record set by both regulators, then federal supremacy dictates that the record be maintained under the 1934 Act requirements, even if this is longer than the Administrator's rule.

Which of the following securities is (are) NOT considered to have an issuer? I Collateral trust certificate II Equipment trust certificates III Fractional interests in oil and gas programs IV Certificates of interest in a gravel mining program A. I and II only B. III only C. III and IV only D. I, II, III, IV

The best answer is C. For collateral trust certificates, the "issuer" is defined as the person performing the functions of manager or depositor under the Trust agreement. For equipment trust certificates, the issuer is the person to whom the equipment is to be leased. For fractional interests in oil and gas programs, or mining titles or leases, there is not considered to be any "issuer." (Note: States have been concerned for many years about sales of highly risky oil and gas exploration deals to unsophisticated investors. The legal wording of "no issuer" is a "technicality" that makes a person offering oil and gas units to investors register in the State under the toughest method - Registration by Qualification. The easier methods cannot be used.)

If a representative that transacts business in a State terminates employment with a federal covered adviser, notice must be given to the Administrator by the: I federal covered adviser II officer or director of the federal covered adviser III investment adviser representative AI and III BII and III CIII only DI, II, III

The best answer is C. If a representative of a federal covered adviser that transacts business in a State terminates employment, it is the responsibility of the representative to notify the State promptly. Remember that in this case, the advisory firm is not registered with the State; only the representative is registered with the State. Thus, it cannot be the responsibility of the advisory firm to notify the State since it is not registered there. Only the registered representative must notify the State since only the representative is registered in the State.

All of the following are defined as securities under the Uniform Securities Act EXCEPT: A. Real Estate Condominium Investments B. Voting Trust Certificates C. Individual Retirement Accounts D. Commercial Paper

The best answer is C. Individual Retirement Accounts and Keogh Plans are specifically excluded from the definition of a security. Real Estate Condominium investments can be considered to be a security when the condominium is managed by a third party for profit. Voting trust certificates are a form of common stock ownership and are defined as a security under the Act. Commercial Paper is also defined as a security. However if it has a maturity of nine months or less, is issued in amounts of $50,000 or more, and is rated in one of the top 3 ratings categories, it is exempt from registration.

An Investment Adviser can give advice on: I NYSE listed securities II Options III Commodity futures IV Variable annuities A. I only B. II and III only C. I, II and IV D. I, II, III, IV

The best answer is C. Investment Advisers and IARs give advice about securities, not commodities or futures contracts. Choice I, II and IV are all securities. Commodities futures are not securities.

Under the Uniform Securities Act, which of the following are defined as securities? I Mortgages II Mortgage Bonds III Investment Contracts IV Variable Annuity Contracts AI and II only BIII and IV only CII, III, IV DI, II, III, IV

The best answer is C. Mortgage bonds are defined as securities; mortgages are not. Investment contracts are defined as securities. Variable annuities are defined as securities; fixed annuities are not.

Under the NASAA Model Rule covering Investment Adviser records, the adviser's articles of incorporation must be retained for how long after the adviser ceases business operations? A1 year B2 years C3 years D5 years

The best answer is C. NASAA's recordkeeping rule for investment advisers requires that "partnership articles and any amendments, articles of incorporation, charters, minute books and stock certificate books of any investment adviser be preserved for at least 3 years after termination of the enterprise."

A broker-dealer headquartered in Florida has a Net Capital requirement of $50,000. The firm has an office in Georgia, where the Net Capital requirement is $25,000 and an office in Tennessee where the Net Capital requirement is $35,000. Under Uniform State Law, the Net Capital requirement for this broker-dealer is: A$25,000 B$35,000 C$50,000 D$110,000

The best answer is C. Net Capital is not an additive requirement - it is based on the broker-dealer's principal State where it operates.

If an investment adviser is an individual, which of the following items would be included in the computation of adviser's net capital? A. Goodwill B. Automobile C. Accounts receivable D. Copyright

The best answer is C. Net capital is really the adviser's "liquid net worth." It is liquid assets minus all liabilities. For an adviser that is an individual, excluded from assets that count in net capital are any non-liquid assets, including deferred charges, goodwill, franchise rights, organizational expenses, patents, copyrights, home, home furnishings, automobiles and any other personal items that cannot be readily converted to cash. Basically, this means that the only assets that count in the computation for an individual adviser are cash, accounts receivable and marketable securities positions. Note, however, that if the adviser is a partnership or corporation, the computation is permitted to include automobiles and furnishings used in the adviser's business. Why State law permits this is anyone's guess, but this point should be known for the exam!

Which statement is TRUE regarding the Administrator's ability to deny or revoke an exemption? A. An exemption from registration for a non-profit issuer may not be revoked by the Administrator B. The revocation order can cover a period of time prior to the date that the order was issued C. The order can be issued without giving prior notice to the affected parties D. If the order is appealed, the Administrator has the burden of proving that the exemption should have been revoked

The best answer is C. Since "affinity fraud" is a hot button topic for Administrators, they do have the right to reject the exemption of a not-for-profit issue such as a church bond, so Choice A is false. An exemption cannot be revoked retroactively, so Choice B is false. A revocation order can be issued without giving prior notice, so Choice C is true. Finally, if the Administrator's revocation order is appealed, the burden of proof to show that the exemption should be permitted is on the issuer - not the Administrator, making Choice D false.

An individual who lived in State B is an existing client of Broker-Dealer. She has temporarily relocated to State A. She contacts her agent located in State B to buy securities. Which statement is TRUE? A. The Broker-Dealer and the agent must be registered in State A only B. The Broker-Dealer and the agent must be registered in State B only C. The Broker-Dealer and the agent must be registered in both States A and B D. The Broker-Dealer is only required to be registered in State B and the agent must be registered in both States A and B

The best answer is C. Since the agent is located in State B, the broker-dealer and agent must be registered in State B, regardless of who the clients are. This customer has "temporarily relocated" to State A. This is a longer time frame than a "vacation" - so the vacationing customer exemption does not apply. As a general rule, spending more than 30 days in a location is no longer considered to be a vacation. Thus, both the broker-dealer and the agent must be registered in State A as well, since the customer is residing there.

A Registered Investment Adviser uses a solicitor to refer clients and pays the solicitor for each client referred. Under the Uniform Securities Act of 1956 as amended, the solicitor: A. must register as an agent in the State B. is not required to register as an agent in the State C. must register as an investment adviser representative in the State D. is not required to register as an investment adviser representative in the State

The best answer is C. The Act defines an "investment adviser representative" as any partner, officer, director, or other individual employed by an investment adviser, who:Makes recommendations or renders advice regarding securities;Manages accounts or portfolios of clients;Determines which recommendations or advice regarding securities should be given;Solicits, offers, or negotiates for the sale of investment advisory services; orSupervises employees who perform any of the functions listed above. This individual is selling advisory services for the investment adviser and must register in the State as an IAR (Investment Adviser Representative).

If the Administrator summarily suspends a registration of an agent, which of the following statements are TRUE? I The Administrator must notify the agent promptly that the order has been entered II The Administrator must obtain a court order prior to issuing its own order III An opportunity for a hearing must be given within 15 days of written request IV The individual is prohibited from acting as an agent in that State AI and II only BIII and IV only CI, III and IV DI, II, III, IV

The best answer is C. The Administrator is permitted to summarily suspend a registration, which means that he or she can take this action without obtaining a court order. If the administrator does this, the agent must be notified promptly of the action and the reasons for the action; and the agent must be given the opportunity for a hearing within 15 days of the agent making a written request.

Under the Uniform Securities Act, which of the following are defined as either a "sale" or an "offer to sell" common stock of an issuer? I Any offer to sell the common stock for value II Any solicitation of an offer to buy the common stock for value III The sale of a bond with detachable warrants to buy the common stock of that issuer IV The gift of the common stock to an employee of the issuer AI only BII and III only CI, II, III DI, II, III, IV

The best answer is C. The definition of a "sale" is every contract of sale, contract to sell, or disposition of, a security, or interest in a security, for value. The definition of an "offer to sell" is every attempt or offer to dispose of, or solicitation of an offer to buy a security. Thus, Choices I and II fit the definition. In addition, the sale or offer of a security that includes rights or warrants to buy another security is considered to be an offer or sale of the other security (making Choice III correct). The gift of a security is NOT considered to be a sale, unless the security is assessable, Common stock is non-assessable, so this is simply a gift, not a sale.

Which transaction is included in the definition of "sale" under the Uniform Securities Act? A. An unsuccessful attempt to dispose of a security for value B. A gift of a non-assessable security C. A security given to a person as a "gift" with the sale of another security D. An unexecuted contract to sell a security (an open order)

The best answer is C. The definition of a sale is a contract to sell a security, or an interest in a security, for value. Choice C is considered to be a sale since the security was "given" with the sale of another security. Therefore, the value of that gift was included as part of the sale price, so the "gift" was actually sold for value. An unsuccessful attempt to sell a security for value is not a "sale" - rather it is defined as an "offer." A gift of a non-assessable security is a "gift" - not a sale. A gift of an assessable security is a "sale," since the seller is relieved of any future liability. An open order is not a sale until the order is executed.

A limited partnership unit was initially sold to an investor for $25,000. The unit is illiquid and there is no current market for the security. As part of the partnership agreement, the general partner has the right to assess the limited partners if the partnership suffers a cash shortfall. The investor wishes to give the partnership unit to a close friend as a birthday present. This action is: A. prohibited under the Uniform Securities Act B. permitted and will allow the investor to take a $25,000 charitable deduction C. permitted and is considered to be an offer of a security D. an unethical practice

The best answer is C. The offer of the gift of an assessable security is not a gift - the issuer has the right to assess the holder for more monies, if they are needed to run the business. This gift relieves the giver of a liability to pay; which is the same thing as the recipient of the "gift" - the buyer - actually paying for the security. Thus, a buyer paying for a security; or relieving the seller of a liability; is a "sale" of that security. In this case, the final contract sale has not occurred, since the investor "wishes" to give this gift, so this is an offer to sell.

The sale of securities to an insurance company is exempt under the Act under the: A. blue chip exemption B. exempt security C. sophisticated investor exemption D. non-issuer exemption

The best answer is C. The sale of securities to financial institutions is an "exempt transaction" under the Act, since the general public is not involved, and these investors are considered to be "sophisticated" - meaning they can "watch out" for themselves. Also remember that an "exempt transaction" means that the security involved is not required to be registered in the State. It does NOT exempt the broker-dealer and agent involved from having to register in the State. The broker-dealer and agent must be registered in the State unless they can get an exclusion or exemption. In this case, as long as the broker-dealer and agent have no place of business in the State, they would be excluded from registration as long as they are dealing only with institutional clients.

The Administrator will give a specific response before the effective date for issues that are registered by: I Filing II Coordination III Qualification AI and II BII and III CIII only DI, II, III

The best answer is C. Under Registration by Filing, registration becomes effective 5 business days after the filing. Under Registration by Coordination, registration becomes effective when the Federal registration becomes effective. Under Registration by Qualification, registration becomes effective on a date set by the Administrator.

Which of the following is (are) defined as a "broker-dealer" under the Uniform Securities Act? I A person who effects securities transactions for its own account II A person who effects securities transactions for the account(s) of others III An agent of a broker-dealer who effects securities transactions IV An agent of a broker-dealer who effects securities transactions that are not recorded on the books of the broker-dealer AII only BI and II only CI, II and IV only DI, II, III, IV

The best answer is C. Under the Uniform Securities Act, a "broker-dealer" is defined as a person that engages in the business of effecting securities transactions for the account of others; or a person that engages in the trading of securities for its own account. Thus, Choice I and Choice II are correct. An "agent" of a broker-dealer (Choice III), is an individual associated with a broker-dealer, who represents the broker-dealer in effecting securities transactions. An agent is not a broker-dealer, making Choice III wrong. If an agent of a broker-dealer engages in so-called "private securities transactions." a prohibited practice has occurred. All securities transactions effected by agents must be known to the broker-dealer; must be recorded on the books of the broker-dealer; and must be supervised by the broker-dealer. If the agent performs a "private securities transaction" that is not known to the broker-dealer, then that agent has, himself, become a broker-dealer under this definition (a so-called "statutory" broker-dealer). As such, he would have to register in the State as a broker-dealer before effecting such a transaction. Thus, Choice IV is correct.

All of the following are defined as a "State" under the Uniform Securities Act EXCEPT: A. Alaska B. District of Columbia C. Guam D. San Juan Islands

The best answer is D. "State" is defined under the Act to be any state, territory, possession of the United States, the District of Columbia, and Puerto Rico. The San Juan Islands are part of the State of Washington; they are not a territory or possession.

Under the provisions of the Uniform Securities Act, a "person" includes: I A parent that is acting as custodian II An adult couple III Municipality IV Corporation AI and II only BIII and IV only CII, III, IV DI, II, III, IV

The best answer is D. A "person," as defined under the Act, can be just about anyone who has legal authority to issue or trade securities. A custodial account opened for a minor is a person (note that a minor acting on his or her own is not a "person" since a minor has no legal authority to trade securities). An adult couple is a "person" (when they open a joint account). A municipality is a person. Finally, a corporation is a person.

All of the following conditions must be met for an investment to be defined as a "security" under the Uniform Securities Act EXCEPT: A. investment in a common enterprise B. expectation of earning a profit C. management by a third party D. guaranteed rate of return

The best answer is D. A "security" is defined as an investment in a common enterprise for profit with management provided by another party (that would be a "third" party). Generally, securities do not have a guaranteed rate of return.

Under the Uniform Securities Act, the registration of a broker-dealer may be revoked for all of the following reasons EXCEPT the firm does not: A. maintain required records B. file financial reports with the Administrator C. file advertising with the Administrator D. file customer complaints with the Administrator

The best answer is D. A broker-dealer's registration may be revoked if the firm fails to maintain required records, fails to file financial reports with the Administrator or fails to file advertising with the Administrator, if required to do so. There is no requirement under the Uniform Securities Act for customer complaints to be filed with the Administrator.

If an agent wishes to withdraw his registration, which statements are TRUE? I The agent must notify the Administrator II The broker-dealer must notify the Administrator III The withdrawal does not become effective for 30 days IV If there is a customer complaint, the Administrator retains jurisdiction over the agent for a period of 1 year from the withdrawal date AI only BI and II only CIII and IV only DI, II, III, IV

The best answer is D. All of the statements are true regarding an agent's request for a withdrawal of registration in a State. Both the agent and the broker-dealer must notify the Administrator promptly of the withdrawal. The withdrawal does not become effective for 30 days. Finally, if there is a customer complaint, the Administrator retains jurisdiction over the agent for a period of 1 year from the withdrawal date

Which of the following persons is required to register as an investment adviser under the Uniform Securities Act? A. An attorney who writes a legal opinion included in the registration statement filed with the State for a new non-exempt securities offering B. A broker-dealer who gives investment advice in the regular course of business executing transactions for customers C. An agent of a broker-dealer who gives investment advice as part of his or her regular duties and who charges a fee for such advice D. A broker-dealer that charges an annual flat fee to customers for both investment advice and portfolio trade executions

The best answer is D. An attorney that renders a legal opinion is not giving advice about investing in securities - the opinion covers the validity and legality of the securities offering. A broker-dealer is not considered to be an investment adviser unless it charges separately for advice. If the broker-dealer's compensation comes solely from commissions, then the broker-dealer does not fall under the investment adviser definition. On the other hand, if a broker-dealer offers an account that charges a flat fee or a fee as a percentage of assets - this is a "wrap" account that is an advisory product and registration at the State level as an adviser is required (thus, Choice D would have to register in the State as an investment adviser). Regarding Choice C, be careful! Choice C defines an "investment adviser representative" that would have to register at the State level - it does not define an "investment adviser."

All of the following statements are TRUE about broker-dealers under the Uniform Securities Act EXCEPT a broker-dealer: A. that is registered in the State may also register as an investment adviser in the State B. is defined as a person who engages in securities transactions for customers or for its own account C. can be legally structured as a sole proprietorship, a partnership or a corporation D. is not required to register in a State unless it has an office in that State

The best answer is D. Any broker-dealer that has an office in a State; or one that solicits in a State; must register in that State (making Choice D false). A broker-dealer can also register as an investment adviser in the State (which it must do if it offers "wrap" accounts - which States consider to be advisory products). A broker-dealer is a person (in the "legal" sense of the word) that effects securities transactions for customer accounts or for its own account. Broker-dealers can be structured as any legal business form allowed in the State. These business forms are sole proprietorships, partnerships, and corporations.

Which of the following would be defined as an investment adviser under the Uniform Securities Act? A. U.S. Trust Corp. B. Washington Savings and Loan Corp. C. AIM Investment Advisers, a firm with $400,000,000,000 of assets under management D. Greenwich Investment Counsel, a firm that offers research and asset allocation services to accredited investors

The best answer is D. Any deposit-taking institution is excluded from the definition of an investment adviser under the Uniform Securities Act (USA), making Choice A and Choice B incorrect. Federal covered advisers are also excluded from the definition of an investment adviser under USA. Since any adviser with $100,000,000 of assets or more under management is a Federal covered adviser, Choice C is incorrect as well. There is no exclusion from the definition of an investment adviser for advisers that only deal with accredited (wealthy) investors. Note, however, that there is an exemption available for investment advisers that have no business location in the State and that only deal with other advisers or with institutions. This exemption is not available to advisers that deal with wealthy individuals, however.

As a condition of registration as an agent or principal of a broker-dealer, all of the following statements are true EXCEPT: A. an oral examination may be required B. a written examination may be required C. both an oral and written examination may be required D. there is no requirement for either a written or oral examination to be taken

The best answer is D. As a condition of registration as an agent or principal of a broker-dealer or investment adviser, an examination may be required. The examination may be written or oral, or both (oral exams are sometimes given to people with vision problems). Higher passing grades can be required for principals than for agents on these examinations - for example, some States have a passing grade of 80% on the Series 63 or 66 for principals of broker-dealers; while agents pass with a 72% for Series 63 and 73% for Series 66.

All of the following may be required by the Administrator to maintain registration EXCEPT the filing of: A. financial reports with the Administrator B. renewal fees with the Administrator C. sales literature with the Administrator D. a renewal consent to service of process with the Administrator

The best answer is D. Consent to service of process is only filed with initial registration applications; it is not required for renewals. The Administrator can require the filing of financial reports, advertising and sales literature, and the payment of renewal fees.

All of the following are exempt securities under the Uniform Securities Act EXCEPT: A. U.S. Government bonds B. Investment grade commercial paper maturing within 9 months C. Bank issues D. Corporate stocks

The best answer is D. Corporate stocks are not exempt under the Uniform Securities Act and thus must be registered in the State. U.S. Government bonds, bank issues, and commercial paper maturing within 9 months and rated in one of the 3 highest categories, are exempt securities.

Which of the following statements are TRUE? I The Administrator may suspend or revoke a registration for the sole reason that it is "in the public good" II If a broker-dealer registration is suspended, the agent's license is suspended III If an agent's license is suspended, the broker-dealer's license is suspended IV Broker-dealers, but not agents, may have their registration revoked for failing to supervise subordinates AI and II only BI and IV only CII and III only DII and IV only

The best answer is D. If a broker-dealer's registration is suspended, the agent's registration through that broker-dealer ceases to be effective. However, if an agent's registration is suspended, it has no effect on the broker-dealer's registration. The Administrator may revoke a registration if it is in the public good and the person has violated some aspect of the Act. Registration cannot be revoked solely because it is in the public good. Broker-dealers can have their registration revoked for failing to supervise subordinates. This does not apply to agents, since they have no supervisory capacity.

Which of the following investment advisers are NOT required to register in a State? I An investment adviser that has no place of business in the State and which has no more than 5 clients in that State within a 12 month period II An investment adviser with at least $100,000,000 of assets under management registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940 III An investment adviser that has no place of business in the State that deals solely with Investment Companies as defined under the Investment Company Act of 1940 IV An investment adviser that has no place of business in the State that deals solely with other investment advisers AII and III only BIII and IV only CI, III, and IV DI, II, III, IV

The best answer is D. Investment advisers that are exempt from registration include advisers with no place of business in the State who deal solely with other advisers, broker-dealers, insurance companies, investment companies, financial and institutional investors, and government agencies. Also, advisers with no place of business in the State that have no more than 5 clients in a 12 month period are exempt. Investment advisers with at least $100,000,000 of assets under management must register with the Securities and Exchange Commission but are excluded from state registration (to avoid duplicate regulation). Advisers with less than $100,000,000 under management must register with the State, but are not required to be registered with the SEC. The idea is that the big advisers are regulated by the Feds; while the little advisers are regulated by the local police. Note that, in contrast, broker-dealers that are registered with the self-regulatory organization under the Securities Exchange Act of 1934, such as FINRA, must still register in each State.

Which one of the following items would be included in the computation of an individual investment adviser's net capital? A. Copyright owned by the adviser B. Franchise right owned by the adviser C. Home furnishings owned by the adviser D. Securities owned by the adviser

The best answer is D. Net capital is really the adviser's "liquid net worth." It is liquid assets minus all liabilities. For an adviser that is an individual, excluded from assets that count in net capital are any non-liquid assets, including deferred charges, goodwill, franchise rights, organizational expenses, patents, copyrights, home, home furnishings, automobiles and any other personal items that cannot be readily converted to cash. Basically, this means that the only assets that count in the computation for an individual adviser are cash, accounts receivable and marketable securities positions. Note, however, that if the adviser is a partnership or corporation, the computation is permitted to include automobiles and furnishings used in the adviser's business. Why State law permits this is anyone's guess, but this point should be known for the exam!

The Administrator, in regards to the registration of securities, may do all of the following EXCEPT: A. impound the proceeds from the sale of the securities until the issuer receives a specified dollar amount B. require the filing of original copies of confirmed subscription agreements C. require the delivery of a prospectus D. require that the state receive a portion of the offering proceeds as a condition of registration

The best answer is D. Regarding registration of securities in a State, the Administrator is empowered to impound the proceeds of the sale of the securities until a specified dollar amount is sold (this is typical for so-called "all or none" underwritings, where, if the entire issue is not sold, the deal is canceled). The Administrator can require the filing of original copies of confirmed subscription agreements (these are completed by customers who wish to "subscribe" to the new offering of securities); and can require that a disclosure document (prospectus) be provided to customers. The state administrator cannot require that the state receive a portion of the offering proceeds - the filing fee paid to the state is sufficient!

All of the following statements are true about Registration by Filing EXCEPT: A. the issuer must have minimum earnings levels for 2 of the past 3 years B. copies of any offering materials must be included in the registration filing C. the issuer must not have defaulted on any interest payments within the past year D. registration becomes effective 10 business days after the filing is complete

The best answer is D. Registration by Filing becomes effective 5 business days after the filing is complete. To qualify, the issuer must be in business continuously for the past 3 years, and be profitable in 2 of the last 3 years. The issuer cannot have defaulted on any interest payments in the last year and must include copies of the offering materials (Prospectus) in the filing.

Registration by qualification becomes effective: A. 30 days after filing B. 90 days after filing C. concurrent with the registration statement filed with the SEC becoming effective D. on a date set by the Administrator

The best answer is D. Registration by qualification is used by issuers for their first time registration in that State when no SEC registration is required (that is, they must "qualify" their issue for registration in the State). Registration becomes effective when the Administrator so determines (which is normally 30 days after filing, if there are no "problems" with the filing). Please note that of the choices offered, Choice D is best, since registration is not automatically effective 30 days after filing.

State law requires the registration of all of the following EXCEPT: A. investment adviser representatives with a place of business in the State who solicit advisory business in the State B. investment adviser representatives with a place of business in the State who solicit advisory business in the State and who are associated with federal covered advisers C. investment advisers with no place of business in the State who have more than 5 clients in the State D. investment adviser representatives with no place of business in the State who do not solicit advisory business in the State who are associated with federal covered advisers

The best answer is D. States require registration of investment advisers that are not "federal covered advisers." Even though State registration is not required for federal covered advisers, each State can (and does) require the registration of any investment adviser representative - whether they are affiliated with a federal covered adviser or a state registered adviser. This is State law because the SEC only requires the registration of the adviser - not its representatives - at the Federal level. There would be no supervision of investment adviser representatives unless the State filled that role; and the State is happy to be the "local policeman on the beat" doing just that.Notice that the requirement for registration of federal covered investment adviser representatives applies to those individuals who have a place of business in the State - thus an investment adviser representative has to register in the State where he or she has their place of business. If the IAR has is no place of business in the State, then there is no requirement for IARs of federal covered advisers to register in that State unless: their IA has filed notice in the State and; the IAR deals with more than 5 retail clients in a year. Essentially, the rule for registration of IARs of Federal covered advisers goes like this - if the IAR is physically present in the State; he or she must register; and if the IAR is not physically present in the State but the State has received notice from the IA that it is doing business in the State, then the out-of-State IARs that are soliciting in the State for the Federal covered adviser must register as well. Investment advisers with no place of business in a State, that have 5 or fewer clients in a State, are exempt from registration. However, if an adviser has 6 or more clients in a State, it does not qualify for this "de minimis" exemption and must register in the State.

All of the following are defined as securities under the Uniform Securities Act EXCEPT: A. Stock options B. Commodity options C. Stocks D. Commodities

The best answer is D. Stocks, stock options, and commodity options contracts are all defined as securities. Please note that physical commodities (e.g., gold, wheat, etc.), and futures contracts that trade on these commodities in such markets as the Chicago Board of Trade, are not considered to be securities.

The State Administrator, as a condition of registration in the State as an investment adviser, can require which of the following: I An oral examination by the officer of the advisory firm II Publication of an opening announcement in a local newspaper III Posting of a surety bond IV Filing of advertising AI and III only BII and IV only CII, III, IV DI, II, III, IV

The best answer is D. The State Administrator can require written or oral exams as a condition of registration; can require an opening announcement published in a local newspaper; can require the posting of a surety bond; and can require the filing of advertising (unless the security or transaction is exempt).

Under NASAA rules, all of the following records must be retained for at least 5 years by a Registered Investment Adviser EXCEPT: A. Cash receipts and disbursements B. Order tickets C. Written communications D. Articles of incorporation

The best answer is D. The basic rule for investment adviser records is that they must be retained for 5 years under the Uniform Securities Act. However, certain "permanent" records must be kept for the life of the firm - these include the partnership agreement if the RIA is a partnership; articles of incorporation if the RIA is a corporation; and any minutes to partnership or Board of Directors meetings. These must be kept for the life of the firm, plus an additional 3 years after the firm ceases operations.

Under the Uniform Securities Act, the definition of "guaranteed" means that the security is guaranteed by another party as to: A. payment of dividends B. payment of interest C. payment of principal D. any of the above

The best answer is D. The term "guaranteed" is defined as guaranteed as to payment of principal, interest, or dividends by someone other than the issuer.

Under the Uniform Securities Act, for an account to be considered by the Administrator to be "institutional," it must: A. purchase only the securities of the United States Government or its agencies and political subdivisions B. have assets of at least $5,000,000 C. meet the definition of an "accredited investor" D. be designated as such by rule or order of the Administrator

The best answer is D. Under Uniform State Law, many transactions are exempt from the requirements of the Act. Generally, exempt transactions are those that do not involve the public. One of the exempt transactions is a trade with Financial or Institutional investors. Each State Administrator decides the specific "institutions" that will fall under this exemption. Institutional investors do not have to have minimum assets of $5,000,000 (though this is easy to confuse with the exemption from registration granted to investment advisers that render advice to pension plans with assets of at least $1,000,000). Institutions do not have to only invest in U.S. Government obligations (though this is easy to confuse with the exemption from registration given to investment advisers that only give advice on exempt securities). Finally an "accredited investor" is a concept of the Federal private placement exemption (Regulation D) of the Securities Act of 1933. It has no applicability to State law.

A State Administrator can require that a new investment adviser who files a registration application in the State file: I Proposed advertising II An announcement of the application in 1 or more newspapers III Standardized form letters to be used for prospecting AI only BI and II only CII and III only DI, II, III

The best answer is D. Under the Uniform Securities Act, the Administrator can require the filing of any prospectus, pamphlet, circular, form letter, advertisement or other sales literature or advertising communication addressed or intended for distribution to prospective investors. As part of the initial registration process, the Administrator can require that the applicant "publish an announcement of the application in one or more specified newspapers published in the state."

Under the Uniform Securities Act, which of the following is defined as a security? A. Insurance policy B. Commodity Futures Contract C. Fixed annuity D. Voting trust certificate

The best answer is D. Voting trust certificates are a form of common stock ownership and are defined as a security under the Act. Insurance policies, fixed annuities, and commodities futures are excluded from the definition because the investment risk is borne by the issuer - not the investor.

An agent moves from one broker-dealer to another. Notification of the change of employer must be made by: A. the agent B. the previous employer C. the new employer D. all of the above

The best answer is D. When an agent moves from one broker-dealer to another, the old broker-dealer, the new broker-dealer, and the agent must notify the Administrator.

When a security is being registered in a State by coordination alongside a federal registration for that security being performed under the Securities Act of 1933, what information must be filed in the State? A. A consent to service of process, copies of the prospectus, and a copy of the articles of incorporation and bylaws B. A disclosure document that details the names and background of the company's directors covering the past 5 years, along with their salaries C. A copy of the prospectus in final form D. A notice filing

he best answer is A. Under Registration by Coordination, the issuer can coordinate State registration with an SEC registration being performed under the Securities Act of 1933. Essentially, the filing of the SEC information with the State will satisfy the State registration requirement. To Register by Coordination, the issuer must file, in addition to the consent to service of process, the following with the State:3 copies of the proposed Prospectus filed with the SEC under the Securities Act of 1933;A copy of the issuer's Articles of Incorporation and By-Laws;A copy of any Agreement Among Underwriters;A copy of any Indenture governing the issuance of the security; andA specimen of the security to be issued. If no stop order is in effect, when the Federal registration becomes effective, the State registration becomes effective. Any purchaser of the security in that State must get a prospectus copy, at or prior to confirmation of sale. Note that a "notice filing" could only be used in the State if the security being registered with the SEC were "federal covered" - meaning it is exchange or NASDAQ listed. If the security was not "federal covered," for example, a smaller company that will be listed in the Pink Sheets, then State registration is still required.

Which of the following individuals would be defined as an "agent" under the Uniform Securities Act? A. A secretary who works for an agent taking telephone messages to buy and sell securities B. A sales associate who accepts orders for limited partnership units being offered in a private placement C. An employee of a corporation who processes 401(k) contributions, issuing shares of the company's stock to the company's employees D. A Chief Financial Officer of the issuer that negotiates with an investment banker to set the terms of an additional share offering

he best answer is B. An "agent" is an individual that represents a broker-dealer or issuer effecting securities transactions. The Act exempts from licensing as an "agent," those individuals who do not deal with the public. Thus, individuals representing issuers who deal solely with underwriters or financial institutions are not defined as "agents" who must be registered, so the CFO negotiating the terms of a share offering with an underwriter is not an agent. The employee who represents the issuer selling securities of that issuer to that issuer's employees (as long as no commissions are paid) is not considered to be an agent, since he or she is not selling to the public. This is the case for the employee that processes 401(k) contributions and distributions. Therefore, we are left with Choices A and B as possibly correct - and arguments can be made for either one! Choice A - the secretary who takes "telephone messages to buy and sell securities" for an agent - sure sounds like a sales assistant that must be registered. Choice B - the sales associate that accepts orders for limited partnership units (which are securities) is clearly an agent. So we must go with Choice B. Note that in the actual exam, you will often be presented with 2 choices that are "close" and you must pick the better one!

The Administrator may require a new investment adviser who files a registration application in a State to: I Announce the opening of the advisory firm in the local newspapers II Pass an oral qualification examination III File with the Administrator any advertising or communications to be disseminated to the public AI only BII only CII and III DI, II, III

he best answer is D. The Administrator can require the passing of an exam (written or oral) as a condition of registration; can require the filing of any advertising; and can require that an opening announcement be published in the local newspapers.