Series 66 Uniform Securities Act Quiz #1

Under the Uniform Securities Act, all of the following are defined as "persons" EXCEPT: A. General partner in a limited partnership B. Public utility selling to public investors C. Administrator of the State D. Municipality selling industrial development bonds

A "Person", as defined under the Act, can be just about anyone who has legal authority to issue or trade securities. A general partner in a limited partnership makes all decisions for the limited partners, including whether securities will be issued or traded, and hence, is a "person". Issuers of securities (e.g., corporations, governments, etc.) are also defined as "persons". the State Administrator is not defined as a "Person"; rather, he or she is defined as the "Administrator" - that is, the State securities commission, commissioner, or secretary empowered to carry out the Act's provisions.

An agent enters into a transaction with a customer that is illegal under the Uniform Securities Act. The agent explains this to the customer, and the customer signs a statement that she knows that the transaction is illegal. Which statement is TRUE? A. No action can be taken on the part of the Administrator B. The Administrator can only censure the Agent C. The Administrator may only revoke the agent's registration D. The Administrator may suspend or censure that agent and can pursue civil claims

A customer signing a statement, that he or she knows that the transaction being performed for or by that customer is illegal, does not make it OK. The Administrator can pursue all available remedies against the agent, including censure, revocation of registration and can file a civil suit in court.

Which of the following would be required to register as an investment adviser in a State? A. A person with no office in the State that only renders investment advice to insurance companies for compensation B. A person who gives investment advice to charitable organizations on a "pro bono" basis C. A person who has no current advisory customers, but who is seeking clients by newspaper advertising D. A person who gives advice about investing in securities only as an incidental part of his accounting practice

A person who renders advice to insurance companies is giving advice to an institutional investor and is exempt from registration in the State, as long as the adviser does not have an office in the State. In order to be defined as an "investment adviser", that person must be compensated for giving investment advice. Someone who gives investment advice to a charity pro bono is not compensated and thus does not fall under the definition. A professional such as an accountant or lawyer who only gives incidental advice about investing in securities without separately charging for the advice is excluded from the definition. A person who is advertising for advisory customers is holding himself out as an investment adviser, and would fall under the definition.

Annual renewal of registration as an agent or an investment adviser in each State is made by filing: I. Form U-4 II. Form U-6 III. within 30 days of the date that renewal statements are sent out IV. within 60 days of the date that renewal statements are sent out

A standard registration form (Form U-4) in used for federal and state registration of agents and state registration of investment adviser representatives. CRD and IARD send out renewal statements for each registered person in mid-November, and these must be filed, amended (If necessary), and paid for, by mid-December. If this does not occur, that person's registration will expire on December 31st.

All of the following orders must be retained as a record by broker-dealers EXCEPT: A. Executed orders B. Unexecuted orders C. Canceled orders D. Subscription orders

A subscription order arises from a rights offering, where a corporation is attempting to raise additional funds from its existing shareholders by offering them subscription rights to new shares at a discount from the current market price. These orders happen directly between the issuer and the shareholder, so there is no broker-dealer record of these. All orders placed by customers with a broker-dealer, whether executed, enexecuted or canceled, must be retained as a record by broker-dealers. The retention period for these is set under the Securities Exchange act of 1934 at 3 years

Which of the following is NOT allowed under the Uniform Securities Act? A. An agent registered with a broker-dealer also is a licensed insurance agent at a life insurance company B. An agent registered with a broker-dealer also is a licensed real estate agent at a real estate company C. An agent registered with a broker-dealer is licensed as an agent for a mutual fund dealer D. An agent is registered with two affiliated broker-dealers who have an office in the same location

As a general rule, an agent cannot be registered with 2 different broker-dealers at the same time under the Uniform Securities Act. (Please note, however, that a few States still permit so called "dual registration" but this is the exception to the general pattern). Since an insurance company or a real estate company is not defined as a broker-dealer, there is no problem with an agent working for either of these firms. a mutual fund dealer is defined as a broker-dealer since the firm effects securities transactions. An agent cannot be registered at the same time with one broker-dealer and another mutual fund dealer. Two "affiliated" broker-dealers at the same location are treated as one broker-dealer, since they are under common control. Thus, an agent could be registered with both affiliated broker-dealers without a problem.

To raise new capital for the company, a company director decides to sell un-issued shares directly to employees of the company. The director earns a commission for selling these shares. The director is defined as a(n); A. Agent B. Broker-dealer C. Issuer D. non-issuer

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

a broker-dealer is required to register with: A. the SEC B. FINRA C. the state where it is located or does business with the public and the SEC D. All of the Above

Broker-dealers must initially register federally with the SEC. They use Form BD for this, which is a broker-dealer registration form Then the BD registers with an SRO such as FINRA. Form BD has the broker-dealer "check-off" the SRO(s) to which it is applying for membership To register in the state, again, the Form BD has the borker-dealer "check-off" the states in which it wants to register. the State uses the SEC approved BD application as the basis for registering the BD in the state - given that the appropriate registration fee is paid

Under NASAA rules for State-registered advisers, transactions must be recorded in customer account records no later than: A. 10 business days following the end of the month in which the transaction was effected B. 20 business days following the end of the month in which the transaction was effected C. 10 business days following the end of the quarter in which the transaction was effected D. 20 business days following the end of the quarter in which the transaction was effected

NASAA rules for State-registered advisers require that customer account records be posted no later than 10 business days following the end of each calendar quarter. Again, note that this is very different than the requirement of Federal securities law that applies to broker-dealers and Federal covered advisers

When is an investment adviser deemed to have custody of client funds? A. When the adviser holds a check payable to the client from the clients broker-dealer B. When the adviser holds a full power of attorney over the clients account C. When the Adviser acts as a trustee where the client is the beneficiary of the trust D. All of the above

NASAA has specific rules to be followed if an adviser takes custody of client funds. "Custody" does not only include accepting client funds or securities, but also includes: accepting prepaid advisory fees of $500 or more, 6 months or more in advance of rendering services (note that the IA Act of 1940 sets this at $1,200 for Federal Covered Advisers); An account that gives the adviser a full power of attorney, which allows the adviser to withdraw funds and trade (but not an account that gives the adviser a limited power of attorney where the adviser can trade only); A trustee for the client - by definition, a trustee has custody, since the trustee has full control over the assets in the account; and inadvertent receipts of customer funds or checks that are not returned within 3 business days

An agent registered under the Uniform Securities Act has his registration revoked by the Administrator. The Administrator may NOT revoke any future applications of the person to be a(n): I. Broker-Dealer II. Agent III. Investment Adviser IV. Representative of an investment adviser

If an individual has his or her registration revoked as an agent, the Administrator is empowered to deny any future registration application(s) of that individual to be a broker-dealer, investment adviser or agent in that state.

Which statements are TRUE about an issue that is registered in a State by Coordination? I. The statutory cooling off period under the Securities Act of 1933 is 10 days II. The statutory cooling off period under the Securities Act of 1933 is 20 Days III. The statutory cooling off period under the Uniform Securities Act is 10 days IV. The statutory cooling off period under the Uniform Securities Act is 20 days

In order for Registration by Coordination to be effective in a state, the registration statement used for the SEC filing must have been filed with the State 10 business days prior to the proposed sale date. In contrast, the Securities Act of 1933 requires that the registration statement be filed with the SEC at least 20 days prior to the proposed sale date.

The 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 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 Uniform Securities Act, investment advisory contracts: A. Can be oral B. Must be in writing C. Must include a clause that customer statements will be sent periodically D. Must give a complete description of the investment adviser's prior performance

The Uniform Securities Act requires that investment advisory contracts be in writing. There is no requirement that customer statements be sent periodically unless the adviser takes custody of customer funds or securities (in which case, statements must be sent quarterly). There is no requirement to give a complete description of the adviser's prior performance in such contracts - this has no bearing on the contractual agreement.

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

Which transaction is included in the definition of an "offer to sell" ? A. A successful 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 definition of an offer to sell is an attempt or offer to dispose of a security, or an interest in a security, for value. Choice D is an offer to sell. In contrast a "sale" is the completed contact of sale - Choice A. A gift of a non-assessable security is a "gift" - not a sale. A gift of an assessable security is a "sale," since the giver is relieved of a potential future liability. 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

To be registered as a broker-dealer, the Administrator typically requires the posting of a surety bond in the amount of: A. $5,000 B. $10,000 C. $25,000 D. $50,000

Under the Uniform Securities Act, the Administrator typically requires the posting of a $10,000 surety bond to be registered as a broker-dealer (though each state administrator can set this amount)