Mid Term Exam

An investment adviser who has custody of customer funds and securities discovers that its net worth has dropped below the required minimum under the rules of the state Administrator. Under NASAA rules, the adviser must do which of the following? 1)Notify the Administrator by the close of business on the day after discovery 2)File a report of its financial condition with the Administrator no later than the close of business on the day after notification 3)Cease doing business

1 and 2

1) When an investment adviser representative begins or terminates employment with a state registered IA, 2) In the case of a federal covered IA, only 3) However, when an agent of a broker-dealer begins or terminates employment,

1) the employing investment adviser must promptly notify the Administrator. 2) the IAR gives notice to the Administrator 3) both the agent and the broker-dealer must promptly notify the Administrator. Notice to SEC is not required.

The Investment Advisers Act of 1940 requires that investment advisers make certain disclosures to their customers through the delivery of the adviser's brochure. However, there are instances where the act grants an exemption if the client is 1)a broker-dealer 2)an insurance company 3)an investment company 4)a person receiving impersonal advice for which the annual fee is less than $500

3 and 4

An investment adviser cannot lend money to a customer unless the loan is made through a

regulated lender such as an affiliated broker-dealer or an affiliated bank.

When executing an agency cross transaction, prior written approval from the client is

required. Agency cross transactions are prohibited when the securities in the transaction have been recommended to both parties by the adviser.

XYZ Securities, Inc., a FINRA member broker-dealer, is registered in all 50 states. XYZ has its principal office in State C and a branch office in State A. If the State U Administrator wished to examine certain financial records of XYZ's, the Administrator would be able to do all of the following EXCEPT A) examine those records located in State U B) ask the State C Administrator to perform the examination C) ask FINRA to perform the examination D) do so during normal business hours without prior notice

A) examine those records located in State U This broker-dealer does not have a place of business in State U so there are no records located ther all record are kept in the principal office and those pertaining to branch operations are kept at the branch office

When registering a security under the Uniform Securities Act, the registrant must indicate all of the following EXCEPT A) the effective date of the offering B) the amount of securities to be offered in the state C) all other states in which the security is to be registered D) adverse rulings by a court, regulatory authority, or the SEC with respect to the offering

A) the effective date of the offering The effective date is determined by the state Administrator or the SEC, not the person registering the security.

Section 28(e) of the Securities Exchange Act of 1934 provides a safe harbor for

research and brokerage services provided in exchange for directed transactions. Clearance and settlement of trades is a qualifying brokerage service.

RULES

APPLY to everyone

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However, had this question been dealing with an investment adviserregistered on the state level, then it would have been the requirements of the

state where the principal office of the adviser is located.

MT Securities is a broker-dealer registered in 42 states. MT Securities makes a market in over 100 different stocks and participates in the underwriting of approximately 22 IPOs per year. Which of the following actions would be prohibited under NASAA's Statement of Policy on Dishonest and Unethical Business Practices of Broker-Dealers and Agents? A) Purchasing shares of a security in which it makes a market from a client at one price and then reselling those shares to another client at a higher price B) Purchasing shares of an IPO from the issuer and then reselling those shares to the public at a higher price C) Acquiring shares of an IPO as part of the underwriting syndicate and holding a small portion for the firm's investment account, hoping to gain from market appreciation D) Adding to its inventory of a stock in which it makes a market, hoping to gain from market appreciation

C) Acquiring shares of an IPO as part of the underwriting syndicate and holding a small portion for the firm's investment account, hoping to gain from market appreciation

Anyone who represents an issuer in effecting transactions between the underwriter and the issuer A) must be registered as an Administrator B) must be registered as an investment adviser C) is excluded from the definition of agent under the Uniform Securities Act D) must be registered as an agent

C) is excluded from the definition of agent under the Uniform Securities Act

After an investigation, the Administrator wishes to have the registration of an investment adviser revoked. In order to do so, all of the following are true EXCEPT A) an appeal may be filed within 60 days of the final order B) the investment adviser has a right to a hearing C) the investment adviser may elect to withdraw its registration D) the Administrator must be able to point to specific facts of law violated by the investment adviser

C) the investment adviser may elect to withdraw its registration

An agent discovers that he has sold a customer an unregistered, nonexempt security that she thought was exempt. The broker-dealer offers to buy it back on behalf of the agent. Under the Uniform Securities Act, A) a customer rejecting the offer within 30 days forfeits the right to sue B) the offer also cannot include interest C) this is legal and is called rescission D) this cannot be done under any circumstances

C) this is legal and is called rescission

Which of the following qualifies under the Section 28(e) safe harbor provisions for soft-dollar compensation? A) Providing access to the broker-dealer's computerized accounting system, allowing the investment adviser to prepare its financial statements B) Rent-free use of unused space in the broker-dealer's office C) Reimbursement for travel expenses incurred to attend a seminar on the latest compliance trends for registered investment advisers D) Clearance and settlement services provided by the broker-dealer

D) Clearance and settlement services provided by the broker-dealer

Under the NASAA Model Custody Rule, an investment adviser would be permitted to take or have custody of any securities or funds of any client if A) customer permission was obtained prior to entering into the contract B) the IA maintained adequate net worth or a surety bond C) permission was obtained from the Administrator and custody was not prohibited by that state's rules D) notification was given to the Administrator that he has or may have custody and custody was not prohibited by that state's rules

D) notification was given to the Administrator that he has or may have custody and custody was not prohibited by that state's rules

An investment adviser representative may share in the profits and losses of a customer's account A) if the investment adviser representative deducts the advisory fee charged the customer from any profits earned B) provided a written contract is executed between the investment adviser and the client C) as long as both the customer and the representative's employer give written consent D) under no conditions

D) under no conditions

A broker-dealer (BD) registered in multiple states must meet the record retention requirements of A) the state where the BD is incorporated B) the state with the most stringent requirement C) the state where the principal office of the BD is located D) the SEC

D) the SEC One of the effects of the NSMIA was to establish the preemption of federal law over state law. A broker-dealer registered in multiple states is going to be registered with the SEC as well.

orders

apply to specific BDs

The consent to service of process provides the Administrator with power of

attorney to accept legal papers on behalf of registrants. This power of attorney does not grant the Administrator the authority to terminate the registration at will nor does it empower the Administrator to verify information or expedite the registration process.

Remember, if any of your clients are registered investment companies, you must be a

federal covered adviser making registration with state non-applicable.

Provided the agent sold the security with no intent to defraud, rescission

may be offered. Rescission is the return of the customer's money, plus interest, less any income received from the investment. The customer has 30 days to accept or reject the offer. After that, all rights of recovery are forfeited.

An adviser with no place of business in the state is only exempt if the advice is given to certain institutional-type clients, such as

nsurance companies and banks, not individuals, wealthy or not.

Unless the adviser is federal covered, any adviser with a place of business in the state, no matter to whom the advice is sold, is required to

register with the state.

It is unlawful for any investment adviser to take or have custody of any securities or funds of any client if

the Administrator, by rule, prohibits custody; or in the absence of rule, the investment adviser fails to notify the Administrator that he has or may have custody.

Members of the underwriting syndicate on an IPO are prohibited from withholding shares of that issue in

their own accounts; they must make a bona fide public offering.

A sales agent who is only registered in State A works for a broker-dealer that is registered in all 50 states. A customer who is a resident of State B calls the agent in State A and offers to purchase securities. Under the Uniform Securities Act, the agent should A) accept the order because her broker-dealer is registered in all 50 states B) accept the order because it is unsolicited C) reject the order because she is not registered in State B D) accept the order because she received it in State A

unsolicited C) reject the order because she is not registered in State B Both the broker-dealer and the agent must be registered in each state where they plan to do business

The USA specifically grants the Administrator the authority to make a rule requiring written acknowledgment of

unsolicited orders be recorded on a designated form.