S63 - 2/3
A membership organization offering a facility to trade stocks for its members is A) a stock exchange. B) the SEC. C) FINRA. D) a stock market.
A) a stock exchange. A stock exchange is one part of the stock market. It is where members trade securities listed on that exchange. The best-known example is the New York Stock Exchange. FINRA is a membership organization, but it has nothing to do with buying and selling securities. The SEC is the federal regulator of the industry. LO 1.a
Compliance with the customer identification program (CIP) requires that all the following information must be obtained from new individual customers except A) Social Security number. B) physical address. C) name of employer. D) date of birth.
C) name of employer. A customer's employer's name is not required to open a new account. Under the CIP, each of the other choices is required information. In the case of an account opened in the name of a business, the business address and tax identification number are required. LO 6.e
Which of the following are not agents as defined in the Uniform Securities Act? I. A broker-dealer acting on behalf of a properly registered issuer II. An individual representing the U.S. government in the sale of its securities III. An individual who, acting on behalf of a broker-dealer, sells any exempt security or engages in an exempt transaction IV. An individual who represents an issuer selling a nonexempt security in a nonexempt transaction
I and II A broker-dealer by definition is not an agent. An individual who, while acting on behalf of the issuer, sells certain exempt securities, such as those issued by the U.S. government, is not an agent. The exclusion from the definition of an agent only applies to those individuals who are selling on behalf of the issuer (never a BD) and only when the transaction is exempt or the issuer is one of a specified list of issuers of exempt securities. (See your LEM for the list.) LO 2.f
Under the Uniform Securities Act, the definition of an investment adviser does not include I. investment adviser representatives. II. lawyers and accountants whose investment advisory services are solely incidental to their practices. III. broker-dealers who offer investment advice on an incidental basis without special compensation for the advice provided. IV. federal covered investment advisers.
I, II, III, and IV None of these are included in the term investment adviser as used in the Uniform Securities Act. Federal covered advisers are regulated by the Securities Exchange Commission (SEC). The National Securities Markets Improvement Act of 1996 (NSMIA) prohibits dual registration of IAs by federal and state authorities. If federal covered advisers were defined as IAs under the USA, then they would be subject to the same state registration procedures as local or state IAs. LO 3.b
Which of the following are exempt from state registration? I. A bond issued by the city of San Jose, Costa Rica II. An isolated nonissuer transaction III. A transaction by an administrator of an estate IV. A transaction with no commissions, directed by the offeror over the period of one year, to no more than 50 retail investors in the state who buy the security for investment purposes only
II and III Isolated nonissuer transactions and transactions by an administrator of an estate are included in the list of exempt transactions. With the exception of Canada, no foreign securities, other than those issued or guaranteed by the sovereign government, are exempt securities. Perhaps you read too quickly and thought it was San Jose, California (which would be exempt). There is a limited-offering exemption, but it is limited to no more than 10 retail (noninstitutional) investors in a 12-month period. LO 4.f
Which of the following is not an exempt transaction as defined in Section 402 of the Uniform Securities Act? A) Isolated sale of a corporate bond on behalf of the bond's issuer B) Sale of XYZ common stock, traded on the OTC Bulletin Board, to an individual investor by the executor of an estate C) Sale of common stock by the county sheriff at the request of the state securities Administrator D) Corporate bond sale to an insurance company
A) Isolated sale of a corporate bond on behalf of the bond's issuer First of all, don't panic when you see a section number. Just answer the question based on the specific topic, in this case, the definition of an exempt transaction. An isolated sale of a corporate bond on behalf of the bond's issuer is not exempt. Under the USA, only isolated nonissuer transactions are exempt. In this question, the transaction is on behalf of the issuer, so this transaction is not exempt. The sale of a corporate bond to an insurance company is the sale of a security to a financial institution; this is an exempt transaction. A sale of common stock by the executor of an estate or by the county sheriff is considered a fiduciary transaction and is exempt regardless of the client or the type of security. LO 4.f
A customer of a broker-dealer viewing a trade confirmation notices that there was a commission subtracted from the proceeds of the sale of her stock. This tells the customer that the broker-dealer A) acted in an agency capacity. B) probably purchased the stock for its own account. C) acted in a principal capacity. D) acted in an unethical manner.
A) acted in an agency capacity. Commissions are charged when acting in an agency capacity. If the trade confirmation indicates a markup or markdown, the broker-dealer acted in a principal capacity. If the broker-dealer purchase the customer's stock for its own account, it would be acting as a principal and would charge a markdown, not a commission. LO 6.a
A broker-dealer having no place of business in a state is not required to be registered in that state if the broker-dealer does no business in that state other than with A) other broker-dealers. B) investment advisers registered in that state. C) a maximum of five retail investors over a 12-month period. D) accredited investors.
A) other broker-dealers. A broker-dealer must be registered in every state it sells or offers to sell securities unless it is excluded from the definition under the USA. If a BD has no office in a particular state and no business is done in that state other than with other BDs, registration there is not required. If the BD's only clients are institutions, the exclusion applies as well. The definition of accredited investor includes institutions, but also includes individuals reaching certain financial standards. Because the choice did not specify institutional accredited investors, the exclusion doesn't work for this BD. There is no de minimis exemption for BDs like there is for investment advisers and their representatives. We know it looks strange, but if a BD's only clients in a state where the BD does not maintain a place of business are registered IAs, the exclusion does not apply. LO 2.b
A state-registered investment adviser is the subject of an injunction requested by the Administrator. As a result, A) a hearing must be granted within 15 days after receipt of a written request from the investment adviser. B) upon the request of the Administrator, a receiver or conservator may be appointed over the investment adviser's assets. C) the registration of the investment adviser will be suspended. D) the registration of the investment adviser's investment adviser representatives will be suspended.
B) upon the request of the Administrator, a receiver or conservator may be appointed over the investment adviser's assets. The Administrator does not have the legal power to compel compliance with the cease and desist order. To compel compliance in the face of a person's resistance, the Administrator must apply to a court of competent jurisdiction for an injunction. If the court issues a temporary or permanent injunction, upon the request of the Administrator, a receiver or conservator may be appointed over the defendant's assets. The injunction merely forces the investment adviser (or whomever is the subject) to cease the specified activity. It does not cancel any registrations. That could happen if the defendant refuses to obey the injunction and further legal action is taken. The 15-day hearing rule applies to summary orders, not cease and desist. LO 5.b
The NASAA Model Rule on agency cross transactions requires that an investment adviser send a written disclosure document to affected clients (including such items as the total number of agency cross transactions during the period for the client and the total amount of all commissions or other remuneration the investment adviser received in connection with agency cross transactions for the client during the period) no less frequently than A) quarterly. B) semiannually. C) within a reasonable period of time following any transaction made in reliance upon this rule. D) annually.
D) annually. The NASAA Model Rule requires that these disclosures regarding agency cross transactions by an investment adviser (IA) be made no less frequently than annually. Most students choose quarterly and with good reason—you've seen quarterly requirements before. For example, when an IA maintains custody of client assets, reports must be sent no less frequently than quarterly. Broker-dealers must send account statement to clients no less frequently than quarterly. When there is a new issue, the Administrator can request reports on a quarterly basis. But this is different and the rule says annually. LO 7.d
Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, a broker-dealer may charge a reasonable fee for I. appraisals. II. transfers. III. collection of dividends. IV. safekeeping.
I, II, III, and IV As long as the charges are fair and reasonable, a broker-dealer may charge for services rendered. LO 6.a
Which of the following would be required to register as an agent under the Uniform Securities Act? I. An officer of a broker-dealer who does not deal with customers or supervision of sales II. A director of a broker-dealer who is not involved in day-to-day operations III. A trader who is authorized to handle customer orders IV. An individual who makes cold calls to pre-qualify prospects and lets a principal in the firm handle all customer trades
III and IV An agent is an individual who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities. Prequalifying clients requires registration. Officers and directors are not agents if they are not involved in the transactions of securities with the public. Under the USA, even though the term principal may be used to refer to a supervisory person, there is no separate registration category for these people. They are licensed as agents, just like you. LO 2.e
