Series 63
A federal covered investment adviser is a person A) registered, or excluded from the definition of investment adviser, under the Investment Advisers Act of 1940 B) registered with North American Securities Administrators Association (NASAA) C) exempt from regulation under the Securities Exchange Act of 1934 D) registered under the Uniform Securities Act
A federal covered investment adviser refers to a natural person or entity registered under the Investment Advisers Act of 1940 or excluded from the definition under that act. A person registered under the Investment Advisers Act of 1940 is exempt from state registration or licensing requirements of state securities Administrators under the NSMIA and the Uniform Securities Act. Federal covered investment advisers are not exempt from the antifraud provisions of the USA. Investment advisers, whether state-registered or federal covered, do not register with NASAA.
An agent receives inside information concerning an impending merger. Under the Uniform Securities Act, the agent may divulge the information to A) anyone after public notice B) no one other than the Administrator until there is a public announcement C) his best customers 3 days before a public announcement D) anyone 3 days before a public announcement
After the inside information has become public, it may be disseminated to anyone. If an agent acquires MNPI, she should report to her supervisor. Reporting inside information to the Administrator is neither required nor appropriate.
An Administrator could use which of the following as a reason for issuing an order denying the registration of a security? 1. The issuer's enterprise or method of business includes or would include activities which, although legal in the state of incorporation, are illegal in the Administrator's state. 2. The company has not been paying dividends. 3. The offering would be made with unreasonable amounts of underwriters' and sellers' discounts. A) I, II, and III B) III only C) I and III D) I only
An Administrator may deny the registration of a security when the activity to be conducted in the state is illegal. The underwriter's compensation may not be unreasonable. There is no requirement that dividends be paid in order to register a security.
Which of the following are NOT included in the definition of an agent in the Uniform Securities Act? 1.A licensed broker-dealer 2.An officer of an issuer who only represents the issuer in selling shares to a broker-dealer underwriting the company's securities 3.An officer who represents an issuer of non-exempt securities in the sale of those securities to the public without receiving any compensation 4.An employee of a broker-dealer whose only transactions are with institutional clients A) II and IV B) I and III C) III and IV D) I and II
An agent is an individual—other than a broker-dealer—who represents a broker-dealer or issuer in securities transactions. An officer—or any other employee—of a company who represents her company in transactions with an underwriter is not included in the term "agent" because the transaction is exempt. In the case of those individuals, officer or not, who represent a non-exempt issuer, registration as an agent is always required unless the transaction is exempt. Compensation is only a factor when selling the issuer's securities to employees. An employee of a broker-dealer who engages in securities transactions with any clients, institutional or not, is an agent under the act.
Which of the following statements regarding an agent's registration is CORRECT? A) Revocation of the registration of that agent's broker-dealer will result in cancellation of that agent's effective registration. B) If the broker-dealer with which that agent is registered should have its registration revoked, the agent's license will be held by the Administrator and the agent will be required to register with an active broker-dealer within 30 days. C) If the broker-dealer with which that agent is registered should have its registration revoked, the agent may continue to do business only with existing clients and may not acquire any new ones until registered with an active broker-dealer. D) Registration of a broker-dealer in a specific state automatically registers all of the firm's agents in that state as well.
An agent of a broker-dealer is active only when that broker-dealer's registration is in force. Agents must register in each state in which they wish to do business; there is no automatic registration other than for certain officers, directors and partners when the firm first registers in a state.
As fiduciaries, investment adviser representatives owe their clients an affirmative duty of utmost good faith and full disclosure of all material facts. This affirmative duty of disclosure is required by the investment adviser representative in all of the following situations EXCEPT A) when the advice being provided is outside the scope of the services provided by the investment adviser and is not under supervision or control of a supervisory person B) when compensation is received from the affiliated broker-dealer for transactions that are executed through the brokerage house C) when a family member has a beneficial interest in a private medical equipment firm that the IAR recommends to a client D) when donating funds to a nonprofit medical research institute that owns securities the IAR has recommended
An investment adviser representative need not disclose donations to nonprofit organizations, even those with whom the IAR has a client relationship. In all of the other cases, even when outside of the scope of the investment adviser's business, an IAR must always make full disclosure to clients
Under the USA, which of the following is considered a broker-dealer in a state? A) First Federal Company Trust B) An agent effecting transactions for a broker-dealer C) XYZ broker-dealer with an office in the state whose only clients are insurance companies D) A broker-dealer with no place of business in the state who only does business with other broker-dealers
Anytime the question tells you that there is a place of business in the state, regardless of who its clients are, the firm is considered a broker-dealer in that state and is required to register as such.
Under the Uniform Securities Act, which of the following are TRUE regarding the registration of a successor firm? 1.The successor firm need not be in existence when the application for registration is filed. 2.A filing fee is required with the application. 3.The successor firm's registration will be effective for the unexpired portion of the year. A) I and III B) I, II and III C) I and II D) II and III
Application may be made to register a successor firm whether or not the firm is then in existence. The filing fee is waived. The successor firm's registration will be effective for the unexpired portion of the year.
Trade confirmations sent by broker-dealers to their customers must always include A) the current market price of the security traded B) the amount of commission charged C) the tax identification number of the customer D) the amount of markup or markdown charged
Commissions must always be disclosed. Markup or markdown has to be disclosed under certain, but not all, situations. The trade price, not the current market price, is always disclosed.
With regard to the Uniform Securities Act, which of the following statements regarding the omission of a material fact by an agent is NOT true? A) It is a violation even if the client failed to make a transaction. B) It is a violation because it is a unethical or fraudulent practice. C) It is not a violation if the security is exempt from registration under the Uniform Securities Act. D) It is a violation even if material facts were unknowingly omitted.
Deliberate omission of material facts is a fraudulent practice under the Uniform Securities Act, whether securities are exempt or nonexempt or even if the transaction was exempt. If done unknowingly, then it is a unethical business practice (fraud requires deliberate action) and is still a violation.
Under the Uniform Securities Act, the Administrator can require a federal covered investment adviser A) to maintain net worth in excess of that required by the SEC B) to file a copy of all of the documents submitted to the SEC C) file copies of the firm's advertisements D) to maintain books and records for a period of time in excess of SEC requirements
Federal covered investment advisers do not come under the jurisdiction of the state Administrator. The only requirement he may place on them is a Notice Filing which may include: Submitting copies of all documentation filed with the SEC; Paying a filing fee; and Providing a consent to service of process
Which of the following entities would NOT be considered to be exempt issuers under the Uniform Securities Act? A) State of Michigan B) United States Treasury C) City of Calgary, Alberta D) City of Cancun, Mexico
Foreign national governments, such as Mexico, with whom the United States has diplomatic relations, but NOT their political subdivisions, such as any city in Mexico, are considered exempt issuers. The United States or any of its agencies, such as Fannie Mae, or any state or Canadian province, or political subdivision thereof, is considered an exempt issuer.
An individual with a place of business in State A manages client assets on behalf of a covered investment adviser. This individual wishes to expand his client base by working one day per week out of the firm's office in State B. Which of the following actions must the person take to practice within that particular state? A) Pass an oral or written examination B) Comply with the notice filing requirements of the state C) Become licensed as a broker-dealer D) Pay state registration fees if required by the Administrator
Individuals with a place of business in a state, managing client assets while employed by federal covered investment advisers, must register as investment adviser representatives in that state (or any others in which they, the IAR, maintain a place of business). Registration will generally involve paying the registration fees. Because this individual is already registered in State A, it is not necessary to pass another exam to become registered in another state. It is the investment adviser who may be required to notice file with the Administrator.
Under the Uniform Securities Act, there are certain cases when a person in the business of effecting securities transactions for itself or its clients is not considered to be a broker-dealer in the state. In order for this exception to exist, all of the following conditions must be present EXCEP 1. The person must not deal with any employee benefit plans with assets of not less than $1 million 2. The person must limit its business activities to other broker-dealers and financial institutions 3. The person must not have a place of business in the state 4. All employees must be licensed as agents with the Administrator in at least one state A) II and III B) II and IV C) I and IV D) III only
It is critical to catch the EXCEPT in this question. We are looking for statements that are not true. If the employee benefit plans they deal with have assets of less than $1 million, the exception does not apply. And, there is nothing in the USA that requires a broker-dealer to register every employee, only those that are involved somehow in the sale of securities.
Each of the following statements is true EXCEPT A) the National Securities Markets Improvement Act of 1996 (NSMIA) requires states and the federal government to have identical registration requirements B) NASAA is responsible for the content of the Series 63 exam C) the state securities administrator takes responsibility for the enforcement and administration of a state's securities law D) the Uniform Securities Act is a template rather than the actual law of any state or territory of the United States
NSMIA's purpose is to eliminate dual registration, not to require identical laws. The Uniform Securities Act is not the actual law of any state or territory. Rather, it is model legislation that states use as a guide in drafting their own securities laws. Those laws give the responsibility to the state Administrator for enforcement and administration of those laws. The Series 63 exam's content is the responsibility of NASAA. Reference: 1.1.2 in the License Exam Manual
The Uniform Securities Act does not contain bonding requirements for A) agents B) state-registered investment advisers C) broker-dealers D) issuers
Securities professionals, other than investment adviser representatives, may be required to post a surety bond. That requirement is not placed upon issuers of securities.
Each of the following statements regarding registration of securities by coordination is true EXCEPT A) the Administrator may reduce the required time that the registration statement must be on file prior to becoming effective B) the registration becomes effective at the state level concurrent with SEC registration if the Administrator has not entered an order to deny it C) state registration must be effective prior to federal registration D) the registration statement must contain or be accompanied by consent to service of process Explanation
State registration must be coordinated with federal registration. In most cases, the registration statement must be on file with the Administrator for ten days, but the Administrator has the power to shorten that period. The registration statement becomes effective concurrent with the SEC and must contain or be accompanied by consent to service of process.
The Administrator of a state's securities department strongly believes that the registration statement for a security contains a substantial amount of misleading information and that investing in the security is likely to cause immediate and egregious harm to its investors. Under the following circumstances, the Administrator may A) issue a stop order to deny or revoke the registration statement, but must provide the applicant with the opportunity for a hearing B) revoke the registration statement, denying the applicant a hearing for an unlimited amount of time C) revoke or deny the registration statement and must schedule a hearing within 30 days of issuing the summary process order D) not revoke or deny the registration statement until a hearing takes place
The Administrator may deny or revoke the registration statement but must provide the applicant with an opportunity for a hearing. In addition, the Administrator must give appropriate prior notice to the applicant or registrant, the issuer, and the person on whose behalf the securities are to be or have been offered, and present written findings of fact and conclusions of law.
Under the USA, each of the following is specifically excluded from the definition of a broker-dealer EXCEPT an A) international bank B) issuer C) agent D) investment adviser
The USA specifically excludes agent/issuers and banks, international or domestic, from the definition of a broker-dealer. Investment advisers also may have to register as broker-dealers if their method of operation requires it.
A customer buys $20,000 worth of stock with a required 50% initial margin deposit of $10,000 cash. When he places the order, the customer tells the agent he cannot risk more than $4,000 in the stock market. Following a highly unfavorable news release causing a significant price drop, regulators halt trading in the stock. When the stock is permitted to reopen, the stock's price is half the client's purchase price and the client receives a maintenance margin call for $3,000. The customer is outraged that he has a (unrealized) loss of $10,000 and must deposit $3,000 more to maintain the position. In the above situation, the agent has acted A) unlawfully, because the agent failed to warn the customer of the true risk of margin trading B) lawfully, because the customer agrees to the risk of margin trading upon signing the margin agreement C) lawfully, because the agent cannot control regulatory trading halts D) unlawfully, because the customer was not urged to enter a stop loss order on the stock
The agent acted unlawfully by not fully informing the customer that trading on margin involves leverage that could lead to a loss in excess of the client's $4,000 limit and by not fully disclosing the facts and circumstances of a securities transaction.
Under the Uniform Securities Act, which of the following is NOT a reason for canceling an agent's registration? A) The agent has engaged in an unethical business practice B) The agent cannot be located after a reasonable search C) The agent has ceased to do business as an agent D) The agent has been found by a court to be mentally incompetent
The other choices are causes for cancellation, which is not intended to be punitive. Engaging in unethical business practices is a cause for disciplinary action by the Administrator, court-imposed penalties, criminal prosecution, and civil legal remedies.
or purposes of safeguarding customer information, which of the following would be considered a covered account? A) An account in the name of the State of X employee pension fund B) An account in the name of the Wells Morgan Bank C) A margin account in the name of the Interglobal Hedge Fund D) A margin account in the name of MaryBeth Simmons
The term covered account does not apply to institutional customers, such as banks, pension funds, and investment companies.
A type of fraud using social media where the fraudsters pretend to be member of a group, sometimes using respected leaders of the group to spread the word about the scheme is known as A) ethnic fraud B) group fraud C) affinity fraud D) relationship fraud
This is a classic definition of how affinity fraud operates. Although it is frequently aimed at ethnic groups, there is no such term as ethnic fraud.
If Wallace resigned his position as an agent with Rockland Securities to work for Gibraltar securities, which of the following parties must notify the Administrator of Wallace's move? A) Rockland Securities B) Gibraltar Securities C) Wallace D) Wallace, Rockland and Gibraltar
When an agent with one broker-dealer resigns and affiliates with another, both broker-dealers and the agent must notify the Administrator of the change in registration. Notification is accomplished by filing Forms U-5 and U-4 with FINRA's CRD.