Series 63
US Supreme court Howey definition of a security
1. investment of money 2. in a common enterprise (other investors) 3. w/ expectations of profits 4. derived from the efforts of a person other than the investor
administrator's power of exemptions (2)
1. nonprofit exemption 2. any investment contract issued in connection with an employees' stock purchase, savings, pension, profit sharing or similar benefit plan
an IA might buy from or sell to a advisory client in the capacity of a principal OR an adviser might put together a buyer and seller acting in the capacity of an agent if these 2 requirements are met:
1. the client receives full written disclosure 2. client consent is obtained BOTH ARE PRIOR TO TRANSACTION
Uniform Prudent Investor Act (UPIA)
1. the standard of prudence id applied to any investment as part of total portfolio rather than individual investments 2. fiduciary's primary consideration is risk vs. return 3. no restrictions on types of investments that a trustee can invest in 4. fiduciaries diversify their investments has been integrated into the definition of prudent investing 5. delegation is now permitted
Under USA, you are not a BD if
1. you have no place of business on the state 2. your clients are only other BDs, institutions, and issuers of the security involved in the transaction and/or only business in the state with existing clients whoa re temporarily in the state
Preorganization certificates are limited to a maximum of
10 subscribers -institutional or individual
the time limit for statutory disqualification
10 years
in a margin account how many loans are taking place?
2
The term "investment adviser representative" includes which of the following? 1. A receptionist for an adviser 2. An employee who solicits new business for an adviser 3. A supervisor who oversees employees who manage client portfolios for an adviser 4. An investment advisory firm registered in the state of Texas
2 & 3 An investment adviser representative is always an individual person. Employees who solicit business on behalf of investment advisers and those persons who supervise other employees are investment adviser representatives. Reference: 1.6 in the License Exam Manual
criminal penalties upon conviction for fraudulent securities transactions max.
$5000 and 3 years jail time both or one of the other
the filing fee is based on by the
% of total offering price decided by the administrator
exempt transactions
(1) Isolated nonissuer (secondary) transactions, (2) nonissuer transactions by pledgees, (3) transactions with existing security holders (4) unsolicited brokerage transactions, (5) underwriter transactions, (6) bankruptcy/guardian/conservator (7) institutional investor, (8) Limited offerings (private placements), (9) preorganization certificates
private fund accredited investor
-$1M in assets managed by the IA or net worth of $2.1M
hwo long do BD and IA have to keep emails for?
-3 years for BD -5 years for IA
*AUM for measuring AUM
-90 days if over $110 -180 days if under $90M
exempt securities types
-US and Canadian gov. and muni sec. -foreign gov. sec. -depository institutions -insurance company sec. -public utility sec. -federal covered sec. -sec. issued by non-profit orgs -securities issued by cooperatives -sec. of employee benefit plans -certain money instruments-CP and BA
out of the following who can you borrow from? -a family member, unless employed by the same or an affiliated firm -a mortgage broker -BD in a margin account -fellow employee at your firm -a bank or other financial institution in the business of making loans -the employee at the lending institution who processes or approves your loan -the agent at the BD who services your margin account
-a bank or other financial institution in the business of making loans -a BD in a margin account -a fellow employee of your firm
UPIA increases delegations
-a trustee must invest and manage trust assets as a prudent investor would by considering the purposes, terms, distributions req. Trustee must exercise reasonable care, skill and caution -trustees investment and management decisions about indivudal assets must be evaluated in the context -a higher standard applies to the trustee who is an expert -judging if a trustee has acted with prudence is based upon conduct and not the performance of the portfolio
*full disclosure also applied when filling out an order to purchase or sell the securities referring to an order ticket it must disclose
-account ID -description of the security -terms and conditions of the order -time of order entry and execution -execution price -identity of agent who accepted the order _NOT CLIENT NAME OR ADDRESS
Offer/Offer to Sell (3)
-any security given or delivered with or as a bonus on account of a purchase of securities or anything else -purported gift or assessable stock -sale or offer of a warrant or right to purchase or subscribe to another security of the same or another issuer as well as every sale or offer of security which gives the holder a present or future right or privilege to convert into another security of the same or another issuer
exempt securities
-any security that's issued or guaranteed by the US or Canadian gov. -any issue that's issued or guaranteed by a foreign gov and the US has diplomatic relations -any security that's guaranteed by a bank, savings institution or trust company who is supervised under the law of any state -commercial paper that is in the top 3 major rating agencies w/ denominations of $50,000+ and 9mo or less maturities -investment contracts issued in connection w/ an employee stock purchase, savings, pensions, or profit-sharing plan
when can a admin or his rep inspect the books and records?
-at any time during business hours
a IA must furnish each advisory clients and prospective advisory clients with
-brochure or Part 2A -copy of Part 2B brochure supplement for each individual who ---provides investment advice and has direct client contact ---exercises discretion over assets of clients in this state -copy of Part 2A wrap fee if they partake -summary of material changes which may include in form ADV Part 2 -any other information req.
*contract for impersoanl advisory servies means any contract relating solely to the provision of investment advisory services:
-by means of written material or oral statments that don't purport to meet the objectives or needs of specific individuals or account -through the issuance of statistical information containing no expression of opinion as to the investment merits of a particular security -a combo of the above serives
canadian BD who has no residence in the states can effect transactions if
-canadian who's an existing client is temporarily living in the US --person whos from canada but resides in the US and whose transactions are self-directed tax-advantaged retirement plan in Canada thats a holder or contributor (RRSP)
what can a person do while in the process of getting registered?
-clerical work only -no acts that would require registration
Fees do NOT include
-commissions -markups/markdowns -advisory fees
Form ADV part 2A
-compensation arrangements -types of clients -types of investments recommended -types of strategies employed -methods of strategies employed -methods of analysis used -education and business background of those who formulate advice -audited balance sheet
registration by coordination record requirement
-copies of the latest form or prospectus filed under the Securities Act of 1933 if the administrator requires -copy of articles of incorporation and bylaws -copy of underwriting agreement -copies of any other information filed by the issuer under the Securities Act of 1933 if the admin req. -each amendment to the federal prospectus promptly after it is filed with the SEC
id a person who buys a security as a result of investment advice received in violation of the USA also has the right to sue, the buyer may recover
-cost of the advice -losses resulting from the advice -all interest costs from the date of fee payment at a rate determined by the admin -any reasonable attorney fees -minus the amount of any income received from such advice
information needed to complete the new account agreement
-does the client have the legal capacity to enter into the agreement? aka legal age in the state -employer information -CIP notice -citizenship -financial information about the client
USA defines fraud by making it unlawful for any person when engaged in the offer, sale, or purchase of an security, directly or indirectly to
-employ any device, scheme, or artifice to defraud -make any untrue statement of material fact or omit to state a material fact necessary to make a statement not misleading -engage in any act, practice, or course of business that operates as a fraud or deceit on a person
who can to notify the administrator if a employee terminates
-employee and employer
canadian agent representing a BD can register by
-filing an application req. vy the jurisdiction where its principal office is -file a consent to service a process - provide evidence that its in good standing in its home jurisdiction -be a member of SRO or stock exchange in canada
SEC IA-1092 includes
-financial planners -pension consultants -other who offers investment advice
a person is in the business of providing advice and is subject to regulation as an IA if he
-gives investment advice on a regular basis -advertised IA services and presents himself to the public as a IA or someone who gives investment advice
no final order may be issued without the administrator (3)
-giving appropriate prior notice to the affected persons -granting an opportunity for hearings -providing findings of facts and conclusions of law
*6 items that aren't securities
-interests in a retirement plans-IRA -collectibles -commodities like precious metals -condos as personal residence -currency
it is unlawful for any person to offer to sell any security in this state unless: (3)
-it is registered under the act -the security or transaction is exempted from registration the act or -it is a federal covered security
the 3 disclosures are not req. when
-its a radio broadcast of 30 sec. or less -electronic signs -location indicating signs
National Securities Market Improvement Act of 1996 made
-large firms register with SEC -small firms register with states
Summary Prospectus shows
-legend -risksive -ticker symbol -fund name -class of shares
form ADV part 1A
-location of principal office -location of books -form of business organization -advisory activities -other business activities -maintaining custody of customer assets or exercising discretion -details relating to all control persons -disciplinary history states where already registered
performance based compensation for IA exception
-natural person or company that has $1M being managed by the IA -natural person or company that the IA before the contract is entered has a net worth exclusive of primary residence in excess of $2.1M
if the buyer accepts the rescission offer, they may recover
-original purchase price of securities -interest at a rate determined by the admin -all reasonable attorney fees and court fees -minus any income made while securities were held
admin has jurisdiction if (3)
-originated in admin's state -directed to the admin's state -is accepted in admin's state
brochure rule
-permits advisers to give a disclosure brochure to clients at the time they enter into contract -contains compensation information
custody includes of
-possession of client funds or securities -any arrangement where you are authorized or permitted to w/d client funds or sec. upon client instruction -any capacity that gives you or your supervised person legal ownership or access to clients funds or securities
federal covered IA are those who
-req. to be registered as an IA w/ SEC bc they manage $110 M -registered with the SEC bc they are under contract to manage inv. company under the Investment company act of 1940 regardless of the amt. of assets managed under management -not registered w/ SEC bs they are excluded from the definition of an IA by IA act of 1940 ---- person who is excluded from this is under the direct obligation of the US gov. or agency
required disclosure includes the following
-state or regulatory proceedings in which the adviser or management person was found to have violated rules or statutes that led to the denial, suspension, or revocation of the firm's or the individual management person's registration -court proceedings pertaining to investments -SRO proceedings that caused a loss of registration or a fine exceeding $2,500 or a limitation on an agent
to register with the administrator, a person must
-submit an application -provide a consent to service of process -pay filling fees -post a bond -take and pass an examination which can be written, oral or both
how to maintain registration of a agent
-surety bond if discretionary -filing fee each year-no record keeping req.
communications within the definition of recommendations (3)
-targeting clients to buy a certain security or sector -BD provides a portfolio analysis tool that allows customer s to indicate an investment goal and input personal info and then the firm send the customer securities to match their interests -data mining tool that sends investment suggestions to the customer
Market manipulation is one of the prohibited practices under the USA. Which of the following is an example of a BD engaging in market manipulation? -churning -arbitrage -wash trades -matched orders
-wash trades -matched orders
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
1 & 2 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. Reference: 1.3.2 in the License Exam Manual
While registration as an agent is pending, the individual would be permitted to 1. send out confirmations of order executions to customers 2. accept unsolicited orders only 3. ask registered agents to explain their sales techniques to him 4. offer exempt securities only
1 & 3
Under the NSMIA, the term "federal covered adviser" includes a person 1. registered with the SEC under the Investment Advisers Act of 1940 2. registered as an investment adviser in 2 or more states 3. excluded from the definition of an investment adviser under the Investment Advisers Act of 1940 4. required to register with the state Administrator
1 & 3 The NSMIA defines a "federal covered adviser" as a person who is either required to register with the SEC under the Investment Advisers Act of 1940 or who is specifically excluded from the definition of investment adviser under that act. Registration with the state Administrator is not required of a federal covered adviser. Reference: 1.5.2.1 in the License Exam Manual
how long does the administrator have jurisdiction over the former registrant?
1 year
One way to reduce the potential for conflicts of interest arising from offering agents the incentive of different compensation for different products is to create product agnostic compensation grids. These grids provide for A) a list of prayers to be recited when the recommendations made aren't producing desired results B) a declining scale of compensation as production levels increase C) a flat percentage of the revenue an agent generates, regardless of product recommended D) lower compensation for house products than those from the outside
C An agnostic compensation grid is sometimes referred to as a neutral grid. That is, regardless of the product being sold, the compensation level is the same. Reference: 4.1.2.1* in the License Exam Manual
According to the Uniform Securities Act, a person representing an issuer in the sale of which of the following securities would have to be registered as an agent? A) Securities issued by the Government of Brazil B) Municipal bonds C) Securities issued by a federal credit union D) Securities of a federally chartered bank
C An individual is exempt from registering as an agent only when representing the issuer in one of the limited group of five exempt securities, or in any exempt transaction. Oddly enough, a federal credit union is not on that list. Reference: 1.3.2 in the License Exam Manual
If an individual acting on behalf of an issuer engages in the sale of securities issued by a savings institution organized and supervised under the laws of any state, which of the following statements is TRUE? A) The individual is engaging in a prohibited transaction. B) The individual can only participate in this transaction with permission from the Administrator. C) The individual is not required to be registered. D) The individual is acting as a broker-dealer and must be registered as a broker-dealer.
C An individual representing (employed by) an issuer is exempt from registration as an agent when selling certain exempt securities (see your LEM for the 5 categories that qualify) or non-exempt securities in an exempt transaction. Reference: 1.3.2 in the License Exam Manual
how long must the files be readily accessible for USA requirements?
2 years overall 3 years
statue of limitations for criminal offenses under the USA is
5 yrs from date of the offense
3 number sequence for criminal penalties
5-5-3 5 years 5000 3 years jail time
*******Under the Uniform Securities Act, the term security includes A) master limited partnerships B) gold coins C) heating oil futures D) rare timepieces available for sale on the internet
A
*****If it is determined that a security must be registered prior to its sale in the state, Section 305 of the Uniform Securities Act of 1956 provides that a registration statement may be filed by A) the issuer, any other person on whose behalf the offering is to be made, or a registered broker-dealer B) the issuer, any other person on whose behalf the offering is to be made, or a registered investment adviser C) the issuer, a registered broker-dealer, or a registered investment adviser D) the issuer, the Administrator, or a specially trained agent of a registered broker-dealer
A
A broker-dealer is registered in State X. It has no offices in State Y, although it does do business in that state. Under the Uniform Securities Act, registration in State Y is required if the client is a(n) A) state employee B) broker-dealer C) bank D) issuer whose securities are involved in the transactions Explanation
A
Which of the following is NOT required to be disclosed in an investment advisory contract under the Uniform Securities Act? A) The adviser's past performance over a period of no less than the previous 12 months B) If applicable, a statement that the investment adviser will be exercising discretion in the account. C) The termination date of the contract D) The amount or manner of calculation of the amount of the prepaid fee to be returned in the event of contract termination
A
Which of the following statements regarding unsolicited, nonissuer transactions is TRUE? A) An Administrator may require representatives to obtain customer signatures acknowledging that orders were unsolicited. B) An agent can only accept unsolicited orders in exempt securities. C) An agent may not accept unsolicited orders unless the transaction directly benefits the issuer. D) An agent may only accept unsolicited orders with prior approval of a principal.
A Administrators are authorized by the USA to require agents to obtain written client acknowledgment of unsolicited transactions. An agent may accept unsolicited orders in secondary transactions in either exempt or nonexempt securities. An agent may accept unsolicited orders without prior approval of a principal; approval is necessary after the trade. Reference: 2.3.2 in the License Exam Manual
exempt security
A security that is not required to be registered
nonexempt security
A security whose issue and sale must be in compliance with the Uniform Securities Act and/or the various federal securities acts. Most corporate securities are nonexempt.
cease and desist order
An administrative or judicial order prohibiting a person or business firm from conducting activities that an agency or court has deemed illegal. -can be issued without a prior hearing
Which of the following statements are TRUE? An agent must register in the state in which he advertises and solicits a security. To make sales, an agent need not register in a state in which the broker-dealer is already registered. Under no circumstances may an agent register with two unrelated broker-dealers. A secretary for a broker-dealer who, as a courtesy, takes orders for the broker-dealer's clients must be registered.
An agent must register in the state in which he advertises and solicits a security. A secretary for a broker-dealer who, as a courtesy, takes orders for the broker-dealer's clients must be registered.
Under Section 401(j) of the Uniform Securities Act, which of the following are included in the definition of a "person"? An individual An unincorporated association A political subdivision An LLC
An individual An unincorporated association A political subdivision An LLC
Which of the following statements is NOT true regarding criminal penalties under the Uniform Securities Act? A) The Administrator does not have the power to pursue criminal prosecution, but only to refer evidence to the attorney general or appropriate district attorney. B) Criminal penalties may not be imposed if someone damaged by the violation has already recovered damages under the civil liabilities provisions. C) The statute of limitations on criminal indictments is five years. D) Criminal penalties may be incurred by willfully violating any provision of the act.
B Criminal penalties may be imposed in addition to any other penalties assessed or damages recovered under the act. Reference: 3.3.2 in the License Exam Manual
An agent lives in Montana and is registered in Montana and Idaho. His broker-dealer is registered in every state west of the Mississippi River. The agent's client, who lives in Montana, decides to enroll in a 1-year resident MBA program in Philadelphia, Pennsylvania. During the 1-year period, when the client is in Philadelphia, the agent may A) not conduct any business with the client B) conduct business with the client as usual C) only accept unsolicited orders D) not deal with the client until the broker-dealer registers in Pennsylvania
B Even though the college program is referred to as a resident program, that does not mean that the client has changed his state of residence. Although neither the firm nor the agent is registered in Pennsylvania, the agent may continue to conduct business with the client. This is because both the agent and his firm are properly registered in the client's state of permanent residence. Reference: 1.3.3 in the License Exam Manual
When opening an account at a broker-dealer, if the most recent copy of the firm's fee schedule is not available, NASAA recommends that the client A) selects another broker-dealer and opens the account there B) does not place any assets in the account until it is provided C) promptly notifies the Administrator of the firm's failure to comply D) goes ahead with the account opening but refrains from trading until its receipt
B It is proper for fees to be disclosed at the time a customer account is opened. If not presented, clients should ask for the fee schedule and make sure it's up to date. If it is not readily available, clients should not place any assets into the account until it is provided. NASAA believes that clients have the right to know the fees in advance. Reference: 4.1.3 in the License Exam Ma
When an issue is registered by coordination, it is also registered under the provisions of the A) Investment Advisers Act of 1940 B) Securities Act of 1933 C) Securities Exchange Act of 1934 D) Uniform Securities Act
B Registration by coordination coordinates state registration of a security with federal registration of that security. Securities are registered at the federal level under the Securities Act of 1933. Reference: 2.2.2.2 in the License Exam Manual
Under the USA, each of the following is specifically excluded from the definition of a broker-dealer EXCEPT an A) issuer B) investment adviser C) international bank D) agent
B 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. Reference: 1.2.1 in the License Exam Manual
Which of the following is NOT a security? A) A commodity options contract B) Annuity that provides for a fixed monthly income C) Common stock of ABC National Bank that is a member of the Federal Reserve System D) Interest in a merchandising marketing program
B Variable annuities are securities while fixed annuities are not. Options contracts, interests in merchandising marketing programs, and common stock are securities under the USA. Reference: 2.1.1.1 in the License Exam Manual
LMN sec. a BD registered w/ SEC in more than 12 states has just become a member firm of the NYSE. It would be permitted for LMN to say that A) the membership in the NYSE is a testimony to the integrity of the firn B) they are members of the NYSE C) they are now federally covered and no longer need to register in those state where they don't have a place od business D) adds on a level of approval to the firm
B no such thing as a federally covered BD
Which of the following sales would be exempt from the antifraud provisions of the Uniform Securities Act? A) Sale of a nonexempt security B) The sale of a modified endowment policy C) Sale of an exempt security in an exempt transaction D) Sale of an exempt security
B not a security
An unsolicited customer order to buy a security is considered an exempt A) security providing the purchaser is an institutional investor B) transaction whether the security is exempt or nonexempt C) transaction only if the security is exempt D) transaction only if the security is exchange-listed
B) transaction whether the security is exempt or nonexempt Unsolicited customer orders, regardless of the purchaser, are defined as exempt transactions under the Uniform Securities Act, whether the securities are exempt or nonexempt. To ensure that this exemption is not abused, the Administrator has the power to request written certification from the customer that the order was, in fact, unsolicited. Reference: 2.3.2 in the License Exam Manual
agents almost always work for
BD
banks, agents and issuers are not
BD
dishonest or unethical business practice-Disseminating False Trading Information affects
BD and agents
dishonest or unethical business practice-agreeing to waivers affects
BD and agents
dishonest or unethical business practice-backdating records affects
BD and agents
dishonest or unethical business practice-deceptive advertising practices affects
BD and agents
dishonest or unethical business practice-front running affects
BD and agents
dishonest or unethical business practice-guaranteeing against a loss affects
BD and agents
dishonest or unethical business practice-investment company sales affects
BD and agents
dishonest or unethical business practice-margin documents affects
BD and agents
dishonest or unethical business practice-unreasonable commissions or markups affects
BD and agents
exercising discretion affects
BD and agents
third party transactions affects
BD and agents
unsuitable recommendations apply to
BD and agents
dishonest or unethical business practice-spreading rumors
BD must ensure that any rumor they hear is not used or spread
dishonest or unethical business practice-commingling of a customer and firm assets affects
BD only
dishonest or unethical business practice-controlled market affects
BD only
dishonest or unethical business practice-dishonoring quotes affects
BD only
*****Which of the following meets the definition of an agent as described in the Uniform Securities Act? A) The receptionist in a broker-dealer's office with the responsibility of mailing customer confirmations and account statements B) A broker-dealer acting on behalf of a client and charging a commission C) An individual employed by a broker-dealer accepting unsolicited orders from existing customers to purchase exempt securities D) An individual representing the issuer in a sale of securities to an underwriter
C
Which of the following is NOT required to be disclosed in an investment advisory contract under the Uniform Securities Act? A) If applicable, a statement that the investment adviser will be exercising discretion in the account. B) The termination date of the contract C) The adviser's past performance over a period of no less than the previous 12 months D) The amount or manner of calculation of the amount of the prepaid fee to be returned in the event of contract termination
C
Suppose you are selling shares of a company where your sibling is a control person for that company, should you disclose the potential conflict?
yes
are advisers required to disclose their soft dollar arrangements to their clients
yes
can the admin cancel a registration if a individual is deemed mentally incompetent?
yes
does custody include of possession of client funds or securities?
yes
renewal applications for canadian BD must be filed by
Dec. 1st each year
T or F: An administrator can exceed those required by the SEC for record keeping and financial reports
F
T or F: Guaranteeing a security's performance is not prohibited
F
who cannot use testimonials in advertisements?
IA's
when a business is a sole proprietorship, and individual can be a
IAR and IA
iAR
Investment Advisory Representative. Responsibility is to provide investment related advice to clients for a fee.
U or L: a registered agent borrows $10,000 from a credit union that is one of her best customers
Lawful
U or L: an agent receives an order for the purchase of an obscure foreign security. The agent informs the client that commissions and charges on this purchase will be much higher than those of domestic securities
Lawful
exempt transactions, securities exempt from registering or any transaction
MUST BE REGISTERED AS AN AGENT
if a bond is issued in CBus where is is not considered a federally covered security?
Ohio
since options are risk what document is required?
Options disclosure document (ODD) to any prospective client
Wrap Fee Program
Program where client is charged a specified fee, or fees, not directly based on transactions in a client's account. IA using wrap fee accounts DO NOT USE NORMAL BROCHURE; USE PART 2A, APPENDIX 1
exempt securities definition
Securities that are exempt from registration with the SEC.
Federal Covered Security
Security exempt from state registration.
*T of F: if justified a BD, but not an associated person of the firm can correct a bona fide error
T
*T or F: a BD isn't obligated to disclose the amt. of a commission on any sell before the transaction unless it is abnormally large
T
T or F: BD and agents do not have fiduciary responsibilities to their customers
T
T or F: BD or agents need to exercise due diligence for customer's regarding options?
T
T or F: IA and IAR's have a fiduciary responsibility and BD's and agents don't
T
T or F: a BD must register as a BD in the state where it does its business
T
T or F: agents are duty bound to follow the rules and regulations surrounding electronic communications even during their own time if they are identified as a representative of the securities firm
T
T or F: all fees have to be disclosed
T
T or F: as a part of opening a margin account, the BD must provide customers with the risk disclosure document
T
T or F: highlighting is prohibited on a prospectus
T
T or F: misrepresentation is a prohibited practice
T
T or F: there are no requirements to keep tax forms for clients
T
T or F: under USA anti fraud provision, an IA is bound by the same restrictions that apply to sales practices when engaged in sales
T
An Administrator does not have jurisdiction over an offer to sell that is made in a TV broadcast originating outside the state newspaper published outside the state newspaper published inside the state where more than two-thirds of its circulation is outside the state
TV broadcast originating outside the state newspaper published outside the state newspaper published inside the state where more than two-thirds of its circulation is outside the state
The Uniform Securities Act provides an exemption from registration for certain securities and for certain transactions. However, the Administrator is not empowered to deny an exemption from state registration to U.S. government securities private placement transactions a transaction with an insurance company municipal bonds issued by another state
U.S. government securities municipal bonds issued by another state
which form does an agent fill out to register?
U4
dishonest or unethical business practice-dishonoring quotes
a BD needs to be prepared to buy at bid and sell at the ask price that it quotes to the client
if the net capital exceeds the amount required by the SEC,
a bond will not be required by the state
conflict of interest
a conflict between self-interest and professional obligation
accredited investor
a person who is not counted when computing the # of purchase private placements under Regulation D
exempt transaction
a sale where registration with the administrator and the filing of the material is not required in order for the transaction to take place
Exempt Security
a security not required to be registered under the Securities Act of 1933. Still subject to anti-fraud rules; not subject to registration requirements, e.g., municipal bonds and bank stock
adoption
a social media term used to describe the firm's endorsement or approval of the content of a third party site. This isn't prohibited, but the relationship must be disclosed.
sale/sell
actual transaction involving money or another form of consideration for value
in the occurrence of contumacy, the
admin can apply to the appropriate court in his state and ask for help. the court can them issue and order to the person requiring compliance with the request failure to obey orders will be punished by the court as a contempt of court aka jail time
admin filing sales and ad literature
admin can req. filing of any prospectus, panphlet, circular form, letter, ad, etc unless sec. is exempt
maintenance of records
admin maintins record of all applications for registration of securities and registration statements and all applications for BD, agents, IA, IAR that is effective in the state
a document is considered to be filed when
admin receives it
primary role of admin
administer the securities laws of the state as well as make rules and issue orders in the public interest to ensure a well functioning investment climate in the state
Part 2A
adviser
Disclosure to customers of a broker-dealer's control relationships is required in agency transactions principal transactions exempt transactions
agency transactions principal transactions exempt transactions
dishonest or unethical business practice-timely prospectus delivery affects
agents and BD
dishonest or unethical business practice-sharing in accounts
agents cannot share in the profits or losses of clients accounts unless the client and the BD supply prior written approval
dishonest or unethical business practice-fictitious accounts affect
agents only
*IA/IAR recommends the same security to most or all of its customers this is a
blanket recommendation and is generally prohibited
Part 2B
bodies ppl who work there
through margin accounts, investors can
borrow money from brokerage firms by pledging the purchased stock as collateral
agency cross transaction-the IA receives commission from
both sides of the party
Registration by Coordination
common for OTC transactions
FINRA says that it will always be ____ that determines the category of public communication not____________
content; platform/technology/device
sale
contract to sale/sell a security for value
as a part of opening a margin account, the BD must provide
customers with the risk disclosure document
when a BD is acting on behalf of themselves, they are acting as a
dealer
stop order
deny effectiveness to or to suspend or revoke the effectiveness of any registration statements -applies to securities not persons
in lieu of s surety bond, a admin will accept
deposits of cash or securities
cybersecurity compliance program
does the firm have written policies, procedures or training programs in place relating safeguarding client info?
cybersecurity and social media
does the firm have written policies, procedures or training programs in place relating to the use of social media for business purposes?
dishonest or unethical business practice-unauthorized transactions
executing a transaction on behalf of a customer without authorization to do so OR a gents deliberately ignores clients instructions only can do so if give discretionary authorization
advisors registered with the SEC are known as
federal covered IA or just covered IA
free securities are those who
have no lien against them
where must IS's be registered?
in the state where they do business in unless exempt from registration
in agency cross transactions, permsiion to engage in them must be obtained
in writing prior to the first transaction
filing fee is paid by the
issuer
adviser managing $110M+
large SEC registration
U or L: an agent receives a call from his client's spouse, advising him to sell her husband's securities. Her husband is out of the country and requests that his wife calls. The agent refuses and she complains to his manager
lawful
jurisdiction
legal authority to regulate securities activities that take place in the state
who are IA's
legal persons
margin accounts allow for investors to
leverage their investment dollars
vacated
lifting of a stop order
*when IA's advertise a chart they must indicate that there are AND
limitations and difficulties inherent in using such programs
what's the most common example of a firm that doesn't use an underwriter?
local company who is raising capital and uses its own employees or hires an independent sales force under contract w/ the issuer to sell the new security
many advisers do not have custody because their clients funds and securities are
maintained at a bank or brokerage house
if there is any doubt about the transparency of the recommendation or transaction,
make a full disclosure
fraudulent practices-telling a customer that a security will be listed on an exchange without concrete information concerning its listing status
making any statement relating to a change in marketplace for the security is only permitted if in fact you have knowledge that such change has been announced
BD compensation
markups or markdowns
advisor managing $25M-$100M
mid state registration
* in an agency cross transaction, can the adviser recommend the transaction to both parties of the trade?
no
*do most IA take custody?
no
*most IA do not take custody, does that mean that they are able to accept delivery of customer securities or funds except under the limited conditions
no
28e safe harbor? internet services
no
28e safe harbor? office furniture and computer hardware
no
28e safe harbor? payment for training courses for an exam
no
if a registered agent commits fraud in the sale of any of these items are they committed of a violation of state securities laws?
no
is arbitrage a form of market manipulation?
no
do admins have the power to compel compliance with the order?
no to compel compliance in the face of a person's resistance, the admin must apply to a court of compenent jurisdiction for an injunction
the license of a BD agent, IA, IAR becomes effective at
noon, 30 days after the later of the date an application for licensing is filed and is complete or the date an amendment to an application is filed and is complete
when a client is temporary in another state a BD is
not required to be registered within that state
what is the final step of registration
notifying the applicant that they are now legal to solicit clients
if you are given that a client agrees to waive their rights to sue, the agreement is
null and void NO WAIVERS
cyber losses
plan for treating electronic device loss?
unethical & dishonest business practices-unsuitable recommendations
recommending to a customer the purchase, sale, or exchange of any security without grounds to believe that such transaction or recco is suitable for the customer -agents must always have suitable grounds for making reccos to clients inquiring client financial status, objectives and risks
agency cross transaction-needs
the prior written consent to be given to the client
if it is past the first anniversary and there is still some unsold shares and as long as the commission for the agents and the underwriters and is also at the same offering price, ...
the registration is still in effect past the first-anniversary date
arbitrage
the simultaneous purchase and sale of an asset to profit from a difference in the price
an admin can establish a minimum financial requirement for a IA in the state. a admin can req. an advisor who has custody of client funds or securities or has discretion over a clients accounts
to post a surety bond or a minimum net worth -usually a req. is higher for custody($35,000) than for discretion ($10,000)
prior written authority is also kown as
trading authorization
the primary function of a BD is to
transact securities
*when a administrator is looking over registration application if individual has a misdemeanor, admin must
treat the misdemeanor upon the statues of where it occurred
which is easier to monitor twitter or FB
twitter -FB has entanglement issues
dishonest or unethical business practice-investment company sales-unfair comparisons
unethical business practice to compare money market mutual funds to savings accounts held at a bank. MMMF don't have FDIC insurance
dishonest or unethical-delivery delays
unjustifiable delays in delivering the securities purchase by any of its consumers or in the payment upon request of free credit balance
U or L: A client writes a letter of compliant to his agent regarding securities that the agent has recommended. The agent calls the client to apologize and then disposed the letter because the client seemed happy
unlawful
U or L: an agent who works for a small BD that employs no securities analysts assures her client that she can analyze any publicly traded security better than anyone else and she will do it personally for the client
unlawful
is LinkedIn considered different than FB
yes
discretionary accounts
allows the BD or IA to make buy/sell decisions in the account without the need to have prior contract with the customer
2 forms of social media content
-static -interactive
Sales of Securities at Financial Institutions
-B/D services conducted in distinct physical location away from area where retail deposits taken, or must distinguish services from financial institution -disclose orally and in writing that securities products not FDIC insured, not deposits/guarantees of financial institution, subject to risk -make reasonable effort to obtain written acknowledgement of disclosures -Display disclosures: ot FDIC insured, no bank guarantee, may lose value; UNLESS a. radio broadcasts under 30 seconds b. electronic signs that exclude media messages c. signs used only as location indicators
*who are never permitted to share in profits or losses in their clients accounts?
-IA -IAR -BD
Opening a Margin Account requires what agreements
-credit agreement -hypothecation agreement and possibly -option loan consent form
According to the Uniform Securities Act, which of the following would be considered exempt transactions? 1. The sale of a unlisted corporate bond by an executor of an estate 2. The gift of 100 shares of a NYSE-listed stock from a father to his minor child 3. Preorganization certificates subscribed to by 14 institutional investors during a 12-month period for which no payment has been made 4. An unsolicited order from an individual client to purchase a nonexempt, unregistered security
1 4 Fiduciary transactions and unsolicited orders, regardless of the security being purchased or sold, are always exempt transactions under the USA. Preorganization certificates are limited to a maximum of 10 subscribers, whether individuals or institutions. A gift of securities is not a sale, so no transaction has taken place. Reference: 2.3.2 in the License Exam Manual
how lomg is each registration statement effective for?
1 yr from effective date
NASAA has a Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents in Connection with Investment Company Shares. One of the things the Policy does is restrict statements that may be made when referring to a mutual fund as "no-load". Under the Policy, one could claim or imply that a mutual fund is no-load as long as the fund did not have a 1. contingent deferred sales load 2. 12b-1 fee in excess of .25% of average net fund assets per year 3. service fee in excess of .25% of average net fund assets per year 4. front-end load in excess of .25% of the purchase price
1, 2, & 3
*denial is generally limited to convictions for a felony investment-related misdemeanors within the past
10 years but must be disclosed with no time limit
block order size
10,000 shares
within ____ days after the customer account has been approved for options trading, the BD must obtain from the customer a written agreement that the customer is aware of and agrees to be bound by FINRA rules applicable to the trading of option contracts and that the customer has received a copy of the current ODD
15 days
if an applicant requests a hearing, written request will be made and within _____ days after the receipt of written request the matter will be set down for hearing. If no hearing is requested and non is ordered by the admin the order will remain in effected until ______
15; modified or vacated by the administrator
Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, requirements of advisory contracts include which of the following? 1. They must be renewed on an annual basis. 2. They must describe the amount of any prepaid fee that will be returned to the client in the event the contract is terminated. 3. They must prohibit the use of discretion without the client's authorization.
2 & 3
As defined in the Uniform Securities Act, the term exempt security would apply to which of the following? 1. The sale of a municipal bond to an insurance company authorized to do business in this state 2. Bonds issued by the local electric power company 3. The purchase of a US Treasury bill by an investment company registered under the Investment Company Act of 1940 4. Equipment trust certificates issued by a railroad engaged in interstate commerce
2 & 4
A security has been registered under Qualification. Which of the following statements is CORRECT? 1. The registration is valid for one year from the effective date. 2. The registration is valid for one year from the effective date unless the underwriter or issuer still has some unsold shares. 3. The registration is valid until the next December 31st. 4. The registration statement may be amended to increase the number of shares in the offering as long as the public offering price and the underwriter's compensation is not changed.
2 & 4 A registration under Qualification is good for one year from the effective date, unless the issuer or underwriter still has unsold shares. In that case, it may be extended until those shares are sold. The offering could be enlarged as long as the share price is not changed. Another requirement, not in this question, is that the underwriting commissions could not be changed. So, why isn't choice I part of the correct answer? Because on the exam, when you are given two answers that are correct statements, you must choose the one that is the "most" correct; the one that more completely tells the story. Reference: 2.2.2.3.1 in the License Exam Manual
Which of the following statements regarding broker-dealer registration under the Uniform Securities Act are TRUE? 1. In the absence of any action by the Administrator, the effective date of a registration is noon of the 45th day. 2. The Administrator may initiate a disciplinary action within two years of a broker-dealer's withdrawal of registration. 3. The Administrator may request that the broker-dealer furnish a statement of assets and liabilities. 4. If, before the effective date of the registration, the Administrator requires amendments to the application, the registration will be considered to have first been filed upon filing of those amendments.
3 & 4
Which of the following investment adviser compensation arrangements is (are) permitted under the Uniform Securities Act? 1. The value of a client's account at the start of the year is subtracted from the value at the end of the year. The investment adviser's compensation is 5% of the difference. 2. The investment adviser charges an annual fee of $2,000, but the agreement calls for a waiver of the fee if the client's portfolio value has not increased by at least $20,000. 3. The investment adviser charges a fee of 1% of the average value of the account portfolio during the year. 4. The investment adviser charges a flat fee of $1,000 if the client's portfolio assets are $100,000 or more or $2,000 if the client's assets increase to $200,000 or more.
3 & 4 Unless the question states that it relates to the exception for wealthy investors ($1 million under management of the investment adviser or $2.1 million in net worth), always assume that performance-based compensation is not permitted. Flat fees and fees based on total portfolio value are permitted. Reference: 4.4.1.1 in the License Exam Manual
how long do you have to keep the original website design?
3 yrs
change in a U4 has to be filed within
30 days
how long does the buyer have to respond to a letter or rescission
30 days
when a existing client moves to another state how long does the BD have to get registered
30 days
*how long is the period of withdrawl?
30 days -admin can shorten that period to a rush order
special subscription form must be kept for
3yrs
federal covered advisers must make a notice filing with the state if they have a place of business w/
6 or more retail clients in a 12mo period
how many days does a person have to appeal an order of the administrator in court?
60 days from date of issuance
An agent has a part time job as an usher at an NFL football team's stadium. His primary function is to provide assistance to those who are seated in the luxury boxes. While serving drinks, he overhears a discussion about a planned hostile takeover bid that will be made during the coming week. What should an agent do when he comes across material, non-public information like this? A) Keep it confidential B) Report it to the firm's trading desk C) Only use the information for his discretionary account clients D) Only use the information for trades in his personal account
A When a securities professional is made aware of material non-public information, there are only two choices on the exam that can be correct: (1) keep it confidential or (2) report it to the appropriate supervisor (not the trading desk—can you imagine what traders would do with this information?). Reference: 5.1.1.3 in the License Exam Manual
Under the Uniform Securities Act, which of the following is excluded from the definition of investment adviser? A bank An investment adviser representative A lawyer giving suggestions to a client on where to invest the proceeds of a divorce settlement that he helped her obtain An investment adviser with an office in the state whose only client is a closed-end investment company registered under the Investment Company Act of 1940
A bank An investment adviser representative A lawyer giving suggestions to a client on where to invest the proceeds of a divorce settlement that he helped her obtain An investment adviser with an office in the state whose only client is a closed-end investment company registered under the Investment Company Act of 1940
Which of the following statements describes the powers of the Administrator over the issuance of orders? A final order may be appealed in the appropriate court within 60 days of the order being issued. Appeal of a final order will act as a stay of the order, unless a court of competent jurisdiction rules to the contrary. No final order may be issued without the opportunity for a hearing. Final orders must receive approval from the state legislature.
A final order may be appealed in the appropriate court within 60 days of the order being issued. No final order may be issued without the opportunity for a hearing.
The Uniform Securities Act defined many terms. Among them is the term sale. Which of the following would be included in the definition of sale? An offer of common stock in a new issue properly registered or exempt from registration in the state A gift of assessable stock An investor exercising preemptive rights previously received directly from the issuer An investor elects to forgo a cash dividend and receive the equivalent in stock instead
A gift of assessable stock An investor exercising preemptive rights previously received directly from the issuer A gift of assessable stock is always considered a sale. Although the receipt of preemptive rights is not a sale, the exercise of them is. An offer does not become a sale until the exchange of consideration, and choosing to take a stock dividend rather than a cash dividend is not a sale. Reference: 3.1.1.1 in the License Exam Manual
Which of the following statements is (are) TRUE? A person with a place of business in the state who transacts business exclusively for the accounts of banks and savings institutions is not a broker-dealer under the Uniform Securities Act. A person excluded from the definition of investment adviser under the Investment Advisers Act of 1940 who offers investment advice to individual investors residing in this state, and has less than $100 million in assets under management, is subject to the jurisdiction of the state Administrator. A person required to register as an investment adviser under the Investment Advisers Act of 1940, who manages funds on a regular business headquartered in this state, may be subject to notice filing fees required by the state Administrator. Broker-dealers who supply incidental investment advice and make securities recommendations to customers who pay commissions for the execution of their trades are not investment advisers subject to state or federal registration.
A person required to register as an investment adviser under the Investment Advisers Act of 1940, who manages funds on a regular business headquartered in this state, may be subject to notice filing fees required by the state Administrator. Broker-dealers who supply incidental investment advice and make securities recommendations to customers who pay commissions for the execution of their trades are not investment advisers subject to state or federal registration.
Assessable Stock
A stock that is issued below its par or stated value. The issuer and/or creditors have the right to assess the shareholder for the deficiency. All stock issued today is nonassessable.
Which of the following would be required to register as an agent under the Uniform Securities Act? An officer of a broker-dealer who does not deal with customers or supervision of sales A director of a broker-dealer who is not involved in day-to-day operations A trader who is authorized to handle customer orders An individual who makes cold calls to pre-qualify prospects and lets a principal in the firm handle all customer trades
A trader who is authorized to handle customer orders An individual who makes cold calls to pre-qualify prospects and lets a principal in the firm handle all customer trades An agent is an individual who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities. Pre-qualifying 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. Reference: 1.3.3 in the License Exam Manual
Agency Cross Transaction
A transaction in which an investment adviser acts as the agent for both his client and the other party to the transaction. Investment advisers are not required to obtain the client's consent for each individual agency cross transaction, but must have the client's prior consent to engage in such transactions. As in all transactions, advisers are required to obtain the best possible price and execution in agency cross transactions. If an affiliate of the adviser brokers such a transaction, it is still considered an agency cross transaction, just as if the adviser had brokered it.
Under the Uniform Securities Act, an agent registered in one state may transact business in another state in which he is not registered with which of the following? I. An existing client visiting the state for a 2-week period II. An existing client who moved to the state 6 months ago III. An existing client who moved to the state less than 30 days prior IV. An acquaintance from another state who requests that the agent execute transactions on his behalf A) I and III B) II and III C) I and IV D) II and IV
A) I and III
consent to service of process appoints the
ADMINISTRATOR AS THE ATTORNEY'S to receive and process noncriminal securities related complaints against the applicant
notice filing
Administrators can require documentation for the record and a filing fee for federally covered securities.
Which of the following are exempt from state registration? A bond issued by the city of San Jose, Costa Rica An isolated nonissuer transaction A transaction by an administrator of an estate 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
An isolated nonissuer transaction A transaction by an administrator of an estate
Under the Uniform Securities Act, requirements for registration may include which of the following? An announcement of the application for registration in one or more newspapers in the state Minimum capital requirements for broker-dealers who do not have custody of client securities or funds A surety bond for agents who have custody of client securities or funds
An announcement of the application for registration in one or more newspapers in the state Minimum capital requirements for broker-dealers who do not have custody of client securities or funds A surety bond for agents who have custody of client securities or funds A published announcement may be required by the Administrator. The Administrator may also establish minimum capital requirements for broker-dealers, whether or not they maintain custody. However, the Administrator may require a bond only of persons who have custody or discretion. Agents may never have custody, only broker-dealers and investment advisers are permitted to do so. Reference: 1.3.3.1 in the License Exam Manual
Which of the following persons are included in the definition of an agent under the Uniform Securities Act? An individual who represents First Securities Brokers, Inc., in selling shares of XYZ Corporation, a New York Stock Exchange listed company An individual who, as part of the job description, represents the City of Chicago in selling its bonds to the public An individual who represents First Securities Brokers, Inc., whose sole activity consists of selling individual investors securities issued by the U.S. government An individual who is employed by the Federal Reserve Board to sell Treasury Bills to retail investors
An individual who represents First Securities Brokers, Inc., in selling shares of XYZ An individual who represents First Securities Brokers, Inc., whose sole activity consists of selling individual investors securities issued by the U.S. government Under the USA, an agent is defined as an individual who represents a broker-dealer selling any type of security, whether that security is exempt or nonexempt. Individuals who represent issuers in trading certain exempt securities or any exempt transactions are not defined as agents. Reference: 1.3.2 in the License Exam Manual
Securities issued by which of the following are exempt from registration? Any savings and loan association organized under the laws of any state Any bank organized and supervised under the laws of any state Any bank organized under the laws of the United States Any federal credit union
Any bank organized and supervised under the laws of any state Any bank organized under the laws of the United States Any federal credit union The securities issued by national banks, state-chartered banks, and federal credit unions are exempt from registration under the USA. Federal savings and loan associations are as well. But, those savings and loan associations organized under state laws are only exempt if the S&L is authorized to do business in this state. Reference: 2.3.1 in the License Exam Manual
*******A broker-dealer would like to keep its records on a computer disk. Under the Uniform Securities Act, it A) must obtain approval from the Administrator prior to determining its method of record retention B) could do so if the system met certain requirements including that the information on the disk could not be altered C) must keep its records in paper form D) could use microfilm or microfiche, but not a computer disk
B
*******Which of the following individuals would be most likely to be willing to sell securities for the benefit of the issuer without receiving any compensation based upon those sales? A) A salaried individual working in the broker-dealer's order room B) A member of the issuer's board of directors C) A registered broker-dealer concentrating on investment banking D) An investment adviser representative
B
Although all new accounts must be approved by a designated supervisory before any trading activity may take place, there is one type of account that must be approved by a specially qualified supervisor. That would be A) a discretionary account B) an options account C) an IRA D) a margin account
B
Global Investment Strategies (GIS) is a broker-dealer registered in 6 states. GIS would have to meet the financial and recordkeeping requirements of A) the state with the most lenient requirements B) the Securities and Exchange Commission C) each of the states in which GIS maintains a place of business D) the state with the most stringent requirements
B States can never impose requirement that exceed those of the SEC. We know this broker-dealer is SEC registered because once a firm registers in more than 1 state, it has to register on the federal level as well. Reference: 1.2.3 in the License Exam Manual
Which of the following documents must an existing customer sign to establish a discretionary account? A) Customer's agreement B) Trading authorization C) Options agreement D) New account application
B To establish a discretionary account, the agent must receive written authorization from the customer(s) in whose name(s) the account has been established. An existing customer has already completed the new account application and signed any required customer agreements. Reference: 4.4.2.3 in the License Exam Manual
churning applies to
BD and agents
improper hypothecation affects
BD only
dishonest or unethical business practice-responding to complainants affects
Bd and agents
Trade confirmations sent by broker-dealers to their customers must always include A) the amount of markup or markdown charged B) the current market price of the security traded C) the amount of commission charged D) the tax identification number of the customer
C 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. Reference: 4.1.1 in the License Exam Manual
The Administrator may, by rule or by order, prescribe the filing of financial reports by which of the following persons registered in his state? Agents Broker-dealers Investment Advisers
Broker-dealers Investment Advisers Only broker-dealers and investment advisers are required to file financial reports.Unlike a broker-dealer or investment adviser, agents (or IARs) have no financial reporting requirements. It is the business entity, not the employees, whose financial records are of interest to the regulators. Reference: 1.3.3.1 in the License Exam Manual
*******One business practice considered unethical under the NASAA Statement of Policy on Unethical or Dishonest Business Practices of Broker-Dealers and Agents is A) sharing in the profits in a client's account with written consent from the client B) nonregistered clerical help receiving a year-end bonus based on the broker-dealer's annual profit C) front running D) arbitrage
C
*****Under the Uniform Securities Act, the Administrator has the power to deny an individual's application for registration as an agent if it is in the public interest and which of the following applies? A) The applicant has no prior experience in the securities industry. B) The applicant fails to file a financial statement with the application. C) The applicant has been convicted of a felony within the past 10 years. D) The applicant is not a citizen of the United States.
C
Under the Uniform Securities Act, all of the following are excluded from the definition of an investment adviser EXCEPT A) a federal covered adviser B) broker-dealers and their agents C) a person in the business of providing advice on municipal bonds for compensation D) banks
C although municipal bonds are exempt securities, that only refers to their exemption from registration with the state or SEC. Any person who is in the business of giving advice on securities would be defined as an investment adviser and, therefore, would require registration. Reference: 1.5.2 in the License Exam Manual
Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, it would be considered a prohibited practice for a broker-dealer to A) fail to maintain the required net capital B) maintain an office in the state, but fail to register with the Administrator C) have a history of repeatedly delaying the delivery of securities to its customers D) inform customers that past performance is no guarantee of future results
C broker-dealer that has a pattern of delaying delivery of certificates or money to clients is displaying unethical business behavior. Failing to meet net capital requirements or register is not unethical, it is against the law. Reference: 5.2.1 in the License Exam Manual
Which method of securities registration would most likely be used to register an initial public offering that is intended to be offered for sale in several states? A) Notice filing B) Qualification C) Coordination D) Registration by publication
C) Coordination Since the offering will be made in more than one state, registration with the SEC is required. Coordination is concurrent registration with the SEC and the state for public offerings. Notice filing pertains to certain federal covered securities, primarily by investment companies (mutual funds). Reference: 2.2.2.2 in the License Exam Manual
********Big Sky Securities (BSS) is a broker-dealer registered in states M, I, and W. They have no place of business in state O. The registration provisions of the Uniform Securities Act would not apply to BSS in state O if they confined their securities business in State O to all of these EXCEPT A) closed-end investment companies registered under the Investment Company Act of 1940 B) banks C) other broker-dealers D) investment advisers
D
pre approval req. for twitter
needs pre approval for first initial post
28e safe harbor? rent
no
Under the USA, the least active review of registration documentation is performed by state Administrators before which of the following becomes effective? Coordination Qualification Notice filing Recapitulation
Coordination Notice filing Under the NSMIA, the Administrator may request copies of the documents filed with the SEC, but does not review them because of lack of jurisdiction. There is some review of the information filed in a registration by coordination, but, since the primary responsibility falls upon the SEC, the states generally just spot check the documents. However, registration by qualification or application for professional licensing becomes effective only after an active review of registration information and upon order of the Administrator. Reference: 2.2.2 in the License Exam Manual
*****Myra Johnson is an investment adviser representative with a federal covered investment adviser. Her former college roommate, and very close friend, has approached Myra about opening an individual account where the two of them can share in the profits and losses. In order to be in compliance with the regulations A) Myra must have permission of her employer IA B) they must share in proportion to the amount of their invested capital C) they must open the account in Myra's name D) Myra must inform her friend that this may not be done
D
A client is completing a new account form that contains questions about the investor's investing experience and knowledge. More than likely, what type of account is being opened? A) Margin B) Discretionary C) Retirement D) Options
D
under the USA, an investment adviser's current clients must be delivered a brochure A) annually, but only if the adviser has neither custody nor discretion B) within 48 hours of renewal C) quarterly if the adviser has both discretion and custody D) annually whether or not the adviser has custody or discretion
D Unless there have been no material changes, a copy of the adviser's brochure or brochure supplement must be delivered to all current clients,(except those who are exempt from the brochure delivery requirements {impersonal advise costing less than $500 per year and investment companies registered under the Investment Company Act of 1940}), within 120 days of the end of the adviser's fiscal year. Custody or discretion is irrelevant to this question. Under the USA, all advisory contracts, both initial and renewal, must be in writing. Reference: 4.5.4 in the License Exam Manua
All of the following securities are exempt from state registration EXCEPT A) securities issued by a registered investment company B) bonds issued by the Republic of Argentina C) municipal bonds D) unsolicited orders
D Unsolicited orders are exempt transactions, the others are exempt securities.Furthermore, the choice, unsolicited orders, is the only one that is not a security, exempt or not. Reference: 2.3.2 in the License Exam Manual
Which of the following is NOT a person as defined by the Uniform Securities Act? A) A small city outside of Toronto, Ontario, that maintains an investment account at a brokerage house to invest surplus funds B) A small unincorporated investment club C) XYZ Dry Cleaners, Inc., whose shareholders all work on the premises and also offer financial advice to customers who request it D) A 9-year-old child actor whose earnings exceed $200,000 per year
D minors are a non-person
agent? if a employee who represent a bank selling securities
no
under USA, agent would include an individual who represents an issuer in effecting transactions in A) city of Montreal GO bond B) common stock offered by a commercial bank C) New jersey turnpike revenue bond D) commercial paper w/ 19mo maturity
D) commercial paper with 19 mo. maturity
are non-securities regulated by state securities laws?
no
are waivers permitted?
no
do cease and desist orders require a hearing?
no
do fingerprints need to be submitted to register with the administrator?
no
do stop orders require a hearing?
no
does a federal covered security have to file a notice file?
no
does assessable stock still exist?
no
does custody include of a recepit of checks drawn by clients and made payable to unrelated 3rd parties if forwarded to the 3rd party w/in 3 business days of receipt?
no
if a cold caller only asks the client if they wanted more information do they have to register?
no
what is the renewal date
Dec. 31
treble damages
Damages that, by statute, are three times the amount you lost as well as receiving back your payment
nonezempt transactions must register unless
sold in exempt transaction
when you are registered can you say that the SEC has approved you or your registration?
no
For purposes of transactional exemptions, which of the following qualify under the Uniform Securities Act? Executor of an estate Administrator of a trust Custodian for a minor in an UGMA Agent with authority over time and price of execution
Executor of an estate Administrator of a trust Both executors and administrators are fiduciaries. An agent might be considered to be acting as a fiduciary if the agent has discretionary authority over the assets in the account, but time and price authority is not considered discretion. However, in any event, the agent is not included in the list of those fiduciaries qualifying for the transactional exemption. While the custodian does have fiduciary responsibility to the minor, for purposes of the USA's exempt transaction rules, the custodian is not included in the category along with executors, trustees, and sheriffs, etc. Reference: 2.3.2 in the License Exam Manual
T or F: If an admin determines that a registration statement for a security is incomplete, he may issue a cease and desist order
F
T or F: a IA can circulate, publish, etc any ad that is inconsistent w/ federal rules governing the use of ads
F
T or F: a agent can be registered when a firm closes down?
F
T or F: agents are not duty bound to follow the rules and regulations surrounding electronic communications even during their own time if they are identified as a representative of the securities firm
F
T or F: all fees do not have to be disclsoed
F
T or F: an admin may not prevent custody of securities or funds if an adviser notifies the admin before taking custody
F
T or F: anyone that falls in the definition of a BD doesn't need to register with the administrator of the state
F
T or F: id a agent commits a serious enough violation to revoke his license the firm cannot be charged as well due to lack of supervision
F
T or F: there are exceptions to anti fraud provisions of state securities laws
F
T or F: a Canadian BD who is properly registered w/ the admin pf their providence where they are HQ w/ no office in the state may do business w/ a customer who's on a ski trip in the US
F needs limited registered
a IAR must register with the SEC if they have clients with assets over $110 M
F -IA registers
who has rules regarding options NASAA or FINRA?
FINRA
who requires a risk disclosure for margin accounts NASAA or FINRA?
FINRA
Which of the following statements are TRUE? A federal covered adviser sells federal covered securities only. Federal covered advisers are advisers with federally imposed exemptions from state registration as investment advisers. A federal covered security is exempt from registration with the SEC. Federal covered securities include those issued by investment companies registered under the Investment Company Act of 1940.
Federal covered advisers are advisers with federally imposed exemptions from state registration as investment advisers. Federal covered securities include those issued by investment companies registered under the Investment Company Act of 1940. A federal covered adviser is an adviser with a federally imposed exemption from state registration. Securities issued by investment companies registered under the Investment Company Act of 1940 are included in the definition of a federal covered security. Federal covered securities are exempt from registration at the state level and may, or may not, be at the federal level as well. For example, US government bonds are included in the definition and are exempt on both levels. However, stock listed on the NYSE, also considered federal covered, is exempt on the state level but must register with the SEC. Reference: 2.3.1 in the License Exam Manual
which form does a BD fill out to register?
Form BD
when you are registered can you say that the admin has approved you or your registration?
no
if a someone gets compensation for providing investment advice they are a
IA
IA and discretionary accounts
IA are permitted oral discretion for the first 10 business days after the initial discretionary transaction after that written authorization must be in hand
consultants who advise employee benefit plans on how to fund their plans with securities are also considered
IA by SEC
persons who provide financially related services to entertainers and athletes that include advice related to investments, tax planning, budgeting, and money management are considered
IA by SEC
financial planners who make recommendations regarding a person's financial resources or preform analyses that concern securities are
IA if such services are performed as a part of a business and for compensation
An agent working for a brokerage firm and his client both live in Illinois, and the agent makes an offer to the client by phone while the client is vacationing in California, which he accepts. The client travels to Texas before returning home and sends payment for the security from there. He makes his payment by sending a check from a money-market fund based in Ohio. The Administrators of which of the following states have authority over the sale? Illinois California Texas Ohio
Illinois California Because the offer was made from Illinois to a person in California, the state Administrators of both states have jurisdiction. The state from which payment was mailed and the state in which the checking account or money-market fund is based are irrelevant for the purpose of determining an Administrator's jurisdiction. Reference: 3.1.2 in the License Exam Manual
When a C-level officer of the company (CEO, CFO, COO) approaches the trustee (IA or IAR) and suggests that the plan lend money to help out with a short-term cash deficiency this is
NOT ACCEPTABLE
fraudulent practices-informing a client that the registration of a security with the SEC or with the state securities admin means that the security has been approved by the regulations
NEVER APPROVED
fraudulent practice-representing to customers that admins approve of a BD or agent's abilities
NEVER APPROVES
individual calling an agent from a state where the agent ISNT registered, the BD IS registered in that state and the individual is a client of the firm, and it is an unsolicited order can the agent accept this order?
NO the transaction is exempt but the agent isn't registered so they will have to give up the trade to an agent who is registered in that state
if non-assessable shares are given free with a purchase of something the shares are
NOT A GIFT NON-ASSESSABLE
An IAR is registered in New York and Vermont. While working in his New York office, he places a call to the cell phone of one of his clients who happens to be on vacation in Ohio. After describing the reasons for a particular stock recommendation, the client asks the agent to call back tomorrow. The agent does so and reaches the client in Indiana. The client decides to purchase 100 shares of the stock. When the client arrives home, he notices that he has already received his stock certificate from the transfer agent located in Illinois. In this case, jurisdiction resides with the Administrator of New York Ohio Indiana Illinois
New York Ohio Indiana
are clerical and administrative employees considered a agent?
no -dont effect securities transactions w/ public
does custody include of having a investment discretion over the clients account?
No, discretion doesn't mean custody
fraudulent practices-wash trade
an attempt to manipulate a securities price by creating an apparent interest in the security that really doesn't exist. an investor buying in 1 BD and simultaneously sells through another BD.-no change in beneficial changes has occurred
Which of the following activities are prohibited practices under the Uniform Securities Act? Selling an unregistered non-exempt security to a financial institution Offering shares of an unregistered, nonexempt security to individual customers Offering a Canadian government bond to a resident of a state in which the agent of a broker-dealer is not registered
Offering shares of an unregistered, nonexempt security to individual customers Offering a Canadian government bond to a resident of a state in which the agent of a broker-dealer is not registered Unless qualifying for an exemption, broker-dealers and agents must be registered in each state where offers or sales occur. Also, every security must be registered unless it is an exempt security or sold in an exempt transaction. Although the Canadian government bond is an exempt security, the agent must be properly licensed in each state in which an offer to sell is being made. The sale to the financial institution is an exempt transaction so registration of the security is not required. However, the agent would have to be registered, unless otherwise exempted. Reference: 2.3.2 in the License Exam Manual
Under which of the following circumstances can an Administrator initiate a suspension or revocation proceeding against a broker-dealer registered in the state? On discovery that the broker-dealer's license had been suspended in another state On the conviction of a violation of the Securities Exchange Act of 1934 Two years after the withdrawal of registration by the broker-dealer On the basis of facts known by the Administrator at the time of the broker-dealer's initial registration
On discovery that the broker-dealer's license had been suspended in another state On the conviction of a violation of the Securities Exchange Act of 1934 An Administrator may initiate suspension proceedings against a broker-dealer on discovering that its registration has been suspended in another state and on conviction of a violation of the Securities Exchange Act of 1934. The Administrator may not initiate revocation proceedings against a broker-dealer later than one year after the broker-dealer has withdrawn its registration. The Administrator may not suspend or revoke a broker-dealer's registration at a subsequent time on the basis of facts known by the Administrator at the time of the initial application.
how often do employees need to be educated on social media use?
annually for continuing education
Under the Uniform Securities Act, as a result of a hearing, the disciplinary actions that may be taken by the Administrator include which of the following? Permanent revocation of a registration Bar from employment with any registrant Restriction on a registrant's performance of any activity in the advisory or brokerage business
Permanent revocation of a registration Bar from employment with any registrant Restriction on a registrant's performance of any activity in the advisory or brokerage business Once the registrant is found guilty at a hearing, the Administrator is authorized to take all of the above actions against a person's registration. Reference: 3.2.4.1 in the License Exam Manual
Which of the following are exempt securities under the Uniform Securities Act? Common stock, not listed on any regulated exchange, purchased by an open-end investment company Preferred stock issued by an insurance company authorized to do business in this state Municipal bonds issued by Toronto, ON Private placements
Preferred stock issued by an insurance company authorized to do business in this state Municipal bonds issued by Toronto, ON Common stock not listed on any regulated exchange and purchased by an open-end investment company is an exempt transaction, but that common stock is not an exempt security. Canadian municipal securities are exempt from registration under the USA. Any security that represents an interest in, or debt of, or is guaranteed by an insurance company organized under the laws of any state and authorized to business in this state is exempt. Private placements are exempt transactions, not exempt securities. Reference: 2.3.1 in the License Exam Manual
Which of the following are defined as securities under the Uniform Securities Act? Real estate investment trust certificates Preorganization subscription agreements Shares of treasury stock Voting-trust certificates issued by a corporation undergoing a reorganization
Real estate investment trust certificates Preorganization subscription agreements Shares of treasury stock Voting-trust certificates issued by a corporation undergoing a reorganization
if a person is excluded from the IA definition under the IA act of 1940, under NSMIA,
cannot define this person as a IA since federal law excluded that person from the definition
adviser managing $100M+ buy under $110M
SEC or state registration
if a small advisor is registered in 15 or more states,
SEC registration can happen
Under the Uniform Securities Act, the Administrator has the power to deny or revoke exemptions for which of the following types of securities? Stock issued by a bank organized under the laws of another state Securities of nonprofit organizations Investment contracts issued by employee benefit plans
Securities of nonprofit organizations Investment contracts issued by employee benefit plans The Administrator may deny or revoke the exemption granted to a nonprofit organization or investment contracts issued by employee benefit plans. Any transaction exemption, except one relating to a federal covered security, may be revoked as well. However, there are certain security exemptions that the USA does not grant the Administrator the power to deny. Included in that list is any security issued or guaranteed by any bank organized under the laws of any state. Reference: 2.3.3 in the License Exam Manual
*T or F: in a agency cross transaction, an adviser can recommend the transaction to one side only
T
*T or F: in an agency cross transaction, the adviser cant recommend the transaction to both parties of the trade?
T
*T or F: it could be considered fraud for an agent or IAR to use social media to make a false announcement about a company in order to affect stock price
T
T of F: commercial banks aren't exempt from registering
T
T or F: Guaranteeing a security's performance is prohibited
T
T or F: a IA cannot circulate, publish, etc any ad that is inconsistent w/ federal rules governing the use of ads
T
T or F: a stop order may be entered only after opportunity has been granted
T
T or F: admins can only impose certain requirements on their own states but may not on other states
T
T or F: representing that your registration implies any approval of you or your qualifications is a prohibited practice
T
cybersecurity safeguard
use safeguards like encryption, antivirus, anti-malware programs? secure email?
A registered broker-dealer offers investment advice as an incidental part of its commission business. One of its agents charges for investment advice as a freelance investment adviser outside the scope of his employment at the firm. Which of the following statements are TRUE? The broker-dealer must register as an investment adviser. The agent must register as an investment adviser. The agent need not register as an investment adviser. The broker-dealer need not register as an investment adviser.
The agent must register as an investment adviser. The broker-dealer need not register as an investment adviser. Broker-dealers who offer advice as an incidental part of their commission business are excluded from the definition of investment adviser under both state and federal law. Therefore, they are not required to register as investment advisers. However, if agents provide investment advice outside the scope of their employment at the broker-dealer, registration as an investment adviser is generally going to be required. Reference: 1.5.2 in the License Exam Manual
To which of the following situations does the transaction exemption apply? City of Chicago bond offering Canadian government bond offering Offering an unregistered security to a maximum of 12 individual customers in a 10-month period The sale of an estate's holding of IBM shares by an executor
The sale of an estate's holding of IBM shares by an executor
Under the Uniform Securities Act, which of the following are TRUE regarding the registration of a successor firm? The successor firm need not be in existence when the application for registration is filed. A filing fee is required with the application. The successor firm's registration will be effective for the unexpired portion of the year.
The successor firm need not be in existence when the application for registration is filed. The successor firm's registration will be effective for the unexpired portion of the year. 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.
federal covered security can/can't make misrepresentations during an offer made in any state
cannot make misrepresentations since it would violate the antifraud provisions of the USA
dishonest or unethical business practice-sharing in accounts affects
agents only
U or L: a agent is convinced that Internet resources will significantly rise. She offers to buy the stock back from the customer at 10% higher than its current price at any time during the next 3mo.
Unlawful
Unlawful or lawful: a non discretionary customer calls his agent and places a buy order for 1000 shares of any hot internet company. later than day the agent enters the order for 1000 shares of Global Internet Services
Unlawful
CTR
cash transaction that exceeds $10,000 -electronic bank transfer of funds, purchase of CD, stocks, bonds, mutual funds, etc.
interactive content
Where the audience can interact and contribute
Which of the following transactions would constitute a violation of the Uniform Securities Act? An individual representing the issuer of a non-exempt security in an exempt transaction without registration as an agent While acting on behalf of an issuer, an individual, who is not registered as an agent, sells shares of an unregistered nonexempt security to fewer than 15 noninstitutional clients The sale of a Canadian government bond to the resident of a state in which the agent is not registered Representing an issuer of municipal bonds without being registered as an agent in the issuer's state
While acting on behalf of an issuer, an individual, who is not registered as an agent, sells shares of an unregistered nonexempt security to fewer than 15 noninstitutional clients The sale of a Canadian government bond to the resident of a state in which the agent is not registered
beofe the initial offer of any federal covered security in this state the admin may require the filing of
all documents that are a part of federal registration statement filed with the US SEC under Sec. Act of 1933 together with a consent to service of process signed by the issuer
All of the following would be prohibited practices under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers EXCEPT A) accepting an order from a client's spouse shortly after receiving a written trading authorization B) maintaining custody of customer's funds and securities without notification to the Administrator C) charging fees that were higher than customary, but offering a toll-free contact number to compensate for the higher fees D) using a testimonial in an advertisement
With written trading authorization, orders may be accepted from the designated person. Offering a toll-free number to justify higher fees? In the 21st century, every firm has them and most clients don't need them because they have unlimited calling as part of their phone plans. Testimonials may never, ever be used by investment advisers. Broker-dealers can, but not IAs. If an IA intends to maintain custody of client assets, either directly or through a qualified custodian, notification must be made to the Administrator; permission is not required. Reference: 5.2.4.1 in the License Exam Manual
XYZ common stock is listed for trading on the NYSE. Under the USA, which of the following XYZ securities (other than common shares) are exempt from state registration? XYZ first mortgage bonds Warrants to purchase XYZ common stock XYZ preferred stock
XYZ first mortgage bonds Warrants to purchase XYZ common stock XYZ preferred stock Common stock listed on the New York Stock Exchange is a federal covered security and, under the NSMIA, exempt from state registration requirements. Any security equal or senior to an exempted security is exempt as well. Warrants are equal to the common stock and the preferred stock, and mortgage bonds are senior to the common stock. Reference: 2.3.1 in the License Exam Manual
with regard to the powers of the administrator, which of the following statements are NOT true? I. Admin must seek an injunction to issue a cease and desist order II. The USA requires an admin to conduct a full hearing, public or private before granting a cease and desist order III. The USA grants the admin the power to issue injunctions to force compliance with the provisions of the act
all of the above
dishonest or unethical business practice-backdating records
all records and documents must reflect their actual dates
*any time an agent effects a securities transactions that isn't recorded on the regular books or records of the BD that the agent represents is considered by the transaction is authorized in writing by the BD before execution of the transaction it is considered a
allowed practice
covered account
a account that allows multiple payments or transactions -any other account that the financial institution offers or maintains for which there's a reasonably foreseeable risk to customers or to the safety and soundness of the financial institution from identity theft
contumacy- with multicple administrators
a admin can enforce a subpoena issued by a admin in other states on the same basis as if the alleged offense took place in the admin's state
lack of qualification
a admin cannot base a denial of a person's registration solely on his lack of experience -just because an individual is a BD or an agent, it doesn't mean that the person is qualified to be an IA
holding company
a company whose primary business is owning a controlling share of stock in other companies
solicitor
any individual who received compensation for acting on behalf of an investment advisor in referring potential clients
Which of the following is (are) NOT exempt from registration as an investment adviser representative in the state in which they maintain a place of business? A certified financial planner who prepares financial plans and whose only compensation is commissions An insurance agent who prepares comprehensive financial plans and receives commissions on any insurance products purchased by his clients A broker-dealer with extensive business in the state A mutual fund company with offices and clients in the state
certified financial planner who prepares financial plans and whose only compensation is commissions An insurance agent who prepares comprehensive financial plans and receives commissions on any insurance products purchased by his clients A certified financial planner who prepares financial plans for commissions must register in the state as an investment adviser representative because the commissions represent compensation for advice. An insurance agent who prepares comprehensive financial plans for commissions is also acting in the capacity of an investment adviser representative and must register accordingly. In both cases, these individuals are holding themselves out as offering investment advice because, at least in the eyes of the USA, there is no such thing as a comprehensive financial plan that does not involve securities. The commissions they receive are considered indirect compensation for the rendering of investment advice. Broker-dealers and mutual fund companies are not investment advisers under the Uniform Securities Act. Reference: 1.6.1 in the License Exam Manual
New Account Agreement
contract between the BD and the customer explaining the rights and obligations of both and the service charges rendered
how long do personal, non-professional email have to be kept?
doesnt need to be kept
if a buyer doesn't answer to the letter of rescission, the buyer
forfeits the right to pursue a lawsuit at a later date
what form is filled when a BD/ state registered IA expands its business to other states
form BD or ADV
When submitting an application for registration as a broker-dealer, which of the following must be disclosed form of business organization any felonies or certain misdemeanors on the records of partners or officers business history of the principals of the firm financial information on the firm
form of business organization any felonies or certain misdemeanors on the records of partners or officers business history of the principals of the firm financial information on the firm
omitting a material fact or misstatement of such would be considered
fraudulent behavior
failure to state all material facts is a
fraudulent practice -agent must disclose all material information that could affect the price of a security
performance based compensation for IA's fees must be based on
gains and losses
if an admin or clerical employee accepts transactions or takes orders over the phone what do they have to do?
get registered
dishonest or unethical business practice-responding to complainants-reporting errors
in order to keep from generating complaints, any trade or other operational error once discovered must be reported by the agent to the supervisory person
dishonest or unethical business practice-unreasonable commissions or markups-higher than normal commissions
in some cases, a particular transaction may involve more expense to the BDs like a particularly in a thinly traded security and that could justify a charge that is higher than normal all charges must be clearly disclosed to the client-if not a violation has occurred
many independent financial planners operate as
independent contractors
* NASAA's statement of policy on dishonest or unethical business practices of BD and agents statement on margin accounts
it is prohibited to execute any transaction in a margin account w/o securing from the customer a properly executed, written margin agreement promptly after the initial transaction in the account
Under the Uniform Securities Act, an offer is made in a state when it originates in that state it is broadcast by radio or TV from outside the state it is contained in a newspaper published outside the state but delivered to an address in that state
it originates in that state An offer is made when it originates in a state. An offer is also considered to be made in a state when it is directed by the offerer to that state and is received at the place to which it is directed. However, offers received via a TV or radio broadcast that originated out of state or offers contained in a newspaper published out of state are specifically excluded. Reference: 3.1.2.1 in the License Exam Manual
fraudulent practices-using inside information
making recommendations on the basis of material inside information about an issuer or its securities is prohibited. should an agent come into possession of inside information, the agent must report the possession of the information to a supervisor or compliance officer
fraudulent practices-market manipulation most common forms of this are
matched orders and wash trades
dishonest or unethical business practice-investment company sales-switching funds
recommending to a customer the liquidation or redemption of investment company shares for the purpose of purchasing shares in a different investment company portfolio having similar investment objectives and policies, w/o reasonable grounds to believe that such recommendation is suitable
dishonest or unethical business practice-investment company sales-share class
recommending to a customer the purchase of a specific class of investment company shares in connection with a multi-class sales charge or fee arrangement without reasonable grounds to believe that the sales charge or fee arrangement associated with such sales charge or fee arrangement associated with such class of shares is appropriate
If a person -provides investment advice, reports, or analyses w/ respect to securities -is in the business of providing advice or analyses -receives compensation directly or indirectly they have to
register with SEC or the state to be an IA
static content
remains posted until changed by the one who established the account
agent
represents a BD or an issuer in effecting/attempting to transactions in securities
An investment adviser representative may perform which of the following functions? solicit for advisory business manage advisory accounts earn commissions on sales of recommended securities supervise those who render advice
solicit for advisory business manage advisory accounts supervise those who render advice An IAR may not earn commissions on the sale of securities unless also registered as an agent. All of the other activities listed are permitted. Remember, unlike FINRA, there is no principal category of registration. In other words, there is no such thing as an investment adviser principal. Reference: 1.6 in the License Exam Manual
Under the USA, a state securities Administrator can start an investigation against a registrant even if a violation has not yet occurred subpoena witnesses living in the Administrator's state only subpoena witnesses living outside the state begin an investigation only after a violation of the act has occurred
start an investigation against a registrant even if a violation has not yet occurred subpoena witnesses living outside the state
IAR registration is done with
state NEVER SEC
cover page of part 2A must contain
statement that says SEC hasnt approved or verify information
statue of limitations regarding death
statute survives after the death of any person who might have been a plaintiff or defendant
contumacy
stubborn resistance to authority
enjoined
subject of an injunction
fraudulent practices- inaccurate market quotations
telling a client that a stock is up when the reverse is true -the act must be deliberate to be fraud
fraudulent practices-misstatements of an issuer's earnings or projected earnings
telling a client that earnings are up or dividend have increased when they haven't
fraudulent practices-inaccurate statements regarding the amount of commissions, markups, or markdowns
telling a client that it costs him nothing to trade with your firm bc you never charge a commission and not informing him that all trades are done on a principal basis w/ a markup/markdown is fraud
Under the Uniform Securities Act, the Administrator has the power to deny, suspend, or revoke the registration of an issue if it is in the public interest and the issuer discloses in the prospectus that there is virtually no chance that the company's business model will be successful and investors should anticipate losing their entire investment the Administrator of another state has revoked the issue's registration an officer of the registrant has been convicted of a securities related crime the prospectus contains misstatements of nonmaterial information
the Administrator of another state has revoked the issue's registration an officer of the registrant has been convicted of a securities related crime If the Administrator of another state has revoked an issue's registration, the USA considers that just cause for denial in this state. Conviction of an officer of the issuer for a crime related to the securities industry will invariably lead to denial or revocation. Disclosure that the company is not expected to be successful is not a cause for denial; all that is required is full disclosure. Misstatements of material information would be cause for action by the Administrator, but nonmaterial, by definition, does not impact an investor's decision-making process. Reference: 3.2.4.2 in the License Exam Manual
Sales of Securities at Financial Institutions-setting
the BD name should be clearly displayed in the area where it conducts its services
what conduct by a trustee demonstrates prudence?
-analyze current position -design optimal investment portfolio structure -formalize investment policy -implement investment policy -monitor and supervise
outside or inside recco? BD provides research tools on its website that allows customers to screen securities and the BD doenst control the lists of securities
outside
registering of a IA leads to automatic registering of
partners, officers, or others that perform similar functions in the business
issuer
party that issues pr proposes to issue the bond (the borrower)
4 classes of persons who are under the jurisdiction of state securities laws
-BD -agents -Investment advisors -IAR
3 ways of registering securities
-NOTICE FILING -COORDINATION -QUALIFICATION (only for certain federal covered securities)
discretionary orders are missing one of the threee
-asset -action -amount
A bona fide newspaper
-general interest and circulation -NY Times
red flag
pattern, practice, or specific activity that could indicate identity theft
no order to deny, suspend or revoke may be entered without
-appropriate prior notice to the applicant or registrant as well as the employer -opportunity for a hearing -written findings of facts and conclusions of law
dishonest or unethical business practice-front running
placing a personal order of a previously received customer order
no final orders can be entered without (3)
-appropriate prior notice to the interested parties -the opportunity for a hearing -written findings of fact and conclusion of the law
who gets the proceeds if additional shares are offered from the company?
the company
SIPC Coverage
protection to clients of BD in the event the BD enters bankruptcy
when improper investment advice is given, the purchaser is entitled to recover
the cost of the advice, legal costs, and losses incurred BUT NOT THE ORIGINAL PURCHASE PRICE
if the application is withdraw or denied, what happens to the filing fee
the filing fee is kept by the administrator
cyber preparedness
has the firm addressed which cyber threats and vulnerability may impact business?
what is the net capital requirements of the states
may not exceed requirement of the federal law
adviser managing under $25 M
small state adviser registration
initial public offering
the first time a company issues stock that may be bought by the general public
registration statement includes (5)
-anticipate use of funds -effective date -amount of securities to be issued -states in which the securities is to be offered but not the amounts offered in those other states -any adverse order or judgement concerning the offering by regulatory authorities, court, or the SEC _RATING WILL NOT BE INCLUDED
exclusions from IA
-IAR -banks, S&L, and trust companies -lawyers, accountants, teachers, or engineers (LATE) -any BD whose investment advisory services are incidental to their brokerage business and who receive no special or separate compensation (wrap fee) for offering advice -publishers or employees of a news magazine or business or financial publication of regular or general circulation or owner of radio broadcasts -federal covered IA w/ SEC -any other person the admin specifies
publishing and broadcasts exceptions to admin jurisdiction (3)
-TV or radio broadcast that originated outside of the state -bona fide newspaper or periodical published outside of the state -newspaper or periodical published inside the state but with more than 66% of its circulation OUTSIDE the state last year
The USA requires BD to keep these files:
-account records -blotters -correspondence -memorandum -papers -books -advertisements -others the admin requires
the administrator has jurisdiction over
-all securities activity that originates from his state -what securities are received in the state -registration of securities and securities professionals
maintenance and preservation of records: a firm must
-arrange and index the records in a way that permits easy location, access and retrieval of any particular record -promptly provide any of the following that the admin may request --legible, true, complete copy of the record --legible, true and complete printout of the record --means to access, view and print the record -separate store of the original record, a duplicate copy of the record on any medium allowed
offer/ offer to sell/ sell/ sale does not include (5)
-bona fide pledge or loan -gift of NON-assessable stock -stock div -class vote by shareholders -act incidental to a judicially approved reorganization with which a security is issued in exchange for 1 or more outstanding securities
which of the following transactions are prohibited? -borrowing $ or sec. from a wealthy client -selling speculative issues to a retired couple of modest means on fixed income -failing to follow a customers orders so as to prevent investment in a security not adequately covered by well-known sec. analysts -backdating confirmations for the benefit of the clients tax reporting
-borrowing $ or sec. from a wealthy client -selling speculative issues to a retired couple of modest means on fixed income -failing to follow a customers orders so as to prevent investment in a security not adequately covered by well-known sec. analysts -backdating confirmations for the benefit of the clients tax reporting
delivery of the brochure and related brochure supplements need not to be made to
-clients who receive only impersonal advice and who pay less than $500 in fees per year OR -an investment company registered under the Investment Company Act of 1940
unethical business practices of IA-conflicts of interest
-compensations arrangements connected with advisory services to clients which are in addition to compensation from such clients for such services -charging a client an advisory fee for rendering advice when a commission for executing securities transactions pursuant to such advice will be received by the adviser or its employees
cancellation results from (3)
-death -dissolution -mental incompetency isn't a form of punishment
who has to notify the admin if the employee is terminating employment with one firm and is joining another firm?
-employee, employer, and new employer
identify the untrue statements: An agent contacts a client with news that the largest holding in her portfolio has been approved for listing on the NYSE. The effect of the listing should be a noticeable appreciation in the stocks price. The agent exaggerates the company's earnings by $1/share to make the client more receptive to the suggestion that she can increase the size of her position. Finally she says that the BD is saving the client money by not charging a commission on the trade since they already have the stock in inventory
-exaggerating earnings -saying that the listing will appreciate the stock price -no commission being charges and no transaction costs
Under the Uniform Securities Act, the Administrator is given the power to examine files of registered persons who have their offices out of state designate an officer who will then have the power to take evidence regarding investigations sentence willful violators to up to three years in prison
-examine files of registered persons who have their offices out of state -designate an officer who will then have the power to take evidence regarding investigations
ways that BD can make the disclosures easier for customers to follow:
-fees are typically disclosed when a customer account is opened. If a fee schedule changes, client needs advanced notice and for it to be clear -min. fine print or at least, make fees and charges clear -use standardized terms and uncomplicated terms to describe service and maintenance fees in the order to help clients compare the fees with other firms
to justify a denial, revocation, suspension of a license of a securities professional the admin must find that the order is in the public interest and that the applicant, registrant, etc has
-filed a false or incomplete registration application -violate USA -convicted of a securities related misdemeanor -convicted of any felony within the last 10 years -has been enjoined by law from engaging in the securities business -subject to any other admin's denial, revocation, suspension -disqualification by a SRO, FINRA, or NASD -engaged in dishonest or unethical securities practices -is insolvent -guilty of failing to supervise -failure of paying application fees -not qualifies because of lack of training, experience or knowledge
admin can deny, suspend, cancel, or revoke a security registration if its in the public interest and the securities registrant:
-files a misleading or incomplete registration statement -is engaged in an offering that's fraudulent or made on unfair, unjust, or inequitable terms -charges offering fees that are excessive or unreasonable -has a control person convicted of a securities-related crime -is subject to a court injunction -is engaged in the method of business that's still illegal -subject to an admin's stop order *-doesn't pay filing fee
the form U4/BD can inlcude
-form and place of business -proposed method of business -qualification and business history -disclosure if the applicant has been subject of any court issued injunctions -disclosure if the applicant has EVER been subjected to any adjunctions by the SEC or SRO -disclosure of any charges, convictions, guilty plea to a misdemeanor involving investments or the investment related business -disclosure of any charge, conviction, or guilty plea to a felony -financial history and condition -citizen information if individual
section 28e defines when a person is deemed to be providing brokerage and research services and states that a person provides brokerage and reserach servies as her:
-furnishes advice directly or thru publications or writing about the value of securities, buy/sell of sec. or the availability of purchasers/sellers -furnishes analyses and reports concerning issuers, industries, sec., econ factors etc. -effects sec. transactions and performs functions incidental thereto
notice filing requirements exceptions if no place of business in the state and only clients in the state are
-investment competencies -other IA -BD -banks, S&L, and trusts -insurance companies -gov agencies or instrumentalists -employee benefit plans
An Administrator has jurisdiction over an offer to sell securities if it is made in a newspaper published out of state A) with at least one-third of its circulation in the state B) under no circumstances C) with at least one-half of its circulation in the state D) with at least two-thirds of its circulation in the state
B
margin disclosed document includes that the individual can
-lose more funds than deposited -firm can force the sale of securities and other assets in the account -individual isn't entitled to pick and choose which sec. can be sold if margin call happens -not entitled to an extension of time to meet a margin call -firm can increase the margin req. at any time without advanced written notice
4 broad powers the admin has to enforce and administer the act in his state are to:
-make, amend or rescind and orders and requires the use of specific forms -conduct investigations and issuer subpoenas -issue cease and desist orders and seek injunctions -deny, suspend cancel or revoke registrations and licenses
IAR must meet the definition by doing any of the following
-making reccos -managing accounts or portfolios of clients -determining which recommendations or advice regarding the securities should be given -soliciting offering or negotiating for the sale of, selling investment advisory services -supervising employees who perform any of the forgoing
3 non-persons
-minors -deceased individuals -mentally incompetent individuals
CIP
-name -DOB -SSN -address
de minimis exception
-no business in the state and limits its business to 5 or fewer retail clients who are legal residents in the state during the proceeding 12 mo. _APPLIES ONLY TO IA AND IAR NOT BD
registration becomes effective at the same time the federal registration becomes effective provided that: (3)
-no stop orders have been issued by the admin and no proceedings are pending against the issuer -the registration has been on file for at least the min. # of days specified by the admin a number that currently ranges from 10-20 days depending on the state -a statement of the max. and min. proposed offering prices and max. under writing discounts and commissions have been on file for 2 business days
what are the financial requirements to register as a agent?
-none -admin can req. an agent to be bonded tho if they ahve discretion over the acct.q
Sales of Securities at Financial Institutions-customer disclosure and written acknowledgement BD must disclose, orally and writing that the sec. products bought or sold in a transaction with the BD:
-not FDIC insured -No bank guaranteed -may lose value make reasonable effort to obtain from each customer during the account opening process, a written acknowledgement of the disclosures
if a client's case is proven that a sale has been made in violation to USA, the client may recover: (4)
-original purchase price of securities -interest at a rate determined by the admin -all reasonable attorney fees and court fees -minus any income made while securities were held
unethical business practices of IA-misrepresenting qualifications
-overstating qualification -omit to state a material fact regarding qualifications, services or fees
Dodd Frank exceptions
-pension consultants w/ over $200M under control -mid size w/ $100M+ AUM but less than $110M AUM who can chose to register wither way - IA expecting to be eligible for SEC registration within 120 days of filing ADV -15+ state registrants
summary order 3 cases of application
-postponing or suspending the registration of any securities professionals pending a final determination of a proceeding relating to a problem -postponing or suspending the registration of a security pending a final determination of proceeding relating to a problem -denying or revoking a specific security or transaction exemption
maintenance and preservation: a firm must establish and maintain procedures
-preserve the records to safeguard from loss, alteration or destruction -limit access to the records promptly authorized personnel and the admin -ensure that any reproduction of non-electronic original record on electronic storage media
to be an IA under federal and state law, a person must
-provide advice about the securities (NOT real estate, jewelry, rare coins -receive compensation -provide advice as a part of an ongoing business on a regular basis
release IA-1092 identifies IA as anyone who
-provides investment advice, reports, or analyses w/ respect to securities -is in the business of providing advice or analyses -receives compensation directly or indirectly
a mid-size advisor can be registered with the SEC if
-registered in 15 or more states -takes up buffer - adviser isnt req. to be registered as an IA w/ sec. admin of that state where its principal office is - if registered, the advisor wouldn't be subject to examination as an IA by that securities admin
administrator has the power to (4) in regards to conducting investigations and issue subpoenas
-require statements in writing, under oath, regarding all matters relating to the issue under investigation -publish and make public the facts and circumstances concerning the issue to be investigated -subpoena witness and compel their attendance and testimony -take evidence and require the production of books, paper, correspondence, and other documents deemed relevant
Categories of Federal Covered Securities
-securities listed on the exchanges NOT OTC -investment company act of 1940 listed securities --mutual funds/opened-end management investment company --closed-ended management investment company --unit investment trust --face amount certificate -offers and sales of certain exempt securities such as --any security issued or guaranteed by the US or any bank regulated by the fed reserve board --sec. offered by a municipal issuer, unless the issuer in the state is where the muni sec. it being offered --offers and sales of securities through certain exempt transactions such as sec. offered to qualified purchases under Reg. D of the Securities Act of 1933 (pricate placement)
dishonest or unethical business practice-lending or borrowing
-securities professionals MAY NOT Borrow money or securities from a client unless the client is a BD, an affiliate of the professional or financial institution engaged in the business of loaning money -securities professionals may not loan money to clients unless the firm is a BD or financial institution engages in the business of loaning funds or the client is an affiliate
purchaser can sue for recovery if the (6)
-securities were sold in violation of the registration provisions of the USA -sale was of an unregistered nonexempt security in violation of the registration provisions of USA -the securities professional omitted or made an untrue statement of material fact during a sales presentation -the agent was named along with the BD for civil infraction -the securities were sold by an agent who should have been but was not registered under the act -the securities were sold in violation of a rule or order of the securities administrators
agency cross transaction-written trade confirmation includes of
-statement of the nature of the transaction -date and time of transaction -source and amount of any remuneration to be received by the IA or IAR in connection with the transaction
dishonest or unethical business practice-investment company sales-selling dividends
-stating that purchasing shares shortly before an ex-dividend date is advantageous to such customer unless there are specific clearly described tax or other advantages to the customer -a distribution of long-term capital gains by an investment company is part of the income yield from an investment in such shares
it is unlawful for an IA to have custody of client funds and securities if (3)
-the admin in the state prohibits by rule, IA from having custody -in absence of a rule, an adviser fails to notify the admin that it has custody -the IA fails to supply clients, no less than frequently than quarterly with a statement of account activity and the location and amt of their assets
out of the following who can't you borrow from? -a family member, unless employed by the same or an affiliated firm -a mortgage broker -BD in a margin account -fellow employee at your firm -a bank or other financial institution in the business of making loans -the employee at the lending institution who processes or approves your loan -the agent at the BD who services your margin account
-the employee at the lending institution who processes or approves your loan -the agent at the BD who services your margin account -a mortgage broker -a family member unless employed by the same or an affiliated firm
it is req. that those who perform IAR for federally covered advisers state registration is req. . place of business means
-the office at whihc the IA regularly provides IA services, solicits, meets w/, or otherwise communicated w/ clinets AND -any other location that's held out to the public as a location at which the IAR provides\a services, solicits, meets with
No business in the state
-transactions in the state with or without the issuers of the securities involved in the transactions, other BD or banks, savings institutions, trust companies, insurance companies, investment companies and pensions or profit sharing trusts -the person is licensed under the securities act of a state in which the person who's an existing customer of the person and whose residence is NOT in the this state -applies to agents, investment advisers, and investment adviser reps
exempt transaction examples
-unsolicited brokerage transaction -transactions between issuers and underwriters -transactions w/ financial institutions such as banks or trust companies, insurance companies or investment companies-offerings limited to a # of investors usually referred to private placements
prohibited ad include
-untrue statements -refer to any testimonials -past specific reccos of the IA -represent a chart, formula, or other device being offered that can be sued to determine which sec should be bought and sold -refers to a statement that says something will come free but is not free
escrow may be req. by an administrator if the security is issued
-w/in the past 3 years -to a promoter at a price substantially different than the offering price -to any person for a consideration other than cash
In which of the following circumstances has John, employed at AAA Securities Corporation, made an offer as defined in the USA? 1. John calls a long-standing client, Brenda, to indicate that a security on his firm's restricted list is suitable for her portfolio. John indicates that he cannot sell the securities unless Brenda requests them on an unsolicited basis. Brenda considers making the purchase but ultimately declines. 2. John discovers that Brenda has inherited shares in a manufacturing firm trading on the New York Stock Exchange, and suggests that she sell them to him in a private transaction in which no commission would be charged. 3. John owned XYZ securities for several years and decided to transfer them to his college's endowment fund in lieu of giving a cash gift. He then took a tax deduction for the value of the securities transferred. 4. Mr. Baxter, as a reward for the years of John's service as his agent, transferred $5,000 worth of XYZ Corporation securities to John, claiming the transfer as a business expense on his tax form.
1 & 2
Which of the following is NOT exempt from registration as an investment adviser or an investment adviser representative in the state in which a place of business is maintained? 1. A certified financial planner who prepares financial plans and whose only compensation is commissions. 2. An insurance agent who prepares comprehensive financial plans and receives commissions on any insurance products purchased by his clients. 3. A broker-dealer exclusively engaged in retail securities transactions in the state 4. The SWW Growth Fund, a mutual fund with an office and shareholders in the state
1 & 2
An individual living in this state would like to become registered as an agent for a broker-dealer. Which of the following conditions must be met? 1. The applicant must be eligible to register in this state. 2. The broker-dealer selected must be registered in this state. 3. The applicant must meet minimum net worth requirements. 4. The individual must be registered as an agent in at least one other state.
1 & 2 It is possible that an individual may not be eligible for registration. For example, if the applicant has been convicted of a felony or securities-related misdemeanor in the past ten years, registration will be denied. An agent may only be registered with a broker-dealer that is also registered in this state. Agents have no minimum net worth requirements. Reference: 1.3.3 in the License Exam Manual
Which of the following activities by a registered agent of a broker-dealer would constitute a prohibited practice under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents? A) Personally raising capital, without written authorization from the broker-dealer, for a new high-tech venture being run by the agent's former college roommate B) Refusing to lend money to clients C) Failing to disclose a nonmaterial fact D) Informing a customer of a negative research report recently published on a stock that represents the client's largest holding
A
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.
1 & 3 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. Reference: 3.2.4.2 in the License Exam Manual
An agent has been recommending that customers buy common stock in XYZ Company. If on a visit to XYZ he overhears unreleased news that XYZ has just lost its biggest account, the agent should 1. discuss the situation with his supervisory principal 2. continue to recommend the security to customers and prospects 3. stop recommending the security to customers and prospects 4. sell the stock short in his brother's account
1 & 3 Whenever an agent has concerns about matters involving the broker-dealer's customers, such concerns should be shared with the agent's supervising principal. It is appropriate that the agent stop recommending XYZ stock to customers and prospects. Reference: 5.1.1.3 in the License Exam Manual
Which of the following statements regarding agent registration under the Uniform Securities Act are TRUE? 1. In the absence of any action by the Administrator, the effective date of a registration is noon of the 30th day after the filing of a completed application. 2. The Administrator may initiate a disciplinary action within two years of an agent's withdrawal of registration. 3. The administrator may request the agent furnish a statement of assets and liabilities. 4. If, before the effective date of the registration, the Administrator requires amendments to the application, the registration will be considered to have first been filed upon filing of those amendments.
1 & 4
According to the USA, a person must register as a broker-dealer in a state if he had which of the following? 1. No place of business in the state, but clients who relocated their official residence to that state more than 30 days ago 2. No place of business in the state but dealt exclusively with broker-dealers in that state 3. No place of business in the state but effected transactions exclusively with issuers of securities in that state 4. A place of business in the state
1 & 4 The term "broker-dealer" excludes a person who has no place of business in the state, who effects transactions exclusively through issuers, other broker-dealers or institutions, or who directs an offer in the state to an existing customer. When clients move from one state to another, the broker-dealer may continue to do business with that client without registering in that state for up to 30 days. Once the client has been a new resident for more than 30 days, the broker-dealer (and any agents handling that account) must register in that state or cease doing business with that customer. Reference: 1.2.1.1 in the License Exam Manual
Under the Uniform Securities Act, which of the following is considered a place of business of a registered investment adviser representative? 1. An office from which the representative regularly provides advisory services to clients 2. A location published in a professional directory, indicated on business cards, or telephone book listing that identifies it as a place where the representative will be available to meet or communicate with clients 3. A hotel or auditorium at which the representative has advertised to the public that he will be available to conduct advisory business at that site 4. A hotel meeting room identified only to current clients as a place the representative will be available to conduct advisory business A) 1, 2, 3 B) 1 C) 1, 2 D) 1, 2, 3, 4
1, 2, 3
Which of the following transactions would be included in the USA's definition of exempt transaction? 1. A banker liquidates stock pledged as collateral for a loan that has gone into default 2. A transaction pursuant to an offer to purchase a new stock made to 5 individuals and 15 institutional investors in this state during the past 12 months 3. An isolated nonissuer transaction 4. The sale of preorganization certificates to 10 individuals with no commission being paid
1, 2, 3, & 4 All of these are included in the USA's definition of an exempt transaction. Sales made by a bona fide pledgee are exempt. Even though the number of offerees in the private placement exceeds 10, that limitation does not apply to institutional investors. A preorganization certificate may be sold to as many as 10 persons, while a private placement may not be offered to more than 10 (not counting institutional investors). Reference: 2.3.2 in the License Exam Manual
Under NASAA's Statement of Policy on Unethical or Dishonest Business Practices of Broker-Dealers and Agents, which of the following activities (if performed by an agent) are considered fraudulent, dishonest, or unethical? 1. Executing a transaction in a margin account without securing an executed written margin agreement from the customer, promptly after the initial transaction in the account 2. Executing a transaction either with or for a customer at a price not reasonably related to the current market price 3. Guaranteeing a customer against loss on securities purchased 4. Personally providing safekeeping and custodial services for clients' cash and securities
1,2,3,4
for a summary order, the administrator must promptly notify all interested parties that it has been entered and that a hearing will be granted in
15 days
Under current law, who of the following would be required to register as an investment adviser in a state? 1. A person who effects transactions exclusively with issuers of securities in that state while maintaining no office therein 2. A person who has directed advice relating to securities to 6 individuals in that state within the past 12 months, even though he has no place of business within the state 3. A person with an office in the state who manages less than $25 million in assets 4. A person who deals exclusively with broker-dealers in that state, but maintains no place of business within the boundaries of the state
2 & 3 Investment advisers (or IARs) having no place of business in a state are generally limited to contracting with fewer than 6 retail (individual) residents of that state within any 12 month period (de minimis exemption) before being required to register. Investment advisers with a place of business in the state who manage less than $100 million must register. Once they reach $100 million of assets under management, they have the choice of state or SEC registration. Once $110 million is reached, the only choice is registration with the SEC. Reference: 1.5.3.1 in the License Exam Manual
Among the many exempt transactions under the Uniform Securities Act are the private placement and the preorganization certificate or subscription. While these two exemptions have several requirements in common, they have which of the following differences? 1. The private placement exemption places a limit on the number of sales to retail investors while the preorganization certificate places a limit on the number of offers to all investors. 2. Payment for the purchase may be made in the case of a private placement, while no money changes hands in a preorganization subscription. 3. It is expected that noninstitutional buyers of the private placement are purchasing for investment only, while no such requirement exists for the investors in a preorganization certificate. 4. Commissions may be paid on the sale of a private placement to noninstitutional clients, while no remuneration is payable on the sale of a preorganization subscription.
2 & 3 No money changes hands in the sale of a preorganization certificate or subscription, while the seller receives payment in the case of a private placement. The state will consider a private placement an exempt transaction if it is anticipated that individual (noninstitutional) investors are purchasing for investment only, not immediate resale. No holding period restrictions are placed on preorganization certificates. Only in the case of a sale of a private placement to an institutional client is it permissible to pay commissions. Finally, choice I has it backwards. When referring to retail (noninstitutional) investors, there is a limit to the number of offers (10), while in the preorganization certificate, the number of sales (subscribers) is limited to 10 regardless of whether they are retail or institutional. Reference: 2.3.2 in the License Exam Manual
When a broker-dealer engages in a customer transaction from its own account, which of the following statements are TRUE? 1. Partners of the broker-dealer are trading in their personal accounts. 2. The broker-dealer is trading from its inventory with customers. 3. The broker-dealer must disclose its capacity as a principal in the transaction. 4. The broker-dealer must disclose its capacity as agent in the transaction.
2 & 3 The Uniform Securities Act defines a broker-dealer as a legal person (entity) engaging in the business of effecting securities transactions for the account of others or for its own account. In this context, trading for its own account means that the broker-dealer is trading from its inventory with customers. The broker-dealer has an ethical responsibility to disclose its capacity as a principal in the transaction. When trading for its own account, a broker-dealer is functioning as a principal or dealer. When trading for the accounts of others with no participation as a direct party to the trade, a broker-dealer functions in an agency capacity. Reference: 5.2.9 in the License Exam Manual
An agent would be engaged in a prohibited practice if he 1. shared commissions with other agents of his broker-dealer 2. sold a nonexempt, unregistered security to an individual who has a net worth in excess of $2 million 3. shared both the gains and losses in a client's account with written approval of both the client and the employing broker-dealer 4. aggressively traded, on a daily basis, a discretionary account with long-term growth as an objective
2 & 4
*****GEMCO Securities, a broker-dealer registered with the Administrator, was bought out by KAPCO Investments, Inc., who has never been registered in this state as a broker-dealer. If the deal closed on July 15, 2017, which of the following statements is CORRECT? 1. KAPCO would have to file an application along with a consent to service of process and the appropriate fee. 2. KAPCO would have to file an application along with a consent to service of process, but would not need to submit a fee. 3. GEMCO would have to renew its registration on December 31, 2017. 4. The Administrator would be able to initiate proceedings against GEMCO until July 15, 2018.
2 & 4 In the case of a successor firm, no fee is required, but an application with a consent to service is. Because this, in effect, represents a termination of GEMCO's registration, there will be no renewal (although KAPCO must renew on December 31, 2014). Any termination of registration for a securities professional grants the Administrator a one-year period during which jurisdiction remains.
Differences between static and interactive content on social media include 1. Only static content can be reused by others 2. Only static content needs pre-approval 3. Only static content can be changed by the person who originated it 4. Only interactive content can be commented on by others
2 & 4 Static content requires pre-approval. Interactive content can be reused by others and can be commented on by others. Both static and interactive content can be changed by its originator, but static can only be changed by its originator and interactive by the originator or others. Reference: 4.5.3.1 in the License Exam Manual
Which of the following statements referring to renewal of a broker-dealer's registration under the Uniform Securities Act are CORRECT? 1. Annual renewal takes place on the anniversary of the registrant's initial registration. 2. Each renewal application must be accompanied by the appropriate fee. 3. Each renewal application must be accompanied by a consent to service of process signed by an authorized supervisory person of the firm. 4. Registrations expire December 31 unless renewed or canceled.
2 & 4 The consent to service of process is filed with the initial application for registration and becomes a permanent part of the registrant's file. The USA states that all registrations of persons expire on December 31 unless renewed, withdrawn, or canceled. Reference: 1.2.2.3 in the License Exam Manual
Under the National Securities Markets Improvement Act of 1996, which of the following statements describe federal covered securities? 1. A security registered under the USA 2. A security registered under the Investment Company Act of 1940 3. A security of a company regulated by the U.S. Federal Reserve Board 4. A security issued by the U.S. government
2 3 4 A federal covered security has a federally imposed exemption from state registration so selecting a choice that includes registering under the USA cannot be correct. The list includes most securities exempt from registration under the federal Securities Act of 1933 (those issued by the U.S. government and state and local governments as well as bank securities regulated by the Federal Reserve Board). In addition, it includes a number of securities registered with the SEC, primarily those traded on the exchanges and Nasdaq as well as investment companies registered under the Investment Company Act of 1940. Reference: 2.2.1.1 in the License Exam Manual
One of your clients has called you to discuss an interesting investment opportunity discovered on one of the LinkedIn groups she participates in. Which of the following factors might increase the likelihood that this is a scam? 1. A registration statement with the SEC is available on the website of the proposed investment 2. The purchase money must be wired to an offshore account 3. One of the members of the group is a principal in the company being offered 4. Bonus shares are offered for recruiting friends into the deal
2, 3, & 4
An individual would NOT be considered an agent under the USA if he engaged in which of the following? 1. An unsolicited transaction with an institutional client for a stock listed on the NYSE 2. Transactions between an issuer and ordinary investors in a non-exempt security 3. A transaction between an issuer and the underwriters 4. Transactions between an issuer and savings institutions or trust companies
3 & 4 A person is excluded from the definition of an agent when representing an issuer in exempt transactions, transactions between issuers and underwriters, and transactions with existing employees in which no commissions are paid. An unsolicited transaction is exempt, but because it is a nonissuer transaction, regardless of who the client is, the agent must be registered. Reference: 1.3.2 in the License Exam Manual
Which of the following statements regarding brokerage and advisory activities under the USA are TRUE? 1. It is not unlawful for an investment adviser or broker-dealer to employ any device, scheme, or artifice to defraud in the sales of securities to institutional investors because the USA is designed to protect individual investors. 2. Under the USA, it is unlawful for an investment adviser to deceive a person when an advisory relationship does not exist. 3. Sanctions for both investment advisers and broker-dealers include administrative proceedings, judicial injunctions, and civil and criminal prosecutions. 4. It is unlawful for any person, whether technically defined as an investment adviser or not, to deceive another person for compensation as to the value of securities.
3 & 4 Sanctions for violations are administrative proceedings, judicial injunctions, and civil and criminal prosecutions. It is also true that any individual, whether technically defined as an adviser or not, may not deceive another person when providing investment advice if he is compensated for providing the advice. However, the Uniform Securities Act has no jurisdiction over an investment adviser when the deceitful action occurs in a non-advisory situation, such as social interaction. Reference: 5.3 in the License Exam Manual
statute of limitations for violations of civil provisions of the USA is
3 yrs from the date of the sale OR 2 yrs after discovering the violation whichever occurred first
********The Uniform Securities Act has provisions for agent registration and termination. Which of the following statements apply to withdrawals? A) If the Administrator commences an action against the agent prior to the effective date of the withdrawal, the withdrawal will be delayed until completion of the action. B) An agent may withdraw the registration simply by failing to pay the license renewal fee. C) The Administrator may institute a disciplinary action within 2 years after the effective termination date. D) The effective date of a withdrawal, in the absence of any action by the Administrator, is 60 days after filing.
A
*****The Uniform Securities Act grants the authority to the Administrator to A) investigate the records of an investment adviser domiciled in another state, but doing business in this state B) revoke the exemption of a federal covered security C) arrest violators of the act D) suspend a registration containing misleading or inaccurate information without an opportunity for a hearing
A
An admin may deny a person's application for registration as an agent for all of the following reasons EXCEPT A) lack of experience B) failure to post a surety bond C) failure to pass an exam D) not meeting minimum financial standards
A
An agent has inside information on a public corporation that will probably cause the price of the stock to fall when it becomes generally known. A good customer calls with an order to buy a large amount of that stock. The agent should A) discuss the matter with the broker-dealer's compliance officer B) tell the customer the inside information and let him decide what to do C) enter a sell order on the customer's behalf along with the buy order in order to cover the customer's losses D) ignore the order
A
As appropriate to the scale and complexity of a firm's business, elements of an effective practice framework for managing conflicts of interest include all of the following EXCEPT A) ensuring that the firm remains solvent for protection of customers and employees alike B) training staff to identify and manage conflicts in accordance with firm policies and procedures C) avoiding severe conflicts, even if that avoidance means foregoing an otherwise attractive business opportunity D) establishing mechanisms to identify conflicts in a firm's business as it evolves
A
If an agent feels that his secretary is underpaid and decides to split his commissions on an 80%/20% basis, this practice is A) permitted if the secretary is also registered as an agent with the broker-dealer B) a violation under all circumstances C) permitted if the secretary is also registered as an agent D) a violation in certain states
A
Under the Uniform Securities Act, the Administrator may require a broker-dealer to post a surety bond of A) An amount not in excess of that set by the SEC B) $25,000 C) $10,000 D) $50,000
A
When it comes to identity theft, one of the red flags is suspicious documents. Documents that can offer hints of identity theft would include all of the following EXCEPT A) a valid passport with stamps showing visits to North Korea and Iran B) the information on the identification differs from what the person with identification is telling you C) identification that looks altered, forged or torn up and reassembled D) the identification doesn't look like the photo or match the physical description of the person presenting it
A
Which of the following securities is most likely to register by qualification under the USA? A) A public offering of a stock to be offered exclusively in 1 state B) An initial public offering of a corporate bond to be offered in 15 states C) A subsequent primary offering of stock in a large, established company to be offered in 30 states D) An initial public offering of a stock to be offered in 40 states
A
Which of the following statements regarding licensing and registration under the Uniform Securities Act are TRUE? A) When a broker-dealer's license is suspended, all of its agent's registrations are placed into suspense. B) When an agent's license is suspended, the broker-dealer's license is also suspended. C) When a broker-dealer's license is suspended, all of their agent's registrations are transferred to a broker-dealer assigned by the Administrator. D) When a branch manager's license is suspended, the broker-dealer's license is also suspended.
A
which of the following must the required document be received prior to any of the account activity? A) discretionary account w/ BD B) discretionary account w/ IA C) margin account D) options account
A
Under the Uniform Securities Act, which of the following is included in the definition of an investment adviser? A) A broker-dealer who receives a flat fee for analyzing a customer's investment objectives and recommending a portfolio of securities B) Publisher that receives a yearly subscription fee for a newsletter that provides nonspecific investment advice C) Bank that offers investment counseling to its high net worth customers D) Antiques dealer who receives a fee for advising customers as to the value of antiques and rare coins
A A broker-dealer who receives fees for investment recommendations is an investment adviser because that fee is considered special compensation relating to securities advice. The antiques dealer provides nonsecurities related advice. Publishers may provide generic investment advice without registering as investment advisers. Commercial bankers are excluded from the definition of an investment adviser. Reference: 1.5.1 in the License Exam Manual
An applicant for registration as an investment adviser discloses on its application to the Administrator that it plans to use palm readers to help determine which investments are most suitable for their clients. Under the Uniform Securities Act, the Administrator A) may only justify denial for reasons listed in the Uniform Securities Act B) will probably turn to the SEC for guidance C) will request that the applicant furnish past performance records to determine whether this method of investment analysis has merit D) is empowered to deny this application for just cause
A A denial of registration must be based on the concept of law. There are stated reasons for denial, such as felony convictions, outstanding injunctions, and insolvency. Where in the USA does it say an adviser can't use palm readers, a ouija board, or a Magic 8 Ball? Although disclosure of methods of analysis is required, the Administrator is not empowered to pass judgment on the merits of those methods. The USA does state that the Administrator is empowered to "condition a particular applicant's registration as a broker-dealer upon his not transacting business as an investment adviser if the Administrator finds that he is not qualified as an investment adviser." But, nowhere in this question does it indicate that the applicant is, or is applying for, registration as a broker-dealer. Reference: 3.2.4.1 in the License Exam Manual
Under the provisions of the USA, all of the following transactions are exempt EXCEPT A) a transaction pursuant to an offer directed by the issuer to no more than 10 individual investors in the state within a 12-month period, as long as no payment is made by the investors B) transactions by executors C) transactions in preorganization certificates if no commission is paid, no subscriber makes any payment, and the number of subscribers does not exceed 10 D) liquidation of a security pledged as collateral for a loan
A A transaction pursuant to an offer by an issuer to 10 persons in the state would qualify as a private placement and would be exempt. However, unlike a preorganization certificate, the subscribers do pay for their purchases. All of the other transactions are exempt. Reference: 2.3.2 in the License Exam Manual
All of the following are exempt from state registration under the Uniform Securities Act EXCEPT A) variable annuities or other variable insurance products offered by an insurance company B) debt securities issued by or guaranteed by an insurance company licensed to do business in this state C) securities issued by a nonprofit organization D) bonds issued by a bank that is a member of the Federal Reserve System
A A variable annuity (or other variable insurance product) offered by an insurance company is a nonexempt security under the Uniform Securities Act. Securities issued by or guaranteed by an insurance company are covered by extensive state insurance regulations and are exempt from state securities registration. Securities issued by banks are exempt because banks are covered by extensive state and federal banking regulations. Reference: 2.3.1 in the License Exam Manual
When an application for registration as an agent is filed, the Administrator has the right to inquire about any of the following EXCEPT A) a drug-related misdemeanor conviction that occurred 8 years ago B) a drug-related felony conviction that occurred 7 years ago C) a conviction for a securities-related misdemeanor 6 years ago D) an adjudication by the SEC 5 years ago
A An agent's application for registration must disclose if the applicant has ever been charged or convicted of any felony or securities-related misdemeanor conviction. Non-securities- related misdemeanors are not reported. If there was ever any adjudication by the SEC or an SRO, it would have to be disclosed, as well. Reference: 1.2.2.1 in the License Exam Manual
Under the Uniform Securities Act, an individual representing an issuer in the sale of its securities to the general public is defined as an agent if the issuer is A) an insurance company authorized to do business in the state B) any political subdivision of any Canadian province C) a foreign government with which the United States currently maintains diplomatic relations D) a trust company organized and supervised under the laws of any state
A Agents represent broker-dealers or issuers. However, an individual representing an issuer in the sale of certain exempt securities or in an exempt transaction is not an agent. Even when authorized to do business in the state, an insurance company is not one of the exempt issuers qualifying for the exemption from agent's registration for those who selling the company's securities while representing the company. Banks and trust companies, yes, but not insurance companies. Please see the list in your LEM. Reference: 1.3.2.1 in the License Exam Manual
Under the Uniform Securities Act, which of the following is an investment adviser? A) Jill is an attorney specializing in estate planning who, as a side job, structures portfolios for the beneficiaries of her deceased clients at a reduced fee. B) Jane advises customers regarding the value of gold and silver coins. C) Tom writes a newspaper column that analyzes and recommends securities. D) The Trust Department of ABC Bank provides investment advice to its clients.
A Although an attorney is generally excluded, Jill is giving investment advice for a fee in a manner that is not incidental to her legal practice. Jane's advice does not concern securities; banks are excluded from the definition; Tom's advice is not specific on the basis of the situation of each client (impersonal advice). Reference: 1.5 in the License Exam Manual
In some instances, rather than use an investment banker to distribute its securities to the public, an issuer will hire a sales force or use its own employees to make the sales. The individuals involved in the selling in this state would NOT be defined as agents under the Uniform Securities Act if selling on behalf of which of the following issuers? A) A savings institution organized and supervised under the laws of any state B) A building and loan association organized under the laws of any state and authorized to do business in this state C) A credit union organized and supervised under the laws of this state D) A federal savings and loan association
A Although each of the answer choices meets the USA's definition of exempt security, the savings association is the only issuer where the act grants an exemption from the definition of agent to those individuals selling on its behalf. Please note that a savings institution is not the same as a savings and loan or building and loan association. Reference: 1.3.2.1 in the License Exam Manual
The Uniform Securities Act contains a number of broad references to activity that might be construed as being in violation of the act's anti-fraud provisions. An individual making a sales presentation for which of the following would be exempt from the anti-fraud provisions of the Uniform Securities Act? A) Fixed annuities B) Bonds issued or guaranteed by the United States government C) Unit investment trusts registered with the SEC under the Investment Company Act of 1940 D) Options traded on a listed exchange
A Although there are no exemptions from the antifraud statutes for securities or investment advice, because fixed annuities are not securities, fraud committed in their sale is exempt from the Uniform Securities Act. However, this sale would be subject to the anti-fraud provisions of the state's Insurance Commissioner. Reference: 5.1 in the License Exam Manual
An employee of an issuer who sells the issuer's common stock exclusively to trust companies and savings institutions is A) not required to register as an agent of the issuer B) an agent of the issuer and must be registered as such C) a broker-dealer and must be registered as such D) an officer of the issuer and is automatically registered as an agent
A Among the exceptions from the definition of an agent is when representing issuers in an exempt transaction (in this case, transactions with trust companies and savings institutions). Therefore, no registration is required. Reference: 1.3.2 in the License Exam Manual
which of the following statements is TRUE? A) An Administrator may, at the request of a registrant, hold hearings in private. B) An Administrator may not refuse a registrant's request to hold hearings in private. C) All administrative hearings under the USA must be held in a court of competent jurisdiction. D) Hearings of an Administrator must be held in public.
A An Administrator has the discretion to hold hearings in private. A registrant cannot demand that a hearing be held in private. Administrative hearings are administrative actions, and are conducted by the Administrator, not the courts. Reference: 3.2.2 in the License Exam Manual
A customer placed an order with an agent to sell 100 shares of ABC and he instructed the agent to limit any losses. The agent did not have written discretionary authority over the account and waited to sell the shares, hoping to get a better price for the customer. Several hours later, the price of the shares went down, so the agent sold 50 ABC shares to limit the customer's losses. According to the Uniform Securities Act, this is a A) violation because the agent exceeded his authority B) violation because the agent is required to execute sell transactions immediately after the order is placed C) permissible activity because the agent does not need written authorization to determine price or time of the order D) permissible activity because the agent is obligated to get the best price for the customer
A An agent may determine the price and timing of a transaction without discretionary authority. As a result, the agent is not necessarily required to execute a transaction immediately after an order is placed.Where the agent went wrong here was changing the size of the order. Even with discretionary authority, when the client specifies the amount of shares and the action (sell), the agent cannot change that without the consent of the client. Reference: 5.2.5 in the License Exam Manual
The wife of a customer calls an agent to sell $25,000 worth of securities for a down payment on a house. Although the account is in her husband's name, she says her husband told her to sell the securities. To comply with NASAA's Statement of Policy on Dishonest and Unethical Business Practices of Broker-Dealers and Agents, the agent should A) call the husband immediately and confirm the order B) tell the couple that the purchase of a house is a bad investment C) get permission from his principal D) sell as instructed
A An agent may not accept an order from the customer unless the customer has granted written trading authorization to a third party. An agent may not accept an order from a spouse, or anyone else for that matter, unless that person has written trading authority. Reference: 5.2.4 in the License Exam Manual
Under the Uniform Securities Act, the requirements for filing of advertising and sales literature dealing with an exempt security with the Administrator A) do not apply B) apply only to sales literature C) apply only to advertising D) always apply
A An exempt security or transaction is exempt from the registration requirements and the requirements for filing of advertising and sales literature. It is not exempt from the antifraud provisions of the act. Reference: 2.3 in the License Exam Manual
Which of the following persons is defined as an agent by the Uniform Securities Act? A) Clerk at a broker-dealer who is authorized to take orders B) Broker-dealer executive who does not solicit, supervise, or transact securities business C) Secretary of a branch office sales manager D) Silent partner of a broker-dealer
A Anyone who solicits or receives an order while representing a broker-dealer is an agent. Silent partners, administrative personnel, and executives of broker-dealers with no sales or securities-related supervisory responsibilities are not agents under the terms of the USA. Reference: 1.3.1 in the License Exam Manual
An agent of a broker-dealer is currently doing business in one state and would like to conduct business in another state. When checking with the firm's compliance department, the agent would be told which of the following? A) If the agent is a partner, officer, or director and held that position at the time the broker-dealer was registered in that state, the individual need not register separately. B) No registration is necessary if no commission or other remuneration is paid or given directly or indirectly. C) No registration is necessary in the other state provided the agent's activities are limited exclusively to effecting transactions in certain exempted securities. D) Registration is required only if an offer is directed, accepted, and paid for in that state.
A Both the broker-dealer and the agent must be registered in the state where business is to be transacted, unless they both qualify for an exemption from registration in that state (e.g., they have no place of business in the state and their only clients are institutions). At the time the broker-dealer is registered in a state, officers, directors, or partners of the firm who act as agents will be automatically registered as agents. Reference: 1.2.2.3 in the License Exam Manual
According to the Uniform Securities Act, all of the following are violations of suitability requirements EXCEPT A) failing to know the terms and conditions of the customer's will B) failing to identify customer objectives C) failing to make reasonable inquiry of the customer's current investment holdings D) failing to determine the customer's ability to assume ris
A Failure to identify objectives or to obtain corresponding financial information is considered contrary to the know-your-customer rule. Agents should ask if the customer has a will but failing to do so is not a violation of suitability requirements. Reference: 5.2.3 in the License Exam Manual
Under the Uniform Securities Act, all of the following are exempt from state registration as investment advisers EXCEPT A) a financial planner who provides fee-based investment advisory services to clients and currently has a total of $18 million in assets under management B) investment adviser representatives C) investment advisers with no office in the state who only advise employee benefit plans with assets of not less than $1 million D) publishers of financial publications that are not addressed to clients' specific individual investment situations
A Financial planners who provide fee-based investment advisory services to the public generally must register with their state securities Administrator as long as their total assets under management are less than $100 million. Investment advisers with no office in the state, who only advise employee benefit plans with assets of $1 million or more, need not register with state securities Administrators. Investment adviser representatives do not register as investment advisers but as investment adviser representatives. Financial publishers who do not publish specific investment advice are exempt from state registration. Reference: 1.5.3.1 in the License Exam Manual
Under the registration provisions of the Uniform Securities Act, it is unlawful for an agent in the state to sell XYZ securities unless A) XYZ is a federal covered security B) both the agent and XYZ are nonexempt and nonregistered C) the agent is a nonregistered, nonexempt person D) XYZ is a nonregistered, nonexempt security
A If XYZ is a federal covered security it is not required to register with the state. Nonexempt securities and nonexempt persons must be registered to be sold (securities) or to do business (persons). Reference: 2.2 in the License Exam Manual
When a broker-dealer acts in the capacity of a principal in a trade, the firm has acted A) as a contra-party to the trade B) as an agent C) for the benefit of the client D) in an unethical manner
A In every trade, there are 2 principals—the buyer and the seller. If the broker-dealer is one of the principals (either buyer or seller), the firm is the contra-party to the other side of the trade. Reference: 4.1.1 in the License Exam Manual
Which of the following is NOT required to register as an agent under the Uniform Securities Act? A) A person who represents the issuer selling U.S. government or municipal bonds B) A person who attempts to sell mutual fund shares by telephone and is paid a straight salary C) A person who attempts to sell mutual fund shares by direct mail and is paid an hourly wage D) An individual pursuing a graduate degree in finance, hired for the summer as an intern, who receives $10 for each prospect turned into a client
A Individuals excluded from the agent registration requirements are those who represent issuers in selling certain exempt securities, such as U.S. government or municipal bonds. Any individual who receives compensation related to securities sales, including the intern, must register as an agent. Reference: 1.3.2 in the License Exam Manual
According to the Uniform Securities Act, each of the following is a security EXCEPT a(n) A) contract in soybean futures B) US Treasury bill C) interest in a condominium project with a rental pool D) limited partnership in an oil and gas exploration
A Interests in a condominium complex that has a rental pool feature, U.S. Treasury bills, and limited partnership interests in oil and gas exploration programs are securities under the USA. The USA excludes certain financial instruments from the term "security" such as term and whole insurance policies, commodity futures contracts, and collectibles. Reference: 2.1.1.1 in the License Exam Manual
Opening a margin account involves significant documentation. Which of those documents discloses the interest rate charged by the broker-dealer, including the method of interest computation and situations under which interest rates may change? A) The credit agreement B) The loan consent agreement C) The hypothecation agreement D) The interest computation agreement
A It is the credit agreement that discloses the terms of the credit extended by the broker-dealer, including the method of interest computation and situations under which interest rates may change. Reference: 4.4.2.1 in the License Exam Manual
Under the Uniform Securities Act, an employee of a licensed broker-dealer firm is allowed to sell securities as an unregistered agent when A) under no circumstances B) the employee is not paid any commission or salary C) the securities are exempt D) the transactions are exempt
A It is unlawful for a person to transact business as a representative of a broker-dealer unless that person is registered, even if the securities are exempt. Reference: 1.2.2.3 in the License Exam Manual
A client sends a check to her agent every month to fund the purchase of a mutual fund for her IRA. The agent places the checks in a safe in the office and then, once each quarter, forwards the checks to the mutual fund. This would be A) a prohibited practice because all checks must be forwarded promptly B) acceptable as long as the agent is forwarding the checks on a quarterly basis C) permitted, but only if the agent contributed an amount equal to the interest earnings lost due to holding the checks D) acceptable because by placing her checks in the office safe, the agent is supplying the proper protection for her checks
A Keeping customer checks is never allowed. All funds must be promptly transmitted. This is a form of commingling. Reference: 5.2.7 in the License Exam Manual
John, a newly registered agent with a broker-dealer in Illinois, violated the Uniform Securities Act if he A) knowingly sold revenue bonds as general obligation bonds because he wanted his best client to earn additional interest without taking on significantly higher risk B) mistakenly told a client that the dividend yield on a common stock selling at $75 per share was 5%, though he accurately indicated that the dividend payment was $.75 per quarter C) deliberately omitted the number of employees at a corporation making its first issue of securities to the public because he did not consider that fact relevant to the investor's decision making process D) told his clients, against his better judgment, that past performance is no guarantee of future performance
A Knowingly selling revenue bonds as general obligation bonds is a misstatement of material fact and therefore fraudulent. An agent, when making a sale to a client, need not include all facts, such as the number of employees. The agent must not deliberately fail to mention the material facts regarding the nature of the investment. For example, it is not fraud to make a mathematical mistake, such as inadvertently misquoting the dividend yield on a common stock as 5% when in fact it is 4%, while accurately indicating that the actual dividend payment is $.75 per quarter. An agent may never state that past performance is expected to be replicated. Reference: 5.1.1 in the License Exam Manual
Under the Uniform Securities Act, all of the following are exempt from registration EXCEPT A) common stock only sold intrastate B) securities issued by a religious organization C) equipment trust certificates issued by a regulated common carrier D) airport authority bonds
A Local companies that issue common stock sold only within the state must register their securities with the state Administrator. Airport authority bonds (municipal bonds), equipment trust certificates, and securities issued by religious organizations are exempt from registration with the state Administrator. Reference: 2.3.1 in the License Exam Manual
Under the Uniform Securities Act, the registration requirements for agents would never include A) minimum capital B) an examination C) surety bonding D) a consent to service of process
A Minimum capital may be required of broker-dealers and investment advisers but not agents. Reference: 1.3.3 in the License Exam Manu
An issuer of federal covered securities, whose registration is effective under the Securities Act of 1933, would use which of the following procedures to permit sale of its securities in a specific state? A) Notice filing B) Qualification C) Registration D) Coordination
A Notice filing is the procedure by which federal covered securities, most commonly registered investment company securities, receive clearance for their securities to be sold in a specific state. No formal registration is required, but payment of fees and filing of certain documents may be. Reference: 2.2.2.1 in the License Exam Manual
An individual functioning as an investment adviser representative for a federal covered adviser, with no place of business in this state, would be required to register in this state if A) he conducts frequent public seminars in the state B) he had a time-share in the state C) the investment adviser had a small office in the state D) he only dealt with investment companies located in the state
A One of the provisions dealing with federal covered investment advisers is that states have no registration jurisdiction over their investment adviser representatives unless the IAR has a place of business in the state. It makes no difference what kind of clients the IAR serves. Under the Uniform Securities Act, conducting seminars open to the public in a state is considered to be having a place of business in the state. A time-share or vacation home has nothing to do with the IAR's advisory service. The fact that the employer, the investment adviser, has an office in the state, is of no relevance to the IAR. Reference: 1.6.1 in the License Exam Manual
If Perfect Pasta, Inc., a privately held company in State I that owns four restaurants, wants to issue shares to public investors who are residents of State I, the company A) must register by qualification B) must register by coordination C) is exempt from registration because there are fewer than 10 restaurants in the state D) may issue shares under the notice filing procedure available for federal covered securities
A Perfect Pasta must register by qualification because the other methods listed are not available to an initial public offering for an intrastate (as opposed to interstate) offering. Perfect Pasta is not a federal covered security and may not use the notice filing procedure. The private placement exemption refers to the number of persons being offered the security, not the number of restaurants the issuer runs. Reference: 2.2.2.3 in the License Exam Manual
Nifty Advisers Group made an announcement on its website that the firm was going to create a Facebook account to keep all its clients and prospective clients updated on the market. To get the word out, Nifty sent an email notice to its current clients and asked them to please refrain from airing complaints through that account; any negative comments would be addressed through the normal channels. Also, contained in the email was an announcement that all "likes" would receive a one-time 5% decrease in the client's quarterly fees. For this campaign, which of the following are NOT true? A) This would not be considered a testimonial and therefore permitted under the regulations. B) Third-party use of the "like" feature on an investment adviser's social media site could be deemed a testimonial. C) Even though the rules do not prohibit testimonials for broker-dealers, they are strictly forbidden for use by investment advisers. D) Currently there has been no comment from NASAA concerning the use of "likes".
A Please note that this question is looking for the statement that is NOT true - in other words, find the false statement. In March 2014, the SEC, but not NASAA, published an interpretive release dealing with testimonials for investment advisers using social media. Included in that release is the statement that third-party use of the "like" feature on an investment adviser's social media site could be deemed to be a testimonial if it is an explicit or implicit statement of a client's experience with the adviser. Reference: 4.5.2.2 in the License Exam Manual
Sharon Smith is an agent for Highwater Securities, a broker-dealer registered in all 50 states. Sharon receives an unsolicited order from a bank located in State X, a state in which she has no place of business. Under the Uniform Securities Act, A) Sharon must be registered in State X in order to accept the order B) because Sharon has no place of business in State X and the client is an institution, Sharon may accept the order without registering in State X C) because Highwater Securities is registered in all 50 states, Sharon must also be registered in all of them D) because Sharon has no place of business in State X and the order is unsolicited, Sharon may accept the order without registering in State X
A Regardless of whether the security is exempt or the transaction is exempt, one must be licensed in any state which is the domicile of a client placing an order. One does not have to be registered as an agent in every state the BD is, only in those where she expects clients to reside. Reference: 1.3.3 in the License Exam Manual
in response to an evolving marketplace, the SEC, through Release IA-1092, expanded the coverage of the definition of investment adviser to include A) financial planners and pension consultants B) broker-dealers offering wrap fee programs and life insurance agents C) broker-dealers offering wrap fee programs and financial planners D) life insurance agents and pension consultants
A SEC Release IA-1092 added financial planners, pension consultants, and sports and entertainment representatives to the list of potential IAs. Unless the life insurance agent is offering investment advice, the agent does not meet the definition of investment adviser. The Release did not address wrap fee programs because the exclusion for broker-dealers is part of the Investment Advisers Act of 1940; once special compensation in the form of wrap fees is received, the exclusion is lost. Reference: 1.5.1 in the License Exam Manual
The Uniform Securities Act considers certain securities to be exempt from the registration requirements of the act. Under the USA, which of the following is an exempt security? A) Equipment trust certificate issued by a railroad that is regulated by a state's regulatory body B) Corporate bonds C) Preferred stock D) Commercial paper with a term of more than one year
A Several types of securities are specifically exempt under the act, including equipment trust certificates issued by a state-regulated or federally regulated railroad. High-quality (receives a rating in one of the three highest rating categories from a nationally recognized statistical rating organization) commercial paper is exempt if the term is nine months or less and it is issued in denominations of $50,000 or more. Preferred stock or corporate debt securities might qualify for the federal covered security exemption, but, nothing in these choices indicates that they have been issued by a company listed on an exchange or Nasdaq. Reference: 2.3.1 in the License Exam Manual
An agent employed at First Securities, an independent broker-dealer, shares commissions with his uncle, who is employed at ABC Securities, an independent broker-dealer with offices in the same state. This arrangement is A) prohibited because the broker-dealers are not under common ownership or control B) prohibited because the broker-dealers are not private partnerships C) not prohibited if the agents have written permission from their respective clients D) prohibited because the broker-dealers must be in separate states to justify sharing commissions
A Sharing commissions is generally prohibited unless the broker-dealers with which the agents are associated are under common ownership or control. Reference: 5.2.26.4 in the License Exam Manual
It would be considered fraud for an agent to intentionally I. tell a client that a bond is yielding 10% when the actual yield is 1% II. tell a client that a subordinated debenture is a prior lien mortgage bond III. tell a client that you are so sure the client will not lose money that you have placed funds in escrow equal to the amount of the purchase to cover any possible loss IV. share commissions with another agent in your office without disclosing this fact to the client A) I, II, and III B) I and IV C) II and III D) I, II, III, and IV
A Telling a lie (a misstatement of fact) such as overstating the yield of a bond or claiming that an unsecured debt obligation is really secured, is fraudulent behavior. Telling a client that you will guarantee against loss is considered both a fraudulent and unethical practice. There are no requirements for you to tell a client who you are splitting commissions with. Reference: 5.1.1.1 in the License Exam Manual
An Administrator wishing to set the net capital requirement for a broker-dealer may not require an amount greater than that A) required under the Securities Exchange Act of 1934 B) of the state in which the broker-dealer maintains its principal office C) under FINRA rules D) of the state where the broker-dealer is registered with the lowest capital requirement
A The Administrator may, by rule or order, require a minimum capital for registered broker-dealers, subject to the limitations of section 15 of the Securities Exchange Act of 1934. That means, as long as a broker-dealer meets the SEC's net capital requirements, the state cannot impose higher ones. Reference: 1.2.2 in the License Exam Manual
Different types of accounts have different times for receipt of customer information. Which of the following does NOT correctly state the required time for the specified account? A) Margin account agreements must be received before the first margin trade in the account. B) Written discretionary account authorization must be received by a broker-dealer before exercising discretion. C) Written discretionary account authorization must be received by an investment adviser within 10 days after the initial discretionary trade. D) The options account agreement must be received within 15 days after the customer's account has been approved.
A The NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents requires that margin account agreements must be received promptly after the initial margin trade in the account. All of the other choices are correct regarding the relevant time of receipt. Reference: 4.4.2.3 in the License Exam Manual
Under the Uniform Prudent Investor Act of 1994, trustees are required to A) exercise reasonable care, skill, and caution over the assets they manage B) consider the risk of each investment on its individual merits C) limit the diversification of the portfolio so as not to subject it to undue risk D) delegate investment functions to qualified persons
A The UPIA knows that trustees can't be perfect, but they must use care, skill, and caution to conserve the value over the assets they manage. Delegation of investment functions is permitted, but not required. The risk of each investment must be viewed in the totality of the overall portfolio, not as an individual unit, and limiting the diversification generally increases the risk. Reference: 5.4.3 in the License Exam Manual
The Uniform Securities Act would NOT require which of the following to be registered as agents of a broker-dealer? A) A partner who has contributed most of the capital of the firm but takes no part in its activities B) An employee of a broker-dealer who only trades securities for the broker-dealer's institutional accounts C) A partner in a broker-dealer who actively manages the firm's day-to-day operations D) An employee of a broker-dealer whose major function is to take orders from the public on behalf of the firm's partners
A The Uniform Securities Act defines an agent as: "any individual, other than a broker-dealer, who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities." Regardless of the amount of the capital contribution, if you're not involved with securities transactions (or supervising them), you're not an agent. Employees who take orders from the public on behalf of the partners of broker-dealers and who trade securities for the accounts of broker-dealers must register as agents. Reference: 1.3.3 in the License Exam Manual
An agent has raised capital from his customers with which he and his brother-in-law will build a small shopping center (although the broker-dealer with whom he is registered is not aware of his actions). The customers who contributed the capital received certificates of ownership in the shopping center, as well as full disclosure of their risks, and participation in income from renting mall space to retail businesses. In the above situation, the agent has acted A) unlawfully because the agent gave his broker-dealer no opportunity to supervise his activities relative to its customers B) lawfully because risks of the transaction were disclosed to the customers in writing C) unlawfully because the agent's brother-in-law is not a registered agent (sales representative) D) lawfully because interests in a shopping mall are not securities
A The agent has acted unlawfully in effecting private securities transactions involving the broker-dealer's customers without proper supervision by the firm. This practice is generally referred to as selling away or transactions "off the books" of the broker-dealer and may only be effected with prior written consent of the employing broker-dealer. Reference: 5.2.26.1 in the License Exam Manual
An agent of a broker-dealer registered in Illinois terminates his employment to accept a new position with broker-dealer who is also registered in Illinois. If his previous employer fails to notify the state Administrator of the termination, the agent must A) notify the Administrator in Illinois of his termination B) notify his new employer that he has terminated his registration C) not seek employment with another broker-dealer until his registration is renewed D) notify the Administrator only if he learns that his previous employer has failed to notify the Illinois securities Administrator
A When an agent begins or terminates a connection with a broker-dealer, the agent as well as the broker-dealer must promptly notify the Administrator. The agent has no responsibility to insure that the previous employer has notified the Administrator. Reference: 1.3.4.1 in the License Exam Manual
James Jones, quarterback for a National Football League franchise team, deliberately misstated material information in the private sale of securities he owned. Jones claims he is not subject to the antifraud provisions of the Uniform Securities Act because he is not a registered agent and, secondly, the securities involved are exempt from registration requirements of the act. Which of the following statements is TRUE? A) The antifraud provisions of the USA apply to any person who acts fraudulently in connection with the offer, sale, or purchase of a security. B) As a professional athlete, Jones is not in the securities business and is therefore not subject to the antifraud provisions of the act. C) The antifraud provisions of the USA do not apply to Jones because he is not suitably trained nor does he have a securities license. D) Jones's failure to accurately state material facts does not constitute fraud because the securities he sold were exempt from registration.
A The antifraud provisions of the USA apply to any person who acts fraudulently in connection with the offer, sale, or purchase of a security, even in the case of an isolated nonissuer transaction like this. While Jones, as a private individual, is not subject to the registration provisions of the act, he is liable for fraud when selling securities, whether registered or not. The fact that Jones is not trained in the securities business does not exempt him from the prohibition against fraud when engaged in the sale of securities. Reference: 5.1.1 in the License Exam Manual
A consent to service of process allows the Administrator to A) exercise the power of attorney on behalf of the registrant B) verify the accuracy and completeness of registration without obtaining the registrant's prior approval C) terminate a registrant's application D) ensure that the legal appeal process is expedited as a result of the Administrator's access to information
A The consent to service of process provides the Administrator with power of attorney for 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. Reference: 1.2.2.2 in the License Exam Manual
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) all other states in which the security is to be registered C) adverse rulings by a court, regulatory authority, or the SEC with respect to the offering D) the amount of securities to be offered in the state
A The effective date is determined by the state Administrator or the SEC, not the person registering the security. Registrants must indicate all other states in which the security is to be registered. The amount of securities to be offered in the state, for which a specific registration is sought, must be disclosed in addition to any adverse rulings related to the offering.
A third-party post has been made on a broker-dealer's Facebook page. If the firm has involved itself in the preparation of the content, this would be known as A) entanglement B) misrepresentation C) disgorgement D) replacement
A The entanglement theory means the firm or its personnel is entangled with the preparation of the third-party post. A similar concept is that of adoption. This is when the broker-dealer explicitly or implicitly endorsed or approved the content posted by the third party. Reference: 4.5.3 in the License Exam Manual
Which of the following is among the items of information that must be entered on a new account form? A) Names of all persons who will have access to the account B) What educational degree(s) the accountholder has earned C) Names and addresses of at least 2 of the prospective customer's neighbors as personal references D) Names of other broker-dealer firms already holding accounts for the prospective customer
A The facts that are required on a new account form are aimed at facilitating the operation of the account, properly identifying the customer, and guarding against money laundering and other illegal activities. Of the choices offered, only the names of those with access to the account would help with these goals, so this item of information is the only one on the list that is required. Reference: 4.4.1 in the License Exam Manual
All of the following information would be found on a trade ticket EXCEPT A) the price of the security at the time of the order B) the customer account number C) the time of order entry D) was the order solicited or unsolicited
A The price at the time of the order is of no significance. The execution price, of course, is. Reference: 5.1.1.2 in the License Exam Manual
A working group convened by NASAA has developed a model fee disclosure schedule to help investors better understand the costs involved in doing business with their broker-dealer. The template has broker-dealers disclose all of the following fees EXCEPT A) advisory fees B) account inactivity fee C) charges for late payments D) issuance of a stock certificate
A There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those arecommissions;markups and markdowns; andadvisory fees for those firms that are also registered as investment advisers. Reference: 4.1.3.1 in the License Exam Manual
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) affinity fraud B) group fraud C) relationship fraud D) ethnic fraud
A 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. Reference: 4.5.1.1.1 in the License Exam Manual
Under the Uniform Securities Act, all of the following statements are TRUE regarding private placements EXCEPT A) they are offered to no more than 10 persons in a state in a 12-month period B) they may be offered to an unlimited number of institutional investors C) no commissions or other remuneration is paid for soliciting noninstitutional investors D) the seller reasonably believes that all of the noninstitutional buyers are purchasing for investment purposes only
A This question hinges on you remembering the broad definition of the term, person; it is far more than just an individual. Although the limited-offering exemption (private placement) is available when there are offers to no more than 10 noninstitutional (retail) persons in 12 months, there is no limit when it comes to institutions. The offeror must be reasonably assured that retail buyers are purchasing for investment rather than resale within a short period of time. No commissions may be paid, directly or indirectly, for these retail transactions. However, sales to institutional purchasers are exempt from the limitations regarding number of sales, resale restrictions, and commissions. They may, therefore, be offered to more than 10 persons. Reference: 2.3.2 in the License Exam Manual
An agent works in Buffalo and is registered in New York and Ohio. If the agent contacts a retail client in Ohio recommending the purchase of an unregistered non-exempt security, jurisdiction over this violation of the Uniform Securities Act would lie with the Administrator(s) of A) Both New York and Ohio B) Neither state until a transaction takes place C) New York D) Ohio
A This recommendation is considered an offer and no offer of a security may be made in a state unless the securities is exempt (this one isn't), the transaction is exempt (this one isn't because it is solicited), or the security is registered (this one isn't). Administrators have jurisdiction over offers made in the originating state (New York), the state to which the offer is directed (Ohio), and the state in which the offer is accepted (the question doesn't tell us if it ever was, but that is not necessary because the offer on its own is in violation—we don't need a sale). Reference: 3.1.2 in the License Exam Manual
In order for a surety bond to meet the requirements of the Uniform Securities Act, it must provide that A) any customer who can prove a violation is entitled to collect against the bond B) it is in the form of cash or marketable securities C) the bond must remain in force no less than two years after the withdrawal of registration D) because bonds are transferable, any agent's bond may be used to meet the obligation of another agent
A Under the USA, every bond shall provide for suit thereon by any person who has a cause of action under the provisions of the Act. The Administrator must accept cash or securities in lieu of the surety bond, but cash is not a requirement - the bond will do just fine. Reference: 3.3.1.7 in the License Exam Manual
Under the Uniform Securities Act, an issuer is any person who issues or proposes to issue a security for sale to the public. According to the USA, which of the following is NOT an issuer? A) The Energy Resources Partnership, which issues certificates of interest or participation in its oil, gas, and mining titles B) The United States government, which proposes to offer Treasury bonds C) The City of Chicago, which is involved in a distribution of school district general obligation bonds D) The AAA Manufacturing Company, which proposes to offer shares to the public but has not yet commenced the offering
A Under the Uniform Securities Act, an issuer is any person who issues or proposes to issue a security. However, with respect to certificates of interest or participation in oil, gas, or mining titles or leases, there is not considered to be any issuer even though those certificates are included in the definition of "security." Examples of issuers are a municipality such as the city of Chicago, which issues tax-exempt highway improvement bonds; the AAA Manufacturing Company, which proposes to offer shares to the public even though it has not completed the offering; and the United States government, when it proposes to offer Treasury bonds. Reference: 1.1.10 in the License Exam Manual
All of the following are exempt transactions as defined under the USA EXCEPT A) broker-dealer B offers a private placement to 15 regular public customers and closes the offering at the end of 30 days B) broker-dealer A has put together a syndicate of 15 broker-dealers to purchase the entire issue of XYZ Corporation's preferred stock C) the executor of an estate liquidates 1,000 shares of IBM held by the estate D) Mammoth Mutual Fund purchased 250,000 shares of common stock in a nonissuer transaction
A Under the Uniform Securities Act, an unregistered private placement may be offered to no more than 10 prospective purchasers, with the exception of financial institutions and other broker-dealers. Transactions by executors, the sheriff, marshals, receivers, trustees, guardians, or conservators are exempt. Sales to financial institutions, such as mutual funds and insurance companies, are also exempt. Reference: 2.3.2 in the License Exam Manual
You inform a customer that you are not allowed to solicit an order for a stock but will accept that customer's buy order if placed. This is A) an offer to sell B) an offer to sell only if it is accepted C) an unsolicited trade D) an offer to purchase
A Under the Uniform Securities Act, the term "offer" is the solicitation of an offer. In this example, the agent is soliciting an offer from the customer to buy a security. A solicitation is considered to have occurred even if the customer fails to act on the solicitation. Reference: 3.1.1.1 in the License Exam Manual
Which of the following persons is NOT an associated person of an investment adviser? A) A graphic design consultant who prepares a broker-dealer's research publications B) A third-party solicitor who refers accounts to an adviser for a fee C) A senior officer of an investment adviser responsible for marketing as opposed to investment advisory services D) The parent broker-dealer of an investment advisory firm
A Under the terms of the USA, a graphic design consultant who prepares a broker-dealer's research publications is not an associated person of an investment adviser. Senior officers, third-party solicitors, and parent broker-dealers are all defined as associated persons under the Uniform Securities Act. Reference: 1.6 in the License Exam Manual
Which of the following statements regarding Form ADV Part 2 is TRUE? A) Unless there are no material changes, it must be delivered to clients annually. B) It must be delivered no later than receipt of the client's funds. C) It must be delivered no later than 48 hours prior to entering into an investment advisory contract. D) It must always accompany the investment adviser's brochure.
A Unless there have been no material changes, a copy of the adviser's brochure or brochure supplement must be delivered to all current clients within 120 days of the end of the adviser's fiscal year. If it is not delivered 48 hours in advance of the initial contract, the client has a 5-day penalty-free termination clause. It does not accompany the brochure-it is the brochure. Reference: 4.5.4 in the License Exam Manual
If the Administrator has summarily suspended an investment adviser representative's registration, the registrant may request a hearing by written request and the hearing will be granted within A) 15 days B) 60 days C) 45 days D) 30 days
A When an Administrator summarily suspends a registration, the registrant has a right to a hearing if the request is made in writing. The hearing must be granted within 15 days of receipt of the request. Registration of professionals takes place at noon of the 30th day and an appeal for review of an Administrator's order must be filed within 60 days. Reference: 3.2.4.1 in the License Exam Manual
*any time an agent effects a securities transactions that isn't recorded on the regular books or records of the BD that the agent represents is considered
a prohibited practice
Which of the following are NOT agents as defined in the USA? A broker-dealer acting on behalf of a properly registered issuer An individual representing the U.S. government in the sale of its securities An individual who, acting on behalf of a broker-dealer, sells exempt securities or engages in an exempt transaction An individual who represents an issuer selling a nonexempt security in a nonexempt transaction
A broker-dealer acting on behalf of a properly registered issuer An individual representing the U.S. government in the sale of its securities 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 broker-dealer) and only when the transaction is exempt or the issuer is one of a specified list of exempt issuers. Reference: 1.3.2 in the License Exam Manual
When it comes to borrowing and lending money, the NASAA Model Rules prohibit activity that would compromise the objectivity of securities professionals. Which of the following are NOT prohibited practices? A broker-dealer lending money to a client to purchase additional securities An agent taking out a car loan from a bank whose branch manager is a client of that agent An investment adviser borrowing money from an affiliated broker-dealer An investment adviser lending money to a client to enable that client to maintain the minimum required asset level in the account
A broker-dealer lending money to a client to purchase additional securities An agent taking out a car loan from a bank whose branch manager is a client of that agent An investment adviser borrowing money from an affiliated broker-dealer An investment adviser lending money to a client to enable that client to maintain the minimum required asset level in the account
Under the Uniform Securities Act, which of the following statements are TRUE about the authority of an Administrator? A cease and desist order may be issued prior to a hearing. A cease and desist order may be issued after a hearing. A cease and desist order is valid for a maximum of 30 days. A cease and desist order may be used to suspend the offering of a security.
A cease and desist order may be issued prior to a hearing. A cease and desist order may be issued after a hearing.
nonissuer
A person other than the issuer of a security. In a non issuer securities transaction, for example, the issuer is not one of the parties in the transaction, and the transaction, therefore, is not, according to the law, directly or indirectly for the benefit of the issuer. When the USA refers to a non issuer transaction, it is referring to a transaction in which the proceeds of the sale go to the selling stockholder. Most non issuer transactions also called secondary transactions
Under current law, who of the following would be required to register as an investment adviser in a state? A person who effects transactions exclusively with issuers of securities in that state while maintaining no office therein A person who has directed advice relating to securities to 6 individuals in that state within the past 12 months, even though he has no place of business within the state A person with an office in the state who manages less than $25 million in assets A person who deals exclusively with broker-dealers in that state, but maintains no place of business within the boundaries of the state
A person who has directed advice relating to securities to 6 individuals in that state within the past 12 months, even though he has no place of business within the state A person with an office in the state who manages less than $25 million in assets Investment advisers (or IARs) having no place of business in a state are generally limited to contracting with fewer than 6 retail (individual) residents of that state within any 12 month period (de minimis exemption) before being required to register. Investment advisers with a place of business in the state who manage less than $100 million must register. Once they reach $100 million of assets under management, they have the choice of state or SEC registration. Once $110 million is reached, the only choice is registration with the SEC. Reference: 1.5.3.1 in the License Exam Manual
where is a bond issued by Columbus Ohio considered a federally covered security?
everywhere EXCEPT OHIO
Which of the following are not specifically excluded from the definition of an investment adviser under the Uniform Securities Act? An investment adviser representative of an advisory firm who makes securities recommendations on a regular basis for compensation A temporary employee hired to assist in administrative responsibilities of an advisory firm Any person who is a federal covered investment adviser A person who, on a regular basis for compensation, offers specific investment advice to clients as to the value of securities
A person who, on a regular basis for compensation, offers specific investment advice Clerical and ministerial personnel, full-time or temporary, are not included in the definition of either investment adviser representatives (supervised persons) or investment advisers. Other persons associated with an investment adviser, including officers of the firm, are generally considered to be investment adviser representatives. An investment adviser representative is not an investment adviser in the same manner that an agent is not a broker-dealer. A federal covered adviser is not, for definitional purposes, considered an adviser under the USA to avoid duplicate regulation by both the state and the federal government. Reference: 1.5.2 in the License Exam Manual
Under the USA, which of the following are securities? A gold futures contract A put option on a gold futures contract A warrant to purchase IBM common stock Confirmation of a customer trade in IBM common stock
A put option on a gold futures contract A warrant to purchase IBM common stock Under the USA, commodities futures contracts are not considered to be securities. The presumption is the instrument that underlies the futures contract is a commodity rather than a security. However, options on commodity futures are securities under the USA. Warrants to purchase individual stocks (such as on IBM) are considered to be securities, whereas a confirmation is not; it is merely a report that a trade in a security occurred. Reference: 2.1.1 in the License Exam Manual
unethical and dishonest business practices-churning
excessive in size or frequency in the view of the client's objectives, resources or character of the account
unethical business practices of IA-unreasonable advisory services
excessively charging an advisory fee that is unreasonable
All of the following are prohibited practices under USA except A) borrowing $ or sec. from the acct. of a former banker w/ express written permission B) failing to ID a customer's financial objectives C) selling unregistered non-exempt securities to a closed-end investment company D) supplying funds to a client's account only when or if it declines below a previously agreed-upon level
B
All of the following are unethical business practices for an investment adviser representative EXCEPT A) deliberately misinforming a client regarding the representative's age B) borrowing money or securities from a client who is a broker-dealer, an affiliate of the investment adviser, or a financial institution engaged in the business of loaning funds C) placing an order to purchase or sell a security for a client's account without specific authority to do so D) placing an order to purchase or sell a security for a client's account per the instruction of a third party, without having first obtained a written third-party trading authorization from the client
B
******Strategic Planning, Inc. (SPI), an investment adviser registered with the state, has recently paid its renewal fees for registration. Three months later, Planned Stewardship, LLC, a new firm established to provide investment advisory services, acquires SPI. Under the Uniform Securities Act A) Planned Stewardship, LLC is required to pay the full cost of the registration fees B) Planned Stewardship, LLC has no registration fees to pay C) Planned Stewardship, LLC's acquisition will not go into effect until the renewal date D) Planned Stewardship, LLC must pay the difference between the fees already paid by SPI and the new fees required
B
*****You are an agent for a broker-dealer who is world renowned for its outstanding research department. If you were to contact your clients to discuss the contents of the firm's latest research report prior to that report being released to the public, you A) would be permitted to do so immediately B) would likely be in violation of the rules dealing with trading on inside information C) could share this information solely with those clients who are accredited investors D) would be permitted to discuss the report only with those clients for whom the recommendations would be suitable
B
A federal covered investment adviser is a person A) registered with North American Securities Administrators Association (NASAA) B) registered, or excluded from the definition of investment adviser, under the Investment Advisers Act of 1940 C) exempt from regulation under the Securities Exchange Act of 1934 D) registered under the Uniform Securities Act
B
According to the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the following is a prohibited activity? A) The agent and his spouse jointly own their own personal trading account at the firm B) The agent enters into an agreement to share in the profits/losses of the customer's account with written consent of the employing broker-dealer and the client's CPA C) The agent refuses a client's request to share in the performance of the client's account D) The agent, with his firm's and the client's permission in writing, participates in the profits and losses of the account without making any financial contribution into the account
B
Broker-dealer A wants to promote and reward teamwork. The firm plans to pay out a small percentage of the firm's profits to the clerical staff as a bonus for their hard work. Under NASAA rules, is this permitted? A) Yes, if the entire clerical staff is registered as agents for the firm. B) Yes, no registration is necessary. C) No, this cannot be done. D) Yes, if all of the agents agree to it.
B
In which of the following cases is an agent not considered to have acted in a prohibited or unethical manner A) agent borrows $ from his wealthy client acct. w/ their written consent B) agent solicits orders for non-exempt unregistered securities from institutional clients C) agents buys/sells sec. in accounts to generate a high level of commissions D) agents alters market quotations to induce a client to invest in an attractive growth stock
B
Under the Uniform Securities Act, which of the following regarding the registration of securities is TRUE? A) The effectiveness of a registration statement ensures the adequacy of the information contained in the statement. B) Registration by qualification becomes effective on a date ordered by the Administrator. C) State registration by exemption is only available if a federal registration statement has been filed under the Securities Act of 1933 in connection with the same offering. D) The Administrator may require that a prospectus be delivered to every purchaser of a registered security no sooner than the time at which the security is delivered.
B
When a brokerage firm sells stock from its own inventory, it is acting in the capacity of A) a principal, and charges a commission B) a principal, and charges a markup C) an agent, and charges a markup D) an agent, and charges a commission
B
When performing their normal functions, the sale of a security by all of these would be an exempt transaction EXCEPT A) the county sheriff B) an investment adviser C) a person acting in the capacity of executrix D) a federal marshal
B
jon, an agent with Johnson-Bayer Securities, was reacting to peer pressure to use email as a prospecting tool. He decided to highlight the exciting new process for drug delivery which was covered in the new offering prospectus when explaining why he felt the issuer found the next "aspirin." He summed up the email by stating potential investors needed to act quickly to get in on the ground floor. His decision to do so fell into the category of which of the following? A) Fraud B) Unethical business practice C) Phishing D) Entanglement
B
under USA, the definition of IA would include A) bank B) lawyer charging a fee to advise client on how to invest the money they just won C) IAR D) none of the above
B
under USA, the term agent would not include an individual who represents an issuer in effecting non-exempt transaction in any security A) issued or guaranteed by a federal credit union B) issued or guaranteed by a bank under US law C) issued or guaranteed by a regulated public utility holding company
B
which of the following accurately describes a cease and desist order authorized by USA? A) an order that a federal agency issued to a brokerage firm to stop an ad campaign B) An admin's order to refrain from a practice of business he believes to be unfair C) a court-issued order req. a business to stop an unfair practice D) an order from one brokerage firm to another to refrain from unfair business practices
B
When discussing cybersecurity, the term "covered account" refers to A) an account that is protected under SIPC B) a personal or family account for which the firm must provide data protection C) one that meets the requirements of the NSMIA of 1996 D) an options account that is used to write covered calls
B "Covered accounts" are those opened by individuals or families (not businesses) at financial institutions where there is a reasonably foreseeable risk to customers or to the safety and soundness of the institution from identity theft. Reference: 5.8.1.1 in the License Exam Manual
under the Uniform Securities Act, which of the following is a broker-dealer? A) Credit union that issues its own stock B) Corporation that sells interests in an oil and gas limited partnership to investors with the proceeds going to the issuer C) Issuer D) Agent
B A broker-dealer is any person that buys or sells for the accounts of others or for his own account. In this case, an entity structured as a corporation is selling a security in the form of limited partnership units and is therefore a broker-dealer. A broker-dealer is not an issuer (the credit union) or an agent. Reference: 1.2.1 in the License Exam Manual
If a broker-dealer provides investment advice or discretionary portfolio management services to its clients and the firm also recommends or sells products that it or affiliated companies issue, A) the firm would be engaged in a dishonest or unethical business practice B) disclosure of the potential conflict of interest must be made C) disclosure of the capacity in which the firms acts in the transaction must be made on the trade confirmation D) the firm would be straddling a commingled arbitrage
B A classic example of a potential conflict of interest is when a broker-dealer has discretion over a client's account and purchases securities for that account that are issued by the firm or an affiliated company. There is nothing wrong with this as long as disclosure is made and, in some cases (not tested), the client must give consent. What about disclosing capacity in the trade? Isn't that always required? Yes it is, but this is an example of a question where there could be 2 correct answers and you must choose the one that is closest to dealing with the point being made in the question. Reference: 4.1.2 in the License Exam Manual
Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser's fee A) must reflect the amount of time the investment adviser spends managing a client's account B) may be considered unreasonable if it is not competitive with fees charged by other investment advisers for essentially the same services C) is not subject to regulatory oversight by the Administrator if the client may be considered financially sophisticated D) may not be based on a percentage of the client's assets under management
B A fee could be considered excessive if it were substantially higher than that charged by other investment advisers for performing similar services. The Administrator may research fees charged by various investment advisers for purposes of comparison. Whether clients have agreed to the fee or done their own price-shopping is irrelevant in determining if an investment adviser's fee is unreasonable. Reference: 5.3.3 in the License Exam Manual
Western Securities, Inc. (WSI) is a broker-dealer that also offers portfolio management. One of WSI's portfolio managers notices an article on asset allocation that harmonizes with WSI's investment philosophy. If WSI should post a link to this article on its website, it would probably be considered A) estrangement B) adoption C) entanglement D) fulfillment
B A firm will be responsible for the content of a linked third-party site if the firm "adopts" its content on any of the firm's sites. Adoption is defined as a firm's endorsement of the content of a third-party site. In this question, by posting a link, WSI is endorsing the content. This is not illegal, but the firm is responsible for the content of the linked information and must be sure that it complies with the firm's policies. Entanglement is adoption taken one step further. This is when the firm (or one of its representatives) contributes to the third-party information and then posts it. Reference: 4.5.1.1 in the License Exam Manual
Under the Uniform Securities Act, which of the following is an investment adviser? A) A broker-dealer who receives no compensation for investment recommendations B) A firm with no office in the state that provides specific investment advice to ten noninstitutional clients within the state C) An individual who provides financial advice over the Internet with no recommendations based on specific investment situations of individual clients D) An investment adviser representative
B A firm with no office in the state that provides investment advice is not an investment adviser if its clients are investment companies or other institutions, or if business communications or advice are directed to no more than five noninstitutional (individual or "retail") clients within the state in the past 12 months. A broker-dealer is not required to register as an investment adviser unless it receives special compensation for providing investment advice. Individuals who publish general advice (no specific recommendations to individual clients) in hard copy form, electronic communications, or otherwise are not required to register as investment advisers. Reference: 1.5.3.1 in the License Exam Manual
An agent has a conservative investor looking for income. The agent recommends a bond of a company the investor has never heard of. To allay the client's fear of loss, the agent states that the payment of interest and principal is guaranteed by a well-known blue chip company. Under the Uniform Securities Act, A) agents should always recommend securities that are familiar to the investor B) the agent is describing a guaranteed security C) a guaranteed security only guarantees payment of interest or dividends D) the agent is possibly committing fraud
B A guaranteed security is one where the interest and principal (in the case of a bond) are guaranteed by a third party. If a guaranteed stock, it is the dividends that are the subject of the third-party guarantee. With tens of thousands of publicly traded securities, it is unlikely that your client will be familiar with most of them, but that doesn't prohibit the agent from making the recommendation if suitable. Reference: 4.3.1 in the License Exam Manual
When an Administrator acts summarily to suspend the registration of a security, which of the following statements is TRUE under the Uniform Securities Act? A) A hearing must be held within 10 days of written request of the registrant. B) The registrant must be promptly notified of the action and given an opportunity for a hearing. C) The suspension will not go into effect until after a hearing. D) Broker-dealers may only accept unsolicited orders during the period of suspension.
B Acting summarily means acting without prior notice. An Administrator who has grounds may postpone or suspend a registration by issuing a stop order. The registrant must be promptly notified of the action and of the opportunity for a hearing. The hearing must be held within 15 days of a written request, and the suspension will remain in effect until final disposition. Even though unsolicited orders are exempt transactions, once a registered security has been the subject of a summary suspension, all trading in that security is halted. Reference: 3.2.4.1 in the License Exam Manual
Under industry rules, customers who wish to trade options must receive a copy of the Options Disclosure Document (ODD): A) within 15 days of account approval. B) at or before account approval. C) at or before the mailing of the next monthly statement. D) at or before the mailing of the confirmation representing the first options trade.
B All prospective options customers must receive a copy of the ODD at or before the time the account is approved to trade options. It is the options account agreement that must be signed and returned to the broker-dealer within 15 days of account approval. Reference: 4.4.2.2.1 in the License Exam Manual
Under the Uniform Securities Act, a state-registered investment adviser's records may be examined by the Administrator or his designee A) only by court order B) at any time during regular business hours C) only if not repetitious of an SEC exam in the prior 6 months D) only with permission from the investment adviser
B All records must be available for examination by the Administrator at any time during regular business hours, within or outside the state.
Which of the following would have to register as an investment adviser under the Uniform Securities Act? A) A trust company B) A petroleum engineer who frequently is a paid speaker at seminars dealing with investment opportunities in oil and gas exploration limited partnerships C) An accountant who advises clients about investments as an incidental part of services D) An economics professor who occasionally gives a lecture to business groups about the stock market
B Although engineers are included in the list of professionals excluded from the definition of investment adviser, that is only the case when any advice they give is incidental to the practice of their profession. Acting as a paid speaker for an investment seminar "crosses the line". Reference: 1.5.2 in the License Exam Manual
If it is in the public interest, under the Uniform Securities Act, an agent's registration may be suspended by the Administrator for all of the following reasons EXCEPT A) it has been discovered that the agent is not properly supervised B) the agent is accused of violations of the antifraud provisions of the USA C) the agent is convicted of willful violations of the USA D) the agent is enjoined by a court of law from engaging in the securities business
B An accusation is not grounds for suspension, unlike convictions, court injunctions, and lack of supervision. Reference: 3.2.4.1 in the License Exam Manual
According to the USA, which of the following statements is TRUE? A) An investment adviser with only a small branch office in the state, who conducts business exclusively with insurance companies located in the state, need not register in the state. B) An investment adviser with no place of business in the state, who conducts business exclusively with insurance companies located in the state, need not register in the state. C) Only the employing adviser, not the investment adviser representative, must register in the state. D) If an agent is hired away from his broker-dealer by another broker-dealer, only the new broker-dealer must notify the Administrator.
B An adviser with no place of business in the state who conducts business with insurance companies is exempt from registration in the state. The other answer choices are all false. If an agent is hired away from a broker-dealer by another broker-dealer, both broker-dealers and the agent must inform the Administrator. The size of the branch office is irrelevant; simply having a place of business in a state requires registration, regardless of the clientele. Reference: 1.5.3.1 in the License Exam Manual
Under the Uniform Securities Act, the term "agent" refers to individuals who act on behalf of a broker-dealer or issuer in effecting securities transactions. Which of the following individuals are NOT included in the definition of an agent? I. A lawyer acting on behalf of an issuer in preparing documents describing the issuance of nonexempt securities II. A lawyer acting on behalf of a broker-dealer who prepares documents describing the sales or purchase of securities to the general public III. A partner or officer of a broker-dealer whose only securities activity is the purchase of shares of an issuer for his personal investment account IV. An officer of an issuer who sells shares of the issuer's stock to employees without receiving any special compensation A) II and III B) I, II, III, and IV C) I and II D) II, III, and IV
B An agent is described in the Uniform Securities Act as an individual, other than a broker-dealer or issuer, who represents a broker-dealer or issuer in effecting transactions in securities. The lawyer is not engaged in effecting securities transactions on behalf of the issuer or broker-dealer. Therefore, the lawyer is not considered an agent subject to regulation by the Uniform Securities Act. A partner (or anyone else) of a securities firm making a personal investment does not make him an agent. An officer of an issuer not receiving any compensation for sales of the issuer's stock to employees is not an agent under the USA. Reference: 1.3.2 in the License Exam Manual
If an individual acting on behalf of an issuer engages in the sale of securities issued by a savings institution organized and supervised under the laws of any state, which of the following statements is TRUE? A) The individual is engaging in a prohibited transaction. B) The individual is not required to be registered. C) The individual can only participate in this transaction with permission from the Administrator. D) The individual is acting as a broker-dealer and must be registered as a broker-dealer.
B An individual representing (employed by) an issuer is exempt from registration as an agent when selling certain exempt securities (see your LEM for the 5 categories that qualify) or non-exempt securities in an exempt transaction. Reference: 1.3.2 in the License Exam Manual
While the Administrator has great power, the USA does place some limitations on the office. Which of the following statements regarding those powers are NOT true? A) In conducting an investigation, an Administrator can compel the testimony of witnesses. B) Investigations of serious violations must be open to the public. C) An Administrator in State A may only enforce subpoenas from State B if the alleged violation would be a violation of the State A's statutes. D) An Administrator may, by order, deny the registration of a securities professional who has been convicted of any felony within the past 10 years.
B An investigation of serious violations need not be held in public. An Administrator can compel the testimony of witnesses when conducting an investigation. An Administrator in State A may enforce subpoenas from another state only if the alleged violation would also be a violation in his state, as well. Conviction for any felony within the past 10 years is one of a number of reasons the Administrator may have for denying a license. Reference: 3.2.2.1 in the License Exam Manual
An investor who resides in New York reads a newspaper ad for advisory services in a newspaper published in New Jersey. More than 80% of the newspaper's circulation is in the state of New York. According to the Uniform Securities Act, an offer has been made in A) New Jersey and New York B) neither New Jersey nor New York C) New Jersey D) New York
B An offer is not made when a newspaper is circulated but not published in the state, or if it is published in the state but has more than two-thirds of its circulation outside of the state. Reference: 3.1.2.1 in the License Exam Manual
Under the USA, which of the following is considered a broker-dealer in a state? A) An agent effecting transactions for a broker-dealer B) XYZ broker-dealer with an office in the state whose only clients are insurance companies C) First Federal Company Trust D) A broker-dealer with no place of business in the state who only does business with other broker-dealers
B 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. Reference: 1.2.1.1 in the License Exam Manual
A broker-dealer with no place of business in the state would not be required to register with the Administrator unless one of its clients was A) a unit investment trust registered under the Investment Company Act of 1940 B) an employee benefit plan with assets of less than $1 million C) a savings institution D) another broker-dealer
B As defined in the Uniform Securities Act, "Broker-dealer" does not include a person who has no place of business in this state if he effects transactions in this state exclusively with or through the issuers of the securities involved in the transactions, other broker-dealers, or banks, savings institutions, trust companies, insurance companies, investment companies as defined in the Investment Company Act of 1940, employee benefit plans with assets of at least $1 million, or other financial institutions or institutional buyers. Reference: 1.2.1.1 in the License Exam Manual
Under the Uniform Securities Act, which of the following statements is TRUE regarding civil liability of investment advisers and broker-dealers? A) The maximum prison sentence for a civil case is 3 years. B) A lawsuit against a broker-dealer or adviser can be avoided if restitution, costs, and interest are paid to a client. C) A person rejecting an offer of rescission within 30 days forfeits the right to sue. D) The statute of limitations for civil liability is 5 years from the date of the sale. Explanation
B Do not confuse the statute of limitations for criminal prosecution (5 years) with the statute of limitations for civil liability (3 years from the date of the event or 2 years from discovery, whichever occurs first). Since civil liability under the act is limited to restitution, costs, and reasonable interest, a lawsuit could be avoided by a return of the investor's funds plus interest. It is only when the offer is rejected within the first 30 days that the client retains the right to file a suit. Only criminal cases can lead to a prison sentence; that is not an option with civil cases. Reference: 3.3.1 in the License Exam Manual
Which of the following terms pertains to registration with the Administrator of a mutual fund, closed-end investment company, or unit investment trust that is registered under the Securities Act of 1933 and also registered as an investment company under the Investment Company Act of 1940? A) Qualification B) Notice filing C) Coordination D) Dissemination
B Federal covered securities (securities listed on national stock exchanges, Nasdaq Stock Market or investment companies registered under the Investment Company Act) are exempt from state registration. A notice filing may be required along with a payment of fees based on a schedule set forth by the Administrator. Reference: 2.2.2.1 in the License Exam Manual
Under the Uniform Securities Act, which of the following statements about federal covered securities is NOT true? A) Federal covered securities include securities sold under Regulation D of the Securities Act of 1933. B) Federal covered securities must be registered with the states. C) The issuer of a federal covered security may be required to pay fees to the states. D) A security issued by an investment company registered under the Investment Company Act of 1940 is a federal covered security.
B Federal covered securities are not required to be registered with the states, but issuers of federal covered securities may be required to pay fees to the states and file a notice which could include copies of documents submitted to the SEC. Securities sold in private placements (Regulation D) and investment companies both describe types of federal covered securities. Reference: 2.2.1.1 in the License Exam Manual
Which of the following is NOT an exempt transaction as defined in Section 402 of the USA? A) Sale of common stock by the county sheriff at the request of the state securities Administrator B) Isolated sale of a corporate bond on behalf of the bond's issuer C) Sale of XYZ common stock, traded on the OTC Bulletin Board, to an individual investor by the executor of an estate D) Corporate bond sale to an insurance company
B 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. Reference: 2.3.2 in the License Exam Manual
Under the Uniform Securities Act, a client may sue an agent A) only if the agent is still alive B) unless the agent's broker-dealer offers to return the client's purchase price plus interest C) only if the broker-dealer goes out of business D) for up to 5 years from the date of the violation
B If the agent's broker-dealer offers rescission to the client, the client generally will not initiate a suit because there is nothing to be gained beyond what will be received through rescission. Five years is the statute of limitations for criminal activity and this is civil. Reference: 3.3.1.3 in the License Exam Manual
Under the Uniform Securities Act, the Administrator is empowered to do all of the following EXCEPT A) require an agent to submit a written statement relating to an investigation B) file a civil suit against a broker-dealer who has sold an unregistered non-exempt security to a resident of this state C) publish information relating to violations committed in the state D) issue a cease and desist order
B If you follow our exam-tips blog, you know that we have a poor opinion of some of NASAA's questions. This is a prime example. Nowhere in the Uniform Securities Act does it specifically state that the Administrator may initiate a civil action. However, if you check the court dockets of many states, you will see that, in fact, a number of civil cases have been brought by the Administrator. When you have a question like this, you get it right by knowing that, without question, the Administrator is empowered to perform the other listed actions. Reference: 3.3.1 in the License Exam Manual
Consent of the client before completion of a trade made between the firm and a client must be made when A) a broker-dealer will be acting as a contra-party to the trade B) an investment adviser will be acting in the capacity of a principal C) a broker-dealer will be acting in the capacity of a principal D) a broker-dealer will be acting in the capacity of an agent
B In those uncommon cases where an investment adviser acts in the capacity of a principal (or agent) with an advisory client, consent of the client before completion of the transaction is required. In the case of broker-dealers, disclosure of capacity, (acting as a broker [agency] or dealer [principal]) on the trade confirmation, but not consent, is needed. Reference: 4.1.1.1 in the License Exam Manual
An individual employed by a federal covered adviser would be required to become registered as an IAR in the state if A)the only function performed by the individual is preparing the layout of a research report prepared by the firm B) the only clients receiving the individual's advice are large pension plans organized for employees of municipalities located in the state where that individual maintains an office C) the only clients receiving the individual's advice are insurance companies located in states where the individual does not maintain a place of business D) the only clients receiving the individual's advice are banks located in states where the individual does not maintain a place of business
B Individuals performing the duties of an IAR for a federal covered investment adviser are only required to register in states in which they maintain a place of business. Although pension plans (as long as the total assets of the plan are at least $1 million) are considered institutional investors for exemption purposes, that exemption only applies when the individual has no place of business in the state. Reference: 1.6.1 in the License Exam Manual
An individual representing the issuer in the sale of that issuer's securities to the public would have to register in this state if A) the issuer is the state of Idaho B) the issuer is a federal savings and loan association authorized to do business in this state C) the issuer is a bank organized under the laws of the United States D) the transaction is exempt
B Individuals representing an issuer in the sale of its securities are exempt from registration if the security is 1 of 5 specified exempt securities or if the transaction is exempt. Securities issued by a federal savings and loan are not in the list of 5. Reference: 1.3.2.2 in the License Exam Manual
The Uniform Securities Act holds that persons performing certain activities shall be registered as investment adviser representatives. That requirement would apply to which of the following? A) Mark, who is employed at AAA Broker-Dealers earning commissions on transactions made based on research conducted by his firm's securities analyst B) John, who opens an investment advisory firm where he devotes his time exclusively to management responsibilities as the sole proprietor of the firm C) Margaret, who works as a registered agent for a nationally known broker-dealer and deals exclusively with recommending investments for client's IRAs D) Paul, who works for a life insurance company soliciting individuals to purchase variable annuities and variable life insurance
B John, as the owner of a sole proprietorship investment adviser, will be the only investment adviser representative when his advisory firm registers as an investment adviser. Remember, unlike FINRA, NASAA has no separate management designation as a principal; all supervisory personnel are IARs. Selling variable contracts of an insurance company requires registration as an agent as well as an insurance license, but, unless something is stated regarding compensation for advice, there is no advisory relationship here. Margaret does not need to register as an investment adviser representative because she functions as a registered agent for a broker-dealer. If she sold investment advice for the broker-dealer's investment management subsidiary, she then would have to register as an investment adviser representative. An agent of a broker-dealer earning commissions on security sales is not an IAR even if his primary selling tool for the brokerage business is the firm's outstanding research department. Reference: 1.6 in the License Exam Manual
Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, it would be prohibited for an agent to A) disclose that the broker-dealer has a position in the securities being recommended B) describe a mutual fund as being "no-load" if it had a conditional deferred sales load C) recommend that a client purchase shares of a mutual fund shortly after the ex-dividend date D) fail to disclose non-material information relating to a security being recommended
B NASAA has a Statement of Policy on Dishonest or Unethical Business Practices by Broker-Dealers and Agents in Connection with Investment Company Shares. Point A. 2. states, "In connection with the solicitation of investment company shares, stating or implying to a customer that the shares are sold without a commission, are "no load" or have "no sales charge" if there is associated with the purchase of the shares: (i) a front-end load; (ii) a contingent deferred sales load; (iii) a SEC Rule 12b-1 fee or a service fee if such fees in total exceeds .25% of average net fund assets per year; or (iv) in the case of closed-end investment company shares, underwriting fees, commissions or other offering expenses." Reference: 5.2.24.1 in the License Exam Manual
Under the antifraud provisions of the Uniform Securities Act, agents are prohibited from all of the following EXCEPT A) engaging in any fraudulent or deceitful practice in the normal course of business B) omitting non-material information from a sales presentation C) employing any device, scheme, or artifice to defraud D) engaging in any practice that the Administrator defines by rule as unethical
B NON MATERIAL
dishonest or unethical business practice-margin documents
executing any transaction in a margin account w/o securing from the customer a properly written margin agreement promptly after the initial transaction in the account
Each of the following statements is true EXCEPT A) the state securities administrator takes responsibility for the enforcement and administration of a state's securities law B) the National Securities Markets Improvement Act of 1996 (NSMIA) requires states and the federal government to have identical registration requirements C) the Uniform Securities Act is a template rather than the actual law of any state or territory of the United States D) NASAA is responsible for the content of the Series 63 exam
B 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
An agent is very satisfied with the work being done by his unregistered sales assistant and would like to compensate her with 5% of his commissions. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, this would be A) unacceptable, unless split was based upon the amount of time each person spent with the clients B) an unacceptable practice because only registered agents may receive sales related compensation C) acceptable if the agreement was in writing and approved by the employing broker-dealer D) acceptable, but only if disclosed to all of the agent's clients
B Nothing fancy here—you can't get paid for securities sales unless you are licensed. Isn't that why you are taking this exam? Reference: 1.3.1 in the License Exam Manual
Certain securities transactions are considered exempt from the registration and advertising filing requirements of the Uniform Securities Act. Included in that group would be all of the following EXCEPT A) an offer of preorganization certificates made to 25 persons with 8 of them subscribing, but making no payment B) sale of a security limited in its offering to no more than 10 retail investors in any calendar year C) a sale of stock to a pension trust with assets of $3 million D) a purchase of stock by an underwriter from the issuer in a firm commitment underwriting
B Private placements are exempt under the USA if they are offered to no more than 10 retail investors in any consecutive 12-month period, not calendar year. Transactions involving issuers and underwriters are also exempt. The sale of preorganization certificates is exempt if there is no commission for solicitation or payment by subscribers and no more than 10 subscribers; there is no limit to the number of offers that may be made. Institutional investors (and pension plans with at least $1 million in assets meet that definition) are not included in the numerical limitations. Reference: 2.3.2 in the License Exam Manual
An agent at a social gathering overhears that the chairman of a large manufacturing firm has engaged in erratic behavior. The agent calls his customers who own shares of the corporation and tells them to liquidate their positions. Under the Uniform Securities Act, which of the following statements is TRUE? A) This action is legal provided the agent contacts 12 or fewer customers. B) The agent's action constitutes a prohibited use of rumor to induce a purchase or sale of securities. C) The agent may have made an error as to the effect of the rumor, so he should wait until he has a better feel for the situation. D) This action is based on material inside information, so he must inform all of his customers of this fact.
B Repeating rumors is both misleading and a prohibited business practice under the USA, and an agent should not recommend securities transactions to his customers on the basis of rumors. The information provided is insufficient to determine if this is material inside information-the chairman of the company may be having some disturbing problems, but it is not clear from this question if this is truly inside information or matter of public record. The number of customers involved is not relevant. Reference: 5.2.21 in the License Exam Manual
As defined in the Uniform Securities Act, the term sale or sell would include A) a gift of nonassessable stock B) an investor using a cash dividend to automatically purchase additional shares of the issuer C) the pledging of securities as collateral for a loan D) the receipt of a stock dividend
B Sale or sell includes every contract to sell or dispose of a security for value. When the cash from a dividend is used to purchase additional shares, value is being exchanged. This is unlike the pledge of stock, where ownership does not change hands, or the receipt of a stock dividend, where no consideration is exchanged. Reference: 3.1.1.2 in the License Exam Manual
All of the following are exempt securities under the Uniform Securities Act EXCEPT A) securities issued by a Canadian province B) securities issued by a bank holding company C) securities issued by a federal savings and loan association D) securities issued by the Canadian government
B Securities issued by a bank are exempt. However, this answer refers to a bank holding company that is considered to be an ordinary company subject to state registration if not otherwise exempt. Reference: 2.3.1 in the License Exam Manual
The Uniform Securities Act does not contain bonding requirements for A) state-registered investment advisers B) issuers C) agents D) broker-dealers
B Securities professionals, other than investment adviser representatives, may be required to post a surety bond. That requirement is not placed upon issuers of securities. Reference: 3.3.1.7 in the License Exam Manual
Federal covered securities, as defined under the Uniform Securities Act, A) are bound by federal anti-fraud statutes rather than those promulgated by the states B) include shares of an investment company registered with the SEC under the Investment Company Act of 1940 C) must be registered with the SEC before they can be offered in the state D) must be registered in the state before they can be offered within the state
B Shares of investment companies registered with the SEC under the Investment Company Act of 1940 are specifically included in the definition of federal covered security. Although these investment company securities are exempt from state registration, the state may still require a notice filing, including a consent to service of process and payment of fees. While many federal covered securities are registered with the SEC, the term also includes those exempt from registration, such as government and municipal bonds, as well as securities that are the subject of a private placement under Regulation D. Although exempt from registration, federal covered securities are not exempt from state anti-fraud statutes.
The Uniform Securities Act grants an Administrator a great deal of authority. Those powers would include all of the following EXCEPT the power to A) have the court appoint a receiver for the defendant's assets after the issuance of an injunction B) impose fines for criminal violations of the act up to $5,000 C) issue a cease and desist order with or without prior hearings D) seek court orders for the payment of restitution against any violators of the act
B The Administrator does not have the power to invoke criminal penalties (three years in jail and/or a $5,000 fine under the Uniform Securities Act); that power is reserved for the courts. The Administrator may issue cease and desist orders to stop persons from violating the act, with or without a prior hearing. The Administrator may apply to a court for a temporary or permanent injunction, restitution to investors, or to have the court appoint a receiver for a violator's assets,; or refer charges to the state attorney general or district attorney for prosecution. Reference: 3.3.2.1 in the License Exam Manual
Conceptual Financial Solutions (CFS), a broker-dealer registered in States S, B, F and G, has a television commercial broadcast on a station whose studio is located in State S. An individual client who resides in State B, makes an offer to buy based on that advertisement. The State B Administrator would have jurisdiction A) only if the security or the transaction was not exempt B) when CFS accepts the buyer's offer C) when the client made the offer D) at the time the broadcast is received in State B
B The USA provides that a person in State B who makes an offer to buy as a result of an advertisement he sees in a paper published in State S (or a radio or television program originating in State S) may render the statute applicable in a specific state if the seller (CFS) then accepts the offer "in this state" (that is, State B). For our purposes a radio or television program is considered to originate in the state where the microphone or television camera is (State S) and therefore is typically only under the jurisdiction of that state's Administrator. However, when as a result of the advertisement, a resident of another state makes an offer, if it is accepted, then, because a transaction is considered to have taken place in that other state (State B in our question), the Administrator now has jurisdiction. Reference: 3.1.2.1 in the License Exam Manual
Under the Uniform Securities Act, in order for a security to be sold in this state, it must meet any of the following EXCEPT A) be exempt B) carry a rating of AA or higher C) be registered D) be federal covered
B The Uniform Securities Act makes it clear that it is unlawful to offer or sell any security in the state unless the security is registered, exempt from registration, a federal covered security, or sold in an exempt transaction. There is nothing stated regarding rating. Reference: 2.3 in the License Exam Manual
When filing the consent to service of process, which of the following is TRUE? A) It expires simultaneously with the registration on December 31. B)It is supplied with the initial registration and remains on file permanently. C) It is not required of investment adviser representatives, only investment advisers. D) It must be filed annually on the dates specified by the Administrator.
B The consent to service of process is supplied with the initial registration and remains on file permanently.
A registered broker-dealer is under common control with a registered investment adviser. An individual who is an agent of the broker-dealer and an investment adviser representative of the adviser has a client with $250,000 under an asset management program. This individual calls the client and suggests the purchase of 500 shares of RMBM common stock as an appropriate addition to the portfolio. The broker-dealer is a market maker in RMBM, and the sale will be made as a principal, a fact that is disclosed to the client on the trade confirmation. In this situation, the registered person has acted: A) lawfully in that disclosure of capacity is not necessary when executing trades in managed accounts. B) unlawfully in that investment advisers are required to make written disclosure as well as receive the advisory client's consent prior to completion of a trade where the firm or an affiliate will be acting in a principal capacity. C) lawfully in that the disclosure of capacity was made on the confirmation. D) unlawfully in that any stock the broker-dealer is a market maker in is probably not suitable for a managed money client.
B The rules regarding investment advisers and account trading are much stricter than those for broker-dealers because of the fiduciary responsibility of the adviser. Any action that results in a transaction in which the firm or an affiliate acts in either a principal or agent capacity requires the adviser to provide written disclosure of that fact to the client and obtain approval from the client prior to completion of the transaction. Reference: 4.1.1.1 in the License Exam Manual
A properly licensed agent in Illinois, Missouri, and Iowa has a client who moves from Illinois to Michigan on July 1, 2014. On September 1 of that year, the agent sells him 100 shares of a nonexempt security in a nonexempt transaction. On October 1, 2015, the client discovers that the agent's firm never licensed him in Michigan and that the agent is subject to civil liability to the purchaser. The statute of limitations for this sale runs out on A) 10/1/2017 B) 9/1/2017 C) 10/1/2018 D) 9/1/2015
B The statute of limitations for civil liability is the earlier of three years after the date of the sale or two years after discovery of the violation. In this case, the earliest date is three years after the sale on September 1, 2014. Reference: 3.3.1.1 in the License Exam Manual
Registration by coordination automatically becomes effective with federal registration if all the following conditions are satisfied EXCEPT A) no stop order is in effect B) a consent to service of process is filed no later than 5 days after the effective date C) the registration has been on file with the Administrator for at least 10 days, or some other period designated by the Administrator D) maximum and minimum proposed offering prices and maximum underwriting discounts and commissions have been on file for 2 full business days
B There is a requirement for a consent to service of process to be filed along with the registration statement, not after the effective date. Registration by coordination requires maximum and minimum proposed offering prices and maximum underwriting discounts and commissions on file for 2 full business days. It is also true that registration will become effective with federal registration if no stop order is issued, and that registration must be on file with the Administrator for at least 10 days. Reference: 2.2.2.2.1 in the License Exam Manual
Bryan, an agent registered with a broker-dealer, buys 1,000 shares of XYZ Corp. in his own account. In recommending XYZ Corp. to his customers, Bryan informs them that he believes in the company so much that he put his own money in the stock. This practice is A) only problematic if Bryan sells his shares after informing the other investors B) not an unethical sales practice C) only problematic if investors lose money in the investment D) an illegitimate sales tactic
B This practice is ethical providing it is accurate and not employed in a coercive manner. It would be expected that when Bryan decides to sell his position, he would not do so prior to notifying his clients with a position in that stock. Otherwise, this would be an ethical problem. Reference: 5.2.17 in the License Exam Manual
Under the Uniform Securities Act, all of the following are included in the definition of the term exempt transaction EXCEPT a sale of A) unregistered non-exempt securities in an unsolicited transaction B) securities to an individual investor with a net worth of more than $5 million C) securities to a bank D) nonexempt securities to a broker-dealer
B Unless there was something specified in the question or the answer choice to indicate that the transaction met one of several specific conditions, (isolated non-issuer, fiduciary, unsolicited, and so forth), sales to individuals, regardless of their wealth, are not exempt transactions . If the transaction is truly unsolicited (and the Administrator has the power to verify that), it is an exempt transaction. Transactions with financial institutions such as banks, savings and loans, and insurance companies are exempt. Although not specifically a financial institution, the USA also considers sales to broker-dealers to be exempt transactions. Reference: 2.3.2 in the License Exam Manual
Which of the following transactions would NOT be exempt under the Uniform Securities Act? A) The executor of an estate sells securities to liquidate the property B) A registered dealer sells Canadian government securities to an individual client C) Securities are sold that were collateral for a defaulted loan D) A customer calls his broker-dealer to order a specific securit
B Unsolicited, nonissuer transactions (customer calls the broker-dealer to order or sell a security) are exempt transactions, as are fiduciary transactions to liquidate estates or receiverships by guardians, executors, administrators, trustees or, conservators. Sales of securities that had been pledged as collateral for a defaulted loan are also exempt transactions. The sale of Canadian government securities by a registered dealer represents a security that is exempt under the Uniform Securities Act, but the transaction itself is not. Reference: 2.3.2 in the License Exam Manual
Which of the following securities is NOT exempt from the registration procedures of the Uniform Securities Act? A) General obligation bonds issued by a city located in this state B) Variable annuities issued by an insurance company authorized to do business in this state C) Common stock issued by a public utility company whose rates are subject to state regulation D) Bonds issued by a church operating as a nonprofit organization under IRS Code Section 501(c)(3)
B Variable annuities are not exempt from state registration because the payments from the annuity are dependent on the performance of a segregated fund invested in securities. Municipal securities and regulated public utilities are exempt from registration. Securities issued by religious and charitable organizations are exempt from registration under the USA. Reference: 2.3.1 in the License Exam Manual
A broker-dealer receives a written complaint from one of its customers. The most appropriate action to take is to A) immediately notify NASAA B) immediately reply to the client in writing C) immediately suspend the agent involved until the complaint is resolved D) immediately notify the Administrator
B When a broker-dealer receives a written complaint from a customer, it must document that complaint and begin an investigation as to the complaint's merits. Part of that procedure would be sending a written acknowledgment to the client that the complaint has been received. This is an internal matter and the BD has no reason to notify the Administrator. There is no reason to immediately suspend an agent over a complaint—at least not until wrongdoing has been proven. Reference: 5.2.19 in the License Exam Manual
***If a BD is selling shares of an affiliated company under which of the following conditions could the BD sell these shares to an account over which the BD has discretion? A) If a normal discretionary papers are filled out and the account has been accepted in writing by a principal of the BD B) If a specific authorization is received from the customer C) If written disclosure of the affiliation has been given to the customer no later than with the confirmation D) Under no circumstances may these shares be sold to discretionary accounts
B normally a disclosure of the BD control relationship with the affiliate would be sufficient. However, a sale to a discretionary account requires specific approval of the customer
dishonest or unethical business practice-lending or borrowing affects
BD and agent
dishonest or unethical business practice-spreading rumors affects
BD and agent
dishonest or unethical business practice-failing to disclose conflicts of interest affects
BD only
dishonest or unethical business practice-unreasonable servicing fees affects
BD only
dishonest or unethical business practice-withholding shares of a public offering affects
BD only
certain activities like linking a 3rd party site or receiving data feeds from outside sources could contain
information that the NASAA considers objectionable
*material
information used by a prospective purchaser to make an informed investment decision
*****Broker-dealers are required to disclose their capacity in any transaction with their customers. If the broker-dealer acted as the contraparty to the trade, that would mean that the firm acted A) unethically B) as the client's agent C) in the capacity of a broker D) in the capacity of a dealer
B????
delivery delays apply to
BD
******An agent is registered with XYZ Discount Brokers, a wholly owned subsidiary of the XYZ Bank Holding Company. The holding company also owns XYZ Capital Markets, a full service broker-dealer. Under the provisions of the Uniform Securities Act, this agent would be permitted to split commissions A) with a client in a joint account as long as consent has been received from the client and the employing broker-dealer B) with any agent properly registered with the Administrator of the state C) with an agent employed by XYZ Capital Markets D) exclusively with other agents registered with XYZ Discount Brokers
C
******Jacques is registered as an agent with Mount Royal Securities, a Canadian broker-dealer located in Quebec City with no offices in the United States. One of Jacques's clients who has a Canadian tax qualified retirement plan has recently made a permanent move to Arizona. Which of the following statements is TRUE? A) Under no circumstances is Jacques permitted to have any dealings with this client once residence in Arizona has been effective more than 30 days. B) Jacques must register with both FINRA and the State of Arizona even though Mount Royal Securities is not registered. C) Both Jacques and his broker-dealer would have to obtain limited registration in Arizona and could continue to deal with this client on a permanent basis. D) Jacques's current Canadian registration is sufficient to deal with a client who moves to another country.
C
In the securities industry, the term contra-party refers to A) the person on the other side of a civil suit B) a securities regulator who begins an investigation against a securities professional C) the person on the other side of the trade D) the person identified on the trade confirmation as a broker
C
It has long been custom for broker-dealers to provide research and other customer-related services to investment advisers who direct brokerage business to them. Details about what is and what is not allowable are found in A) Section 206 of the Investment Advisers Act of 1940 B) the Dodd-Frank Act of 2010 C) Section 28(e) of the Securities Exchange Act of 1934 D) Section 414 of the Uniform Securities Act of 1956
C
The Uniform Securities Act defines a guaranteed security as one A) that may only be sold to institutional investors B) where a party other than the issuer offers a guarantee that investors are assured of never receiving less than their original investment C) where the payment of interest and principal (bond) or dividend (stock) is guaranteed by a party other than the issuer D) involving a guarantee of a minimum profit by a party other than the issuer
C
The procedure for entering an order to purchase a security for the account of a customer is to complete an order ticket. Which of the following would be found on an order ticket? A) Account number, customer address, time of order entry, and terms and conditions of the order B) Customer name, customer address, execution price, time of execution or cancellation C) Account number, execution price, time of order entry, time of execution or cancellation, and terms and conditions of the order D) Customer name, execution price, time of order entry, and time of execution or cancellation
C
The state Administrator may, by rule or order, require issuers of federal covered securities to file records with the state that are part of a registration statement filed with the SEC. This procedure is called A) registration by coordination B) registration by qualification C) notice filing D) registration by requirement
C
Under the Uniform Securities Act, which of the following is NOT required to be in writing in an advisory contract? A) The amount of prepaid fee to be returned in the event of contract termination B) The method used for computing the adviser's compensation C) The names and titles of all principals in the advisory firm D) The terms of the advisory contract
C
which isn't 1/3 prongs of making a person an IA A) giving advice on securities B) being in the business of giving advice C) executing trades in recommending securities D) receiving compensation for the advice rendered
C
As defined in the Uniform Securities Act, which of the following persons is included in the term agent? A) A broker-dealer who sells registered securities to the general public B) An individual who represents an issuer in an exempt transaction C) An individual, employed by a broker-dealer who sells NYSE-listed securities exclusively to institutional clients D) An individual who sells to public investors, the sovereign debt securities of a foreign government with which the United States has diplomatic relations in the capacity of an employee of that government
C An agent under the Uniform Securities Act is a person (an individual) who sells securities to both retail and institutional members of the public. The term agent is not applicable to a person who represents an issuer in an exempt transaction or in the sale of certain exempt securities, such as those issued or guaranteed by a foreign government with which the United States has diplomatic relations. The term agent specifically excludes broker-dealers. Reference: 1.3.2 in the License Exam Manual
what is the consent of process submitted with?
initial implication and remains in force permanently
Under the Uniform Securities Act, a person who exclusively provides advice on commodities is A) a registered insurance agent B) a registered investment adviser representative C) not a registered investment adviser D) an options representative
C A person who only provides advice on commodities is not a registered investment adviser. To be an investment adviser under the Uniform Securities Act, advice must be given on securities. The act specifically excludes commodities from the definition of security. Reference: 1.5 in the License Exam Manual
Which of the following activities are prohibited under the Uniform Securities Act? I. Engaging in a practice not expressly forbidden by the act but defined as unethical by the Administrator in a rule II. Omitting a material fact when soliciting a client III. Selling recommended securities to a client from one's own account without disclosing this fact to the client A) II and III B) I and II C) I, II, and III D) I and III
C A practice that is not expressly forbidden by the act but defined as unethical by the Administrator, the deliberate omission of a material fact when soliciting a client, and selling recommended securities to a client from one's own account without disclosing this fact to the client are all prohibited. Reference: 5.1.1 in the License Exam Manual
Pat Conway, a risk-averse investor, has never invested money outside of bank instruments. Recognizing Pat's conservative nature, his agent recommends Treasury notes, pointing out that federal government-backed securities are riskless securities. In the above situation, the agent has acted A) unlawfully, because Treasury notes are unsuitable for a risk-averse customer B) lawfully, because Treasury notes are suitable for a risk-averse customer C) unlawfully, because the agent failed to disclose that the customer retains interest rate risk D) lawfully, because Treasury notes carry no risk of principal default
C Although Treasury securities (such as T-notes) issued by the federal government do not carry default risk, the customer who buys them retains interest rate risk because the value of the notes will fall if interest rates rise. The agent has acted unlawfully in not disclosing this to the customer. Reference: 5.1.1.1 in the License Exam Manual
Which of the following securities is most likely to register by qualification in the state of Virginia? A) An offering of common stock by a Virginia-based corporation that will be offered on a nationwide basis B) An offering of common stock by a Virginia-based corporation that will be simultaneously registered at the federal level C) An offering of common stock by a Virginia-based corporation to Virginia residents only D) An offering of common stock by a Virginia-based corporation to residents of Virginia and the Carolinas
C Although any issuer may register its securities at the state level by qualification, this cumbersome means of registration is mainly used in conjunction with intrastate (single state) offerings. If a security is offered by a corporation beyond its own home state, the issuer must register with the SEC at the federal level. Registration by qualification, while permitted, would be an unlikely choice. Reference: 2.2.2.3 in the License Exam Manual
Under the Uniform Securities Act, all of the following are excluded from the definition of an investment adviser EXCEPT A) banks B) a federal covered adviser C) a person in the business of providing advice on municipal bonds for compensation D) broker-dealers and their agents
C Although municipal bonds are exempt securities, that only refers to their exemption from registration with the state or SEC. Any person who is in the business of giving advice on securities would be defined as an investment adviser and, therefore, would require registration.
Under the Uniform Securities Act, the term broker-dealer would include A) agents registered under the act who from time to time sell stock from their personal brokerage accounts B) an issuer distributing its own common stock offering C) a person with no office in the state who effects securities transactions with no more than 5 individual residents of the state in any 12-month period D) a person with no office in the state who effects securities transactions with over 50 different banks domiciled in the state
C Although the person has no office in the state, transactions are effected with individual residents of the state. Under the USA, this person is defined as a broker-dealer. There is no de minimis exemption for broker-dealers. A person is exempt from the definition of broker-dealer if there is no office in the state and securities trades are confined to institutional clients, without a numerical limit, or existing individual clients not residents of that state. The agents are merely selling their own stock as would any other individual; that does not make one a broker-dealer. Reference: 1.2.1.1 in the License Exam Manual
An employee of an issuer who sells the issuer's common stock exclusively to trust companies and savings institutions is A) a broker-dealer and must be registered as such B) an officer of the issuer and is automatically registered as an agent C) not required to register as an agent of the issuer D) an agent of the issuer and must be registered as such
C Among the exceptions from the definition of an agent is when representing issuers in an exempt transaction (in this case, transactions with trust companies and savings institutions). Therefore, no registration is required. Reference: 1.3.2 in the License Exam Manual
Which of the following must register as an agent? A) An individual who sells commercial paper for ABC National Bank B) An individual who is paid a commission to sell FDIC insured certificates of deposit for ABC National Bank C) An individual representing a broker-dealer who sells commercial paper D) An employee of the Fed whose job is selling Treasury bonds to the public
C An individual who represents a broker-dealer selling commercial paper must register under the USA. Though the securities (commercial paper) are exempt, the representative must be registered as an agent of the broker-dealer. An individual who sells commercial paper for ABC National Bank would not have to register because the bank is excluded from the definition of broker-dealer. An employee of the federal government need not register with the state because he represents an exempt issuer. An individual who is paid a commission to sell certificates of deposit for a commercial bank does not have to register as an agent because he is not selling a security. Reference: 1.3.3 in the License Exam Manual
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 a family member has a beneficial interest in a private medical equipment firm that the IAR recommends to a client C) when donating funds to a nonprofit medical research institute that owns securities the IAR has recommended D) when compensation is received from the affiliated broker-dealer for transactions that are executed through the brokerage house
C 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. Reference: 4.1.2.1 in the License Exam Manual
An investment adviser with no place of business in the state is exempt from registration with the state when making recommendations to all of the following EXCEPT A) Amalgamated Bank B) AAA Manufacturing Co., with respect to the quality of investment bankers available for an underwriting of AAA securities C) when the recommendations are made exclusively to individual residents of the state who are accredited investors regarding new issues of exempt securities not registered in that state D) St. Amelia's college endowment Fund
C An investment adviser with no place of business in the state is not exempt from registration with the state when making recommendations to individual accredited investors who are residents of that state, even when the securities being recommended are exempt from registration. The Uniform Securities Act exempts investment advisers with no place of business in the state who deal with certain institutional customers such as banks, insurance companies, investment management companies, and employee benefit plans with assets of $1 million or more. College endowments and other nonprofit organizations also carry exempt status, but not wealthy individuals. An adviser advising an issuer on the quality of potential underwriters does not fall within the definition of investment adviser under the Uniform Securities Act and is therefore exempt from registration. Reference: 1.5.3.1 in the License Exam Manual
Which of the following statements best describes rights of rescission under the USA? A) An agent who unknowingly violated the USA may be imprisoned for up to 5 years. B) Any investor who loses money in a securities transaction can be made financially whole under the rights of rescission. C) An investor who believes he has been wronged in conjunction with a violation of the USA may be entitled to restore his former financial condition as if the transaction had not occurred. D) Rights of rescission are not generally available to public customers under the USA, although such rights may be made available to institutional investors.
C An investor who believes he has been wronged in conjunction with an investment transaction may have recourse under rights of rescission to restore his original financial condition. Generally, an investor exercising rights of rescission is entitled to recover the amount of the initial investment, a reasonable rate of interest on that amount, and attorney's fees, if any, less any income received on the security. An agent may not be imprisoned for unknowingly violating the USA. Reference: 3.3.1.2 in the License Exam Manual
Under the Uniform Securities Act, the Administrator may designate another officer to A) grant registration exemptions B) set recordkeeping requirements C) serve subpoenas D) issue a cease and desist order
C An official designated by the Administrator may serve subpoenas since that is basically an administrative function: however, an Administrator may not designate another official to grant registration exemptions or issue cease and desist orders. The recordkeeping requirements are set by law and cannot be altered by the Administrator. Reference: 3.2.2 in the License Exam Manual
Which of the following conditions would most likely meet compliance standards of state regulators? A) Maintaining an under-the-radar system of monitoring social media use by its agents is permissible when determining compliance with NASAA's rules. B) Requiring only those in a supervisory role need to recognize the difference between business and non-business communications. C) Training both supervisory personnel and agents on the difference between interactive and static content D) At a minimum, a firm that permits use of social media sites, holding biennial training as part of its continuing education obligations.
C Before allowing associated persons to use social media for business purposes, a firm's policies and procedures must provide for personnel training and education relating to the parameters of permitted use. Both supervisory personnel and agents need to understand the difference between interactive and static content, between business and non-business communications. A firm should consider requiring training in the use of social media before permitting use. At a minimum, a firm that permits use of social media sites must hold annual training as part of its continuing education obligations. Reference: 4.5.3.1 in the License Exam Manual
When a broker-dealer furnishes clearance, settlement, and custody services for an investment adviser who directs client brokerage transactions to that broker-dealer, the adviser is A) in violation of the UPIA B) exercising discretion in the accounts of those clients C) receiving soft dollar compensation D) in violation of NASAA's Model Rule
C Under Section 28(e) of the Securities and Exchange Act of 1934 (and NASAA Policies), broker-dealers are permitted to provide services to investment adviser in exchange for directed securities transactions as long as the services benefit the clients. Reference: 5.5 in the License Exam Manual
In October 1987, the SEC promulgated Release IA-1092, which had the effect of broadening the definition of investment adviser. As a result of the Release, which of the following would NOT be included in the definition? A) Financial planners who prepare comprehensive financial plans for families and individuals B) Persons who receive a nominal fee for assisting employee benefit plan administrators in selecting investment managers for the plan's assets C) Commercial banks offering a full range of advisory services for their high-net-worth clients D) Entertainment agents earning a fee for negotiating contracts for their clients and then placing a portion of the client's' royalties into appropriate investments as market conditions dictate
C Commercial banks are always excluded from the definition of investment adviser. Once the entertainment agent makes investment decisions for a client who is paying fees for overall services rendered, that individual now comes under the IA-1092 definition of investment adviser. Similarly, any person who is compensated for giving investment-related advice to employee benefit plans is considered a pension consultant and is required to register under IA-1092. Also included are financial planners if they are being compensated for advice on securities. (On the exam, a comprehensive financial plan always includes investment advice.) Reference: 1.5.1 in the License Exam Manual
An employee of a commercial bank selling the bank's bonds to its banking clients is acting in the capacity of a(n) A) broker-dealer B) agent of the issuer C) person excluded from the definition of an agent D) agent of a broker-dealer
C Commercial banks are included in that group of issuers of exempt securities whose individuals representing them in the sale of their securities are excluded from the definition of agent. Reference: 1.3.2 in the License Exam Manual
Which of the following would subject an agent to a denial of registration? I. An arrest for fraudulent behavior in selling securities to an insurance company 2 years ago II. Conviction of a securities-related misdemeanor eight years ago III. Losing a civil lawsuit three years ago that related to the agent's actions as a landlord IV. Failure to pay filing fees A) II, III, and IV B)I and IV C)II and IV D)I, II, and III
C Conviction, not merely an arrest, for a misdemeanor involving securities within the past ten years, and failure to pay filing fees are grounds for denial. Loss of a civil suit not related to the securities industry is not a cause for denial to an agent or IAR. Reference: 3.2.4.1 in the License Exam Manual
Fraudulent or prohibited business practices under the Uniform Securities Act would include: I. failure to state material facts II. trading on inside information III. failing to forward a customer complaint received by email to the agent's supervisor IV. sharing commissions with an agent of a nonaffiliated broker-dealer A) I, II, and III B) III and IV C) I, II, III, and IV D) I and II
C Failure to state material facts and trading on inside information are prohibited business practices. Forwarding written customer complaints (email is considered written) to your supervisor is required; sharing commissions with an agent licensed with the same or affiliated broker-dealer, but not one with which there is no affiliation, is permitted. Reference: 5.2.26.4 in the License Exam Manual
In which of the following situations did an agent commit fraud? A) On review of his files, an agent discovered he had sold a nonexempt, unregistered security to a retail client. B) A client claims an agent sold him unsuitable securities. C) An agent knowingly sold a nonexempt, nonregistered security to a retail client for whom the security was deemed suitable. D) An agent sold shares in a company to a client by omitting immaterial information during the discussion, so as not to distract the client from making the purchase.
C Fraud requires the intent to deceive. The agent knowingly deceived the client by selling unregistered securities, therefore committing a securities fraud. An agent is not required to discuss all information, only that which is material information. The term retail client refers to individual or non-institutional clients. Reference: 5.1.1.1 in the License Exam Manual
An agent submits a list of recommendations to a customer that includes 5 different securities. The customer chooses to buy a round lot of 1 of the 5 securities recommended (a stock in which the agent's broker-dealer makes a market). The firm, in completing the trade, charges a markup that is larger than normal for a stock transaction. Is this allowable under the Uniform Securities Act? A) Yes, markup schedules are dependent upon the type of security, broker-dealer risk, services that the broker-dealer provides, and effort in acquiring the security. B) No, the markup schedule is set and cannot be changed for an individual trade. C) No, under the circumstances given, it is a prohibited practice to charge a higher than normal markup. D) Yes, it is allowable, but proper disclosure is required.
C Higher than average markups or commissions are not prohibited if they are justifiable and disclosed. However, in this case, there would appear to be no justification because the customer bought a round lot, the normal trading unit of stock. The firm is a market maker, so the security is being sold from their inventory and the stock is on the company's recommended list. Reference: 5.2.9 in the License Exam Manual
A client with a margin account notifies an agent of his vacation next week. The day after the client departs, there is a substantial market sell off, and the drop in the value of the client's portfolio requires additional margin in the client's account immediately. Which of the following actions of the agent would NOT be prohibited? A) Contacting the client's banker and arranging a loan on behalf of the client to meet the margin call B) Transferring funds from the client's spouse's account to meet the margin call C) Doing his best to reach the client, and, if unsuccessful, notifying his supervisor, who will direct that sufficient securities in the account be liquidated to meet the margin call D) Lending the client sufficient funds to meet the margin call
C If the client cannot be reached, the only way to satisfy the margin call is through the liquidation of shares in the account. None of the other actions described here would be permitted. An agent can never lend money to a client, nor may loans be arranged through banks. To transfer funds from another account, permission of all owners of that account must be obtained. Reference: 5.2.25 in the License Exam Manual
Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, it is permissible for an agent to do all of the following EXCEPT A) charge larger commissions because of a larger array of services the agent's firm offers B) solicit transactions in unregistered exempt securities C) open a joint account with a customer with written consent of the employing broker-dealer D) split commissions with another agent at an affiliated broker-dealer
C In order for an agent to open a joint account with a client, written consent of both the client and the employing broker-dealer is required. Exempt securities are unregistered because they are exempt from registration, so solicitations for trades are no problem. Splitting commissions with agents of the same broker-dealer or different broker-dealers under common control is also permitted. However, 2 registered agents representing nonaffiliated broker-dealers may never share commissions. The Policy does permit commission charges to reflect the quality and quantity of services provided to the client. Reference: 5.2.26.4 in the License Exam Manual
One way in which an investment adviser acting in the capacity of an agent in a transaction with a client differs from a broker-dealer performing the same task is that the investment adviser A) may not charge a commission on the transaction B) shall disclose the agency capacity before the transaction C) shall obtain client consent before completion of the transaction D) shall notify the Administrator of its capacity in the proposed transaction
C In order to act as an agent (or principal) in a trade with an advisory client, there are 2 requirements: The client receives full written disclosure as to the capacity in which the adviser proposes to act Consent of the client Both of these are required before the completion of the transaction. Reference: 4.1.1.1 in the License Exam Manual
Agents A and B work for the same firm and wish to share commissions. Agent A is licensed in states X, Y, and Z. Agent B is licensed in states X, Y, and C. Which of the following statements is TRUE in regard to their sharing commissions? A) Only the commissions from states Z and C could be shared. B) All commissions from agents A and B can be shared. C) Only the commissions from states X and Y could be shared. D) Commissions cannot be shared.
C In order to share commissions, agents must be registered as an agent for the same broker-dealer or for an affiliated broker-dealer. Additionally, in order to receive a commission, an agent must be registered in the state where the transaction is made. Reference: 5.2.26.4 in the License Exam Manual
State securities Administrators may NOT impose which of the following? A) Bonding requirements for registered agents B) Surety bond, minimum net capital levels, or both on broker-dealers with custody of client funds and securities C) Minimum net worth levels on registered investment adviser representatives D) Minimum net capital requirements on broker-dealers
C Individuals registered as investment adviser representatives (or agents) never have to meet net worth or net capital standards. Broker-dealers and investment advisers have to meet net capital or net worth requirements. Broker-dealers with custody can, at the discretion of the Administrator, post a surety bond in lieu of minimum net capital requirements. Reference: 1.6.1.1 in the License Exam Manual
The Uniform Securities Act invests the office of the Administrator with a number of powers. However, the act does not permit the Administrator to A) insist that specific forms be used to register securities B) inspect offices of registered broker-dealers without prior notice C) issue an injunction when there is evidence of wrongdoing D) issue a cease and desist order without prior notice
C Injunctions may be issued by a court of competent jurisdiction only. Reference: 3.2.3 in the License Exam Manual
At a charity ball, you are introduced to someone who, upon hearing your name, exclaims that he has heard that you are doing a magnificent job managing his best friend's investment portfolio. Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, it would NOT be a violation for you to A) accept the compliment and comment on the portfolio's year-to-date return B) indicate that most of the performance was due to the large number of IPOs you were able to place into the account C) acknowledge the fact that the friend is a client D) deny that the friend is your client
C It is normally prohibited to tell others who your advisory clients are without their consent. However, under these circumstances, you would be permitted to affirm that this is your client but say nothing more about the account. Denying that the friend is your client would be lying—you can't do that and it would get back to the client. Reference: 5.3.5 in the License Exam Manual
A "margin account" is a type of brokerage account in which the broker-dealer lends the investor cash to purchase securities using marginable securities in the account as collateral. Which of the account documents authorizes the use of those securities as collateral for that loan? A) The loan consent agreement B) The hypothecation agreement C) The credit agreement D) The secured agreement
C It is the credit agreement, sometimes referred to as the margin agreement, which contains all of the terms of the loan. In addition to explaining how the interest is charged and the right of the firm to liquidate collateral if a call for additional funds is not made, the credit agreement contains the terminology which authorizes the broker-dealer to use the value of the account as collateral for the margin loan made by the BD to the client.The hypothecation agreement permits the broker-dealer to pledge the client's margin securities as collateral for a loan that the BD takes out. In simple terms, there are two loans taking place: The loan from the BD to the client with the client's securities used as collateral. That is covered in the credit agreement The loan from a bank to the BD with the client's securities used as collateral for the BD's loan. The authorization for the BD to use those securities is found in the hypothecation agreement. Reference: 4.4.2.1 in the License Exam Manua
According to the USA, under what circumstances is an employee of a licensed broker-dealer in a state allowed to sell exempt securities as an unregistered agent? A) The employee is not paid any commission or salary. B) The securities are federal covered securities. C) Under no circumstances is an employee of a licensed broker-dealer in a state allowed to sell exempt securities as an unregistered agent. D) The transaction is exempt.
C It is unlawful for a person to transact business on behalf of a broker-dealer unless that person is registered as an agent in the state. Only individuals selling on behalf of the issuer may qualify to be exempt from registration as an agent. Reference: 1.3.2 in the License Exam Manual
In order for a security to lawfully be sold or offered under the USA, it must meet at least one of the following requirements EXCEPT that it is A) an exempt or federal covered security B) properly registered with the Administrator C) registered with the SEC D) sold in an exempt transaction
C It is unlawful to sell a security in a state unless the security is a federal covered security, exempt from registration under the USA, sold in an exempt transaction, or registered under the act. There is no requirement that a security be registered with the SEC; that is the primary purpose of registration by qualification - registering a security on the state level that is not SEC registered. Reference: 2.2.2.3 in the License Exam Manual
As appropriate to the scale and complexity of a firm's business, elements of an effective practice framework for managing conflicts of interest include all of the following EXCEPT A) establishing mechanisms to identify conflicts in a firm's business as it evolves B) avoiding severe conflicts, even if that avoidance means foregoing an otherwise attractive business opportunity C) ensuring that the firm remains solvent for protection of customers and employees alike D) training staff to identify and manage conflicts in accordance with firm policies and procedures
C Managing conflicts of interest does not take into consideration making enough money to remain solvent. Reference: 4.1.2 in the License Exam Manua
an agent's recommendation for the purchase of a municipal security to a customer who wants fixed income and is in a relatively low tax bracket would in most cases be I. unsuitable and unethical II. a securities felony III. grounds, in extreme cases, for suspension or revocation of the agent's license IV. outside regulatory jurisdiction A) I only B) IV only C) I and III D) II and III
C Municipal bonds provide a fixed income, but they are generally suitable only for high tax-bracket individuals. In this case, such a recommendation is probably unethical and could result in suspension or revocation of the registered agent's license. Reference: 5.2.3 in the License Exam Manual
In designing a client's portfolio, a registered investment adviser representative of Greater Wealth Advisory Services recommends the purchase of several stocks from the inventory of Greater Wealth's wholly owned broker-dealer. Under current regulations, this activity requires written A) disclosure to the client B) consent of the client C) disclosure to the client and consent prior to completion of the transaction D) consent of and the disclosure to the client before the execution of the transaction
C PRIOR TO COMPLETION
The Seeking Alpha Growth Fund directs a sizeable portion of its portfolio executions to your broker-dealer. If the firm has this fund on its highly recommended list, this would be A) allowed only when the investment company uses more than 1 broker-dealer to sell its shares B) allowed without restriction C) a conflict of interest that would have to be disclosed D) a conflict of interest only if selling shares and executions for the portfolio by the member takes place on the same business day
C Recommending shares of a fund when the broker-dealer is aware that a policy exists to direct brokerage to them is an obvious conflict of interest, and would have to be disclosed. Reference: 4.1.2 in the License Exam Manual
A closed-end investment company is registered under the Investment Company Act of 1940. Its shares trade on the Nasdaq Stock Market. To qualify their shares for sale in the state, they would probably use A) qualification B) coordination C) notice filing D) supplementation
C Regardless of where shares of this closed-end investment company trade, like all investment companies registered under the Investment Company Act of 1940, it is a federal covered security. The company is basically exempt from state registration and is only required to follow a procedure known as notice filing. Reference: 2.2.2.1 in the License Exam Manual
Securities of a nonexempt corporate issuer that are not registered with the SEC may only be registered with the Administrator in which of the following ways? A) Obfuscation B) Condemnation C) Qualification D) Coordination
C Securities of a nonexempt corporate issuer that do not have a federal registration must be registered with the Administrator by qualifying with the Administrator. This process is called registration by qualification. Reference: 2.2.2.3 in the License Exam Manual SEC ISNT QUALIFIED
Peter Smith, a prominent securities lawyer living in Connecticut, conducts his securities law practice full time in New York state. He must register as an investment adviser in New York state if A) he advises his wife, who also has an office in New York, that her investment in 15 technology stocks is too high B) the clients of Smith's law firm are all residents of Connecticut but conduct their business with Smith in New York C) Smith's clients, none of whom are residents of New York, receive investment advice as an integral part of Smith's legal services D) the clients of Smith's law firm are New York residents and seek advice on the construction of trust documents that may be helpful in reducing taxes on the securities in their estates
C Smith must register as an investment adviser in New York when or if he is offering investment advice as an integral part of his practice. Since his place of business is in New York, he must register in New York as an investment adviser, even though his clients are not themselves residents of the state. If Mr. Smith advises his wife, who also has an office in New York, that her investment in 15 technology stocks is too high, he need not register in New York because he is not charging his wife a fee for investment advice. Mr. Smith, as a securities lawyer, need not register in New York as an investment adviser when he advises clients on the construction of trust documents. Reference: 1.5.3.1 in the License Exam Manual
Peter Smith, a prominent securities lawyer living in Connecticut, conducts his securities law practice full time in New York state. He must register as an investment adviser in New York state if A) the clients of Smith's law firm are New York residents and seek advice on the construction of trust documents that may be helpful in reducing taxes on the securities in their estates B) he advises his wife, who also has an office in New York, that her investment in 15 technology stocks is too high C) Smith's clients, none of whom are residents of New York, receive investment advice as an integral part of Smith's legal services D) the clients of Smith's law firm are all residents of Connecticut but conduct their business with Smith in New York
C Smith must register as an investment adviser in New York when or if he is offering investment advice as an integral part of his practice. Since his place of business is in New York, he must register in New York as an investment adviser, even though his clients are not themselves residents of the state. If Mr. Smith advises his wife, who also has an office in New York, that her investment in 15 technology stocks is too high, he need not register in New York because he is not charging his wife a fee for investment advice. Mr. Smith, as a securities lawyer, need not register in New York as an investment adviser when he advises clients on the construction of trust documents. Reference: 1.5.3.1 in the License Exam Manual
The NASAA Model Rule on Agency Cross Transactions requires that an investment adviser send a written disclosure document to affected clients that includes such items as the total number of agency cross transactions during the period for the client, as well as the total amount of all commissions or other remuneration the investment adviser has received in connection with agency cross transactions for the client during the period no less frequently than A) quarterly B) within a reasonable period of time following any transaction made in reliance upon this rule C) annually D) semiannually
C The NASAA Model Rule requires that these disclosures regarding agency cross transactions by an investment adviser must 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 investment adviser 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. Reference: 5.4.4 in the License Exam Manual
Different types of accounts have different times for receipt of customer information. Which of the following does NOT correctly state the required time for the specified account? A) Written discretionary account authorization must be received by a broker-dealer before exercising discretion. B) Written discretionary account authorization must be received by an investment adviser within 10 days after the initial discretionary trade. C) Margin account agreements must be received before the first margin trade in the account. D) The options account agreement must be received within 15 days after the customer's account has been approved.
C The NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents requires that margin account agreements must be received promptly after the initial margin trade in the account. All of the other choices are correct regarding the relevant time of receipt. Reference: 4.4.2.3 in the License Exam Manual
The National Securities Markets Improvement Act of 1996 (NSMIA) A) created the concept of fraud, as used in the Uniform Securities Act B) overcame the restrictions of selling securities in interstate commerce C) defined the term "federal covered adviser" D) created a national market system
C The NSMIA defined the term "federal covered adviser" (sometimes just shown as covered adviser on the exam), referring to advisers who must register with the SEC or who are excluded from the definition of investment adviser under the Investment Advisers Act of 1940. Fraud is a legal concept which is prohibited by the Uniform Securities Act. Selling securities in interstate commerce is not fraudulent provided the antifraud provisions securities laws are observed. The roots of a national market system began with the Securities Amendments Act of 1975. Reference: 1.5.2.1 in the License Exam Manual
Under the National Securities Markets Improvement Act of 1996 (NSMIA), investment companies registered under the Investment Company Act of 1940 are required to register A) as exempt securities, at neither state nor federal levels B) as securities at the state level only C) as securities at the federal level only D) as securities at both state and federal levels
C The NSMIA requires that the SEC, rather than individual states, assume responsibility for the registration and regulation of federal registered mutual funds and other investment companies. Thus, these federal registered investment companies are no longer required to register at the state level; however, they will likely have to pay state filing fees by going through the notice filing procedure. Reference: 2.2.1.1 in the License Exam Manual
An agent opens an account for a new customer and executes trades in the account. Three weeks later the account has a significant profit. The customer's husband calls and directs the agent to liquidate the account because his wife has lost her job. Under the Uniform Securities Act, the agent can A) accept the husband's instructions B) write the customer a personal check for the original amount and keep the appreciation as commissions C) liquidate the holdings in the account as a result of the change in the client's financial circumstances D) do nothing without instructions from the client herself
D
Which of the following statements best describes the effect of the NSMIA on securities regulation? A) Provided for the registration of intrastate securities B) Established the need for dual registration of securities C) Preempts state registration of covered securities D) Increased the power of state securities Administrators over registration of securities
C The National Securities Markets Improvement Act preempts state registration of covered securities. On the exam, the word federal is sometimes omitted, but covered still means federal covered securities. State Administrators may not impose registration requirements on securities that are subject to federal regulation. This has had the effect of reducing their power, not increasing it. Unlike the NSMIA's effect on investment advisers where there is no longer dual registration, the requirement to register as a securities offering on both the state and federal level still exists for those securities which are not federal covered. Registration for intrastate securities goes back to the earliest of the blue-sky laws, well before the NSMIA. Reference: 2.2.1 in the License Exam Manual
State laws provide for exclusions from the definition of investment adviser. Which of the following persons is specifically excluded under the Uniform Securities Act? A) Economists whose advice is strictly incidental to their professional activity B) Broker-dealers receiving special compensation C) Investment adviser representatives D) A wholly owned subsidiary of a commercial bank that is in the business of offering investment advice
C The USA specifically excludes IARs from its definition of investment adviser. Excluded are banks but not subsidiaries offering investment advice. Once broker-dealers receive special compensation, such as in a wrap fee program, they lose their exclusion. Economists are not included in the list of exclusions. Reference: 1.5.2 in the License Exam Manual
Under the Uniform Securities Act, an investment adviser who has custody of client securities or funds must do all of the following EXCEPT A) Notify the Administrator in writing that the adviser is maintaining custody B) Maintain one or more separate bank accounts where client funds are deposited and keep customers' securities clearly marked and segregated C) Send clients itemized statements no less frequently than every 6 months detailing the funds and securities in the adviser's custody at the end of the period D) Have client funds and securities examined at least once a year by an independent public accountant on a surprise basis
C The adviser must send clients quarterly (not semi-annual) itemized statements listing the funds and securities in the adviser's custody at the end of the period and all transactions during the period. The adviser must deposit client funds into one or more bank accounts, not commingled with adviser funds, and notify the clients in writing of where and in what manner the funds are held. The adviser must also arrange for an annual, surprise audit by an independent public accountant of client funds and securities. The adviser must notify the Administrator that the adviser has or may have custody of client securities or funds. Reference: 5.4.2 in the License Exam Manual
An agent puts together a recommendation for a customer but is unable to attend the meeting. Another agent from the firm meets with the customer and presents the recommendation, but omits some material facts. According to the Uniform Securities Act, this is A) permitted if the second agent receives no compensation for presenting the recommendation B) permitted if the second agent was unaware of the omission C) considered a fraudulent act D) permitted if the recommendation pertains to an exempt security
C The agent making a recommendation to a customer is responsible for presenting all of the material facts. To do otherwise is committing fraud. Material facts must be presented to a customer regardless of the type of security sold or whether a commission is to be earned or not. Remember, a material fact is one that is critical to the investment decision making of a client. Reference: 5.1.1.2 in the License Exam Manual
An agent is discussing an equity index annuity purchase with a client. The agent explains that there are several which she feels are equally suitable for the client, but one of the companies is offering a trip for 2 to Las Vegas for reaching certain sales goals. She continues by stating that this sale will put her over the goal and win her the trip. If the client purchases that annuity, the agent A) will probably be disciplined for failure to disclose the potential conflict of interest B) should only sell what is suitable for the client based on all available information C) should pack her bags for the trip; she earned it D) should pack her bags and leave the firm before the compliance department learns of her actions
C The annuity recommended by the agent is offering an incentive. The agent is clearly disclosing that fact to the client and, if the client goes ahead and makes the purchase, it is with full knowledge of the potential conflict of interest. The question states that the agent considers this annuity, along with others, to be suitable. Reference: 4.1.2 in the License Exam Manual
Which of the following involves an offer or sale? A) A stock dividend B) An exchange of securities due to a reorganization C) A gift of an assessable security D) A pledge of stock
C The gift of an assessable security, where the recipient may be required (assessed) to put up money, involves both an offer and a sale. Reference: 3.1.1.4 in the License Exam Manual
Margin is borrowing money from a broker-dealer to buy a stock using the investment as collateral. In many cases, the brokerage firm then uses that collateral for a loan from a bank. Which of the following account documents authorizes the firm to pledge the customer's stock? A) The loan consent agreement B) The credit agreement C) The hypothecation agreement D) The securities pledge agreement
C The hypothecation agreement gives permission to the broker-dealer to pledge a customer's margin securities as collateral. The firm hypothecates customer securities to the bank, and the bank loans money to the broker-dealer on the basis of the loan value of these securities. Reference: 4.4.2.1 in the License Exam Manual
Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, in which of the following circumstances may an investment adviser representative share in profits and losses in a customer's account? A) If the client and the IAR's supervisor give permission and if the sharing is done in proportion to the amounts each part has invested B) If the advisory fee of the investment adviser is reduced by the share of the profits earned C) Such sharing is never permissible under the Policy D) If the investment adviser representative and the customer have a written contract
C Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, only an agent may share with a customer in a joint account with permission of the client and the broker-dealer. Unlike FINRA rules, there is no requirement that the agent have a financial interest in the account. Reference: 5.2.26.3 in the License Exam Manual
Which of the following are required to register with a state Administrator? A) An investment adviser who has no place of business in the state and has fewer than 6 advisory clients in the state B) A person that only provides impersonal investment advice through newspaper columns, magazine articles, or a financial publication of general and regular circulation C) Investment adviser representatives of federal covered advisers who have a place of business in the state and limit their clientele to employee benefit plans with a minimum of $10 million in assets D) An employee of a federal covered investment adviser who has no natural person clients and is limited to performing administrative functions
C The investment adviser representatives of a federal covered adviser are required to register in each state in which they have a place of business, even if the only clients are institutions. The act provides a de minimis standard exemption from state registration for advisers who have no place of business in a state and have fewer than 6 retail clients resident in that state. Under state law, the publication of investment advice that does not provide advice based on the specific investment situation of each client excludes the publisher from the definition of an investment adviser. A person employed and supervised by an investment adviser who is not an investment adviser representative with natural person clients and whose work is confined to clerical or administrative functions is not required to register with state Administrators. Reference: 1.6 in the License Exam Manual
The sole proprietor of a retirement planning business that exclusively provides advice on fixed income annuity contracts A) must register as an investment adviser under the Investment Advisers Act of 1940 B) must register as a broker-dealer with the SEC C) need not register under any securities laws D) must register as an investment adviser representative under the USA
C The sole proprietor of this business need not register under the Uniform Securities Act or Investment Advisers Act. Advice is provided solely on fixed income annuities, which are insurance products, not securities. Regulations under the USA, as well as federal securities laws, only apply to securities.
For purposes of safeguarding customer information, which of the following would be considered a covered account? A) An account in the name of the Wells Morgan Bank B) A margin account in the name of the Interglobal Hedge Fund C) A margin account in the name of MaryBeth Simmons D) An account in the name of the State of X employee pension fund
C The term covered account does not apply to institutional customers, such as banks, pension funds, and investment companies. Reference: 5.8.1.1 in the License Exam Manual
Under the Uniform Securities Act, which of the following is NOT a requirement for a preorganization subscription to be an exempt transaction? A) No commission may be paid to anyone for soliciting potential subscribers. B) There may be no more than ten subscribers. C) The offer of the security may not be advertised. D) No payment may be made by any subscriber.
C There are three requirements for a preorganization subscription to qualify as an exempt transaction. A preorganization subscription may be advertised. Reference: 2.3.2 in the License Exam Manual
All of the following statements are true EXCEPT A) under a civil violation of the USA, a cause of action survives the death of the plaintiff or defendant B) upon appearance or likelihood that a violation will occur, the Administrator may issue a cease and desist order without a prior hearing C) there is no statute of limitations for criminal violations of the USA D) state securities Administrators do not have authority to issue injunctions and must submit requests to appropriate state courts to issue injunctions
C There is a 5-year statute of limitations for criminal violations under the USA. In a civil action, a cause of action may survive the death of plaintiff or defendant. Upon the appearance or likelihood that a violation will occur, the Administrator may issue a cease and desist order without a prior hearing. State securities Administrators are administrative offices, not judicial offices. Only courts can issue injunctions. Reference: 3.3.2.1 in the License Exam Manual
Under the Uniform Securities Act, all of the following must be disclosed in an investment advisory contract EXCEPT A) the manner in which the advisory fee will be computed B) whether or not discretion will be exercised C) other states in which the investment adviser is registered D) a provision prohibiting the investment adviser from being compensated based on a share of capital gains
C There is no requirement to advise clients of any other states in which the investment adviser is represented. The presence (or absence) of discretion must always be disclosed. Unless the question specifically refers to the rare cases when performance fees are permitted, always read the question as if they are prohibited. Reference: 4.4.1.1 in the License Exam Manual
A client wants to purchase commercial paper. The licensed agent may indicate to the client that the security need not be registered with the Administrator if each of the following conditions are met EXCEPT A) it is rated in 1 of the 3 highest rating categories by a recognized rating agency B) the maximum maturity is 270 days C) it must be in book entry form D) the minimum denomination is $50,000
C This is a very rare case where the correct answer is something you haven't seen anywhere in our units (it is described in the glossary). The term "book entry" means there is no physical certificate and the record of ownership is kept on a computer. It is not necessary to know what book entry means because you can get this question correct by knowing that the other three are required. Commercial paper may qualify as an exempt security if the minimum denomination is $50,000, has a maturity of not more than 270 days, and is rated in 1 of the 3 highest rating categories by a nationally recognized rating agency. Reference: 2.3.1 in the License Exam Manual
Under the Uniform Securities Act, which of the following is TRUE regarding registration of agents? A) Agents are automatically registered when they pass their securities test. B) Registration in the state where an agent has her business office enables the agent to do business in any state where the broker-dealer has an office. C) To register, an agent must submit a completed application for registration, a filing fee, and a signed consent to service of process. D) An agent's registration remains in effect even during a period when the agent is not employed by a registered broker-dealer.
C To register, an agent must file an application, a consent to service of process, and a filing fee as described in the correct answer. Registration is not effective during any period when the agent is not employed by a registered broker-dealer, and the Administrator must be notified when an agent's employment begins or ends. Agents must be registered in each state in which they do business. Reference: 1.2.2.3 in the License Exam Manual
If a broker-dealer whose principal office is in Iowa addresses 5 solicitations to potential customers in the nearby Nebraska town of Middleton, and the return address on the mailings is that of the broker-dealer's satellite office in Middleton, which of the following statements is TRUE? A) The broker-dealer must register in Iowa only. B) The broker-dealer must register in Nebraska only. C) The broker-dealer must register in Iowa and Nebraska. D) If the broker-dealer is registered with the SEC, it is not required to register in any state.
C Under the USA, a broker-dealer must register in any state in which it has an office or conducts business with noninstitutional (retail) clients. Soliciting by mail constitutes making an offer in the state. Remember, there is no de minimis rule for broker-dealers. Unlike investment advisers who register with the state or the SEC, never both, SEC registered broker-dealers also must meet state registration requirements. Reference: 1.2.2 in the License Exam Manual
Unless qualifying for an exemption, which of the following advisory fee structures is NOT allowed under the USA? A) Fees based on an hourly rate B) Fees based on a percentage of the aggregate value of funds under management C) Fees based on a percentage of the change in value of funds from quarter to quarter D) Fees based on a fixed dollar schedule tied to the value of funds under management
C Unless a specific exception is referred to in the question, fees based on a share of capital gains or appreciation in an account are prohibited. The other choices are acceptable fee structures. Reference: 4.4.1.1 in the License Exam Manual
An investment adviser representative is prohibited from A) as part of a comprehensive financial plan, selling a life insurance policy to an advisory client issued by a company he represents, even with disclosure to the client B) recommending proprietary products only C) charging a fee for investment advice and then earning commissions on recommended trades without disclosing the nature of the dual relationship D) disclosing to clients that he is not buying the security being recommended to them for his personal account
C When acting as a representative of an investment adviser as well as a broker-dealer, the relationship must be disclosed. IARs are permitted to recommend proprietary products only but must make disclosure of that fact. There is nothing to prohibit an investment adviser representative from telling clients what securities the IAR is or is not buying, as long as the IAR is not divulging material non-public (inside) information. The only time IARs are required to disclose their personal trading activity is when it is inconsistent with that recommended to clients. This could occur, for example, when the IAR is recommending clients buy a particular stock at the same time he has just sold his personal holdings in it. Reference: 4.1.2 in the License Exam Manual
All of the following are nonissuer transactions EXCEPT A) broker-dealer A sold 5,000 shares of Dell Computer from inventory to broker-dealer B B) Joe Smith sold 100 shares of Apple Computer to his neighbor, Kevin Jones, in a private transaction C) Intel sold 10 million shares of its preferred stock in a private placement transaction to a syndicate of five pension funds D) Monster Insurance Company sold 10,000 shares of IBM to KLM Investment Bankers, Inc., through INSTINET
C When an issuer sells its own securities, it is an issuer transaction. When someone other than the issuer sells securities, it is a nonissuer transaction. Reference: 2.1.3.2 in the License Exam Manual
While your application for registration as an agent is pending, you are permitted to A) conduct seminars on asset allocation B) send out offering documents, to prospects, but not accept orders until registered C) sell fixed annuities D) confine sales to immediate family members only
C While registration as an agent is pending, the individual may participate in no activity that requires that registration. However, because fixed annuities are not securities, the applicant can sell them (assuming that he is licensed to sell insurance - but that is not part of the question). Reference: 2.1.1 in the License Exam Manual
An agent did research on a company called OCCC and he thinks that it's an appropriate investment for some of his clients. In order to ease the fear that some clients have, he offers to buy back any shares of OCCC for a 6mo. period at a price no lower than 5% purchase price. Under NASAA statement of policy on dishonest or unethical business practices of BD & Agents A) this would be permitted bc by offering to buy back at a price lower than the purchase price, he isn't guaranteeing a profit B) this would be permitted bc he isn't charging clients for his research C) this isn't permitted bc he is guaranteeing results D) this isn't permitted bc he isn't willing to give them their full purchase price back
C he cannot guarantee a profit
An income-oriented customer has a discretionary account with an agent. If the agent purchases speculative growth stock on behalf of the customer, under the Uniform Securities Act, this is considered a(n) A) matching activity B) acceptable transaction C) wash sale D) unsuitable transaction
D
outside or inside a recco? BD provides a portfolio analysis tool that allows customer s to indicate an investment goal and input personal info and then the firm send the customer securities to match their interests
inside
An individual representing the issuer in the sale of that issuer's securities to the public would have to register if A) the issuer is a savings institution organized and supervised under the laws of any state B) the transaction is exempt C) the issuer is a Canadian provincial government D) the issuer is a federal credit union
D
The most common way in which to distinguish whether social media content is static or interactive is A) the ability for others to comment on it B) the ability for others to like it C) the ability for others to link to it D) the ability for others to change it
D
When does a customer have to receive the Options Disclosure Document? A) With the confirmation of the first options transaction. B) Within 15 days of account approval by the firm's designated options supervisor. C) Within 5 business days of the first options trade. D) Before the first order.
D
outside or inside recco? data mining tool that sends investment suggestions to the customer
inside
When filing the consent to service of process, which of the following is TRUE? A) It is not required of investment adviser representatives, only investment advisers. B) It expires simultaneously with the registration on December 31. C) It must be filed annually on the dates specified by the Administrator. D) It is supplied with the initial registration and remains on file permanently.
D
Which of the following is NOT classified as a security under the Uniform Securities Act? A) Stocks B) Options on stocks C) Options on commodities futures D) Commodities futures
D
outside or inside recco? targeting clients to buy a certain security or sector
inside
Which of the following is NOT required to register as an agent under the Uniform Securities Act? A) A person who attempts to sell mutual fund shares by direct mail and is paid an hourly wage B) A person who attempts to sell mutual fund shares by telephone and is paid a straight salary C) An individual pursuing a graduate degree in finance, hired for the summer as an intern, who receives $10 for each prospect turned into a client D) A person who represents the issuer selling U.S. government or municipal bonds
D
According to the Uniform Securities Act, the investment adviser brochure must include the business backgrounds of A) an affiliated broker-dealer B) all employees of the adviser C) institutional clients D) each member of the investment committee or group that determines general investment advice to be given to clients
D
Which of the following statements are TRUE? I. An agent may never be simultaneously employed by multiple broker-dealers. II. An agent must submit separate registrations for each broker-dealer with which he is registered. III. Certain states prohibit agents from dual or multiple registration. IV. An agent who sells securities in several states must be registered with different broker-dealers in each state. A) I only B) IV only C) II, III, and IV D) II and III
D
which of the following is an example of a nonissuer transaction? A) Primary issue of corporate stock B) Preemptive rights offering C) Private placement by an issuer D) Secondary offering by an institutional seller
D
An agent is registered in State X but not in State Y. The agent sells a resident of State X a new State Y municipal revenue bond. If the bond is not registered for sale in State X, which of the following statements is TRUE? A) The sale was illegal because the bond is not registered for sale in State X. B) The sale was legal because the sale took place in State X to a resident of that state. C) The sale was illegal because municipal revenue bonds are not exempt securities. D) The sale was legal because the bond is not required to be registered for sale in State X.
D Any municipal bond is considered an exempt security under the Uniform Securities Act. Therefore, the sale of an exempt unregistered security by a properly registered agent is perfectly legal. If you selected the choice that the sale was legal because it took place in State X to a resident of that state, you are missing the point. The question is focused on the security, not the agent. In addition, that choice implies that the sale of any unregistered security, exempt or non-exempt, made by a properly registered agent is legal and that is not so in the case of those which are obligated to register. Reference: 2.3.1 in the License Exam Manual
A consent to service of process required by an Administrator is A) an agreement to perform all services and duties that the Uniform Securities Act (USA) requires of those individuals covered by the USA B) a formal statement declaring that an investment adviser will comply with all advertising requirements of the USA C) a legal procedure that authorizes the Administrator to issue injunctions D) an agreement whereby a registrant will be bound by any legal action or subpoena served on the Administrator as if it had been served on the registrant
D A consent to service is a formal legal agreement whereby a registrant will be bound by a legal action or subpoena served on the Administrator as if it had been served on the registrant. A consent to service is not an authorization to issue an injunction. Reference: 1.2.2.2 in the License Exam Manual
All of the following must register as an agent when representing a broker-dealer EXCEPT A) An employee who accepts solicited orders B) An individual who represents an underwriter only in transactions between an issuer and the underwriter C) An individual selling shares of a trust company chartered in this state D) A partner in a broker-dealer who has no securities sales functions
D A partner, (or any employee), of a broker-dealer with no securities sales functions (and that includes supervising sales), need not register as an agent. An employee of a BD who accepts solicited (or unsolicited) orders must register as an agent. An individual who represents an underwriter (one of the roles of a BD) in transactions between an issuer and the underwriter is an agent for the broker-dealer (it is the individual representing the issuer who is NOT). Trust companies are exempt securities and their employees selling shares are not defined as agents, BUT this individual is working for the broker-dealer selling the shares and, as such, must register as an agent. Reference: 1.3.3 in the License Exam Manual
Under the USA, all of the following statements regarding private placements are true EXCEPT A) commissions cannot be paid for soliciting noninstitutional buyers B) offers can be made to no more than 10 noninstitutional clients during any 12-month period C) offers can be made to an unlimited number of institutional buyers D) no payment is received from noninstitutional clients
D A private placement is an exempt transaction under the USA as long as offers are directed to no more than 10 noninstitutional persons during any 12-month period. Although, just as with any other purchase, payment must be made for the securities, no commissions are paid in connection with noninstitutional sales. Furthermore, offers can be made to any number of institutional buyers. Reference: 2.3.2 in the License Exam Manual
The state securities Administrator has the authority to A) issue a ruling under its authority with no requirement to publish that ruling B) amend or alter the Uniform Securities Act C) issue and enforce an injunction against a registered party D) make, amend, or rescind rules,forms, and orders necessary to administer the USA
D A state securities Administrator may issue a ruling or order to comply with the blue-sky laws of the state and designate the use of certain forms, but does not have authority to amend or alter the Uniform Securities Act itself. All rules and forms of the Administrator must be published. Only the courts can issue injunctions. Reference: 3.2.1 in the License Exam Manual
An agent may determine which securities to purchase or sell for a client when A) written or oral discretion authority has been received by the broker-dealer before executing the first discretionary transaction B) written or oral discretion authority has been received by the broker-dealer within 10 days of the initial discretionary transaction C) written discretion authority has been received by the broker-dealer within 10 days of the initial discretionary transaction D) written discretion authority has been received by the broker-dealer before executing the first discretionary transaction
D AGENT =BD No broker-dealer or any of its employees shall exercise any discretionary power in any customer's account or accept orders for an account from a person other than the customer without first obtaining written authorization from the customer. It is an investment adviser who may act with oral consent for a period of 10 days from the initial discretionary trade. Reference: 4.4.2.3 in the License Exam Manual
Under the Uniform Securities Act, a consent to service of process must accompany which of the following? A) A civil complaint against a broker-dealer B) The termination papers for an investment adviser representative associated with a state-registered investment adviser C) An agent's application for renewal of registration D) An investment adviser's initial registration application Explanation
D All initial applications for registration must be accompanied by a consent to service of process. This is not required for renewal applications and certainly not for terminations. Reference: 1.2.2.2 in the License Exam Manual
unethical business practices of IA-improper custody
instances where an IA has custody or possession of clients' funds or securities it should comply with the NASAA model rule on custody designed to ensure the safekeeping of those securities and funds
In some instances, rather than use an investment banker to distribute its securities to the public, an issuer will hire a sales force or use its own employees to make the sales. The individuals involved in the selling in this state would NOT be defined as agents under the Uniform Securities Act if selling on behalf of which of the following issuers? A) A federal savings and loan association B) A credit union organized and supervised under the laws of this state C) A building and loan association organized under the laws of any state and authorized to do business in this state D) A savings institution organized and supervised under the laws of any state
D Although each of the answer choices meets the USA's definition of exempt security, the savings association is the only issuer where the act grants an exemption from the definition of agent to those individuals selling on its behalf. Please note that a savings institution is not the same as a savings and loan or building and loan association. Reference: 1.3.2.1 in the License Exam Manual
The First Fidelity Building and Loan association, organized in State A and authorized to do business in State B, has an offering of common stock being made in State B. In order for an individual selling the offering to be excluded from the definition of agent in State B, the individual A) would have to be employed by a broker-dealer registered in State B B) would have to be employed by First Fidelity C) would have to be employed by a broker-dealer registered in State A D) could not sell without being registered as an agent in State B
D Although securities issued by a building and loan association are included in the Uniform Securities Act's list of exempt securities, they are not included in the group of exempt securities where employees selling on behalf of the issuer are excluded from the definition of agent. Please see your LEM for the 5 categories of exempt securities that qualify for that exclusion.
Under the Uniform Securities Act, when an IAR acting in the capacity of trustee of a family trust executes a transaction on behalf of the trust, it is A) an exempt security B) a violation of the trustee's fiduciary responsibility C) an exempt transaction D) a nonexempt transaction
D Among the list of exempt transactions are those made by fiduciaries, including trustees in bankruptcy, but not other trustees. Therefore, this is a nonexempt transaction. The fact that this is an IAR who is the trustee has no bearing on the question. Reference: 2.3.2 in the License Exam Manual
An Administrator may deny or revoke a security's exemption A) if the Administrator determines that an exemption applicable to federal covered securities is inconsistent with state securities law B) by providing the burden of proof that the exemption is not deserved C) for a federal covered security if its issuer is in violation of state law D) without a hearing if the issuer is given an opportunity for a hearing after the revocation
D An Administrator may deny or revoke a security's exemption without a hearing if the issuer is given an opportunity for a hearing after the revocation. The issuer requesting an exemption must prove the exemption; this is not the responsibility of the Administrator. The Administrator may not revoke exemptions of federal covered securities. Reference: 2.3.3 in the License Exam Manual
An agent in this state would be acting illegally if he sold A) federal covered securities not registered in the state B) revenue bonds of Illinois in Florida that were not registered in Florida C) securities guaranteed by a federal credit union organized under the laws of the state D) nonexempt securities properly registered in a neighboring state but not registered in this state
D An agent cannot sell securities in a state unless they are registered or exempt from state registration. Federal covered securities, tax-exempt municipal bonds, and securities guaranteed by a federal credit union organized in the state are all exempt from registration. Reference: 2.2 in the License Exam Manual
According to North American Securities Administrators Association's (NASAA) Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the following practices is NOT unethical A) To protect the client in a declining market, an agent sold all shares in the client's account when the client had only authorized the sale of 30% of the shares. B) Within the first ten days of a client's initial transaction, an agent accepted oral discretion and purchased securities on behalf of the client. C) An agent sold shares at a price less than authorized by a client. D) An agent of a broker-dealer exercised discretion in deciding the time that a sale took place during the trading day without expressed written discretionary authority.
D An agent of a broker-dealer may exercise discretion in deciding the time or the price at which a sale takes place during the trading day without express written discretionary authority. Such action is not unethical because time and price are not considered true discretion. An agent may not exercise discretion over the number of shares to be sold without prior written discretionary authority. Oral discretion is only permitted for investment advisers and their representatives, (never broker-dealers or agents), during the first 10 business days after the initial discretionary transaction in the account. Reference: 2.3.4.1 in the License Exam Manual
Under the Uniform Securities Act, an agent is a(n) A) individual who represents an issuer in a transaction exempt from the act B) individual who represents an issuer in an exmpt transaction C) broker-dealer who sells registered securities to the general public D) individual representing a broker-dealer who sells federal covered securities
D An individual employed by a broker-dealer who sells securities to the public is an agent under the Uniform Securities Act. The USA defines an agent as "any individual other than a broker-dealer who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities." The Uniform Securities Act excludes from the definition of an agent, those individuals who represent an issuer in exempt transactions, the sale of certain exempt securities, and transactions with issuers' employees when no commission is paid. There is virtually no case in which a salesperson representing a broker-dealer is not an agent. Reference: 1.3 in the License Exam Manual
Under the Uniform Securities Act, an agent who offers a nonexempt, unregistered security for sale A) is not in violation of the act even if the transaction is not exempt, unless a sale is actually made B) may be subject to criminal prosecution even if the transaction is exempt C) may do so legally in a nonexempt transaction as long as the purchaser is given all the material facts D) may be civilly liable to the purchaser if the transaction is not exempt
D An unregistered, nonexempt security may only be offered or sold in an exempt transaction. If the transaction is exempt, however, no violation of the act has occurred, and therefore no civil liability or criminal penalties could be imposed. Reference: 2.1.2 in the License Exam Manual
A president of a bank sells shares of the bank to public investors. Under the Uniform Securities Act, he or she is A) underwriting the issue in the role of a broker-dealer B) an agent under the Uniform Securities Act C) an investment adviser D) not defined as an agent under the Uniform Securities Act
D Any individual selling securities on behalf of an issuer of certain exempt securities (bank securities are in that list) is not an agent under the USA.
The Uniform Securities Act requires that an administrative order appeal must be requested within how many days after the order has been entered? A) 45 days B) 15 days C) 30 days D) 60 days
D Any person who receives an order from the Administrator can petition the court to change or set aside the order, but an appeal must be filed within 60 days after the order was entered. Reference: 3.3.3 in the License Exam Manual
Under the Uniform Securities Act, before a corporation can issue a security in a state, that security must be A) registered in one other state and with the SEC B) registered with the SEC and in the state of issue C) exempt from registration in other states in which it is issued D) registered in the state or exempt from registration in the state
D Before issuing a security in a state, the issuer must either register the security in the state or be exempt from registration under the Uniform Securities Act. Reference: 2.2 in the License Exam Manual
A sales agent who is only registered in Nebraska works for a broker-dealer that is registered in all 50 states. A customer who is a resident of North Dakota calls the representative in Nebraska and offers to purchase securities. Under the Uniform Securities Act, the agent should A) accept the order because it is unsolicited B) accept the order because her broker-dealer is registered in all 50 states C) accept the order because she received it in Nebraska D) reject the order because she is not registered in North Dakota
D Both the broker-dealer and the agent must be registered in each state where they plan to do business. Although the broker-dealer is properly registered, in order for the agent to accept the order, she must be registered in North Dakota. Even though the order is unsolicited, making this an exempt transaction, agents must still be licensed in the state where the client is a resident. Reference: 1.2.2.3 in the License Exam Manual
Your client has given you discretionary authority to trade her account with a beginning balance of $100,000. Market conditions have been volatile for the past 6 months and her primary objective is long-term growth with low to moderate risk. A review of the account at the end of that period shows that while the Dow Jones Industrial Average has dropped by 2.2%, the client's account value is $105,300. During the period, if commissions from trading totaled a bit over $6,000, it is likely that your supervisor will: A) suggest that you contact the client about investing more money with the firm. B) congratulate you on helping your client beat the averages. C) inquire as to why a $100,000 account only generated $6,000 in commissions in a 6-month period. D) discuss the possibility that you may have been churning the account.
D Churning can occur even when an account makes money. If the amount of commissions generated is out of line with the account's objectives and resources (and 12% annual charges in this case), churning will probably be suspected. Reference: 5.2.2 in the License Exam Manual
Under the Uniform Securities Act, a registration statement for a securities issue may be filed by any of the following EXCEPT A) a broker-dealer B) any person for whose benefit the issue will be sold C) the issuer D) the Administrator of the state in which the issue is to be sold
D Come on - did you really think that the Administrator would file a registration statement with himself? Another exception in a question like this would be "an agent". Reference: 2.4.1 in the License Exam Manual
Which of the following statements is NOT true regarding criminal penalties under the Uniform Securities Act? A) The Administrator does not have the power to pursue criminal prosecution, but only to refer evidence to the attorney general or appropriate district attorney. B) The statute of limitations on criminal indictments is five years. C) Criminal penalties may be incurred by willfully violating any provision of the act. D) Criminal penalties may not be imposed if someone damaged by the violation has already recovered damages under the civil liabilities provisions.
D Criminal penalties may be imposed in addition to any other penalties assessed or damages recovered under the act.
While several methods of registration are described under the Uniform Securities Act, which of the following would be most appropriate for federal covered securities? A) Qualification B) Mobilization C) Coordination D) Notice filing
D Federal covered securities (those listed on the NYSE, the NYSE American LLC (formerly known as the American Stock Exchange), the Nasdaq Stock Market, and investment companies registered under the Investment Company Act of 1940) are exempt from registration under the USA. However, the states are permitted to assess fees and most require filing of certain information. This is notice filing and most commonly occurs with investment companies registered under the Investment Company Act of 1940. Reference: 2.2.2.1 in the License Exam Manual
When a security registration statement filed under the Uniform Securities Act with the state Administrator becomes effective, this means A) the registration statement is true in all respects B) the registration statement is accurate C) the registration statement is not misleading D) the securities that are the subject of that registration statement may be lawfully sold
D For a security to be offered for sale within a state, either as a new issue or in a secondary market transaction, the security must be either registered with the state or exempt from registration with the state. The effective date of registration is not related to the quality of information in the document. A registered agent may not express or imply to a customer the filing of the registration statement guarantees truthfulness, accuracy, or lack of misleading statements. Reference: 2.2 in the License Exam Manual
Which of the following would be included in the Uniform Securities Act's definition of a "sale"? A) Conveying, for value, precious metals to a jewelry distributor B) Sale of a large fixed annuity contract to a taxable institution C) Donation of interests in rights, warrants, or options on a nonexempt security D) Transfers, for value, of unit trusts to a nontaxable organization
D For a security to be sold, it must be exchanged for value. Fixed annuities and precious metals are not securities, so no security sale took place. Donating a security does not qualify as a sale. Reference: 3.1.1.2 in the License Exam Manual
Typical broker-dealer fees that must be disclosed as part of a fee disclosure document would include I. a charge when a client requests that a stock certificate be issued in his name II. a commission charge when a client buys a security on a listed exchange III. the interest charged by the firm on money owed by customers in their margin accounts IV. fees for providing advisory services to high net worth individuals A) II and III B) I and IV C) III and IV D) I and III
D If we know what charges are not included in the fee disclosure, it is easy to recognize those that are. There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are commissions; markups and markdowns; and advisory fees for those first that are also registered as investment advisers. Reference: 4.1.3.1 in the License Exam Manual
Under the Uniform Securities Act, what remedy does a client have against a firm that has sold him an unregistered non-exempt security? A) Mediation B) Criminal proceedings C) Arbitration D) Request rescission
D In a civil matter like this, the first step the client should pursue is requesting rescission from the seller. Arbitration and mediation are FINRA terms that are not found in the USA and this would certainly not be a criminal act. Reference: 3.3.1.2 in the License Exam Manual
When a broker-dealer acts in the capacity of a principal in a trade, the firm has acted A) in an unethical manner B) for the benefit of the client C) as an agent D) as a contra-party to the trade
D In every trade, there are 2 principals—the buyer and the seller. If the broker-dealer is one of the principals (either buyer or seller), the firm is the contra-party to the other side of the trade. Reference: 4.1.1 in the License Exam Manual
Which of the following would be least likely to meet the cyber security definition of a covered account? A) A customer with an automobile loan at a bank B) An account with a registered investment company that permits the owner to wire funds to a third party C) A customer with a margin account at a broker-dealer D) A business account held by a company listed on the NYSE
D In general, business accounts are not included in the term covered account. There could be an exception for a sole proprietorship or other small business where there is a reasonably foreseeable risk to customers due to the inability of the customer to provide adequate internal safeguards. That is unlikely to be the case with a listed company. Reference: 5.8.1.1 in the License Exam Manual
One way in which an investment adviser acting in the capacity of an agent in a transaction with a client differs from a broker-dealer performing the same task is that the investment adviser A) may not charge a commission on the transaction B) shall disclose the agency capacity before the transaction C) shall notify the Administrator of its capacity in the proposed transaction D) shall obtain client consent before completion of the transaction
D In order to act as an agent (or principal) in a trade with an advisory client, there are 2 requirements: The client receives full written disclosure as to the capacity in which the adviser proposes to act Consent of the client Both of these are required before the completion of the transaction. Reference: 4.1.1.1 in the License Exam Manual
There are many reasons why the Administrator might deny an application for registration as an agent. It is unlikely, however, that the application would be denied if A) the applicant has been convicted of a felony within 10 years of the date of application B) the applicant has been convicted of a misdemeanor involving securities fraud within the past 120 months C) the applicant is insolvent D) the applicant has filed a complete application
D In order to register, it is required that your application is complete; filing of an incomplete one would be cause for denial. A record of any felony conviction or misdemeanor involving securities fraud during the past 10 years is sufficient grounds for the Administrator to deny an application for registration in the securities industry. Insolvency is also grounds for denial. Reference: 3.2.4.1 in the License Exam Manual
Transactions meeting certain conditions are exempt from the Uniform Securities Act's registration and advertising filing requirements. Which of the following transactions does NOT meet those conditions to qualify as an exempt transaction? A) An offer of a security for which a registration statement has been filed but has not yet become effective B) A sale of stock through a rights offering to existing shareholders of the issuing corporation if no commission is paid C) A sale of securities by the executor of an estate D) The sale of U.S. government securities to a wealthy client's IRA by a registered broker-dealer
D In the sale of U.S. government securities to a wealthy client, the security is exempt, but the transaction is not. Had the sale been to an institutional client, it would have been exempt. An offer is not a transaction. Reference: 2.3.2 in the License Exam Manual
Which of the following is an unethical practice for agents of broker-dealers? A) Failure to make a bona fide public offering of all securities acquired as an underwriter B) Effecting securities transactions not recorded on the books of the employing broker-dealer with the employing broker-dealers' approval in writing C) Borrowing money from a commercial bank that has investment accounts at the broker-dealer D) Effecting securities transactions not recorded on the books of the employing broker-dealer without prior written authorization
D It is an unethical practice for an agent of a broker-dealer to effect securities transactions not recorded on the books of the employing broker-dealer unless prior written authorization is secured. Broker-dealers, acting in the capacity of underwriters, not their agents, must make a bona fide public offering in underwritings. Reference: 5.2.26.1 in the License Exam Manual
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 EXCEPT I. the person must not deal with any employee benefit plans with assets of not less than $1 million II. the person must limit its business activities to other broker-dealers and financial institutions III. the person must not have a place of business in the state IV. all employees must be licensed as agents with the Administrator in at least one state A) II and III B) III only C) II and IV D) I and IV
D 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. Reference: 1.2.1.1 in the License Exam Manual
Which of the following actions should be taken by an agent when a client decides to open an options account? A) Provide an options disclosure document no later than 15 days after the first trade B) Obtain approval from the designated options supervisor to open the account no later than 1 business day after the first options trade C) Assure that the options agreement has been signed prior to the first trade takes place D) Before the first options trade, review with the client the risks involved when trading options
D It is imperative that suitability and risk be addressed with the client before allowing options trading to take place. The ODD must be delivered no later than with account opening, and the signed options account agreement must be returned no later than 15 days after the account opening. An options account must be approved by a designated supervisor prior to any trading taking place in the account. Reference: 4.4.2.2 in the License Exam Manual
According to the USA, under what circumstances is an employee of a licensed broker-dealer in a state allowed to sell exempt securities as an unregistered agent? A) The employee is not paid any commission or salary. B) The securities are federal covered securities. C) The transaction is exempt. D) Under no circumstances is an employee of a licensed broker-dealer in a state allowed to sell exempt securities as an unregistered agent.
D It is unlawful for a person to transact business on behalf of a broker-dealer unless that person is registered as an agent in the state. Only individuals selling on behalf of the issuer may qualify to be exempt from registration as an agent. Reference: 1.3.2 in the License Exam Manual
A working group convened by NASAA has developed a model fee disclosure schedule to help investors better understand the costs involved in doing business with their broker-dealer. The template has broker-dealers disclosing which of the following fees? A) Commissions B) Markups and markdowns C) Advisory fees D) Account closing fees
D It is very common for a broker-dealer to charge a fee for processing the closing of an account. There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are commissions; markups and markdowns; and advisory fees for those firms that are also registered as investment advisers. Reference: 4.1.3.1 in the License Exam Manual
A working group convened by NASAA has developed a model fee disclosure schedule to help investors better understand the costs involved in doing business with their broker-dealer. The template has broker-dealers disclosing which of the following fees? A) Markups and markdowns B) Advisory fees C) Commissions D) Account closing fees
D It is very common for a broker-dealer to charge a fee for processing the closing of an account. There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are commissions; markups and markdowns; and advisory fees for those firms that are also registered as investment advisers. Reference: 4.1.3.1 in the License Exam Manual
Which of the following firms in the business of rendering investment advice for compensation would be considered a federal covered adviser? A) Retire in Luxury Pension Plan Consultants advising several corporate retirement plans with combined total assets of $145 million B) GHI Consultants, a sole proprietorship, managing $89 million belonging to high net worth individuals C) DEF Fund managers, a corporation managing an unregistered hedge fund with $10 million in assets D) ABC Money Managers, a partnership with $385 million under management
D It makes no difference what the structure of the adviser is. As long as the assets under management are $110 million or more, SEC registration is required. If the investment company is registered under the Investment Company Act of 1940, the adviser must be registered regardless of size. The Hedge Fund is an unregistered fund so the rule does not apply to it. Under the Dodd-Frank Act, the pension consultant must have $200 million under management to be eligible to be federal covered.
An agent is currently registered with Broker-dealer X and would like to register with Broker-dealer Z. Under the Uniform Securities Act, A) one can never be registered with more than one broker-dealer at the same time B) the agent would have to sell different types of securities for each broker-dealer C) permission would have to be granted by FINRA D) registration would be required with each broker-dealer
D Multiple registrations are permitted if the broker-dealers are affiliated by direct or indirect common control, OR, an exception is made by the Administrator. In either case, each registration requires the filing of a separate Form U-4. Reference: 1.3.3.2 in the License Exam Manual
An open-end investment company registered under the Investment Company Act of 1940 would most likely use the process known as A) consternation B) coordination C) qualification D) notice filing
D Mutual funds are federal covered securities and, if required by the state Administrator, are only required to engage in notice filing. Reference: 2.2.2.1 in the License Exam Manual
A new client is opening a margin account and notices the following wording in the documentation: "You are authorized to lend to yourself or others any securities held by you in my margin account and to carry all securities lent as general loans, and you shall have no obligation to retain under your possession and control a like amount of such securities". When the client asks you what this is about, you would respond that A) if the client does not sign the document, the account cannot be opened B) this is the credit agreement C) this is the hypothecation agreement D) this is the loan consent agreement
D No broker-dealer shall lend securities that are held on margin for a customer and that are eligible to be pledged or loaned, unless the broker-dealer shall first have obtained a written authorization from such customer permitting the lending of such securities. That written authorization is known as the loan consent agreement and is the only one of the margin documents that is optional. Reference: 4.4.2.1 in the License Exam Manual
Which of the following is included in the definition of a broker-dealer under the Uniform Securities Act? A) Agent B) Out-of-state broker-dealer with no office in this state that services only other broker-dealers located in this state C) Issuer of securities D) One who effects securities transactions for his own account or on behalf of others
D Only one who is in the business of effecting transactions for his account or on behalf of others fits the definition of a broker-dealer. All of the other choices are specifically excluded from the definition. Reference: 1.2 in the License Exam Manual
An individual who has applied for registration as an agent of a broker-dealer has just passed the Series 63 exam. This individual may begin soliciting brokerage clients A) within 48 hours B) when informed by the Administrator that the representative's registration is effective C) immediately D) when informed by the broker-dealer that the agent's registration is effective
D Passing the Series 63 exam is the typical way an individual can meet the testing requirements to be an agent. Registration is not effective immediately upon passing. Notice is received by the broker-dealer from the appropriate state and/or federal authorities and then, in accordance with that firm's procedures, the firm determines when activity as an agent may start. The Administrator does not directly contact the individual. Reference: 1.2.2.5 in the License Exam Manual
Each of the following would represent a potential conflict of interest EXCEPT A) a broker-dealer writing a favorable research report about a company that was recently the subject of an IPO managed by the firm B) an agent limiting recommendations to mutual funds distributed by the agent's broker-dealer C) an agent of a broker-dealer making a recommendation of a stock of a company in which the agent has a financial interest D) a broker-dealer writing a favorable research report about a company that was recently the subject of an IPO managed by another firm
D Preparing a favorable research report about a company whose IPO was underwritten by another broker-dealer would not appear to be considered a conflict of interest. Reference: 4.1.2 in the License Exam Manual
Under the Uniform Securities Act, which of the following statements regarding the limited offering exemption is TRUE? A) The offering must be made to fewer than 15 noninstitutional persons. B) A prospectus must be provided before the offering. C) The exemption only applies if no funds are transmitted with the purchase. D) The security that is the subject of the private placement need not be registered.
D Private placements are offers to no more than 10 noninstitutional persons in a 12-month period for investment purposes (not immediate resale), where no commissions are paid, directly or indirectly. Such transactions are exempt from registration requirements.However, payment is made when the purchase is made—these may be exempt from registration, but they are not free of cost. There is no prospectus because a prospectus is the document provided by registered issues.Please note that when it comes to institutional clients, there are no numerical limitations on offers, no required holding period, and no restrictions on payment of commissions. Reference: 2.3.2 in the License Exam Manual
In response to an evolving marketplace, the SEC, through Release IA-1092, expanded the coverage of the definition of investment adviser to include A) broker-dealers offering wrap fee programs and financial planners B) life insurance agents and pension consultants C) broker-dealers offering wrap fee programs and life insurance agents D) financial planners and pension consultants
D SEC Release IA-1092 added financial planners, pension consultants, and sports and entertainment representatives to the list of potential IAs. Unless the life insurance agent is offering investment advice, the agent does not meet the definition of investment adviser. The Release did not address wrap fee programs because the exclusion for broker-dealers is part of the Investment Advisers Act of 1940; once special compensation in the form of wrap fees is received, the exclusion is lost. Reference: 1.5.1 in the License Exam Manual
All of the following are exempt from the registration requirements of the USA EXCEPT A) a Canadian government bond B) a closed-end investment company registered under the Investment Company Act of 1940, but not traded on a recognized stock exchange C) a unit investment trust, (UIT), registered under the Investment Company Act of 1940, whose portfolio consists exclusively of Georgia municipal bonds D) stock issued by a Canadian company that provides actuarial services to insurance companies
D Securities issued by Canadian governmental entities, such as the federal government or the provincial governments and their municipalities, are exempt from registration under the USA in the same fashion as US government and municipal securities. However, Canadian corporate issuers do not enjoy an exemption from registration unless qualifying under special conditions, such as being listed on the NYSE or Nasdaq, making it a federal covered security. Investment companies registered under the Investment Company Act of 1940, regardless of where they trade, are exempt from registration because they are federal covered securities.
An agent wishes to share commissions with an administrative assistant who provides many useful services. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, A) this is permitted only if the administrative assistant is employed by the same or affiliated broker-dealer B) this is permitted if there is a written agreement between the agent and the administrative assistant that has been signed by the broker-dealer C) administrative personnel may never receive sales related compensation D) this is permitted if the assistant is properly licensed
D Sharing (splitting) of commissions is permitted when the parties are both properly registered and are employed by the same or affiliated broker-dealers. Reference: 5.2.26.4 in the License Exam Manual
The Administrator may, by rule A) suspend the registration of a federal covered adviser because the contract did not meet the requirements for a state-sanctioned investment advisory contract B) suspend federal law if the Administrator believes it to be in the public interest C) allow an agent to waive provisions of the USA D) forbid investment advisers registered in that state from taking custody of client funds
D The Administrator has considerable discretion to make rules or issue orders. Specifically, the USA allows the Administrator to prohibit custody by rule. However, the USA does not allow the Administrator to waive provisions of the USA, nor can the Administrator suspend federal law. The NSMIA took away the power of the states to regulate federal covered advisers except in the case of a violation of the antifraud statutes. Reference: 5.4.2 in the License Exam Manual
According to the Uniform Securities Act, the Administrator has the power to require persons wishing to register as an agent to A) have minimum net capital, post a surety bond, and pass an exam B) post a surety bond and pass an exam C) have minimum net capital, pay filing fees, pass an exam, and post a surety bond D) post a surety bond, pay filing fees, and pass an exam
D The Administrator may require that, as a condition of registration, the agent post a surety bond (if given discretion by clients over their accounts) pay filing fees, and pass an examination that may be written, oral, or both. Minimum net capital orders apply to broker-dealers, not their agents. Reference: 1.3.4 in the License Exam Manual
Which of the following can be substituted for a surety bond? A) Cash or commodities B) Commodities, cash, or securities C) Real estate D) Cash or marketable securities
D The Administrator may, by rule or order, require registered broker-dealers, agents, and investment advisers who have custody of (BDs and IAs) or discretionary authority over client funds or securities to post bonds in amounts as the Administrator may prescribe, subject to the limitations of section 15 of the Securities Exchange Act of 1934 (for broker-dealers) and section 222 of the Investment Advisers Act of 1940 (for investment advisers). An appropriate deposit of cash or securities shall be accepted in lieu of any bond required. Reference: 1.2.2.4 in the License Exam Manual
State securities law generally limits agents to employment with a single broker-dealer unless A) multiple employment is widespread and does not require specific Administrator approval B) permission has been granted by the SEC C) permission is received from both broker-dealers regardless of Administrator approval D) the Administrator, by rule or order, authorizes employment with more than one broker-dealer
D The USA generally limits agents to single employment unless the Administrator, by rule or order, authorizes multiple affiliations. Reference: 1.3.3.2 in the License Exam Manual
The Uniform Securities Act provides for all of the following EXCEPT A) exemption from registration for federal covered securities B) criminal penalties for violations of the act C) subpoena power for the state Administrator D) specific civil penalties for up to three times the amount of money invested for willful violation of the act
D The Uniform Securities Act provides for criminal penalties of up to three years in prison and/or $5,000 in fines. The act describes civil liability, not specific civil penalties. Civil liability includes interest costs, rescission of trade, payment of attorney's fees, and return of principal invested. The act makes no reference to penalties of three times the amount of money invested. The Uniform Securities Act does provide the state Administrator with the power to issue subpoenas. Reference: 3.3.1 in the License Exam Manual
An agent with a broker-dealer is suddenly called out of town on a personal family matter. While away, the agent's unregistered sales assistant receives a phone call from an existing client wishing to purchase 200 shares of a listed stock. What would be the most appropriate action for the sales assistant to take? A) Explain that the agent is out of town and request the client to call back with the order next week B) Accept and place the order because it is unsolicited C) Accept the order because it is from an existing customer D) Route the call to a licensed agent in the office
D The fact that the order is unsolicited does not preclude the rule that under no circumstances shall an unregistered individual accept and place orders. Reference: 1.3.3 in the License Exam Manual
Under the Uniform Securities Act, which of the following is TRUE regarding the registration of securities? A) Registration by coordination becomes effective on a date ordered by the Administrator. B) The effectiveness of a registration statement assures the completeness of the information contained in the statement. C) The Administrator may require that a prospectus be delivered to every purchaser of a registered security no sooner than the time at which the security is delivered. D) State registration by coordination is only available if a federal registration statement has been filed under the Securities Act of 1933 in connection with the same offering.
D The federal registration statement is what the state registration is being coordinated with. Registration by coordination becomes effective simultaneously with the federal registration. A prospectus may certainly be delivered prior to the delivery of the security. The act prohibits any statement or implication that registration involves approval or verification of facts by the Administrator. Reference: 2.2.2.2 in the License Exam Manual
If an agent representing a broker-dealer located in Utah wishes to solicit business in California, under the Uniform Securities Act, the agent would A) not have to register in California B) not have to register if the broker-dealer is registered in California C) be allowed to solicit if the securities are exempt D) have to register in California
D Typically, an agent, when representing the broker-dealer to solicit securities transactions, must register in every state where business is conducted, even if the securities or the transactions are exempt. Reference: 1.2.2.3 in the License Exam Manual
In order for a surety bond to meet the requirements of the Uniform Securities Act, it must provide that A) the bond must remain in force no less than two years after the withdrawal of registration B) it is in the form of cash or marketable securities C) because bonds are transferable, any agent's bond may be used to meet the obligation of another agent D) any customer who can prove a violation is entitled to collect against the bond
D Under the USA, every bond shall provide for suit thereon by any person who has a cause of action under the provisions of the Act. The Administrator must accept cash or securities in lieu of the surety bond, but cash is not a requirement - the bond will do just fine. Reference: 3.3.1.7 in the License Exam Manual
Cyber insurance
insurance that protects companies from losses and liability to customers caused by cyber attacks
Under the Uniform Securities Act, which of the following concerning the withdrawal of an agent's registration is NOT true? A) Absent any disciplinary proceedings, withdrawal is effective 30 days after application. B) At the Administrator's discretion, disciplinary proceedings may delay effectiveness of a withdrawal application indefinitely. C) Disciplinary proceedings may be taken against an agent after the agent's withdrawal is effective. D) Absent any disciplinary proceedings, withdrawal is effective 60 days after application.
D Under the USA, withdrawals of registration are generally effective on the 30th day after filing, unless a disciplinary action is instituted. The Administrator may institute a revocation or suspension proceeding within one year after an agent's withdrawal has become effective. Reference: 3.2.5.1 in the License Exam Manual
An issuer employs its officers and directors to sell newly issued shares of the company to the public. To comply with the USA, the officers and directors would have to be registered as agents of A) neither a broker-dealer nor the issuer because the transactions are exempt B) the broker-dealer and the issuer C) the broker-dealer D) the issuer
D Unless something in the question indicates that the securities being issued are exempt, employees, including officers and directors, who sell shares of their companies to the public fall under the definition of agent under the USA. Reference: 1.3.2 in the License Exam Manual
If information filed with the Administrator by a broker-dealer as part of its registration changes in a material way, the registrant must A) submit an entirely new registration form within 30 days of the material change in information B) update the information on the registration on the next annual renewal date C) amend the registration statement within 60 days of the material change D) amend or update the information promptly regardless of the renewal date
D When material information changes, the registrant must promptly amend or update the information regardless of the renewal date. The requirement to amend a registration applies to investment advisers, broker-dealers, and securities. However, the Uniform Securities Act does not define the term "promptly". Reference: 1.2.3 in the License Exam Manual
When does a customer have to receive the options disclosure document? A) Within 15 days of account approval B) Within 5 business days of the first options trade C) With the confirmation of his first options transaction D) Before or at the time the firm approves that customer's account or accepts the customer's order to trade options covered by the ODD
D When opening an account to trade options, the owner must be told about the risks involved with trading options. By providing the owner with an options disclosure document entitled Understanding the Risks and Uses of Options before or at the time it approves that customer's account or accepts the customer's order to trade options covered by the ODD, the broker-dealer satisfies the risk disclosure requirements. Reference: 4.4.2.2 in the License Exam Manual
Emmet opened an investment advisory service 3 years ago and raised $50 million in capital from family, friends, and contacts and then closed to new investors. If Emmet's stock picks expanded assets under management to $110 million, Emmet A) must register for the first time with the state Administrator B) must update his registration with the state Administrator C) is not required to take any action D) must register with the SEC
D When the annual updating amendment filed by a state-registered investment advisory firm indicates that the $110 million threshold has been reached, the firm has 90 days to register with the SEC. Reference: 1.5.2.2 in the License Exam Manual
Under the Uniform Securities Law, an individual is not required to register as an agent if he represents any of the following issuers in the sale of their securities EXCEPT A) the Canadian government, a province, or a municipality B) any government with which the United States maintains diplomatic relations C) savings institution or trust company D) a Canadian corporation
D While an agent representing only the Canadian government or any other government with which the U.S. has diplomatic relations is exempt from registration, agents representing private Canadian corporations must register. Individuals who only represent certain depository institutions, such as savings institutions or trust companies, are exempt under the USA. Reference: 1.3.2 in the License Exam Manual
In which of the following situations is an agent committing a prohibited practice? A) Buying a security on one exchange and simultaneously selling it on another to take advantage of a price disparity B) Buying a security on behalf of a customer and then reselling it before the customer has paid for it C) Allowing the customer to place an order to sell 100 shares of ABC in the client's discretionary account D) Purchasing a security in a discretionary account while awaiting written receipt of trading authority
D Written receipt of trading authority is required before conducting any trade on a discretionary basis. Oral authorization is not sufficient; it must be in writing. It is not a prohibited practice to sell a security before the customer has paid for it (day trading), and arbitrage (buying securities on one exchange and selling them on another to take advantage of temporary price differences) is also an acceptable practice. Although the agent may have trading authority in a discretionary account, nothing prohibits the client from making his own trades. Reference: 5.2.5 in the License Exam Manual
FINRA directs that the employees of the firm abide by the _______ regarding social media
internal firm policies
registration byu qualification is a method that is almost exclusively used by
intrastate offerings and isnt registered with the SEC
institutional investor
investor that manages large amt. of money such as mutual funds, and insurance company, bank, or a pension fund
annual delivery brochure
IA must -deliver within 120 days of the end of the fiscal year of a brochure OR -deliver a summary of material changes that includes an offer to provide a copy of the updated brochure and supplements and information on how the client may obtain a copy of the brochures and supplements
brochure delivery req. initial delivery
IA must deliver part 2a brochure and any part 2b brochure supplements req. by the rule to a prospective advisory client: ---not less than 48 hours prior to entering into an y advisory contract w/ such client or prospective client OR ---at the time of entering into nay such contract, if the advisory client has a right to terminate the contract w/o penalty within 5 business days after entering
agency cross transaction- disclosure discloses that
IA will receive commissions from both sides of the trade -there is a potential conflict of interest because of the division of loyalties to both sides -on at least a annual basis, the IA gives a statement of the account -indicates that the arrangement can be terminated at any time -no transaction where the IA recommends it to the seller and the purchaser
unethical business practices of IA-Suitability of recommendations
IAR or an adviser has fundamental obligation to analyze a client's financial situation and needs prior to making any recommendation to the client
IAR as an agent
IAR's can be an employee of a registered BD -however there would be a duty on the part of both BD and the soliciting advisers to inform advisory clients of their ability to seek execution of transactions with BD other than those who have employed the advisers
*****Registration as an agent under the Uniform Securities Act would be required of which of the following? 1. A broker-dealer with an office in this state selling securities to the general public 2. An individual employed by an issuer to place the issuer's securities in an exempt transaction 3. The secretary of a licensed agent who contacts the agent's clients with market suggestions when the agent is on vacation 4. An officer of a broker-dealer whose only responsibility is performing suitability review of transactions based upon recommendations to clients
III and IV Registration as an agent is required for any employee of a broker-dealer who takes an active role in selling or supervising those whosell. An agent's secretary who merely furnishes existing clients with quotes would not have to register. Broker-dealers are not agentsand those who represent issuers in exempt transactions are excluded from the definition.
for canada: if there is no place in the state there is no registration req. if the
only security transactions are with issuers, other BD, or institutional clients
outside or inside recco? BD creating a website that has research pages, libraries or reports that the client can obtain
outside
outside or inside recco? BD has a search engine that enables customer to sort through data on securities and doesnt favor
outside
fraudulent activities-stating or implying that the agent has inside information when that isn't the case
a agent who attempts to boost their credibility to clients by inferring that what she can tell them is inside information
Under the USA, the term "institutional investor" includes a depository institution an insurance company an investment company as defined in the Investment Company Act of 1940 broker-dealer registered under the Securities Exchange Act of 1934
a depository institution an insurance company an investment company as defined in the Investment Company Act of 1940 broker-dealer registered under the Securities Exchange Act of 1934
by offering to buy back the securities that were sold ion violation of the act the seller can avoid a lawsuit through
a letter of rescission
when a client is buying a security it is selling out of inventory the profit comes from
a markup
investment adviser
a person who, for compensation, engages in the business of advising others in the purchase or sale of securities
A registered investment adviser has been investigated by the Administrator for fraudulent misrepresentations purportedly made to several clients. If the IA is found to have been in violation of the Uniform Securities Act, this may result in a $10,000 fine per violation a receiver being appointed over the adviser's assets a prison term of 5 years per violation the requirement that the investment adviser make restitution to the victims
a receiver being appointed over the adviser's assets the requirement that the investment adviser make restitution to the victims The Administrator may appoint a receiver over the investment adviser's assets and require the IA to make restitution to the victim. The maximum fine for a violation of the USA is $5,000 and the maximum prison term is 3 years. Reference: 3.2.3 in the License Exam Manual
nonissuer transaction
a security sale that does not directly benefit the issuer -the proceeds go to the investor who sold the shares
a order applies to
a specific instance
exempt transactions where salaries employees are compensated on the basis on how many shares they sold they would be defined as an
agent
unauthorized transactions effects
agents and BD
dishonest or unethical business practice-selling away affects
agents only
dishonest or unethical business practice-agreeing to waivers
any condition, stipulation, or provision binding any person acquiring any security or receiving any investment advice to waive compliance with any provision of the act or any rule or order hereunder is void.
agent (RR)
any individual who represents a BD or issuer in effecting or attempting to effect purchases or sales of securities -natural persons
person
any individual, corporation, partnership, joint stock company, or trust where the interests of the beneficiaries are evidenced by a security, an unincorporated organization, gov, or a political subdivision of a gov
Material Nonpublic Information (MNPI)
any information about a company that hasn't been communicated to the general public and that would likely affect the value of a security
who can be an agent
any natural individual
BD
any person engaged in the business of effecting transactions for the securities for the account of others or its own account.
the state admin can deny, suspend, or revoke which securities
any securities transactions exemption other than that of a federal covered security
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 appraisals transfers collection of dividends safekeeping
appraisals transfers collection of dividends safekeeping
Federal covered securities are exempt from registration under the USA are nonexempt from registration under the USA can be required to pay state filing fees cannot be required to pay state filing fees
are exempt from registration under the USA can be required to pay state filing fees
Section 28(E) safe harbor-soft dollars
arrangementsunder which products or services other than execution of securities transactions are obtained by an adviser from or thru a BD in exchaneg for the direction by the adviser of client brokerage transactions to the BD
Fiduciary Responsibility of IA's
as fiduciaries, IA's must identify and address all material conflicts of interest by eliminating or disclosing such conflicts
3 (c)(7) issuer
at time of acquisition are qualified purchasers with $5M for individuals and $25M for businesses
whats is the cause for denial of IAR,
bankruptcy
institution include of
banks, trust companies, savings and loans, insurance companies, employee benefit companies w/ $1M and government agencies or instrumentalities
to receive jail time for fraudulent securities transactions you must
be aware of what you are doing is illegal
exempt transaction must be established ____- each transaction
before
when a BD is acting on the behalf of others, they are acting as
brokers
RIA are responsible for the supervision of individuals registered as IAR
but acting in the capacity of independent contractors to the same extent that they supervise those who are actual employees of the firm
how are agents compensated?
by commission
judicial review of orders (appeal) date
by filing a petition w/in 60 days
Included in the USA's definition of exempt transaction would be a transaction by any of the following EXCEPT one by a A) marshal B) guardian C) trustee of an irrevocable trust D) trustee in bankruptcy
c Although the term "trustee" is found in the list of persons engaged in exempt transactions, the USA limits it to trustees in bankruptcy. Reference: 2.3.2 in the License Exam Manual
*what would the admin do if mailings to a registrant were returned with no forwarding address?
cancel the registration
administrator can/cannot any information from their official duties that has not been disclosed to the public for its own benedit?
cannot
dishonest or unethical business practice-unreasonable servicing fees
charging unreasonable and inequitable fees for services performed, including miscellaneous services such as a collection of monies due for principal, dividends or interest, exchange or transfer of securities, appraisals, safekeeping, custody of securities and other securities related to its securities business
SEC v. Capital Gains Research Bureau
court stated that investors must be permitted to evaluate overlapping motivations through appropriate disclosure, in deciding whether an adviser is serving 2 masters or only 1 especially if 1 of the masters happens to be economic self interest
USA provided which types of penalties?
criminal and civil penalties who violate the USA
persons found guilty of a fraudulent securities transaction are subjected to
criminal penalties and possibly civil penalties
Which of the following is exempt from state registration under the USA? A) Sale of interests in a limited partnership to 500 individuals in an offering available to the general public B) Common stock of a manufacturing company whose shares are not registered with the SEC and will only be sold to residents of the state C) Sale of variable annuities offered to the general public by an insurance company licensed to do business in the state D) Common stock of the First National Bank of Boston, a major American commercial bank with branches and representative offices in the United States and abroad
d
Under the Uniform Securities Act, persons providing investment advice do not have to register as investment advisers if they have no place of business in the state and they limit their clientele to individuals who meet the accredited investor standards deal only with institutional investors have five or fewer noninstitutional clients in the state during any 12-month period deal only with other registered investment advisers
deal only with institutional investors have five or fewer noninstitutional clients in the state during any 12-month period deal only with other registered investment adviser If a person offering advice on securities has no place of business in a state and deals only with institutional investors or other investment advisers, registration is not required. Also, if a person has no place of business in a state and has five or fewer noninstitutional clients in the state during any rolling 12-month period, they are not deemed to be investment advisers in that state under the USA.Please note that choice I specifies individuals who are accredited investors. Although institutional accredited investors would qualify the adviser for the exemption, individuals do not. Reference: 1.5.3.1 in the License Exam Manual
credit agreement (margin agreement)
discloses the terms of credit extended by the BD and the stipulation that the BD may use the clients margin securities as collateral for the loan that it makes to the client
unethical business practices of IA-unauthorized disclosures
disclosing the identity, affairs, or investments of any client unless required by law to do so or unless consented by the client
cyber confidentiality
does the firm have confidentiality agreements w/ any 3rd party service providers w/ access to the firms' info tech systems?
dishonest or unethical business practice-selling away
effecting securities transactions not recorded on the regular books or records of the BD that the agents represents unless the transactions are authorized in writing by the BD prior to execution of the transaction
NSMIA promotes
efficiency in capital formation in the capital markets
dishonest or unethical business practice-unreasonable commissions or markups
entering into a transaction w/ or for a customer at a price not reasonable commission or profit
dishonest or unethical business practice-fictitious accounts
establishing or maintaining an account containing officious information in order to execute transactions which would otherwise be prohibited like beefing up one's net worth
Offer/Offer to Sell
every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security for value
a rule applies to
everyone
dishonest or unethical business practice-exercising discretion
exercising any discretionary power in effecting a transaction for a customer's account w/o first obtaining written dicretionary authority from the customer unless the discretionary power relates solely to the time or price of asecurity
dishonest or unethical business practice-failing to disclose conflicts of interest
failing to disclose that the BD is controlled by, controlling, affiliated with or under common control with the issuer of any security before entering into any contract with or for a customer for the purchase or sale of such security
dishonest or unethical business practice-timely prospectus delivery
failing to furnish to a customer purchasing securities in an offering, no later than the due date of confirmation of a transaction, either a final prospectus or preliminary prospectus
dishonest or unethical business practice-withholding shares of a public offering
failing to make a bona fide public offering of ALL securities allotted to a BD for distribution -cannot keep any shares for themselves
dishonest or unethical business practice-commingling of a customer and firm assets
failing to segregate customers' free securities held in safe keeping -cannot be mixed with securities of the firm
dishonest or unethical business practice-responding to complainants
failure or refusal to furnish a customer upon reasonable request, information to which he is entitled or to respond to a formal written request or complaint -action must be taken if a written complaint is received by a firm -email counts as written
dishonest or unethical business practice-investment company sales-breakpoints
failure to disclose to any customer any relevant -sales charge discount on the purchase of shares in follar amt. at or above a breakpoint -letter of intent if available which will reduce the sales charges
form ADV part 1B
federal covered do not fill out
IA fees compensation
fees
if a client is selling a security and the BD purchases it for its inventory the profit is
firm is acting as a principal -a markdown
No business in the state excluded BD with
firms who deal exclusively with other BDs, issuers of securities being traded, financial institutions to operate in the state w/o registering
in the case of a advisory client, oral authorization may be relied upon for the
first 10 business days after the initial discretionary trade in the account
**If an IA wishes to maintain custody of customer funds or securities and the state law doesn't prohibit doing so the adviser must
give written notice to the Admin DO NOT CHOSE MUST OBTAIN WRITTEN PERMISSION FROM ADMIN ONLY REQUIRED IS A NOTIFICATION
Hypothecation Agreement (part of margin agreement)
gives permission to the broker/dealer to pledge customer margin securities as collateral. The firm hypothecates customer securities to the bank, and the bank loans money to the broker/dealer on the basis of the loan value of these securities.
Optional Loan Consent Form (margin agreement)
gives permission to the firm to loan customer margin securities to other customer or BD usually for short sales
guarenteed
guaranteed payment of principal, interest or dividends BUT NOT CAPITAL GAINS or performance of the investment
when a agent is so sure that a stock's price will increase he offers to buy it back from the client at a price higher than the original sale price is an ex of
guaranteeing against a loss
cyber expertise
has the firm engaged in an outside consultant to provide cyber security services for the team?
cyber incident
has the firm ever experienced a cybersecurity incident where customer info was exposed, loss, threats, etc?
if a client rejects a offer of recession within 30 days of receiving it they
hold the right to take the matter to court (sue)
custody
holdings, directly or indirectly, client funds or securities or having any authority to obtain possession of them
dishonest or unethical business practice-improper hypothecation
hypothecating a customer's securities without having a lien theron, unless the BD secures from the customer a properly executed written consent promply after the initial transaction
identity theft
identifying info of another person w/o authority
cancellation
if the admin finds that an applicant or registrant no longer exists or has ceased to transact business the admin can cancel the registration
when does the admin have the power to prevent the sale of a federal covereed security in his stae?
if there is an appearance of fraud
dishonest or unethical business practice-investment company sales-sales load communications
implying to a customer that the shares are sold without a commission are "no load" or have "no sales charges" -any front-end load -and CDSC (contingent deferred sales load) -a rule 12b-1 or a service fee if such fees in total exceed 0.25% of average net fund assets
if the security or transaction isn't exempt or is not federal covered security as defined by NSMIA it must be registered
in the state or it cannot be lawfully sold in the state
Under the Uniform Securities Act, the sale of an unregistered nonexempt security is permissible if the order was unsolicited is permissible if the customer agrees not to pursue legal action is permissible if the security appreciates in value may subject the agent to civil liability
is permissible if the order was unsolicited may subject the agent to civil liability If a security or the transaction in which a security is sold is not exempt, the security must be registered with the state. The sale of a security in violation of the act, such as the sale of an unregistered nonexempt security, exposes the broker-dealer and agent to civil liability. If a nonexempt security is sold through an exempt transaction, such as an unsolicited transaction, the security effectively becomes exempt for purposes of registration and, therefore, legal. Reference: 2.3.2 in the License Exam Manual
Under the Uniform Securities Act, an Administrator who believes a violation has occurred or is about to occur may issue a cease and desist order without a prior hearing bring action to obtain an injunction and have a receiver appointed over the alleged violator's accounts seek a court order requiring the alleged violator to make restitution to others
issue a cease and desist order without a prior hearing bring action to obtain an injunction and have a receiver appointed over the alleged violator's accounts seek a court order requiring the alleged violator to make restitution to others
dishonest or unethical business practice-splitting commissions
it is not necessary to disclose to an agent's client that he is splitting commissions with another agent UNLESS it increases the transaction cost to the client
* when an agent is approached by a friend who is raising money for a new enterprise and suggests that the agent might have some clients for whom this would be an appropriate investment is this permitted?
it is permitted if written authorization is given but if not, a violation has occurred
ABC Securities is a broker-dealer registered with the SEC and domiciled in State X. ABC Securities would not be defined as a broker-dealer in State Y under the Uniform Securities Act if it had no offices in State Y and its only clients were insurance companies it had contact with fewer than 6 State Y residents in any 12-month period its only offer to State Y residents was through radio advertisements originating in State X but received in State Y it occasionally engaged in firm commitment underwriting with issuers based in State Y
its only clients were insurance companies its only offer to State Y residents was through radio advertisements originating in State X but received in State Y it occasionally engaged in firm commitment underwriting with issuers based in State Y A broker-dealer with no office in the state is not defined as a broker-dealer in that state if its only business is with institutions, other broker-dealers, and issuers when engaged in underwriting their securities. When a radio or TV broadcast originating in one state is received in another state, it is only considered to be an offer in the state of origination, in this case, State X. Unlike investment advisers, there is no de minimis for broker-dealers. Reference: 3.1.2.1 in the License Exam Manual
fraudulent practices-matched orders
market participants agree to buy and sell securities among themselves to look like it has much more volume. More volume can induce investors to buy the security
Accredited Investor
meets standards under Regulation D $1,000,000 in assets $200,000/yr individually $300,000/yr spouse APPLIES ONLY TO THE FEDERAL LAW NOT TO THE USA
when a new account is opened what paper work is needs?
new account agreement
28e safe harbor? software that doesn't relate directly to analysis of securities
no
28e safe harbor? telephone lines
no
28e safe harbor? travel expenses associated with attending seminars
no
agent? a person who represents an issuer in effecting with underwriters
no
if no commission is paid or given directly for soliciting any person in the sate do they have to register?
no
*a BD must always indicate their capacity on the trade confirmation
no later than completion of the trade (settlement date) and will indicate if they acted as a broker or a principal
ongoing reports can only be requested by the administrator
no more than quarterly
*under USA, with respect to certificate of interest, participation in oil, gas, or mining tiles or leases or in payments out of production under title or leases, who is the issuer?
no one
if the administrator of state A wishes to investigate a BD registered in state A but whose principal office is located in state B does he need the okay of the state B admin?
no the admin can go whenever he'd like during normal business hours
if the firm wanted to pay their clerical and admin employees a bonus based on profits what would the firm have to do to do so?
nothing -requires no registering
a purported gift of assessable stock is considered to involve an
offer and sale
if the seller of the securities discovers that they made a sale in violation of USA, the seller may
offer to repurchase the securities from the buyer (rights of rescession)
administrator refers to the
office or agency that has the complete responsibility for administering the securities laws of the state
MNPI generally comes from
officers or other insiders of the issuers who have access to financial or other relevant records
$20 M buffer
once AUM reaches $110M must be registered with SEC if falls to above $90M doesn't have to change registrations
3 (c)(1) issuer
one whose outstanding securities are beneficially owned by not more than 100 persons and which isnt making and doesnt presently propose to make a public offering of its securities
multiple registration exemption
only if admin approves or if one or more issuers or BD are affiliate by direct or indirect common control
dishonest or unethical business practice-third party trading
placing an order to purchase or sell a security for the account of a client upon instruction of a third party without first having obtained written third party trading authorization form from the client
cyber continuation
plans for the firm's continued operation during a cyber event or incident?
the administrator may require BDs who are registered in his state and who has custody of or discretionary authority over client funds or securities to
post surety bonds in an amount that the admin can require
fraudulent practices-misrepresenting the status of customer accounts
ppl usually don't pay much attention to their monthly statements and its easy for an agent to claim that amounts have been increasing over time when its not true
admin may bring a civil enforcement action in court to
prevent publication, circulation, or use of any material required by the admin to be filed under the act that haven't been filed
depending on the nature of the media ____ may be required
prior approval by a supervisor may be req.
cyber disposal
procedure for the disposal of electronic data storage devices?
issuer transaction
proceeds of the sale go to the issuer
if information becomes inaccurate in the application for registration the registrant must
promptly file a corrected copy with the admin
*in order for a surety bond to meet the requirements of the USA, it must
provide that any customer who can prove a violation is entitled to collect against a bond
dishonest or unethical business practice-Disseminating False Trading Information
publishing or circulating or causing to be published or circulated, any notice, circular, advertisement, article, investment service or communication of any kind which purports to report any transaction as a purchase or sale of any security
outside or inside recco? BD allows customers to subscribe to emails or other electronic communication that alerts customers to news effecting the securities in the customer's portfolio or on the customer's watch list
putside
if a securities professional is registering in 6 states, the administrator of each state must
receive a consent to service of process
dishonest or unethical business practice-controlled market
representing that a security being offered to a customer is at market price or relevant to market price -when the BD is a market maker it determines its price
investment adviser representative
represents an investment advisor performing duties related to the giving of or soliciting for advisory services
who needs more protection retail or institution investors?
retail
primary offering
sale of new securities
dishonest or unethical business practice-unsuitable recommendations-blanket recommendation
same security is recommended to the majority of your clients
fraudulent practices-promising a customer services without any intent to perform them or without being properly qualified to perform them
saying yes to a client even if you know you cant deliver. like if a client asks you to analyze a stock and you don't know how
dishonest or unethical business practice-guaranteeing against a loss
securities professionals may not guarantee a certain performance, nor may they guarantee against a loo by providing funds to the account
On the front of the prospectus what is the disclaimer?
security has not been approved or disapproved
registrant
security issuers/professionals who are in the process of registering or who have registered with the administrator
scope of liability for investment advice
seller of the transactions as well as anyone who directly or indirectly controls the person who sold the securities or the advice is also liable to the same extent as the person who conducted the transaction
the purchaser of securities sold in violation of the act may sue the
seller to recover financial loss
Under the Uniform Securities Act, the term agent would include an individual who sells exempt securities on behalf of a broker-dealer in an exempt transaction sells non-exempt securities on behalf of a broker-dealer in an exempt transaction sells securities on behalf of an issuer in an exempt transaction sells revenue bonds as a representative of the city water authority
sells exempt securities on behalf of a broker-dealer in an exempt transaction sells non-exempt securities on behalf of a broker-dealer in an exempt transaction
dishonest or unethical business practice-unsuitable recommendations-free lunch seminars
seminar where a free lunch is provided to attendees -claim "nothing will be sold during seminar" -but follows up with attendees
who can establish minimum financial standards for BDs
the administrator
who has jurisdiction over a stock when it is given as a gift?
the administrator -potential future obligation that a creditor or issuer demands payment from the balance of par value
*who is guilty of insider trading violation? A corporate officer of the issuer who divulges material inside information to a friend but no transaction takes place OR an agent who executes a trade for a client who is acting on insider information
the agent is in violation for accepting an order on the basis of material nonpublic information that results in a trade
Under the Uniform Securities Act, any securities registration statement must include the amount of securities to be offered in that state a list of the other states in which the security will be registered a copy of the prospectus or offering circular
the amount of securities to be offered in that state a list of the other states in which the security will be registered a copy of the prospectus or offering circular
when a IAR or a agents registration is dependent on being associated with a BD or IA when the employer's registration is suspended or revoked
the individual's is also suspended and if cannot find work for two years after they will have to retake the test
If a person registers in November, when does the registration come up for renewal?
the month after in December 31
what do BD's earn when underwriting?
the spread -difference between the POP and the price they pay the issuer OR the commission which is used to pay their agents
a radio and TV program is considered to originate in
the state where the camera or mic was in
Unlawful or Lawful: an agent guarantees a client that funds invested in mutual funds made up of government securities cannot lose principal
unlawful
U or L: a agent recommends that her client buys 1000 shares of IDR an unregistered nonexempt security with a bright future
unlawful it is unlawful to promote a unregistered nonexempt security
a successor firm in case of BDs and IA, a successor firm when do they pay a fee?
until the renewal date
dishonest or unethical business practice-deceptive advertising practices
using an advertisement or sales presentation in such a fashion as to be deceptive or misleading like false data, material or claims
which is a security? fixed or variable annuity?
variable annuity since it is dependent of investment performance within the annuity
exempt security remains its exemption when and until
when its issued and in subsequent trading
when does the effective date by qualification happen for qualification?
when the admin of the state orders
A investment adviser are registered
with SEC or state but NEVER BOTH
summarily
without going through the hearing process, a postponement or suspension of a registration pending final determination of any proceeding based upon actions described above
Before a BD or agent can exercise discretion, a
written discretionary authorization permitting discretion must be received by the firm
fraud
wrongful or criminal deception intended to result in financial or personal gain
if a cold caller suggest securities do they have to register?
ya
28e safe harbor? effecting and clearing securities trades
yes
28e safe harbor? financial newsletters and trade journals
yes
28e safe harbor? quantitative analytical software
yes
28e safe harbor? research reports analyzing the performance of a particular company or stock
yes
28e safe harbor? seminars or conferences w/ appropriate content
yes
Does USA require that administrators publish all of their rules and orders?
yes
do reccos made through social media come under the same suitability constraints as any other recco?
yes
does custody include of any arrangement under which you are authorized to w/d funds maintained w/ a custodian upon your instruction to the custodian?
yes
does custody include of any capacity that gives you or your supervised person legal ownership or access to clients funds or securities?
yes
if a individual is in a sales capacity do they have to register as agent whether they sell registered securities or securities exempt from registration
yes
if a intern gets a commission for soliciting clients do they have to register?
yes
is a margin account a covered account?
yes
is it possible to increase the # of shares w/o having to file a new registration statement?
yes only if these 2 conditions are met 1. POP hasn't changed from the amt. stated in the OG 2. the underwriters disc. & commissions aren't changed from the respective amounts stated in the OG registration statement
if a piece of real estate is used for renting it out is it a security?
yes since its profit motivative
if a BD or an agent prepares a sales brochure for a new issue but only includes positive information from the prospectus is its prohitbited?
yes, leaving out deal breakers and negative information is not allowed