Series 63 wrong answers to study

Under the USA, which of the following is NOT a security?

A condominium purchased as a primary residence A personal residence, whether a condominium or other single family home, is real estate, not a security.

Under the Uniform Securities Act, which of the following is an offer or a sale?

A gift of stock given as a bonus with a purchase of a parcel of real estate A gift of securities given as a bonus for any purchase is considered part of the purchase. Stock splits, bona fide gifts, and bona fide pledges or loans made with no purpose of evading the act are not considered sales.

All of the following must register as an agent when representing a broker-dealer EXCEPT

A partner in a broker-dealer who has no securities sales functions 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.

Which of the following is defined as fraud under the Uniform Securities Act?

An agent engages in transactions that his state legislature has declared fraudulent but no judicial body or case law has found such transaction to be fraudulent. Fraud is a result of a deliberate action, not unknowingly. Fraud under the USA is not limited to judicial or case-law definitions of deceit but is subject to definition by legislation. The act itself contains the statement "fraud is not limited to common law deceit."

Which of the following meets the definition of churning? Encouraging customers to make frequent changes in their holdings in an effort to maximize commissions Excessive activity in a customer's discretionary account Transactions that are excessively large considering the customer's financial situation

All three options describe churning.

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?

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. 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.

Which of the following is defined as a security under the Uniform Securities Act?

An investment contract As a result of the Howey decision, investment contracts are defined as (and often serve as a synonym for) a security under the Uniform Securities Act. A modified endowment policy is an insurance policy excluded from the definition of a security. Fixed, guaranteed payments made for life or for a specified period are fixed annuity contracts not defined as securities. Commodity futures contracts and the commodities themselves are not securities.

Steven is registered as an agent with Maple Leaf Securities, a Canadian broker-dealer located in Toronto with no offices in the United States. One of Steven's clients has recently made a permanent move to Florida. Which of the following statements with respect to Steven is CORRECT?

As long as the only dealings with this client are with a previously established Canadian tax qualified retirement plan, Steven only has to file an application and a consent to service of process. Canadians have their equivalent of our IRA called an RRSP and, as long as the account is opened in Canada with a properly registered agent, that agent may continue to handle transactions in that account for clients who move out of the country.

Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the following types of authority may NOT be given to an agent by a customer?

Authority to borrow money or securities from a customer's account Borrowing money or securities from a customer is prohibited. The other types of authority may be granted.

The Uniform Securities Act specifically exempts certain issues from the registration and advertising filing requirements of the act. Which of the following securities does NOT carry that exemption?

Bank holding company stock The securities of banks, trust companies, and savings institutions are exempt; the securities of bank holding companies are not. Commercial paper with a maturity of 270 days or less that is in the top 3 grades and has a minimum denomination of $50,000 is also included in the list of exempted securities. State and local issues are exempt and D.C. is considered a "state" under the USA.

All of the following are included in the definition of federal covered security EXCEPT

City of Portland, Maine, GO bond sold to a resident of Augusta, Maine Municipal bonds, exempt securities under the Securities Act of 1933, are also federal covered securities with one significant exception: if the issuer is a political entity in this state and it is sold to a resident of this state, it is not considered a federal covered security in this state. Any security listed on the NYSE, regardless of the corporation's or the customer's state of domicile, is a federal covered security.

Which of the following statements is NOT true?

Exempt securities must reestablish their exemptions at least annually. Exempt securities need not reestablish their exemptions annually or otherwise. Exempt securities are exempt because their issuers are exempt while the basis for an exemption for a transaction must be established before each transaction. Neither the exempt security nor the transaction exemptions are mutually exclusive and a security or transaction may qualify for two or more of these exemptions. The term "federal covered securities" includes registered investment companies as well as securities listed on national exchanges.

An investment adviser is registered in New Jersey and has offices in Georgia and Arkansas. One of their IARs lives in Georgia and in addition to his local clients, has one client who lives in Arkansas. The IAR would be required to register in

Georgia The IAR is living in Georgia and has local clients so must be registered there. With only one client in Arkansas, the de minimis exemption would apply to the IAR. There is no need to register in New Jersey because the IAR has no clients there.

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

I and II 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.

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

I and II 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.

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

I and II Anyone who sells securities on behalf of a broker-dealer is defined as an agent. Those who sell on behalf of an issuer are excluded from the definition under certain circumstances. If the transaction is exempt or the security is one of a specified group of exempt securities, such as municipal bonds (general obligation or revenue), the individual is not defined as an agent under the Uniform Securities Act.

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

I and II 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.

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.

I and II In issuing a cease and desist order, the Administrator may provide prior notice and hearing or may issue the order without prior notice or hearing (summarily). There is no time period associated with the order. Cease and desist orders are directed against persons; it is stop orders that are directed against securities.

Under the Uniform Securities Act, an investment adviser may legally have custody of money or securities belonging to a client if the Administrator has not prohibited this practice if the investment adviser has notified the Administrator that it has custody as long as the adviser does not also have discretionary authority over the account

I and II The Administrator may prohibit investment advisers from having custody of client securities or funds. If no such prohibition applies, the Administrator must be notified in writing if the investment adviser has custody. However, custody has nothing to do with investment discretion.

Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the following are required for an agent to lawfully share in the profits of a customer's account? The customer's written approval The broker-dealer's written approval The agent may share only in proportion to his or her own financial contribution to the account

I and II To share in a customer's account, written consent of both the client and the broker-dealer need to be obtained. Unlike FINRA rules, there are no requirements for proportionate sharing.

An Administrator could use which of the following as a reason for issuing an order denying the registration of a security? 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. The company has not been paying dividends. The offering would be made with unreasonable amounts of underwriters' and sellers' discounts.

I and III 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.

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

I and III 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.

There are several ways that a securities professional's registration can be terminated. Nonpunitive termination of a securities professional's registration could be done through cancellation suspension revocation withdrawal

I and IV Cancellation and withdrawal are nonpunitive methods of termination of a person's registration. Suspension, revocation, and denial are considered forms of punishment.

A client is interested in purchasing a thinly traded equity security where, due to the extra effort involved in obtaining the issue, the commission charged will be somewhat higher than normal. The compensation to the broker-dealer must be disclosed before the order is placed at the time of trade execution in the prospectus on the trade confirmation

I and IV Commissions are always disclosed on the trade confirmation. In this specific case, NASAA wants you to understand thinly traded issues will probably carry a higher than usual commission. In those cases, disclosure must be made before the trade is made.

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 the person must not deal with any employee benefit plans with assets of not less than $1 million the person must limit its business activities to other broker-dealers and financial institutions the person must not have a place of business in the state all employees must be licensed as agents with the Administrator in at least one state

I and IV 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.

Which of the following statements regarding agent registration under the Uniform Securities Act are TRUE? 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. The Administrator may initiate a disciplinary action within two years of an agent's withdrawal of registration. The administrator may request the agent furnish a statement of assets and liabilities. 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.

I and IV Normally, registration of persons becomes effective at noon of the 30th day following filing. If the Administrator requires the filing of amendments, the clock starts over again with the filing of those amendments. Agents do not have financial requirements and the Administrator has a maximum of one year after termination to initiate any actions.

Under the Uniform Securities Act, a security that is exempt from the registration requirements is also exempt from the requirements for filing of advertising and sales literature antifraud provisions civil liabilities provisions

I only An exempt security is exempt only from the registration requirements and the requirements for filing of advertising and sales literature. There are no exemptions from the antifraud provisions. Civil liability arises anytime a security is sold or advice is rendered in violation of the act, regardless of whether any security involved was registered or exempt.

Which of the following securities is(are) exempt from state registration and filing of advertising materials? New York City municipal revenue bonds Montreal bonds guaranteed by the province of Quebec Preferred stock of the National Bank, N.A., a member of the Federal Reserve System Preferred stock of Local County Bank, organized and regulated solely by the banking laws of the state of Illinois

I, II, III, and IV Any security issued by a bank that is federally regulated is exempt under the USA. State banks are exempt if regulated by that state. Municipal bonds are exempt if issued by a municipality in the United States or Canada.

Which of the following securities are exempt from registration requirements under the Uniform Securities Act? Issues of U.S.-based insurance companies authorized to conduct business in the state NYSE traded issues Issues of nonprofit religious organizations Commercial paper meeting certain requirements

I, II, III, and IV Securities issued by an insurance company organized under the laws of any state and authorized to do business in that state are exempt from registration. NYSE-listed issues are federal covered, and nonprofit organizations and commercial paper with a maturity of 270 days or less are also exempt.

Which of the following securities is (are) exempt from registration under the Uniform Securities Act? Municipal securities Government securities Stock or bonds issued by an insurance company authorized to do business in this state

I, II, and III All government and municipal securities are exempt from registration requirements under the Uniform Securities Act as are insurance company securities if the company is authorized to do business in this state.

Which of the following statements concerning an agency cross transaction for an advisory client is (are) TRUE? It is a transaction in which a person acts as an investment adviser in relation to a transaction in which the adviser or related person acts as a broker-dealer for both the advisory client and another person on the other side of the transaction. An advisory client must provide prior written consent for the adviser to be able to engage in agency cross transactions. An adviser must make prior written disclosure to the advisory client that it will act as broker-dealer for, have a potential conflict of interest with, and may collect commissions from both parties. An adviser may recommend the transaction to both parties to the transaction.

I, II, and III An agency cross transaction is a transaction in which a person acts as an investment adviser in relation to a transaction in which the adviser or related person acts as a broker-dealer for both the advisory client and another person on the other side of the transaction. An advisory client must provide prior written consent for an adviser to be able to do agency cross transactions as part of his operating plan. An adviser must make written disclosure to the advisory client that it will act as broker-dealer for, have a potential conflict of interest with, and may collect commissions from both parties. The adviser may not recommend the transaction to both parties.

Under the provisions of the Uniform Securities Act, securities exempt from registration requirements include securities issued by the U.S. government securities issued by a building and loan association organized under the laws of any state and authorized to do business in this state bonds issued by an insurance company organized under the laws of any state and authorized to do business in this state

I, II, and III Securities exempt from registration requirements include securities issued by the state or U.S. government; securities issued by foreign governments with whom the U.S. maintains diplomatic relations; and any securities issued by savings and loan or building and loan associations, insurance companies, and credit unions authorized to do business in this state.

Under the Uniform Securities Act, the Administrator may deny or revoke the exemption from registration for which of the following? A security issued by a nonprofit organization Investment contracts of employee benefit plans An exempt transaction not involving a federal covered security

I, II, and III The Administrator may deny or revoke any transaction exemption except those involving a federal covered security. The only security exemptions where the Administrator has this power is in the case of securities issued by non-profit organizations and investment contracts of employee benefit plans. The order must pertain to a specific transaction or security.

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

I, II, and III Whenever it appears to the Administrator that any person has engaged or is about to engage in any act or practice constituting a violation of any provision of the Uniform Securities Act or any rule or order, he may in his discretion bring either or both of the following remedies: issue a cease and desist order, with or without a prior hearing against the person or persons engaged in the prohibited activities, directing them to cease and desist from further illegal activity; or bring an action in the appropriate court to enjoin the acts or practices to enforce compliance with this act or any rule or order hereunder. Upon a proper showing, a permanent or temporary injunction will be granted and a receiver or conservator may be appointed for the defendant or the defendant's assets. In addition, upon a proper showing by the Administrator the court may enter an order of rescission, restitution or disgorgement directed to any person who has engaged in any act constituting a violation of any provision of this act or any rule or order hereunder.

Under the Howey test, a Supreme Court Case that established the standards for defining an investment contract, which of the following is a characteristic of a security? Entails an investment of money Carries expectation of profits Carries expectation, but no guarantee, of quarterly distribution of dividends or interest Entails investor reliance on the efforts of others

I, II, and IV The Supreme Court in the Howey case established standards for identifying a security. The four criteria associated with the Howey test are (1) an investment of money (2) in a common enterprise with (3) expectation of profits (4) solely from the efforts of others. The Howey test contains no standard referring to income distributions, guaranteed or otherwise.

The term "investment adviser representative" includes which of the following? A receptionist for an adviser An employee who solicits new business for an adviser A supervisor who oversees employees who manage client portfolios for an adviser An investment advisory firm registered in the state of Texas

II and III 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.

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? 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. Payment for the purchase may be made in the case of a private placement, while no money changes hands in a preorganization subscription. 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. 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.

II and III 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.

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

II and III 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.

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

II and III Provided the agent sold the security with no intent to defraud, rescission may be offered. Rescission is the return of the customer's money, plus interest, less any income received from the investment. The customer has 30 days to accept or reject the offer. After that,​ the "deal is off the table." That is,​​ the client can't have a change of heart and decide to accept the offer nor may the client sue​.

Under the Uniform Securities Act, which of the following statements regarding investigations conducted by the Administrator is TRUE? Information regarding violations must be kept confidential. Investigations may be conducted across state lines. The Administrator may obtain a court order to have a receiver appointed over a violator's assets.

II and III The Administrator is not restricted to his state's boundaries. If appropriate, the Administrator may apply to a court of competent jurisdiction to have a receiver appointed over the assets of a suspected violator. The Administrator is empowered to publish information regarding violations.

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

II and III 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.

Which of the following would subject an agent to a denial of registration? An arrest for fraudulent behavior in selling securities to an insurance company 2 years ago Conviction of a securities-related misdemeanor eight years ago Losing a civil lawsuit three years ago that related to the agent's actions as a landlord Failure to pay filing fees

II and IV 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.

Question #38 of 60 Question ID: 691195 Differences between static and interactive content on social media include Only static content can be reused by others Only static content needs pre-approval Only static content can be changed by the person who originated it Only interactive content can be commented on by others

II and IV 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.

Mr. Thompson is a registered agent with First Securities Corporation, a broker-dealer registered in, among other states, Illinois and Ohio. Ms. Gordon is one of Mr. Thompson's best clients and she will be spending the months of January and February in Palm Springs, California, rather than Chicago. She asks if there is a First Securities Corporation office nearby that she can visit to watch the Ticker Tape and is informed that the firm has no offices in California. During her stay, Mr. Thompson calls Ms. Gordon on a number of occasions with stock recommendations, some of which result in sales. Which of the following statements regarding the licensing and registration requirements of the Uniform Securities Act are TRUE? Mr. Thompson is violating the USA if he is not registered in California. Mr. Thompson is not violating the USA if he is not registered in California. First Securities Corporation is violating the USA if it is not registered in California. First Securities Corporation is not violating the USA if it is not registered in California.

II and IV The USA only requires that an agent be licensed in the state of residence of the client. The act recognizes that people travel and, as long as there is no change of legal residence, registration in California would not be required. The definition of broker-dealer excludes an entity without an office in the state that does no business with residents who are members of the public. Because Ms. Gordon is not a California resident, the firm is not required to be registered in that state.

Under the Uniform Securities Act, which of the following are excluded from the definition of investment adviser, provided the advice is incidental to their profession? Banks Lawyers Broker-dealers Teachers

II and IV The key to this question is that it deals with professionals qualifying for an exclusion. Lawyers, accountants, teachers, and engineers (L.A.T.E.) are excluded from the definition when the advice provided is incidental to the practice of their profession. Financial institutions, such as banks, savings and loans, and trust companies, are excluded without any requirement that advice be rendered on an incidental basis. Broker-dealers are not included in the list of professionals qualifying for this exclusion; however, if they do not receive special compensation when advising their clients, they too are excluded.

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

II, III, and IV 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.

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.

III and IV Under the NSMIA, any person excluded from the definition of investment adviser under the Investment Advisers Act of 1940 is considered a federal covered adviser. Therefore, regardless of the amount of money under management, the state has no jurisdiction. A federal covered adviser may be subject to payment of notice filing fees. Broker-dealers who supply investment advice incidental to their business and receive no special compensation for it are not investment advisers. A person who conducts business exclusively with banks and savings institutions is a broker-dealer under the USA if he has a place of business in the state. Had the person no place of business in the state and conducted business exclusively with banks and savings institutions, he would not be considered a broker-dealer subject to the regulatory control of the state Administrator.

A security that is exempt from the registration requirements of the USA is also exempt from which of the following concerning the act? Civil liabilities provisions Antifraud provisions Requirements for filing advertising and sales literature

III only An exempt security is only exempt from the registration requirements and the requirements for filing advertising and sales literature. No security is exempt from the antifraud provisions of the act and the liabilities that arise from fraudulent practices.

State laws provide for exclusions from the definition of investment adviser. Which of the following persons is specifically excluded under the Uniform Securities Act?

Investment adviser representatives 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.

All of the following would be defined as exempt transactions EXCEPT

Joe Smith, an employee in the consumer lending department of Amalgamated National Bank, buys securities from ABC Securities, a broker-dealer registered in the state The purchase of securities from a broker-dealer by an employee of a bank is a nonexempt transaction because it is a sale of a security by a broker-dealer to a member of the public. Transactions between broker-dealers and issuers, transactions between banks, and between banks and insurance companies are exempt because they occur between financial institutions. Exempt transactions are most often identified by the transaction's parties, rather than the type of security involved.

An individual walks into the office of a broker-dealer wishing to open a new account. Which of the following information would NOT be required on the new account form?

Marital status Although most new account forms do ask for marital status, it is not a required item as are the other choices given here.

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

Smith's clients, none of whom are residents of New York, receive investment advice as an integral part of Smith's legal services 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.

Under the Uniform Securities Act, which of the following is TRUE regarding the registration of securities?

State registration by coordination is available only if a federal registration statement has been filed under the Securities Act of 1933 in connection with the same offering. Registration by coordination becomes effective simultaneously with the federal registration. A prospectus may be delivered at or prior to the time actual delivery of the security is made. The act prohibits any statement or implication that registration involves approval of accuracy of facts by the Administrator. The federal registration statement is what the state registration is being coordinated with.

Under the Uniform Securities Act, which of the following is TRUE regarding the registration of securities?

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. 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.

Under which of the following circumstances may an Administrator revoke an adviser's registration?

The adviser has been convicted of a nonsecurities-related felony. If an adviser committed a felony or participated in unethical business practices, its registration will be revoked, not canceled. An adviser's registration may be canceled if the adviser is found to be mentally incompetent, cannot be located, or is no longer in business. The difference between canceling and revoking a registration is subtle; cancellation is not punitive while revocation involves some sort of wrongdoing.

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?

The agent's action constitutes a prohibited use of rumor to induce a purchase or sale of securities. 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.

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?

The credit agreement 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.

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?

The credit agreement 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.

When an Administrator acts summarily to suspend the registration of a security, which of the following statements is TRUE under the Uniform Securities Act?

The registrant must be promptly notified of the action and given an opportunity for a hearing. 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.

A broker-dealer provides HotScores, a portfolio analysis tool which allows clients to indicate their retirement goal. After disclosing age, current financial condition, and risk tolerance, those participating will receive a list of specific securities the customer could buy or sell to meet the investment goal. Which of the following is TRUE?

This would be regarded as making a recommendation. An example of what the regulators have determined to be a recommendation would be if a broker-dealer provides a portfolio analysis tool that allows a customer to indicate an investment goal and input personalized information such as age, financial condition, and risk tolerance. The broker-dealer then sends the customer a list of specific securities the customer could buy or sell to meet the investment goal the customer has indicated.

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?

This would not be considered a testimonial and therefore permitted under the regulations. 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.

Which of the following transactions are NOT exempt from registration?

Transactions with intrastate manufacturing companies A transaction with a corporation that is not a financial institution is neither an exempt transaction nor exempt from the registration rules.

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 Canadian corporation 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.

When discussing cybersecurity, the term "covered account" refers to

a personal or family account for which the firm must provide data protection "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.

All of the following statements regarding registration of broker-dealers under the Uniform Securities Act are true EXCEPT

a successor firm is exempt from filing a consent to service of process until the renewal date When one firm succeeds another, no fees are due until renewal date. However, the successor firm must file a consent to service of process at the time it registers. Broker-dealers with discretionary authority may be required to post a surety bond or maintain minimum net capital. However, no state can impose financial or recordkeeping requirements that exceed those of the SEC.

All of the following statements regarding registration of broker-dealers under the Uniform Securities Act are true EXCEPT

a successor firm is exempt from filing a consent to service of process until the renewal date When one firm succeeds another, no fees are due until renewal date. However, the successor firm must file a consent to service of process at the time it registers. Broker-dealers with discretionary authority may be required to post a surety bond or maintain minimum net capital. However, no state can impose financial or recordkeeping requirements that exceed those of the SEC.

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

advisory fees 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.

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

an options account Because trading options (puts and calls) generally involves a higher degree of risk than stocks, bonds, or mutual funds, a designated supervisory person with knowledge about options must approve the account opening.

A broker-dealer with no place of business in the state would not be required to register if their only clients were

banks and insurance companies A broker-dealer with no place of business in a state is not deemed to be a broker-dealer in that state if its only customers are institutions like banks, insurance companies, investment companies employee benefit plans with assets of at least $1 million, or other broker-dealers. There is no de minimis rule for broker-dealers as there is for investment advisers.

Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, an agent could not

borrow money from a client pursuant to a written agreement with the client and with the permission of the broker-dealer The NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents is quite clear that you can only borrow money from a client who is in the money-lending business, such as a bank or credit union.

Under the Uniform Securities Act, all of the following are exempt from registration EXCEPT

common stock only sold intrastate 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.

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

conduct business with the client as usual 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.

The National Securities Markets Improvement Act of 1996 (NSMIA)

defined the term "federal covered adviser" 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.

If a car dealer offers $1,000 bonds as a bonus for the purchase of cars, the car dealer is

engaging in the offering for sale of a security According to the Uniform Securities Act, offering securities as a bonus on the purchase of another thing for value, such as a car, constitutes an offer of securities. For the purposes of the Uniform Securities Act, the dealers are offering securities and are subject to the provisions of the act. The practice is not fraudulent, but registration as a broker-dealer would be required.

Keely Company, Inc., has outstanding equity securities registered with the SEC. The company issues a debt security directly to financial institutions. This sale is an example of a(n)

exempt transaction Under the Uniform Securities Act, the sale of securities to financial institutions is an exempt transaction.

A consent to service of process allows the Administrator to

exercise the power of attorney on behalf of the registrant 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.

It is a violation of the Uniform Securities Act if an agent

files a fraudulent application It is a violation of the Uniform Securities Act to file a fraudulent or misleading application for registration as a securities industry professional (agent, broker-dealer, or investment adviser). An agent may always make material representation in the sale of a security; it is a material misrepresentation that is not permitted. An unregistered security may be sold in an exempt transaction and an exempt security does not need registration.

Under the USA, a person who has passed the appropriate NASAA examination but whose license has not yet been issued can participate in

giving a seminar on the benefits of whole life insurance versus term insurance A person who has passed the NASAA exam cannot transact securities business until the Administrator notifies the employer that the registration is effective. Insurance, unless variable, is not a security.

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

have a history of repeatedly delaying the delivery of securities to its customers A 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.

If an agent representing a broker-dealer located in Utah wishes to solicit business in California, under the Uniform Securities Act, the agent would

have to register in California 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.

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

he conducts frequent public seminars in the state 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.

A broker-dealer is running a sales contest offering a bonus to any agent who sells a specified amount of a money market mutual fund. An agent is only a few sales short of reaching the target. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, it would be prohibited for the agent to

imply that the money market fund is similar to a savings account NASAA has a special Statement of Policy dealing with unethical business practices related to investment companies. One of the provisions considers it unethical is comparing money market mutual funds to savings accounts. The nature of money market funds is such that there generally would not be any suitability problems recommending friends or clients ask others to open an account with you.

​Fusion Financial is a broker-dealer registered in States A, B and C with its home office in State B. A complaint is filed against the firm by a client who resides in State A. Under the powers granted under the Uniform Securities Act, the Administrator of State B could do all of the following EXCEPT

issue an injunction against Fusion Financial ​​An Administrator has the power to gather evidence both within and outside of the home state as well as subpoena evidence and witnesses in any state.​ Only the courts can issue an injunction.​

The Uniform Securities Act does not contain bonding requirements for

issuers Securities professionals, other than investment adviser representatives, may be required to post a surety bond. That requirement is not placed upon issuers of securities.

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

it must be in book entry form 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.

In conducting investigations, the Administrator may NOT

make investigations outside the state to determine whether violations of the USA have occurred in that other state The Administrator may require written statements under oath, publicize violations, and investigate anywhere necessary to determine whether or not a violation of the act took place in his state. However, he is not authorized to conduct investigations in other states to determine whether a violation of the USA has occurred in those states.

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

markups and markdowns on trades done as a principal 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.

Under the Uniform Securities Act, all of the following must be disclosed in an investment advisory contract EXCEPT

other states in which the investment adviser is registered 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.

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

may only justify denial for reasons listed in the Uniform Securities Act 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.

If a nonexempt company has authorized a stock split that will give each shareholder 2 shares for every 1 share owned without charge, this transaction

need not be registered because it is an exempt transaction Shares issued as a result of a stock split need not be registered because transactions between issuers and existing shareholders are exempt if no consideration is involved.

While a student at college nine years ago, Joe was convicted of possession of marijuana (a misdemeanor in that state) and received a suspended sentence. Joe now resides in a different state where the same offense is a felony. If Joe disclosed the matter on his application to ABC Securities, Joe's registration may

not be denied based on this conviction because it was a misdemeanor in the state where he went to college In this context, only a conviction for a felony within the past ten years may be grounds for denying a registration. Since the conviction does not show up on Joe's records as a felony, the fact that this state has different penalties for the same offence is irrelevant.

An employee of an issuer who sells the issuer's common stock exclusively to trust companies and savings institutions is

not required to register as an agent of the issuer 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.

According to the Uniform Securities Act, the Administrator has the power to require persons wishing to register as an agent to

post a surety bond, pay filing fees, and pass an exam 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.

An agent engages in a practice prohibited under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents by doing any of the following EXCEPT

recording small transactions with clients on the books of the employing broker-dealer All transactions, regardless of size, must be recorded on the broker-dealer's books unless consent has been received from the BD to do otherwise. Borrowing money from a client is a prohibited practice unless the client is in the business of lending money, whether disclosure is made to the employer or not. Sharing in profits and losses with clients is only allowed with consent of the client and the employing BD. If the client would not understand the risks, then, in all probability, the recommendation is unsuitable.

The Administrator may do all of the following with respect to federal covered securities EXCEPT

require that the issuer meet minimum financial standards One of the effects of the NSMIA is that a state securities Administrator may not require any financial standards be met by an issuer of federal covered securities. The Administrator, however, may initiate enforcement action, require payment of filing fees to the state, and require submission of a consent to service of process.

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

sale of a security limited in its offering to no more than 10 retail investors in any calendar year 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.

It would be a prohibited business practice for an agent to

share profits and losses in a customer's account without the consent of both the client and the employing broker-dealer Agents are the only securities professionals who are permitted to share in the profits and losses in a customer account. In order to do so, approval must be granted by the employing broker-dealer and the sharing must be authorized by the client. Remember, an agent determining time or price is not using discretion.

Because, under the USA, many different securities qualify for an exemption from registration, proof of qualification for an exemption is the responsibility of

the person requesting the exemption The USA provides for exemption from registration in a number of cases. If the exemption is challenged by the Administrator, it is up to the person, usually the issuer, requesting the exemption to prove that it is merited.

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

should pack her bags for the trip; she earned it 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.

Each of the following statements regarding registration of securities by coordination is true EXCEPT

state registration must be effective prior to federal registration State registration must be coordinated with federal registration. In most cases, the registration statement must be on file with the Administrator for ten days, but the Administrator has the power to shorten that period. The registration statement becomes effective concurrent with the SEC and must contain or be accompanied by consent to service of process.

Under the USA, all of the following issues would be exempt from registration EXCEPT

stock issued by an insurance company not offering policies in this state Had the insurance company been authorized to do business in this state, its securities offering would be exempt.

Under the Uniform Securities Act, a registration statement for a securities issue may be filed by any of the following EXCEPT

the Administrator of the state in which the issue is to be sold 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".

One major difference between the customer identification program (CIP) and the new account opening rules of the regulatory bodies is that

the CIP requires date of birth while the regulators only require proof of legal age The CIP requires the actual date of birth, not just proof of legal age. The CIP has no interest in the goals of the investor, just the identity. In both cases, a PO Box may only be used after supplying a physical residence address and both the CIP and the rules of the regulators apply to retail and institutional accounts.

The most common way in which to distinguish whether social media content is static or interactive is

the ability for others to change it Static content can only be changed by the originator (or someone under that person's control).

When it comes to safeguarding confidential information pertaining to the account(s) of an individual customer or family, the rules deal primarily with what is called a covered account. A key factor in determining if an account meets the definition is

the ability of the customer to move funds out of the account on multiple occasions A covered account is an account, primarily for personal, family, or household purposes, that involves or is designed to permit multiple payments or transactions. Where the money goes is less of a factor than the frequency of transactions. The only time when a single transaction account might be covered is if there is reason to believe that the identity of the customer is at risk—not likely when wiring to a family member. Institutions are not included in the definition and owning the stock underlying the sale of a call option means the option is covered—totally different from the topic here.

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

the agent is accused of violations of the antifraud provisions of the USA An accusation is not grounds for suspension, unlike convictions, court injunctions, and lack of supervision.

ABC Furniture Company wishes to raise capital by issuing some securities in its home state. The CEO of the company feels that registration with the Administrator is unnecessary because the issue is exempt. Should ABC be ordered to appear at a hearing, the burden of proving its issue is exempt is on

the company In any case where there is a question as to the legality of a specific exemption, the burden of proof is always on the party requesting the exemption.

One of the portions of the USA Patriot Act that affects the opening of an account for a new customer is

the customer identification program The customer identification program (CIP) is mandated by the Patriot Act and requires that broker-dealers (and other financial institutions) obtain certain specified information about new customers. The "know your customer" rule was written many decades before the Patriot Act. The Patriot Act, through the CIP, is concerned with validating identity, not suitability.

All of the following must be specified in the state registration statement of a security EXCEPT

the total amount of the security that will be offered in each state It is not necessary to list the total amount of the security to be offered in all states. However, for filing fee purposes, the amount to be sold in this state must be disclosed.

All of the following must be specified in a security's state registration statement EXCEPT

the total amount of the security that will be offered in other states The total amount of the security to be offered in other states need not be specified although identifying those states is required. The amount of the security to be offered in the state of registration is required, as it generally provides the basis on which the registration fee is calculated. A stop order from another state that affects the offering of the security within the state must be included. The registration statement will always describe the intended use of the proceeds.

An investment adviser may not have custody of a customer's funds and securities under the Uniform Securities Act if

there is a rule in the state barring such custody If there is a rule barring custody, under no circumstances may the investment adviser have custody of customer funds or securities. It is the IA who must notify the customer that custody is being maintained, not the reverse.

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

this is the loan consent agreement 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.

Following the advice of its portfolio managers, The Rising Tide Hedge Fund executes most of its securities transactions through Momentum Securities, a registered full-service broker-dealer. In order to compensate for the commissions charged, Momentum Securities allows employees of Rising Tide to use furniture and facility at a discounted rate. Under the soft-dollar provisions of Section 28(e)

this would not fall under the safe harbor The use of furniture or office facilities is not included in the list of safe harbor items, regardless of what role the employees of the fund play.

Under the Uniform Securities Act, the Administrator can require a federal covered investment adviser

to file a copy of all of the documents submitted to the SEC Federal covered investment advisers do not come under the jurisdiction of the state Administrator. The only requirement he may place on them is a Notice Filing which may include: Submitting copies of all documentation filed with the SEC; Paying a filing fee; and Providing a consent to service of process

Section 410 of the Uniform Securities Act deals with civil liabilities and rights of recovery for injured parties. Under that section, a person who has been impacted by a sale made in violation of the Act would not be entitled to receive

treble damages Unlike some federal laws, there is no provision in the USA for the payment of treble (triple) damages for a civil suit. Under the right of rescission, the client is entitled to receive the original sum invested, plus interest (less any income received). If the security has already been sold, the legal term that applies in this case is "liquidated damages".

An individual may NOT act as an agent for more than one broker-dealer

unless the Administrator, by rule or order, authorizes such employment An individual may only act as an agent for multiple broker-dealers that are affiliated with each other. If the broker-dealers are unrelated, an agent may not work for them unless the state securities Administrator, by rule or order, authorizes such employment.

The term used to describe a customer initiated order that includes all of the details except time and price is

unsolicited When the order to buy or sell is initiated by the customer, it is considered to be an unsolicited order. Discretionary orders leave the decision as to what security, how much and buy or sell up to the designated agent. This is an exempt transaction, not an exempt order.

An Administrator may initiate a suspension or revocation proceeding against a broker-dealer registered in his state

upon discovery that the broker-dealer's license had been suspended in another state Suspension (or revocation) of a broker-dealer's registration in another state is adequate cause for this state's Administrator to initiate the process to suspend the broker-dealer's registration in his state. A felony committed by an agent of the broker-dealer is not usually cause for the Administrator to initiate a proceeding against the broker-dealer. It is only when the question states that the individual is an officer, director, or partner of the firm, or the agent's actions are due to failure to supervise, that action against the firm will generally commence. The Administrator maintains jurisdiction over a license that has been withdrawn for a period of 1 year after the effective date of the withdrawal (it is FINRA who maintains jurisdiction for 2 years). It is only the discovery of new facts unknown to the Administrator at the time of initial registration that can lead to a proceeding.

A new issue is being sold by a registered broker-dealer. An agent for the firm prepares a sales brochure that contains only positive information gleaned from the prospectus. The sales brochure is handed out along with a copy of the effective prospectus. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, this

would be prohibited because material information is being omitted Sure, the sales piece is being handed out with the prospectus, but the folks at NASAA were not born yesterday. They know the client will most likely ignore the hard-to-read prospectus and just focus on the glossy, slick looking brochure. That is why this is a prohibited practice—disclosure of the risks and expenses will be left out.

A potential client is not very forthcoming with financial information, objectives and goals. In order to be able to make suitable recommendations to a client,

you would make reasonable inquiry about the client's financial situation, objectives and needs Under the suitability requirements of the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, you must make reasonable inquiry into a client's objectives, financial status and needs prior to making any recommendations. Of course, if the client is not forthcoming with this information, all you can do is accept unsolicited orders. One important point missing from this question is that we must assume this is the client of an agent. If the question told us it was an IA or IAR, then they would have to refuse the account. Why? Because the IA is paid for advice and you can't possibly give advice if you don't have the information that is being withheld here.