Finals !!! Study !!!
An individual's registration as an agent would be denied under the Uniform Securities Act for all of the following reasons EXCEPT the individual was convicted: A. of a drug misdemeanor 8 years ago B. of a drunk driving felony 8 years ago C. of a securities misdemeanor 8 years ago D. in a lawsuit brought by the Securities and Exchange Commission 8 years ago
The best answer is A. An agent's registration will be denied if the agent was convicted of a misdemeanor involving securities or monies; or any felony; within the past 10 years. A conviction 8 years ago for a drunk driving felony, is another reason for denial of registration. A conviction 8 years ago for a drug misdemeanor, while not a good thing, is not a stated reason for denial of registration.
No civil liability exists under the Uniform Securities Act if a(n): A. issuer offers to sell a security in violation of the Act, but no sale occurs B. agent omits a material fact when selling a security C. terminated agent effects securities transactions for customers before associating with another registered broker-dealer D. issuer sells a security without registering the issue in that State, relying on the incorrect advice of counsel that the issue was exempt
The best answer is A. Civil liability is incurred under the Act if a person sells a security resulting in a violation of the Act. If no sale occurs, then there is no civil liability (Choice A). If a sale occurs, then there is civil liability.
An investment adviser headquartered in State A wishes to solicit customers in State B. Which statements are TRUE? I If the investment adviser has an office in State B, it must register in State B II If the investment adviser has an office in State B, it need not register in State B III If the investment adviser has no office in State B, it must register in State B IV If the investment adviser has no office in State B, it need not register in State B A. I and III B. II and IV C. I and IV D. II and III
The best answer is A. If an investment adviser has an office in a State, it must be registered in that State. If an investment adviser has no office in a State, but solicits customers in that State, it must register in that State as well.
The Administrator is NOT permitted to: A. appoint a receiver in bankruptcy to distribute the assets of a failed registered broker-dealer B. bar any registrant from employment with a registered broker-dealer C. restrict or limit a registrant as to any function or activity of the business for which registration is required in the State D. summarily postpone or suspend registration pending a final determination of any proceeding or hearing
The best answer is A. Only a bankruptcy court can appoint a trustee to take control of the assets of a failed business - not the State Administrator. The Administrator has the power to deny, suspend, or revoke any registration, or bar or censure any registrant or any officer, director, partner or person occupying a similar status or performing similar functions for a registrant, from employment with a registered broker-dealer or investment adviser, or restrict or limit a registrant as to any function or activity of the business for which registration is required in the State (this is the exact wording of USA). The Administrator may, by order, summarily suspend a registration. Upon entry of the order, the Administrator must notify the affected individual or firm detailing the reasons for the suspension and that within 15 days after the receipt of a written request, the matter will be set down for a hearing.
Two companies, Company A and Company B, are involved in a securities offering. Company B is selling its stock. Company A's employees help sell the shares. Company A receives commissions from Company B and pays the commissions to its staff. Therefore, the employees of Company A are: A. agents of a broker-dealer B. their own broker-dealer C. independent contractors D. agents of an issuer
The best answer is A. Since Company A's employees are being compensated for selling the shares of Company B, Company A is defined as a "broker-dealer" and Company A's employees are agents of the broker-dealer. Both Company A and its employees would be required to register in the State. Also note that Company B would be defined as an "issuer" in this transaction, but this is not part of the question.
In order to register as a broker-dealer in the State, the Administrator can require filing of a: A. Form BD B. Form U-4 C. Form U-5 D. Form U-10
The best answer is A. The Form BD is the broker-dealer application that is used for both Federal and State registration. A U-4 is the Federal Securities Industry Application for individuals - this information becomes part of the registrant's CRD file. A U-5 is the termination form that removes an individual's registration from the CRD file. A Form U-10 can be used to apply to take exams that are not subject to FINRA rules.
Under the Uniform Securities Act, which of the following could NOT be considered to be a "broker-dealer"? A. Credit union B. Attorney C. Investment adviser D. Market maker
The best answer is A. The term "broker-dealer" is defined as a person who: - Engages in the business of effecting securities transactions for the account of others - Engages in the business of trading for his own account (known as "proprietary trading") Persons NOT considered to be "broker-dealers" include: - Agents: These are individuals who represent the broker-dealer when performing securities transactions, basically sales representatives - Banks, Savings Institutions, and Trust Companies: These firms are separately regulated under State and Federal banking laws. - Issuers: (except when an issuer effects transactions other than with respect to its own securities). A credit union is a savings institution, so it is excluded from the definition and CANNOT be defined as a broker-dealer. This is the case because banks and savings institutions are already regulated by the State, so this avoids double regulation. On the other hand, an attorney or an investment adviser is not excluded from the definition and would be defined as a broker-dealer if that person were to offer securities in the State for compensation. Finally, a market maker is a dealer in the securities and clearly falls under the definition.
When can an Investment Adviser borrow from a client? A. If the client is a broker-dealer B. If the client is an accredited investor C. If the client is the sister-in-law of the President of the Investment Advisory firm D. Under no circumstances
The best answer is A. NASAA does not allow IAs to borrow from their clients, unless the client is a broker-dealer (which would be in the business of giving margin loans), a bank that is in the business of loaning funds, or an affiliate of the investment adviser. This rule contrasts starkly with the FINRA rule for borrowing by broker-dealers. Broker-dealers, under the FINRA rule, cannot borrow from clients unless the client is an immediate family member; a "significant other" like a live-in boyfriend or girlfriend; a bank; or a business associate.
Under the Uniform Securities Act, which individual is defined as an "agent"? A. A principal of a broker-dealer B. A secretary who takes customer orders C. A clerk who solely performs clerical functions D. A silent partner of a broker-dealer
The best answer is B. An agent is defined as any individual who represents an issuer or broker-dealer in effecting securities transactions. A sales representative who makes recommendations or who writes customer orders falls under the definition. The definition excludes principals of broker-dealers; clerical employees who do not take customer orders; and silent partners.
A broker-dealer is offering an IPO to the public. The broker-dealer is permitted to sell the shares to: I its unregistered employees II its registered employees III prospective customers IV its existing customers A. I and II only B. III and IV only C. I and IV only D. II and III only
The best answer is B. Broker-dealers and their employees (whether registered or unregistered) are prohibited from buying IPO shares at the offering price in the underwriting. They can, however, purchase the shares in the secondary market. A broker-dealer buying IPO shares for its own or for employee accounts is "withholding the issue from sale to the public" with the intention of taking a "free ride" on the likely upward price movement once the issue opens for trading in the market. This is a violation called "free riding and withholding."
The statute of limitations on civil suits arising from alleged violations of the Uniform Securities Act is: A. 1 year of discovery B. 2 years of discovery C. 3 years of discovery D. 5 years of discovery
The best answer is B. Civil suits alleging violation of the Act must be brought within 2 years of discovery of the alleged violation, but no later than 3 years after the actual violation occurred.
A customer asks an agent for the current market value of his stock portfolio. The stock market has been dropping sharply today, and the agent gives the customer the most recent valuation that he has, which is based on yesterday's closing prices. Which statement is TRUE? A. The agent's action is permitted since he gave the customer the most recent information that he had B. The agent's action is fraudulent because he misrepresented the status of the account to the customer and gave inaccurate market quotations C. The agent's action is permitted since price quotes are only estimates D. The agent's action is fraudulent because he withheld material inside information from the customer
The best answer is B. Giving inaccurate market quotes is a prohibited practice under the Act. In this case, the agent misrepresented the status of the account to the customer by giving yesterday's closing quotes. If the agent did not have immediate access to today's prices, then he should have told the customer that he would get today's quotes and call him back as soon as possible.
Securities traded on the Midwest (Chicago) Stock Exchange are NOT exempt from which requirement of the Uniform Securities Act? A. Registration B. Anti-fraud C. Filing of advertising and sales literature D. All of the above
The best answer is B. If a security is exempt (exchange listed issues are exempt from under the State law "blue chip" exemption), then the issue is exempt from the registration requirement in that State. Furthermore, if a security or transaction is exempt, then it is also exempt from any rules that the Administrator may impose regarding the filing of advertising in that State. However, the anti-fraud provisions of the Act cover all offerings, whether exempt or non-exempt.
Which statements are TRUE about State registration of investment adviser representatives? I If the representative is located in State A, then the representative must register in State A II If the representative is located in State A, then the representative must register in State B if the representative only deals with institutions in State B III If the representative is located in State A, then the representative must register in State B if the representative only has 5 or fewer clients in State B IV If the representative is located in State A, then the representative must register in State B if the representative only effects transactions with individuals in State B A. I and III B. I and IV C. II and III D. II and IV
The best answer is B. If an investment adviser representative is located in a State, or is not located in that State but solicits advisory business in the State, then he or she must register in that State. An exemption from registration is granted in the State if the adviser representative is not physically located in the State and only deals with institutional investors in that State; or only has 5 or fewer clients in that State.
Final orders of the Administrator may: A. be appealed to the North American Securities Administrators Association B. be appealed to the appropriate court of law C. be submitted to binding arbitration D. not be appealed
The best answer is B. If the Administrator issues a cease and desist order against any person, this action may be appealed by making a written petition to the appropriate court of law within 60 days of the entry of the order.
All of the following are examples of market manipulation EXCEPT: A. disseminating rumors B. churning C. painting the tape D. wash trades
The best answer is B. Market manipulation means that the price of a security is being manipulated in the market away from the true market value. Disseminating rumors to get people to buy or sell that stock, especially if it is thinly traded, will certainly get the price moving! "Painting the tape" is a term for doing rapid-fire buy/sell trades in that security to show action on the tape, without an actual ownership change. This activity will attract other market participants to trade, again moving the stock's price. Wash trading is another term for "painting the tape." Churning a customer's account is illegal, but it is not market manipulation. Churning is executing trades in a customer account that are excessive in frequency or size, just to generate commission income for that agent.
An investment adviser representative has a customer that has been telling all of his friends that "My adviser has been great - for each of the last 3 years, my portfolio grew by 20%." Which statement is TRUE? A. The customer has committed an unethical practice under NASAA rules because giving testimonials is prohibited B. The investment adviser representative can ask the customer for the names of those friends and solicit their business C. The investment adviser representative can use the customer statement in an advertisement to solicit new business D. The investment adviser representative cannot make use of this statement because of the restrictions imposed by the "tipper-tippee" doctrine
The best answer is B. NASAA rules apply to broker-dealers, investment advisers and their agents. They do not apply to customers, making Choice A incorrect. The agent can ask the customer for the names of his or her friends and can solicit them - there is no prohibition on this. Testimonials are prohibited in investment adviser advertising, making Choice C incorrect. Choice D only applies to "inside" information - not to testimonials.
To use Registration by Coordination, an issuer must file a registration statement with the: A. Administrator of another State B. Securities and Exchange Commission C. Both of the above D. Neither of the above
The best answer is B. Registration by Coordination of a securities issue in a State allows the Federal registration document required under the Securities Act of 1933 (the Prospectus filed with the Securities and Exchange Commission) to be the basis for registering the issue in that State. There is no provision in Uniform State Law that allows a registration statement filed in one State to be the basis for filing a registration in another State.
If a broker-dealer is registered in a State, the State Administrator would NOT be permitted to: A. require the broker-dealer to post a surety bond with the State B. require the broker-dealer to maintain a greater net capital amount than required under Federal law C. require the broker-dealer to file advertising with the State Administrator D. require the officers of the broker-dealer to pass a licensing exam, even if they do not deal with customers
The best answer is B. Remember that when there is both a Federal and State law covering the same thing, the Federal law has "supremacy." Thus, the Administrator cannot compel a broker-dealer to maintain a higher level of net capital than that required under Federal law (the Securities Exchange Act of 1934 covers net capital for broker-dealers). As a condition of registration in a State, the Administrator can require the posting of a surety bond; can require the filing of advertising; and can require the officers of the broker-dealer to pass a licensing exam.
An agent for a broker-dealer, both of which are registered in the State of Illinois, receives a telephone call from an existing customer who is on a layover in the airport in Atlanta, Georgia. The customer directs the agent to buy 1,000 shares of ABCD stock at the market. Which statement is TRUE? A. In order to accept this order, the agent must be registered in the State of Georgia only B. In order to accept this order, the agent must be registered in the State of Illinois only C. In order to accept this order, the agent must be registered in both the State of Georgia and the State of Illinois D. The agent can accept this order without needing registration in any jurisdiction because it was unsolicited
The best answer is B. Since the agent and broker-dealer are physically located in Illinois, they must be registered in the State of Illinois. This is an existing customer who is calling from an airport in Georgia. There is no requirement for the agent or the broker-dealer to be registered in Georgia to take this order. If the State of Georgia inquired about this transaction, the agent and broker-dealer could claim the exemption available when an existing customer is temporarily located in another State.
Under the provisions of the Uniform Securities Act, the Administrator, in connection with a securities registration, is prohibited from revoking a: A. registration prior to providing an opportunity for a hearing B. registration retroactively C. statutory exemption in a specific sale of securities to a bank D. statutory exemption in a specific sale of securities to a broker-dealer
The best answer is B. The Administrator cannot revoke a registration retroactively; and cannot revoke a registration in the future; based upon facts known at the time that the registration was granted. The Administrator can revoke a registration as long as an opportunity for a hearing is provided within 15 days. The Administrator can modify the definition of an exempt transaction; or can deny an exempt transaction. The Administrator cannot deny the registration in a State of an exempt security, such as a U.S. Government bond or a municipal bond. The Administrator can, however, require the person selling the securities in the State to be registered.
A new broker-dealer has filed a registration application in the State. One of the officers listed in the application suddenly dies and another officer is appointed. This is: A. not a material event and no amendment need be filed with the Administrator B. a material event that requires a prompt amendment filing with the Administrator C. a material event that requires an amendment filing with the Administrator within 30 days of occurrence D. an event that only requires filing with the Administrator if the broker-dealer has been formed as a partnership
The best answer is B. The Uniform Securities Act requires that if the information contained in any document filed with the Administrator becomes inaccurate or incomplete in any material respect, the registrant shall file a correcting amendment "promptly." A change in the officers of the BD is a material event.
To register as an agent or investment adviser in a State, the Administrator can require which of the following? I Agents may have to post a surety bond II Investment advisers may have to post a surety bond III Agents may have to have a minimum amount of net worth or net capital IV Investment advisers may have to have a minimum amount of net worth or net capital A. II only B. I, II, IV C. I, III, IV D. I, II, III, IV
The best answer is B. To register as an agent in a State, the Administrator can require the passing of an examination, and can require the posting of a surety bond if the agent will be handling discretionary accounts or will be taking custody of customer funds. To register as an investment adviser or broker-dealer, the Administrator can also require a minimum amount of Net Worth or Net Capital in addition an exam requirement and the posting of a Surety Bond.
An investment adviser receives a check from a customer made out to the adviser that the customer sent to the adviser inadvertently. This adviser will NOT have taken custody as long as it returns the check to the customer within: A. 3 calendar days of receipt B. 3 business days of receipt C. 9 calendar days of receipt D. 9 business days of receipt
The best answer is B. Under the NASAA custody rule, if an adviser inadvertently receives a check from a customer made payable to the adviser, the adviser will NOT be considered to have taken custody of customer funds if it returns the check to the customer within 3 business days of receipt. NASAA has another rule that states that if an adviser receives a check made out to a third party (not to the adviser) from a customer, as long as the adviser forwards it to the third party within 3 business days of receipt, the adviser will NOT be considered to have taken custody. Since these 2 rules are basically the same, it makes it easier to remember this for the exam!
Which of the following information MUST be included on a customer confirmation? I Whether the transaction was solicited or unsolicited II The exchange where the transaction was effected III The customer name and account number IV The price of execution A. I and II B. III and IV C. II, III, IV D. I, II, III, IV
The best answer is B. Whether a trade is solicited or not is required on an order ticket, but not on a trade confirmation. The exchange where the trade was effected used to be required on the confirmation, but this is no longer the case because all markets are linked and trades must be done at the best price in a given market or routed to the better-priced market for execution. The customer name, account number, size of the trade, price of execution, and any commission charged must all be on the confirmation.
Limited partnership shares are sold to a bank. Under the provisions of the Uniform Securities Act of 1956, as amended, this transaction is subject to: I advertising filing requirements with the Administrator II anti-fraud provisions as promulgated in the Act III payment of filing fees with the State A. I and III only B. II only C. II and III only D. I, II, III
The best answer is B. The sale of securities to a financial institution is an "exempt transaction" under the Uniform Securities Act - because the general public is not involved. As an exempt transaction, the securities involved are not required to be registered in the State (however the person selling them must still be registered in the State). Both exempt securities and exempt transactions are specifically excluded from the Act's advertising filing requirements. Finally, filing fees are only required for securities registrations in the State (primary market); not for secondary market transactions that occur in the State.
Under the Uniform Securities Act, registration as an investment adviser is required for a(n): I broker-dealer who renders advice on securities for a fee II broker-dealer who makes recommendations of securities to customers III investment newsletter of a general circulation IV financial planner who creates an investment plan for a fee A. I and II only B. III and IV only C. I and IV only D. I, II, III, IV
The best answer is C. An "investment adviser" is defined as a person who gives advice about securities for compensation. If a broker-dealer receives no special compensation for making a recommendation (in other words, any charge for the recommendation is included in the broker's commission), then the broker-dealer is excluded from the definition of an "investment adviser." However, if the broker-dealer were to charge a separate fee for giving investment advice, then the firm is defined as an "investment adviser" and must register. Investment newsletters that do not render advice based upon the specific investment situation of a client are also excluded from the definition of an "investment adviser." Financial planners who give investment advice for a fee clearly fall under the definition.
In March, an investment adviser wishes to increase its annual management fee from 1% of assets annually to 1.25% of assets annually, starting the following July 1st. In order to do this: I the investment adviser must amend the Form ADV filed with the State immediately II the investment adviser must amend the Form ADV filed with the State within 30 days III the adviser's customers must approve of the change by July 1st IV the adviser's customers are not required to approve the change A. I and III B. I and IV C. II and III D. II and IV
The best answer is C. Any changes to an advisory contract are a material change that must be filed as a Form ADV update with the State within 30 days. In addition, since this is a contract between the customer and the investment adviser, both parties must agree to any changes.
Which of the following is NOT a federal covered security? A. An offering made over-the-counter of $250,000,000 of 10% convertible debentures of ACME Corporation, a company whose common stock is listed on the American Stock Exchange (NYSE American) B. A private placement of $250,000,000 of debt backed by automobile finance company receivables sold to investment managers that are qualified purchasers C. An offering of $250,000,000 of General Obligation bonds by the City of New Orleans to the residents of Louisiana D. An offering of $250,000,000 of common shares of a mutual fund that will be offered to the general public
The best answer is C. If a security is defined as "exempt" under the Uniform Securities Act, then it is not required to be registered in each State where offered. If a security is a "federal covered security," then it cannot be required to be registered in each State where offered (though the State can require a notice filing and payment of a filing fee). Municipal bonds (Choice C) are an exempt security. The other 3 choices are federal covered securities. A federal covered security is defined as one that is: - NYSE, AMEX (now renamed NYSE American) or NASDAQ listed or is a senior security of such an issuer; - issued by a registered investment company; - sold only to qualified investors - that is, investment managers with at least $25,000,000 under management - essentially these are federal covered advisers; or - sold in exempt transactions specified under the Securities Act of 1933 such as Regulation D private placements. Note that for all 4 choices, there would be no registration required in the State. The question is looking for the distinction between an exempt security and one that is a "federal covered security."
Under the Uniform Securities Act, civil liability may arise if an agent: I makes deceptive statements about a securities offering II sells a non-exempt new issue of securities prior to the filing of a registration statement in that State III fails to guarantee the safety of a new issue securities offering A. I only B. II only C. I and II D. I, II, III
The best answer is C. If an agent makes deceptive statements about a securities offering, this is a violation under the Act. If an agent sells a non-exempt new issue of securities prior to the filing of a registration statement in that State, this is also a violation (only exempt issues need not be registered). Under Uniform State law, guaranteeing a customer against loss is prohibited, so Choice III is incorrect.
Which of the following come under the jurisdiction of the State Administrator? I A mailing of sales literature to a customer in that State II A mailing of sales literature to a customer in a neighboring State III A television broadcast from within that State, received in that State IV A television broadcast from a neighboring State, received in that State A. I and II only B. III and IV only C. I, II, and III D. I, II, III, IV
The best answer is C. If an offer of securities is directed into a State, it comes under the jurisdiction of that State Administrator. Thus, Choices I and II clearly fall under the Administrator's jurisdiction. Regarding television broadcasts, the interpretation is that if the broadcast originates in the State; and is received in the State; then it falls under the jurisdiction of State Administrator in the receiving State. If the broadcast originates in another State; and is received in the State; then it does not fall under the jurisdiction of the State Administrator in the receiving State. Simplified, this means that only the Administrator in the State from which the broadcast originated has jurisdiction. Thus, Choice III is correct; and Choice IV is incorrect.
Under the Uniform Securities Act, which transaction is allowed for exempt unregistered securities? A. Primary offerings B. Secondary offerings C. Both primary and secondary offerings D. Neither primary nor secondary offerings
The best answer is C. In a nutshell, since it is an EXEMPT unregistered security, both primary and secondary offerings are allowed without filing a registration statement in the state. If the security were non-exempt, then to offer that security in the state, registration would be required.
An Investment Adviser that does not take custody of customer funds receives a check from a customer to buy $10,000 of a mutual fund made payable to the Adviser instead of the Fund Custodian. The Investment Adviser should: A. deposit the check to its account and write a check from that account in the same amount made payable to the Plan Custodian B. endorse the back of the check with the Investment Adviser name and, below the endorsement, write in the Fund Custodian's name C. return the check to the customer and ask for a new check made payable to the Fund Custodian D. cash the check and use the funds to buy a money order in the same amount made payable to the Fund Custodian
The best answer is C. In this case, the check has been made out to the Adviser in error. As long as the adviser returns the check to the customer within 3 business days, then the adviser is not deemed to have taken "custody." If the adviser were to deposit the check, cash it or endorse it, then the adviser would be taking custody.
A person makes an initial application for State registration on March 31st. Which statement is TRUE regarding the filing fee? A. The fee will be pro-rated and only 3/12ths of the annual fee must be paid B. The fee will be pro-rated and only 9/12ths of the annual fee must be paid C. The annual fee is not pro-rated and the full year filing fee must be paid D. No filing fee is due until the annual December 31st renewal
The best answer is C. Registration applications for broker-dealers, investment advisers, and agents expire on December 31st of each year, unless the Administrator changes that date. If a new application is filed at any point during the year, there is no pro-rating of the annual filing fee amount.
Which of the following statements are TRUE about Registration by Filing? I The issuer must have minimum earnings levels for the 2 of the past 3 years II Copies of any offering materials must be included in the registration filing III The issuer must not have defaulted on any interest payments within the past year IV Registration becomes effective 10 business days after the filing is complete A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV
The best answer is C. Registration by Filing becomes effective 5 business days after the filing is complete (not 10). To qualify, the issuer must be in business continuously for the past 3 years, and be profitable in 2 of the last 3 years. The issuer cannot have defaulted on any interest payments in the last year and must include copies of the offering materials (Prospectus) in the filing.
A company that has never previously issued securities registered with the Securities and Exchange Commission, can register in a State by: I Filing II Coordination III Qualification A. I only B. II only C. II and III D. I, II, III
The best answer is C. Registration by Filing is only available to "seasoned" companies that have previously registered securities with the SEC. If a company has never issued securities before, this method cannot be used. Registration by Coordination coordinates State registration with a current Federal registration. This method is available to a company that has never registered securities in the State, as long as a current SEC filing is being made. Registration by Qualification is a detailed filing in that State for any issuer and is also available for first time registrants.
Which of the following may be required to be filed with the Administrator? I Advertising II Sales Literature III Circulars IV Customer Complaints A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV
The best answer is C. The Administrator can require the filing of advertising, sales literature, pamphlets, prospectuses, form letters, etc. used by any registrant. There is no requirement to file customer complaints with the Administrator.
The Administrator, by order, can deny any exemption from registration for which of the following? I A municipal bond issued by another state, sold in the Administrator's state II An isolated non-issuer transaction III A sale of securities to a bank trust department IV A private placement A. I and II only B. III and IV only C. II, III, IV D. I, II, III, IV
The best answer is C. The Administrator is permitted to modify the Uniform Securities Act in his or her State, and thus, can change any "exempt" transaction. However, the Administrator cannot change the exemption from registration given to the securities specified as exempt under the Act, such as U.S. Government or municipal bonds.
Under NASAA rules, advertisements by investment advisers: I can contain testimonials II cannot contain testimonials III can unconditionally make an offer of free services IV cannot unconditionally make an offer of free services A. I and III B. I and IV C. II and III D. II and IV
The best answer is C. The NASAA rule on IA advertising parallels the SEC rule included under the Investment Advisers Act of 1940. The NASAA rules states that any advertisement from an investment adviser: - cannot contain a testimonial (broker-dealer advertising may, however); - cannot state that any report or research will be provided for free unless this is offered without condition; - cannot contain false, untrue or misleading statements; can include a list of recommendations made with their performance as long as all recommendations over that period (a minimum of 1 year) are included, along with the market price at the time of the recommendation and the current price of the security. This list cannot be deliberately selective. There is no restriction on the offer of free services, as long as they are truly "free" and not conditioned on making a purchase or trade.
Which of the following is NOT considered to be an "issuer transaction" under the Uniform Securities Act? A. Google Incorporated, selling its common shares in an initial public offering to investors via Dutch auction and then listing its shares on NASDAQ B. MM Mars Corporation, a privately held company that is proposing to go public by offering 20% of its common stock in an initial public offering and then listing its shares on the NYSE C. RJR Corporation, a publicly held company listed on the NYSE that is proposing to go "private" in a leveraged buyout transaction D. AJAX Company, a publicly held company listed on the AMEX (NYSE American), making a secondary offering of common shares that will be listed on the AMEX (NYSE American)
The best answer is C. The Uniform Securities Act defines an "issuer" as any person that issues, or proposes to issue, a security. Choices A, B and D meet this definition. Notice that in issuer transactions, the issuer is receiving the proceeds from selling securities. Choice C is a non-issuer transaction. When a publicly held company goes "private," the existing shareholders are bought-out. In such a transaction, the proceeds go to the shareholders - not the issuer - hence this is a "non-issuer" transaction.
All of the following are defined as investment adviser representatives under the Uniform Securities Act EXCEPT a(n): A. majority partner in an advisory partnership B. minority partner in an advisory partnership C. employee of an advisory firm who performs ministerial functions relating to portfolio selection D. employee of an advisory firm who performs managerial functions relating to portfolio selection
The best answer is C. The Uniform Securities Act defines an investment adviser representative as an officer or employee of the firm that performs research, makes recommendations, manages portfolios or sells advisory services. Employees that perform clerical or ministerial functions are excluded from the definition.
All of the following information is required for an investment adviser representative to register in a State EXCEPT: A. work history B. residential history C. legal actions taken against the employee D. misdemeanor convictions involving securities occurring within the past 10 years
The best answer is C. The registration application for an agent includes the agent's work history (past 10 years) and residence history (last 5 years). A listing of any convictions during the past 10 years for securities or money related misdemeanors, or any felony, is also required, since these will cause the State to deny registration. Legal actions taken against the employee are not part of the registration application - only convictions within the past 10 years are included.
Under the Uniform Securities Act, which of the following securities is non-exempt? A. Equipment trust certificates issued by a railroad subject to ICC regulation B. Common stock issued by savings and loans C. Warrants issued by industrial corporations D. Unlisted debentures of a company whose common stock is listed on the American Stock Exchange (NYSE American)
The best answer is C. Warrants issued by industrial corporations are non-exempt. Under State law, senior securities (bonds and preferred stock) and "equal" securities (warrants or rights) of companies already listed on a recognized stock exchange are exempt. This is termed a blue chip exemption. Also note that the securities of issuers listed on the major exchanges (NYSE, AMEX (NYSE American) and NASDAQ) are now federal covered securities and cannot be required to be registered in the State. Securities of issuers subject to ICC regulation (common carriers) are exempt. Issues of banks and savings and loans are exempt (these are regulated by the State banking laws).
A money market fund that charges .10% of annual management fees and .20% of annual 12b-1 fees: A. cannot be called "no-load" because the total of these fees exceeds .25% B. cannot be called "no-load" because such funds cannot charge 12b-1 fees C. can be called "no load" D. can be called "low load"
The best answer is C. A mutual fund (money market funds are mutual funds) cannot be called a "no-load" fund if it charges 12b-1 fees of more than .25% (25 basis points) annually. 12b-1 fees are charges against net asset value that pay for the cost of soliciting new investment to the fund, and they can be used to compensate salespersons that sell the fund's shares. All mutual funds charge management fees. These have nothing to do with sales loads.
If a registered investment adviser takes custody of client funds or securities and deposits them with a qualified custodian, which statement is NOT true? A. The customer must be notified promptly in writing of the qualified custodian's name, address and the manner in which the securities are held B. The customer must be sent, at least quarterly, an account statement identifying all positions held and all transactions in the account during that period C. All client funds and securities positions must be verified at least annually by a certified public accountant on a surprise basis D. A written annual statement must be sent to customers detailing where the client funds and securities are being kept
The best answer is D. If an investment adviser wishes to take custody of client funds or securities: - It must notify the Administrator in writing on Form ADV that it has, or may have, custody; - Custody must be kept by a qualified custodian in a separate account under each client name; or in accounts that only contain client funds and securities, held in investment adviser name as trustee for the clients; - Prompt notice must be given to the clients in writing of the qualified custodian's name, address, and the manner in which the funds or securities are maintained; - Account statements must be sent at least quarterly to clients; - The IA must be audited annually on a surprise basis to verify all customer funds and securities positions.
Under the Uniform Securities Act, copies of order memoranda maintained by investment advisers must contain all of the following EXCEPT: A. person connected with the Investment Adviser who recommended the transaction to the client B. person who placed the order C. date of order entry D. time of order execution
The best answer is D. Order ticket information required for investment advisers is different than that required for broker-dealers. The IA writes an order and sends it to a broker-dealer or bank for execution. The IA must keep a record of the order as it was sent; the IA does not keep the record of the actual execution of the order - this is the responsibility of the executing broker-dealer. The record must contain the terms and conditions of the order; name of the person at the IA who recommended the transaction; name of the person who placed the order; date of order entry; name of account for which order was entered; name of broker-dealer or bank to which the order was sent for execution; and whether the order was discretionary.
Which of the following is NOT a qualified custodian under NASAA rules? A. FDIC Insured Bank B. Registered Broker-Dealer C. Foreign Financial Institution D. National Securities Clearing Corporation
The best answer is D. Qualified custodians under NASAA's Custody Rule are: - FDIC insured deposit taking institutions; - Registered broker-dealers holding customer assets; - Registered futures commission merchants holding customer assets; and - Foreign financial institutions holding financial assets for customers. National Securities Clearing Corp. (NSCC) is not a retail institution that deals with the public - its customers are broker-dealers. An investment adviser cannot open an account with NSCC. An investment adviser can open an account with a broker-dealer that belongs to NSCC.
A broker-dealer based in State X also has an office in State Y. Which statements are TRUE? I The Administrator of State Y has the right to inspect the broker-dealer's office in State Y II If the majority of the broker-dealer's business is in State Y, the Administrator of State Y has the right to inspect the broker-dealer's office in State X III If a fraudulent act is committed by the broker-dealer in State X, the Administrator of State Y has jurisdiction if the action harmed customers in State Y IV The Administrator of State X has the right to inspect the broker-dealer's office in State X A. I and II only B. III and IV only C. I, III and IV D. I, II, III, IV
The best answer is D. Since this broker-dealer has an office in State Y, then the Administrator of State Y has the right to inspect that office. The Administrator of a State has the authority to audit or inspect the records of a broker-dealer in or out of the State. Thus, the Administrator of State X could inspect the records of the offices in both State X and State Y; and the Administrator of State Y could inspect the offices in both State Y and State X. As long as customers in State Y were involved, then the Administrator of State Y has jurisdiction, even though the fraud took place in State X. Finally, the Administrator of State X has the right to inspect the branch in State X.
The State Administrator is empowered to do all of the following EXCEPT: A. administer oaths and affirmations B. hold disciplinary hearings C. conduct investigations D. issue a summons for a failure to appear
The best answer is D. The Administrator cannot issue a summon to appear - this can only be imposed by a court of law. The Administrator can conduct investigations, subpoena witnesses; administer oaths at hearings so that if the person lies, they can be held liable; and can order a suspension or revocation of an adviser's registration based upon the findings of fact from such investigations.
Under the provisions of the Prudent Investor Act, a Registered Investment Adviser should consider which of the following when investing and managing trust assets? I General economic conditions II Possible effects of inflation or deflation III Investment tax consequences IV Expected total return A. I and II only B. III and IV only C. I, II, III only D. I, II, III, IV
The best answer is D. The Prudent Investor Act states that the trustee should consider the following when making investment decisions relevant to the trust or its beneficiaries: - General economic conditions; - Possible effects of inflation or deflation; - Expected tax consequences of investment decisions or strategies; - The role that each investment plays within the overall trust portfolio; - The expected total return; - Other resources of the beneficiaries; - Needs for liquidity, regularity of income, and preservation or appreciation of capital; and - An asset's special value to one or more of the beneficiaries.
An issuer has filed a registration statement in a State for a new issue of securities that is effective and sale of the issue has started. The issuer finds that there is great demand for the offering and wishes to increase the number of shares being issued. In order to do this: I a new registration statement must be filed with the State, if it is within 6 months of the date of sale II an amendment must be filed, as long as it is within 6 months of the date of sale III an additional filing fee must be paid, but no late registration fee is required IV both an additional filing fee and a late registration fee must be paid A. I and III B. I and IV C. II and III D. II and IV
The best answer is D. Under USA, a registration statement for a securities offering may be amended after its effective date to increase the amount of securities to be sold (this would be done if there was greater demand than expected). The offering price and underwriter's compensation cannot be changed. To do this, it must be within 6 months of the original sale date (the effective date) and both a filing fee for the additional securities being offered and a late registration fee must be paid to the State. (Of course, you might wonder why this bit of trivia must be known for the exam, but it must!) The amendment becomes effective when the Administrator so orders.
Which of the following is a non-exempt security under Uniform State Law? A. NASDAQ listed issues B. Church bonds C. Equipment Trust Certificates D. Corporate bonds offered to fewer than 5 investors
The best answer is D. Under Uniform State Law, exchange and NASDAQ listed issues are exempt securities in that State; as are not-for-profit issues and equipment trust certificates (which are issued by common carriers subject to I.C.C. regulation). Corporate bonds of issuers that are exchange listed are exempt securities as well - but there is no mention of this in Choice D. Corporate bonds offered to 5 or fewer investors would qualify as an exempt transaction; not as an exempt security.
