Series 63 Exam
No final order may be entered without:
-appropriate prior notice to the interested parties -opportunity for hearing -written findings of fact and conclusions of law
SEC Release IA-1092
-defines who is subject to the Investment Advisers Act of 1940 -identifies and investment adviser as anyone who: A. provides investment advice, reports, or analyses with respect to securities B. is in the business of providing advice or analyses, and C. receives compensation, directly or indirectly, for these services
Cease and Desist Order
A cease and desist order is used by the Administrator whenever it appears that any registered 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 thereunder
For purposes of safeguarding customer information, which of the following would be considered a covered account?
A margin account in the name of Mary Beth Simmons. The term covered account does not apply to institutional customers, such as banks, pension funds, and investment companies.
Administrator
Administrator refers to the office or agency that has the complete responsibility for administering the securities laws of the state
Mid-Size Advisers
Advisers with AUM of at least $25 but not $100 million. Generally prohibited from SEC registration
An agent licensed in Illinois, Missouri, and Iowa has a client move from Chicago to Detroit on July 1, 2020. On September 1 of that year, he buys 100 shares of a nonexempt security in a nonexempt transaction. On August 1, 2021, the client discovered that the agent's firm never licensed him in Michigan; therefore, he is subject to civil liability to the purchaser. The statute of limitations for this sale runs out
August 1, 2023. The statute of limitations for civil liability is the earlier of three years after the date of the sale or two years after discovery of the violation. In this case, the earliest date is two years after the discovery date of August 1, 2021, which is August 1, 2023.
As defined in the Uniform Securities Act, the term exempt security would apply to which of the following?
Bonds issued by the local electric power company Equipment trust certificates issued by a railroad engaged in interstate commerce
All of the following are exempt transactions as defined under the Uniform Securities Act except
Broker-dealer A has put together a syndicate of 15 broker-dealers to purchase the entire issue of XYZ Corporation's preferred stock.
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.
Under the Uniform Securities Act, if an investment adviser takes custody of client assets, which of the following statements are true?
Clients must receive quarterly statements. The adviser must be audited at least annually.
Rule 501
Covers accredited investors. . Accredited investors are those persons who, by dint of wealth, income, or investment sophistication, are able to invest in ventures that are generally unsuitable for the average person
Canadian limited registration date
December 1
Under industry regulations, when may an agent be given discretionary power to buy or sell securities for a client?
Discretionary authority must be in written form. The only exception is when the discretion relates to time or price because, under the law, that is not considered to be discretion.
The Uniform Securities Act excludes from the definition of agent individuals who represent certain issuers in the sale of their securities. An individual representing which of the following issuers qualifies for that exclusion?
GEMCO Finance Corporation that issues AAA-rated 30-day commercial paper in $100,000 minimum denominations
Under the Uniform Securities Act, the least active review of registration documentation is performed by state Administrators before which of the following becomes effective?
Notice filing
which of the following is part of a broker-dealer's renewal of registration?
Paying the licensing fee
Please remember the following: There are three cases that would not be custody revolving around the three-business-day rule. They are as follows:
Receiving a check made payable to a third party and forwarding that to the third party within three business days Receiving a check made payable to the IA and returning it within three business days Receiving securities from a client and returning them within three business days
Under the Uniform Securities Act, the Administrator has the power to deny or revoke exemptions for which of the following types of securities?
Securities of nonprofit organizations Investment contracts issued by employee benefit plans
Which of the following transactions is not exempt from the registration requirements of the Uniform Securities Act?
Solicited transactions in a nonexempt security
Blue Sky Laws
State laws that regulate the offering and sale of securities for the protection of the public.
Howey decision
The Howey decision defined a security as (1) an investment of money (2) in a common enterprise (3) where there is an expectation of a profit (4) through the efforts of a third party and not the investor.
Who is subject to the antifraud provisions of the Uniform Securities Act?
The antifraud provisions apply to anyone involved in a securities transaction or anyone who receives compensation for providing investment advice. It does not matter whether the person receives the compensation directly or indirectly, whether the person is registered or exempt from registration, or even whether an exclusion from a definition applies to the person.
Which of the following statements regarding unsolicited orders is true?
Unsolicited orders are nonexempt transactions under the Uniform Securities Act.
Splitting Commissions
You must be licensed in both insurance and securities to sell variable annuities or to split commissions. Commissions on securities transactions may only be split with registered agents of the same or affiliated broker-dealers.
François is an agent with Lacolle Investments, a broker-dealer located in Lacolle, PQ, and registered with the Quebec Securities Commission. François has several customers who summer in the White Mountains of New Hampshire and the Green Mountains of Vermont. For François to serve these customers during those months,
both he and Lacolle Investments must obtain a limited registration in NH and VT.
Minimum Net Capital
broker-dealer's liquid net worth (minimum amount)
There are three 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.
Gloria has completed her application for registration as an agent with Cadillac Securities, an SEC-registered broker-dealer with branches in most major cities of the United States. While waiting for her registration to become effective, Gloria is able to
take customer trade confirmations to the post office for mailing. (administrative duties)
An investment adviser with $100 million or more in assets under management may register with
the SEC
The SEC's Customer Protection Rule is found in
the Securities Exchange Act of 1934. (Rule 15c3-3)
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.
Your manager is reviewing the activity in your customer accounts to detect trading irregularities. Among the factors the manager will look for to determine if churning is occurring are
the financial resources of the account. the objectives of the account.
Unless exempt, all state-registered investment advisers must provide prospective and existing customers with a disclosure document. This document is most commonly called
the investment adviser's brochure.
All of the following statements regarding the selling of private placements under the Uniform Securities Act are true except
they can be offered to a maximum of 35 noninstitutional investors in 12 consecutive months.
Large Investment Advisers
those advisers with at least 100 million or more in AUM are eligible for SEC registration; once AUM reaches $100million registration with SEC is mandatory. (Unless covered by one of the exceptions)
A transactional exemption would be available when a sale is made in all of the following situations except
to a lawyer as an incidental part of his legal practice.
Stop order
used to deny effectiveness to, or suspend or revoke the effectiveness of, any registration statement.
Qualified Client
used to describe an individual or company meeting the minimum financial requirements to enter into a performance-based compensation contract with an investment adviser
The document that gives the Administrator the right to process complaints against a registrant is known as
The consent to service of process gives the Administrator the right to process legal complaints against the applicant.
If an investment adviser files an initial registration with a state on June 30, which of the following statements regarding the filing fee to be paid is true?
The full year's fee must be paid.
Commingling
The practice of failing to segregate customer funds and securities from those of the broker-dealer carrying the customer's account is known as commingling
An agent is registered in State X but not in State Y. The agent sells a resident of State X a new State Y municipal revenue bond. If the bond is not registered for sale in State X, which of the following statements is true? A)
The sale was legal because the bond is not required to be registered for sale in State X.
Federal Covered Securities
The term federal covered securities includes registered investment companies as well as securities listed on national exchanges.
What is the smallest order that can be placed for an institutional account?
There is no limit on institutional order size
Qualified Client
Those natural persons with $1.1 million or more under the management of an investment adviser are deemed to be qualified clients.
Exempt Securities
US government and agency securities, municipal bonds, nonprofit securities, commercial bank securities, and short-term corporate debt. 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.
Which of the following transactions would be included in the Uniform Securities Act's definition of exempt transaction?
A loan officer at a bank liquidates stock pledged as collateral for a loan that has gone into default A transaction pursuant to an offer to purchase a new stock made to 5 individuals and 15 institutional investors in this state during the past 12 months An isolated nonissuer transaction The sale of preorganization certificates to 10 individuals with no commission being paid
A customer calls his agent to inquire about something he read on a recent trade confirmation. It said, "The firm acted as a contra party to the trade," and the customer does not know what that means. The agent would explain that the broker-dealer
acted as a principal in the trade.
excluded from the definition of an investment adviser by Investment Advisers Act of 1940
advice, analyses, or reports are related only to securities that are direct obligations of, or obligations guaranteed by, the United States, or by certain U.S. government-sponsored corporations designated by the Secretary of the Treasury (e.g., FNMA, GNMA)
although all new accounts must be approved by a designated supervisory person 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.
Preorganization Subscription Requirements
A) No commission may be paid to anyone for soliciting potential subscribers. B) There may be no more than 10 subscribers. C) No payment may be made by any subscriber.
federal covered investment advisers
Advisers registered with the SEC -required to be registered or registered as an investment adviser with the SEC because they meet the minimum threshold of assets under management (currently $110 million) -registered with the SEC because they are under contract to manage an investment company registered under the Investment Company Act of 1940, regardless of the amount of assets under management -not registered with the SEC because they are excluded from the definition of an investment adviser by the Investment Advisers Act of 1940
Small Investment Advisers
Advisers with AUM of less than $25 million. registration with the SEC is prohibited unless the IA is an adviser to an investment company registered under the ICA (ex. mutual fund) or would be required to register in 15 or more states
Active Technicians (AT), a state-registered investment adviser serving primarily retail accounts, would be in compliance if it
did not send an annual brochure to its clients because there was no material change from the previous year. The NASAA Model Rule dealing with brochures states that investment advisers do not have to deliver a summary of material changes or a brochure to clients if no material changes have taken place since the last summary and brochure delivery. If a brochure or summary of material changes is required, the delivery date is 120 days after the end of the adviser's fiscal year, not 150 days. If the adviser wishes to use Form ADV, it should use Parts 2A and 2B.
The registration of an investment adviser would automatically register investment adviser representatives who are
directors. officers. partners.
If an investment adviser maintains custody of customer funds and/or securities, an itemized list of all securities and funds in the adviser's possession must be sent to the client not less frequently than
every 3 months
Under the Uniform Securities Act, registrations of securities professionals expire
every December 31, unless renewed.
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.
Foster Advisers operates as an investment adviser that is registered in a state where the Administrator, by rule, prohibits investment advisers from holding custody of client funds and securities. This means that Foster Advisers may not
have physical custody over its clients' monies and certificate
As defined in the Uniform Securities Act, in which of the following cases would an investment adviser not be considered to be maintaining custody?
he investment adviser receives a check made payable to the IA and returns it within three business days.
One way to make money is to buy low and sell high. If an investment adviser has developed a proprietary charting system that has had a very high degree of success in picking stocks near their market bottoms, any advertisement about the system must
indicate that there are limitations and difficulties to using the system.
Not securities:
insurance/annuities that are fixed, IRAs or Keogh plans, commodity futures contracts, currencies, collectibles, condos
Under the Uniform Securities Act, the definition of an investment adviser does not include
investment adviser representatives. lawyers and accountants whose investment advisory services are solely incidental to their practices. broker-dealers who offer investment advice on an incidental basis without special compensation for the advice provided. federal covered investment advisers.
The NASAA Model Rule on Custody applies to certain
investment advisers. The custody rules are limited to those investment advisers who maintain custody of customer funds and/or securities.
SEC Regulation S-ID describes a broker-dealer's or investment adviser's duties regarding the detection, prevention, and mitigation of identity theft. The rule applies to an investment adviser when it
is permitted to direct transfers or payments from accounts belonging to individuals to third parties upon the individuals' instructions.
LATE (people exempt from definition of IA)
lawyers, accountants, teachers, engineers
Enjoined
legal term that is used to refer to a person who is the subject of an injunction
State securities Administrators may require all of the following except
minimum recordkeeping retention periods by registered investment adviser representatives. Individuals registered as investment adviser representatives (or agents) never have to meet recordkeeping standards. Broker-dealers and investment advisers have to meet net capital or net worth requirements.
An investment adviser need not register in a state if it has
no place of business in the state and only advises 33 insurance companies located in the state. An investment adviser need not register in a state if it has no place of business in the state and advises such institutional clients as insurance companies or banks. With no place of business in the state, registration would not have been required regardless of the number of banks who were clients. With five or fewer noninstitutional clients, regardless of their net worth, no registration would be necessary under the de minimis provisions of the USA.
National Securities Markets Improvement Act of 1996 (NSMIA)
promote efficiency in capital formation in the financial markets. In effect, the act generally preempts states' blue-sky laws, eliminating the dual system of state and federal registration of certain securities and investment advisers
Accredited investor
refers to a person who is not counted when computing the number of investors purchasing a private placement under Regulation D of that act
A broker-dealer will be underwriting an IPO. From all appearances, it seems that this will be a hot issue. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents,
shares must be allocated to clients based on their indications of willingness to purchase the shares
An individual has been employed by a broker-dealer to make cold calls to solicit prospects for the firm's new wrap fee program. Under the Uniform Securities Act, it is true to state that this individual
would be defined as an investment adviser representative.
An agent may determine which securities to purchase or sell for a client when
written discretion authority has been received by the broker-dealer before executing the first discretionary transaction.
A new client of your broker-dealer makes her first purchase. After receiving the confirmation of the trade, she calls to inquire why she was not charged any commission. The most likely reason is
your firm acted as a principal in the trade and charged a markup.
