Series 66 Uniform Securities Act (1 and 2)

A broker-dealer in State A has a customer that lives in State A, whose account is managed by an agent that is registered in State A The customer moves to State B, a State where the broker-dealer is registered but the agent is not. In order to continue doing business with the customer is State B, the agent: A. is not required to be registered in State B B. must register in State B within 10 days C. must register in State B within 30 days D. must register in State B within 60 days

The best answer is D. When a customer moves to a new State, given that the broker-dealer is already registered in the State, then the agent that services that customer, if not registered in the State already, has 60 days to become registered in the State to which the customer has moved. (This rule is similar to auto registrations in a State. If you live in New York and have a car registered in New York; and then you move to Florida with that car, the car must be registered in Florida within 60 days of moving.)

The Administrator, by order, can deny any exemption from registration for all of the following EXCEPT a(n): A. municipal bond issued by another state, sold in the Administrator's state B. isolated non-issuer transaction C. transaction with a bank trust department D. private placement

The best answer is A. 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. •The Administrator cannot require a Federal Covered security to be registered in a State, but a notice filing can be required.

If a broker-dealer receives an unsolicited customer order to buy a security for a customer, this is a(n): A. exempt transaction B. non-exempt transaction C. exempt security D. non-exempt security

The best answer is A. Unsolicited customer orders are defined as an "exempt transaction" under the Uniform Securities Act, whether the securities involved are exempt or non-exempt. •An unsolicited trade is a trade which is effected through a broker-dealer pursuant to an unsolicited order or offer to buy or sell. •In such transactions, the first contact must be made by the customer; not by the agent or broker-dealer.

The Administrator: I is permitted to deny an exemption retroactively II cannot deny an exemption retroactively III can vacate a stop order retroactively IV cannot vacate a stop order retroactively A. I and III B. I and IV C. II and III D. II and IV

The best answer is C. As a general rule, the Administrator cannot issue an order stopping the sale of a security, or denying or revoking a registration, retroactively. However, if the Administrator were to issue a stop order because of something trivial, like not paying the required fee, then once the fee is paid, the stop order would be vacated, and this is done retroactively to the date of the original stop order.

Which of the following may be required by the Administrator to be filed by a broker-dealer to maintain registration? I Financial reports II Registration renewal fees III Sales literature IV Renewal consent to service of process A. I only B. II and III C. I, II, III D. All of the above

The best answer is C. Consent to service of process is only filed with initial registration applications; it is not required for renewals. The Administrator can require the filing of financial reports, advertising and sales literature, and the payment of renewal fees. There is no requirement to file customer complaints with the Administrator.

A broker-dealer headquartered in Florida has a Net Capital requirement of $50,000. The firm has an office in Georgia, where the Net Capital requirement is $25,000 and an office in Tennessee where the Net Capital requirement is $35,000. Under Uniform State Law, the Net Capital requirement for this broker-dealer is: A. $25,000 B. $35,000 C. $50,000 D. $110,000

The best answer is C. Net Capital is not an additive requirement - it is based on the broker-dealer's principal State where it operates.

All of the following would be defined as a "sale" or "offer" under the Uniform Securities Act EXCEPT: A. a stock dividend given to existing shareholders B. a bonus of stock that is given for completing a securities purchase C. stock warrants given to purchasers of a debt offering D. subscription rights given to existing shareholders for a different class of securities than originally purchased

The best answer is A. Dividends paid to existing shareholders are specifically excluded from the definition of a "sale" or "offer to sell." The bonus of stock given for completing a securities purchase is a "sale" since the price of the securities would have taken into account the value of the stock "bonus" - thus, the stock bonus was also sold for value. Stock warrants given to the purchasers of a debt offering, and subscription rights given to holders of another class of securities, are also considered to have been "sold" using the same logic.

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.

An investment adviser has 1 main office and 3 branch offices, all located in different States. Which statement is TRUE about recordkeeping requirement for the adviser under the Uniform Securities Act? A. The adviser must keep separate records in each State based on that State's requirements B. The adviser must keep its records based on the rules of the State where its main office is located C. The adviser must keep its records based on the rules of the State where it has the greatest number of customers D. The adviser must keep its records based on the rules of the State where it has the greatest dollar amount of customer assets

The best answer is B. The Uniform Securities Act states that if an adviser complies with the provisions of the Act as adopted in the State where the adviser has its principal office, then other States cannot impose more stringent recordkeeping requirements or minimum net worth requirements on that investment adviser, even if the adviser has offices in those States.

The Administrator will give a specific response before the effective date for issues that are registered by: A. Filing B. Coordination C. Qualification D. Any of the above

The best answer is C. Under Registration by Filing, registration becomes effective 5 business days after the filing. Under Registration by Coordination, registration becomes effective when the Federal registration becomes effective. Under Registration by Qualification, registration becomes effective on a date set by the Administrator.

Which of the following statements are TRUE? I The Administrator may suspend or revoke a registration for the sole reason that it is "in the public good" II If a broker-dealer registration is suspended, the agent's license is suspended III If an agent's license is suspended, the broker-dealer's license is suspended IV Broker-dealers, but not agents, may have their registration revoked for failing to supervise subordinates A. I and II only B. I and IV only C. II and III only D. II and IV only

The best answer is D. If a broker-dealer's registration is suspended, the agent's registration through that broker-dealer ceases to be effective. However, if an agent's registration is suspended, it has no effect on the broker-dealer's registration. The Administrator may revoke a registration if it is in the public good and the person has violated some aspect of the Act. Registration cannot be revoked solely because it is in the public good. Broker-dealers can have their registration revoked for failing to supervise subordinates. This does not apply to agents, since they have no supervisory capacity.

Which of the following are exempt securities under the Uniform Securities Act? I Bank issues II Corporate stocks III Investment grade commercial paper maturing within 9 months IV U.S. Government bonds A. IV only B. I and IV C. II and III D. I, III, IV

The best answer is D. Corporate stocks are not exempt under the Uniform Securities Act and thus must be registered in the State. U.S. Government bonds; bank issues; and commercial paper maturing within 9 months rated in one of the 3 highest categories; are exempt securities. •Exempt securities do not have to be registered in a State •However, broker-dealers that sell exempt securities, and their agents, must still be registered in a State •Exempt securities under State law parallel those that are exempt under Federal law, with some important exceptions •The main exception is that "Blue chip" listed company issues are exempt under State law (but must be registered at the Federal level) •The exempt issues under State law are: ◦government issues ■U.S. Government ■Treasury Bills, Bonds, Notes, STRIPS (zero-coupon issues) and TIPS (Treasury Inflation Protection Securities - bonds indexed for inflation) ■government agencies ■Federal Home Loan Banks; Federal Farm Credit System ■Government National Mortgage Association (GNMA), Federal National Mortgage Association (FNMA); Federal Home Loan Mortgage Corporation (FHLMC) - these are issuers of mortgage backed pass-through certificates ■municipalities ■general obligation bonds, revenue bonds, special tax bonds ■foreign governments ■Canadian Government bonds and other foreign government debt ◦issuers already regulated under other laws ■bank, trust, and savings and loan issues ■credit union issues ■common carrier issues where the carrier is regulated by the Interstate Commerce Commission ■public utility issues ◦other exempt issues ■corporate commercial paper that is "investment grade" issued in minimum $50,000 units ■securities of companies listed on a stock exchange or NASDAQ ■not-for-profit issues

The Administrator may issue a stop order, denying effectiveness to registration of a new issue, for all of the following reasons EXCEPT: A. the offering is made with unreasonable amounts of underwriter's compensation B. the offering is being made on terms that are inequitable to investors C. the offering is subject to a stop order in another State D. a fact known to the Administrator when the registration became effective causes the Administrator to issue a stop order 60 days later

The best answer is D. The Administrator may not deny, revoke or suspend registration of an issue based upon a fact known at that time that the registration statement became effective, unless such action is taken within 30 days of the effective date. The Administrator can deny effectiveness to a registration of securities because the offering is being made on terms that are inequitable to investors (which can be considered fraudulent); of the offering is subject to a stop order in another State or from the SEC.

An agent registered under the Uniform Securities Act has his registration revoked by the Administrator. The Administrator may NOT revoke any future applications of the person to be a(n): A. Broker-Dealer B. Agent C. Investment Adviser D. Financial and Operations Principal

The best answer is D. The State Administrator only registers broker-dealers, investment advisers, agents and securities issues in the State. Thus, if an agent has his or her registration revoked, the Administrator can deny any future registration applications of this person to be a broker-dealer, investment adviser; or agent in that State. FINRA registers officers of member firms as General Principals; and chief accountants at member firms as "Financial and Operations Principals." This is a Federal registration under the Securities Exchange Act of 1934 and has no bearing on State law.

All of the following are defined as "persons" under the Uniform Securities Act EXCEPT: A. individuals B. joint stock companies C. unincorporated organizations D. trusts where the interests of the beneficiaries are not evidenced by a security

The best answer is D. The definition of a "person" under the Act includes individuals; joint stock companies; unincorporated organizations; and trusts where the interests of the beneficiaries are evidenced by a security. It is important to know who are defined as "persons," since these entities may then be further defined as "agents" (which can only be individuals), "broker-dealers" (which can be incorporated or unincorporated businesses); or "issuers" (which can be incorporated or unincorporated businesses, joint ventures, municipalities etc.).

Filing of advertising with the Administrator

Filing of advertising with the State cannot be required for exempt securities; exempt transactions; or for federal covered securities. U.S. Governments and municipals are exempt securities. NYSE listed, NASDAQ listed and investment company securities are federal covered securities.

Annual renewal of registration as an agent or an investment adviser in each State is made by filing: A. Form U-4 within 30 days of the date that renewal statements are sent out B. Form U-4 within 60 days of the date that renewal statements are sent out C. Form U-6 within 30 days of the date that renewal statements are sent out D. Form U-6 within 60 days of the date that renewal statements are sent out

The best answer is A. A standard registration form (Form U-4) in used for federal and state registration of agents and state registration of investment adviser representatives. CRD and IARD send out renewal statements for each registered person in mid-November, and these must be filed, amended (if necessary), and paid for, by mid-December. If this does not occur, that person's registration will expire on December 31st.

If a representative that transacts business in a State terminates employment with an investment adviser, notice must be given to the Administrator by the: I Investment Adviser II Officer or Director of the Investment Adviser III Investment Adviser Representative A. I only B. I and III C. II and III D. I, II, III

The best answer is A. If a representative of an investment adviser terminates employment, the adviser must notify the Administrator promptly. Notice that this is different than the requirement for a broker-dealer, where both the terminated agent and the broker-dealer must notify the Administrator. Also note that this is different than the requirement for a federal covered adviser, where only the investment adviser representative must notify the State Administrator.

Upon entry of a "stop order" denying a security's exemption, the Administrator must notify those affected by the order that: I the order has been entered and the reasons therefor II within 15 days of written request, the matter will be set down for a hearing III sale of the issue may continue until any charges are proven IV the Administrator has filed criminal charges that must be answered in a court of law A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV

The best answer is A. If an Administrator enters a "stop" order, halting the sale of an issue that has an exemption, the Administrator must give those affected by the order an opportunity for a hearing. As long as the stop order is in effect, the issue cannot be offered or sold in the State. Issuance of a stop order does not mean that the Administrator has filed criminal charges (or civil charges for that matter). These are a separate potential course of action that the Administrator can take.

Registration of an investment adviser in a State automatically registers any investment adviser representative that is a: A. partner of the investment adviser B. sales employee of the investment adviser C. solicitor of the investment adviser D. clerical employee of the investment adviser

The best answer is A. Named in the registration statement for an investment adviser are the partners, officers, and directors of the adviser. These persons do not have to make a separate investment adviser representative filing in the State. However, any person who sells advisory services; or who solicits the purchase of advisory business; must register as an IA rep. Clerical or ministerial employees do not have to be registered with the State.

An institutional buyer is defined under the Uniform Securities Act as any person: A. so designated by the Administrator by rule or order B. with over $100 million of assets under management C. defined under Section 4(6) of the Securities Act of 1933 D. that solely effects transactions using the mails or other means of interstate commerce

The best answer is A. The Uniform Securities Act exempts from registration in a State, any broker-dealer or investment adviser that does not have an office in the State and that only deals with "institutional buyers." These institutional buyers include banks, savings and loans, trust companies, insurance companies, investment companies, pension and profit sharing plans, other financial institutions, and anyone so defined by the State Administrator by rule or order. The Uniform Securities Act does not set a minimum "assets under management" standard to be defined as an institutional buyer. Investment advisers are not considered to be institutional buyers, since many IAs are very small firms.

Under the Uniform Securities Act, an "offer" or "offer to sell" include all of the following EXCEPT: A. an offer of a security B. a sale of a security C. the solicitation of an offer to buy a security D. an offer of an interest in a security

The best answer is B. An "offer" or "offer to sell" is defined as any attempt to offer to dispose of a security; or a solicitation of an offer to buy a security or an interest in a security; for value. Do not confuse an "offer" (the attempt to sell) with a "sale" (which is a "done deal"). A "sale" is defined as a contract to sell or dispose of a security, or an interest in a security, for value.

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.

All of the following real estate investments would be defined as a "security" under the Uniform Securities Act EXCEPT: A. a condominium time share unit that will be rented for 50 weeks per year by an outside manager and will be used personally for 2 weeks per year B. a condominium apartment that will be used as a vacation home by the purchaser for 2 weeks per year and will be held open for rental by the purchaser for the remaining 50 weeks per year C. shares of a real estate investment trust that buys rental apartment complexes to generate income using third party management D. promissory notes issued by a borrower secured by real estate investments

The best answer is B. The most basic definition of a security is "an enterprise entered into for profit managed by a third party." Under this definition, condominium time shares that are being managed by a third party are defined as a security in many States. On the other hand, the purchase of a condominium that will be held out for rent (a business purpose), but that will be managed by the purchaser (not by a third party), is simply a real estate investment - it is not a "security." Shares of stock (in this case, in an REIT) are a security; as are bonds and notes.

Upon filing a withdrawal of registration with the State, the Administrator can commence a revocation or suspension proceeding for up to: A. 30 days from the effective date of the withdrawal B. 60 days from the effective date of the withdrawal C. 1 year from the effective date of the withdrawal D. 2 years from the effective date of the withdrawal

The best answer is C. The Administrator retains jurisdiction over anyone who withdraws from registration in the State for 1 year following the effective date of the withdrawal. Thus, if one withdraws from registration, and 6 months later, there is a complaint filed by a customer with the Administrator against that person; the Administrator can still investigate, and can issue a suspension, revocation; or a cease and desist order.

Which of the following information would NOT be found in a registration statement for a security that is going to be registered by qualification in a State? A. Current equity and debt capital of the issuer B. Description of issuer's business, product lines and competitive environment C. Use of proceeds of the offering D. Analysis of company profitability as compared to industry norms

The best answer is D. Consider this to be a learning question: Any registration statement for a securities offering includes: •Current balance sheet and income statement; •Business description; •Use of proceeds of offering; •Offering Terms; •Legal Opinion; •Accountant's Opinion. There is no analysis of company profitability in the registration statement as compared to other companies in the industry. There are no projections in the registration statement.

For initial registration as an agent in a state, all of the following are required EXCEPT: A. Consent to Service of Process B. Filing Fee C. Registration Application D. Government Issued Photo I.D.

The best answer is D. In an initial registration with the State, a consent to service of process must be filed, in addition to the registration application (which can include fingerprints) and any filing fees designated by the Administrator. There is no requirement for one's social security number to be registered.

Investment advisers may be formed as: I Partnerships II Corporations III Associations A. I only B. II only C. III only D. I, II, III

The best answer is D. Legally, an investment adviser is a "person," which is any legal operating entity. Advisers can be formed as corporations, partnerships, associations, etc., since these are all legal "persons" with authority to operate in a State. •An advisory firm can be formed as a: ◦corporation ◦partnership ◦sole proprietorship ◦association of owners •Any one of these is a "legal" person that can register in the State •Similarly, a broker-dealer can be formed as any one of these "persons" •However, a broker-dealer cannot be formed as an investment advisor; nor can an advisory firm be formed as a broker-dealer. Each must be a separate legal entity

Under the Uniform Securities Act, posting of cash in lieu of meeting the surety bond requirement is permitted for all of the following EXCEPT: A. Agent registration B. Broker-dealer registration C. Investment adviser registration D. Security registration

The best answer is D. The posting of a surety bond can only be required by the Administrator for registration as a broker-dealer, investment adviser, or agent. When such a bond is posted, the State, in effect, has money on deposit from the registrant that the Administrator can take to satisfy any claims resulting from a violation of the Act. There is no requirement for the posting of a surety bond for a securities registration.

Which of the following statements are TRUE about unsolicited customer transactions effected through a broker-dealer? I The Administrator may require that the customer acknowledge the transaction with a written statement II The transaction is exempt under State law III The transaction is defined as a "non-issuer" transaction IV Commissions may be paid to the broker effecting the transaction A. I and II only B. III and IV only C. I, II and IV D. I, II, III, IV

The best answer is D. Unsolicited customer transactions effected through at broker-dealer are exempt under State law. Note that this only means that there is no requirement that the security involved be registered; the broker-dealer effecting the trade must still be registered in the State or must be eligible for an exemption/exclusion if it is not registered in the State. This is a "non-issuer" transaction, since the issuer does not receive the proceeds of the sale. The State may require that the broker-dealer have the customer sign a "non-solicitation" letter proving that the trade was, indeed, unsolicited. There is no restriction on the paying of commissions in unsolicited trades. This restriction only applies to the private placement exemption; and the exemption that is given to sales where no commissions are paid.

The Administrator can deny an exemption to: A. Not-for-Profit issues B. Municipal issues C. U.S. Government issues D. Agency issues

The best answer is A. Affinity fraud is a "hot button" issue for State Administrators. "Church" bond offerings are typically bought by members of that church who are usually quite trusting individuals, and there have been some big frauds that have occurred because they trusted another member of the church who offered them securities that turned out to be worthless. Therefore, the Administrator has the power to deny or revoke the exemption from registration given these issues under State law. On the other hand, U.S. Government bonds, municipal bonds and federal agency issues are all exempt securities under State law where the exemption cannot be summarily denied by the Administrator (because the issuer is "trusted").

An application to register securities may be filed by all of the following EXCEPT a(n): A. Broker-Dealer B. Investment Adviser C. Issuer D. Officer of the company who is selling shares that are personally owned

The best answer is B. Applications to register a security in a State cannot be filed by agents; nor can they be filed by investment advisers. They may only be filed by the issuer; or a broker-dealer acting for an issuer; or the person on whose behalf the offering is being made (for example, an officer of a company effecting a secondary distribution of a large block of shares that he or she holds can file a registration application).

Under the Uniform Securities Act, if an offer of not-for-profit "church" bonds is to be made in a State: I the Administrator can require that a Notice Filing be made in the State II the Administrator can require that the issue be Registered by Coordination in the State III the Administrator can require the filing of any promotional materials used in connection with the offer and sale of the issue IV the Administrator can disallow the exemption without providing any reason for such a denial A. I and III B. I and IV C. II and III D. II and IV

The best answer is A. Bonds issued by not for profit organizations are an exempt security under Uniform State Law. For example, so-called "church" bonds, used to pay for the construction of new churches or church additions, are an exempt security. Please note, however, that there have been many frauds associated with these offerings, where "good people of faith" have been fleeced. Because of this, the Uniform Securities Act provides that, in order to offer a note, bond or debt of a religious, benevolent, fraternal or social organization, the Administrator: •can require the issuer to file a Notice specifying the material terms of the offer in the State and file copies of proposed advertising and sales literature used in connection with the offering •can provide that the exemption becomes effective only if the Administrator does not disallow it within a stated time period (typically 10 business days) •can disallow the exemption, providing the grounds for denial or suspension •can require the issuer to register in the State (used if the Administrator believes that the bond issue is really a "commercial offering" and not a true "charitable" offering) Note that because not for profit issues are exempt securities under Federal law, there would be no Federal registration filing that could be "coordinated" with a State registration.

Which of the following are NOT defined as securities under the Uniform Securities Act? I Individual Retirement Accounts II Keogh Plans III Commercial Paper IV Real Estate Condominium Investments A. I and II B. III and IV C. II, III, IV D. I, II, III, IV

The best answer is A. Individual Retirement Accounts and Keogh Plans are specifically excluded from the definition of a security. Real Estate Condominium investments can be considered to be a security when the condominium is managed by a third party for profit. Commercial Paper is also defined as a security. However if it has a maturity of nine months or less, is issued in amounts of $50,000 or more, and is rated in one of the top 3 ratings categories, it is exempt from registration.

Which of the following are ALWAYS reasons why an agent would be denied registration in a state? I The agent was convicted of a drug felony 7 years ago II The agent was convicted of a securities misdemeanor 8 years ago III The agent was convicted of drunk driving 5 years ago IV The agent is the subject of a securities litigation that has not yet settled A. I and II only B. III and IV only C. II and IV only D. I, II, III, IV

The best answer is A. Registration as an agent will be denied if that person has been convicted of any misdemeanor involving securities or monies; or any felony (e.g. embezzlement, fraud, misappropriation of funds, theft, larceny); within the past 10 years. Thus, conviction on a drug felony 7 years ago will cause denial of registration; as will conviction of a securities misdemeanor 8 years ago. A drunk driving conviction is a misdemeanor in some States; and a felony in others. The law requires denial of registration for persons convicted of any felony within the past 10 years - but whether a drunk driving conviction is a felony or misdemeanor depends on that State. Pending litigation that is not settled is not a cause for denial of registration.

Registration of a security in a State means that the: A. issue may lawfully be offered in that State B. information in the registration statement is complete, accurate and true C. State Administrator has passed on the merits of the issue D. the terms of the securities are valid and binding on the issuer

The best answer is A. Registration of a security in a State means that the security can lawfully be offered in that State. The Administrator never approves of an issue, so Choice C is incorrect. The contract included in the security makes it legally binding - registration with the State does not - so Choice D is incorrect. While the information in a registration statement must be complete, accurate, and true, the State does not warrant this by granting a registration. Omissions or misstatements in a registration statement can occur and are the problem of the issuer; not the Administrator.

An agent registered in a State files an application to engage in the business of selling securities with a foreign jurisdiction. If the foreign securities regulator denies the application, the: A. Administrator of the State in which he is registered can revoke that individual's registration B. Administrator of the State in which he is registered cannot revoke that individual's registration C. individual will be permitted to sell U.S. securities in the foreign jurisdiction, but cannot sell the securities of that country D. individual will be denied entry to the foreign country

The best answer is A. The Uniform Securities Act permits the Administrator to deny registration to an applicant or to revoke the registration of an agent based on actions taken by another securities or banking regulator, including foreign regulators.

A B/D application is received by the State Administrator for a new broker-dealer subsidiary of a Swiss securities firm. The application includes the disclosure that the parent firm was suspended from membership on the Deutsche Bourse 6 years ago because of unauthorized trading by its Hong Kong branch. The State Administrator A. cannot deny registration based on the suspension that was imposed by a foreign regulator B. can deny registration based on the suspension by the foreign regulator C. must grant registration because the U.S. subsidiary is a legally separate entity from the parent company that is based in Switzerland D. can deny registration only if the actions of the parent company were a criminal offense

The best answer is A. The Uniform Securities Act sets a 10 year statute of limitations for securities related violations as a cause for denial of registration. This is based on violations of U.S. law. It also includes a provision regarding violations of the law of a foreign jurisdiction. In this case, it sets a 5 year statute of limitations. (Why? - Who knows!) In this case, the suspension by the foreign regulator happened 6 years ago, so the State Administrator cannot deny registration based on the action taken by the foreign regulator. The wording includes willfully violating the law of a foreign jurisdiction governing any aspect of the securities or banking business within the past 5 years; or being the subject of an action by a foreign regulator in the past 5 years denying, revoking or suspending the right to engage in the securities business as a broker-dealer, investment adviser or agent.

Which of the following individuals is EXCLUDED from the definition of an "agent" under the Uniform Securities Act? I An individual who represents an issuer in the sale of 1 year commercial paper II An individual who represents an issuer in the sale of Canadian Government Debt III An individual who represents an issuer in a transaction with an underwriter IV An individual who represents a "secondary" government broker-dealer in the sale of U.S. Government bonds A. I and II only B. II and III only C. III and IV only D. I, II, III, IV

The best answer is B. An individual who represents an issuer in the sale of an exempt security is excluded from the definition of an agent under the Act. Any government security, whether U.S. or foreign, is exempt. For example, an employee of GNMA who markets GNMA securities to investors, is excluded from the definition of an agent, because these are very safe securities and State Administrators are not worried about these being sold to State residents. If an individual represents a broker-dealer in selling exempt securities to the public, that individual is NOT excluded from registration. Thus, Choice IV is not excluded from registration. Commercial paper is an exempt security only if its maturity does not exceed 270 days. Thus, Choice I is not excluded, because the agent of the issuer is offering commercial paper with a 1 year maturity. Because of this, in the real world, commercial paper sold by corporations always has a maximum maturity of 9 months - then the company never has to worry about registering its employees that sell the commercial paper in each State. The Act excludes from licensing as an "agent," those individuals representing issuers who do not deal with the public - these are exempt transactions. Thus, individuals representing issuers who deal solely with underwriters or financial institutions are not defined as "agents" who must be registered. The idea here is that the purchaser is sophisticated and the State protection of agent registration is not required.

A broker-dealer has a place of business in State A does business exclusively in State A and is registered in the State. The broker-dealer has no office in State B and is contacted by a client in State B who wants to sell some securities that he inherited. State B does not have a de minimis rule for broker-dealers. The client is not interested in opening an account and only wants the broker-dealer to do this transaction and remit the proceeds to the customer. Which statements are TRUE? I In order to effect this transaction, the broker-dealer must be registered in State B II In order to effect this transaction, the broker-dealer is not required to be registered in State B III In order to effect this transaction, the securities involved must be registered in State B IV In order to effect this transaction, the securities involved are not required be registered 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 a broker-dealer with no office in that State, effects an isolated non-recurring trade in that State in a 12 month period, the transaction is exempt, and the security is not required to be registered in that State. This is an "isolated non-issuer transaction." Note that the broker-dealer still must be registered in the State unless the broker-dealer has no office in the State and the broker-dealer qualifies for a "de minimis" exemption in the State. This State does not have a "de minimis" rule for out-of State broker-dealers, therefore the broker-dealer must be registered in State B to do the trade.

Which records MUST be retained in a state-registered investment adviser's principal office? I Customer securities positions II Correspondence with customers III Investment adviser's bank statements IV Records of customer purchase and sales orders A. I and III B. I and IV C. II and III D. II and IV

The best answer is B. NASAA rules require that State-registered advisers keep, in their principal office, records of: •customer purchases and sales; and •customer securities positions (account statements). The rule requires that the records be kept for 5 years, with the prior 2 years immediately accessible. (Also note that the SEC rule for these records, which applies to broker-dealers and Federal covered advisers, is that these records be kept for 6 years. This rule would not apply to State-registered advisers.) NASAA has an extensive list of other records that advisers must keep, but does not specify the location where they should be kept or the time period they should be kept - so this is left to each State Administrator.

If the issuer of a federal covered security has filed notice in a State for an initial public offering, then: A. no filing notice is required for any subsequent secondary offerings of that issuer in that State B. filing notice is required for each subsequent secondary offering of that issuer in that State C. registration of each subsequent offering of that issuer is required in that State D. registration of each subsequent offering of that issuer is required only by rule or order of the Administrator

The best answer is B. Notice filings in the State for federal covered securities are required for both initial offerings in the State and each secondary offering in the State (and a filing fee must be paid to the State with each "notice"!). •The Administrator cannot require the registration in the State of a federal covered security. •The federal covered securities are: ◦Securities listed on the NYSE, AMEX or NASDAQ ◦Registered investment company securities ◦Securities sold under the Regulation D federal private placement exemption ◦Securities sold only to qualified investors (wealthy or institutional investors) •However, the Administrator can require the following for federal covered securities offered in a State: ◦a notice filing in a State; ◦the filing in the State of any documents filed in connection with the Federal registration of the issue; ◦the payment of a filing fee in the State; ◦the filing of a consent to service of process •If these requirements are not met, the Administrator can compel the issuer to register the securities in the State.

Which statements are TRUE about the "burden of proof" needed to vacate a stop order entered by the Administrator in a securities registration? I If the issue is being registered by coordination, the burden of proof is on the Administrator to show that registration should be allowed to proceed II If the issue is being registered by coordination, the burden of proof is on the applicant to show that registration should be allowed to proceed III If the issue is being registered by qualification, the burden of proof is on the Administrator to show that registration should be allowed to proceed IV If the issue is being registered by qualification, the burden of proof is on the applicant to show that registration should be allowed to proceed A. I and III B. I and IV C. II and III D. II and IV

The best answer is B. Registration by Coordination in a State permits the applicant to coordinate an SEC registration with the registration requirement in each State. Essentially, the State accepts the SEC registration statement as the State filing document. Registration becomes effective in the State when the SEC registration is effective. In such a registration, the State Administrator can only issue a stop order if "it is in the public interest" and the Administrator can prove that the offering would be illegal in the State, is not complete, or required filing fees have not been paid (thus, the burden of proof is on the Administrator). On the other hand, in a Registration by Qualification or Filing, there is no concurrent SEC registration. The security is only being registered in the State. In such a case, the Administrator can issue a stop order "if it is in the public interest" and the applicant cannot prove that the offering would not be illegal in the State (the burden of proof is on the applicant).

Which of the following would be defined as either an "offer to sell" or a "sale" of a security? I The gift of an assessable security II The gift of a non-assessable security III The giving of a security as a bonus in consideration for the purchase of securities IV The pledge of securities, creating a security interest as collateral for a loan A. I and II only B. I and III only C. II and IV only D. I, III, and IV

The best answer is B. The gift of an assessable security or the giving of a security as a "bonus" in consideration for buying another security are both defined as "offers to sell" under the Act. The gift of a non-assessable security is simply a gift - it is not an offer to sell. The pledge of securities for a loan is also not defined as an offer to sell. •A sale is the contract to sell a security, or an interest in a security for value •Using this broad definition, the following specific rules apply: ◦A gift of an "assessable" security, where the issuer can assess the owner for additional funds is considered a sale since the donor is relieved of any future required payments. (Limited partnership interests are generally "assessable" by the general partner.) ◦A security which is given as a "bonus" because of the purchase of securities, or other items, is considered to be part of that purchase, and hence to have been offered and sold for value. ◦A sale or offer of rights or warrants on an underlying security; or the sale or offer of a convertible security, is considered to be an offer of the underlying security (hence, the underlying security would have to be registered under the Act to offer the warrants or rights, unless an exemption exists). •Specifically EXCLUDED from the definition of a "sale" are: ◦Dividends paid to shareholders, whether in the form of cash, stock, or property ◦A "security interest" created as the result of a loan ■Example: when a loan is made, the lender may take a "security interest" in the property of the borrower, as collateral for the loan. Another wording for this is a "bona fide pledge for a loan." ◦A corporate reorganization caused by a vote of the shareholders resulting in a merger; consolidation; reclassification of securities; or sale of corporate assets in consideration for the issuance of securities of another corporation. ◦A judicially approved corporate reorganization, where a new security is issued in exchange for an old security (Please note that this exclusion only applies to "judicially approved" reorganizations (e.g., bankruptcies). It does NOT apply to voluntary reorganizations, such as those carried out by a corporation through a tender offer or exchange offer.)

Which of the following are exempt securities, or are excluded from the definition of a security, under the Uniform Securities Act? I Common stock of a New York Stock Exchange listed issuer II Common stock of a Canadian mining company III Contracts requiring periodic payments of fixed amounts into fixed annuities IV Endowment contracts A. I and II only B. III and IV only C. I, III and IV D. I, II, III, IV

The best answer is C. Common stock of a New York Stock Exchange listed issuer is exempt from registration under State law under the "blue chip" exemption. While Canadian government bonds are also exempt, the issues of Canadian companies are non-exempt and must be registered. Fixed annuities and contracts to buy fixed annuities are not defined as securities. Finally, endowment contracts are excluded from the definition of a security because they are an insurance product and hence, are not registered.

Which of the following securities is (are) NOT considered to have an issuer? I Collateral trust certificate II Equipment trust certificates III Fractional interests in oil and gas programs IV Certificates of interest in a gravel mining program A. I and II only B. III only C. III and IV only D. I, II, III, IV

The best answer is C. For collateral trust certificates, the "issuer" is defined as the person performing the functions of manager or depositor under the Trust agreement. For equipment trust certificates, the issuer is the person to whom the equipment is to be leased. For fractional interests in oil and gas programs, or mining titles or leases, there is not considered to be any "issuer." (Note: States have been concerned for many years about sales of highly risky oil and gas exploration deals to unsophisticated investors. The legal wording of "no issuer" is a "technicality" that makes a person offering oil and gas units to investors register in the State under the toughest method - Registration by Qualification. The easier methods cannot be used.)

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-MKT) 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-MKT) 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."

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-MKT), making a secondary offering of common shares that will be listed on the AMEX (NYSE-MKT)

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 either a "sale" or an "offer to sell" common stock of an issuer EXCEPT: A. any offer to sell the common stock for value B. any solicitation of an offer to buy the common stock for value C. the gift of the common stock to an employee of the issuer D. the sale of a bond with detachable warrants to buy the common stock of that issuer

The best answer is C. The definition of a "sale" is every contract of sale, contract to sell, or disposition of a security, or interest in a security, for value. The definition of an "offer to sell" is every attempt or offer to dispose of, or solicitation of an offer to buy a security. Thus, Choices A and B fit the definition. In addition, the sale or offer of a security that includes rights or warrants to buy another security is considered to be an offer or sale of the other security (Choice D correct). The gift of a security is NOT considered to be a sale, unless the security is assessable. Common stock is non-assessable, so this is simply a gift, not a sale.

A limited partnership unit was initially sold to an investor for $25,000. The unit is illiquid and there is no current market for the security. As part of the partnership agreement, the general partner has the right to assess the limited partners if the partnership suffers a cash shortfall. The investor wishes to give the partnership unit to a close friend as a birthday present. This action is: A. prohibited under the Uniform Securities Act B. permitted and will allow the investor to take a $25,000 charitable deduction C. permitted and is considered to be an offer of a security D. an unethical practice

The best answer is C. The offer of the gift of an assessable security is not a gift - the issuer has the right to assess the holder for more monies, if they are needed to run the business. This gift relieves the giver of a liability to pay; which is the same thing as the recipient of the "gift" - the buyer - actually paying for the security. Thus, a buyer paying for a security; or relieving the seller of a liability; is a "sale" of that security. In this case, the final contract sale has not occurred, since the investor "wishes" to give this gift, so this is an offer to sell.

Which statement is TRUE? A. All securities sold through a broker-dealer in a State must be registered in the state B. An agent may maintain his registration without being affiliated with a broker-dealer C. An agent's registration can never be revoked without an opportunity for a hearing D. A broker-dealer cannot also be registered as an investment adviser at the same time

The best answer is C. The true statement is that a registration can never be revoked without the opportunity for a hearing. It is not true that all securities sold in a State must be registered - no registration is required if the securities are exempt, federal covered, or if they are sold in an exempt transaction. An agent must be affiliated with a broker-dealer to maintain his registration. If he leaves the broker-dealer and does not affiliate with another broker-dealer, the registration is terminated. A firm is permitted to register as both a broker-dealer and an investment adviser.

Which of the following statements are TRUE regarding registration requirements under the Uniform Securities Act? I Minimum net capital can be required for broker-dealers II Minimum net capital can be required for agents III Surety bond coverage can be required for broker-dealers IV Surety bond coverage can be required for agents A. I and III only B. II and IV only C. I, III, IV D. I, II, III, IV

The best answer is C. There is no minimum net capital requirement for agents associated with investment advisers and broker-dealers. This is a requirement only for the broker-dealer firm or the investment adviser firm. Broker-dealers and investment advisers can be required to maintain a minimum net capital requirement; post a surety bond; and the officers of these firms can be required to pass an examination to register in that State. Only agents of broker-dealers can be required to post a surety bond; this is not a requirement for investment adviser representatives. Both agents of broker-dealers and investment adviser representatives can be required to pass an examination.

All of the following are defined as "federal covered securities" EXCEPT: A. common stock of a company listed on the New York Stock Exchange B. debentures of a company listed on NASDAQ C. common stock issued by an open- end management company D. common stock issued by a company listed on the Over-the-Counter Bulletin Board

The best answer is D. A "federal covered security" is one of a "substantial company" or an investment company that must be registered with the SEC. In this case, it is considered "overkill" to require registration of the security at the State level as well. Exchange and NASDAQ listed issues, as well as any senior securities of those issuers, are federal covered securities. The OTC Bulletin Board is where most "penny stocks" are found; and this is the area where securities fraud is most prevalent. Thus, OTCBB stocks must be registered with the SEC and must be registered in each State where they are offered.

An agent may be associated with more than 1 broker-dealer at the same time if: I all broker-dealers with whom the agent is associated are under common control II the State Administrator allows the "dual registration" III the agent files a registration application through each broker-dealer, and discloses any other broker-dealer employers on the application A. I only B. II only C. II and III only D. I, II, III

The best answer is D. Most States do not allow dual registration - an agent may only be associated with 1 broker-dealer at any time. However, it is permitted, in all instances, for an agent to be registered with a number of broker-dealers that are under "common control." For example, Prudential may have a separate mutual funds broker-dealer and a separate general securities broker-dealer. Agents of Prudential can be associated with both broker-dealers without violating State law. Finally, a few State Administrators permit multiple registrations with different broker-dealers. If this is the case, the agent must disclose all registrations to each of the broker-dealers with whom he or she is associated.

Under NASAA rules for State-registered advisers, transactions must be recorded in customer account records no later than: I 5 business days II 10 business days III following the end of the month in which the transaction was effected IV following the end of the quarter in which the transaction was effected A. I and III B. I and IV C. II and III D. II and IV

The best answer is D. NASAA rules for State-registered advisers require that customer account records be posted no later than 10 business days following the end of each calendar quarter. Again, note that this is very different than the requirement of Federal securities law that applies to broker-dealers and Federal covered advisers.

Under the Uniform Securities Act, all of the following statements are true regarding recordkeeping requirements EXCEPT: A. records must be kept for time periods set by the Administrator B. the same records are not required to be kept for both broker-dealers and investment advisers C. the Administrator may inspect records at will D. an annual audit must be scheduled with the Administrator

The best answer is D. Regarding record keeping rules, broker-dealers and investment advisers registered with the SEC must keep their records for the time period prescribed under Federal law, unless the Administrator specifies a different time period. It is true that different records would be required to be kept by broker-dealers than those required for investment advisers, since these are two very different businesses. The Administrator or its representatives may inspect the records at any time. It is not true that an annual inspection must be scheduled with the Administrator - the Administrator can inspect records at will.

The Administrator, in regards to the registration of securities, may: I impound the proceeds from the sale of the securities until the issuer receives a specified dollar amount II require the filing of original copies of confirmed subscription agreements III require the delivery of a prospectus IV require that the issuer file quarterly reports of sales of the issue A. I and II only B. III and IV only C. II, III, IV D. I, II, III, IV

The best answer is D. Regarding registration of securities in a State, the Administrator is empowered to impound the proceeds of the sale of the securities until a specified dollar amount is sold (this is typical for so-called "all or none" underwritings, where, if the entire issue is not sold, the deal is canceled). The Administrator can require the filing of original copies of confirmed subscription agreements (these are completed by customers who wish to "subscribe" to the new offering of securities); and can require that a disclosure document (prospectus) be provided to customers. Finally, the Administrator can require that the issuer file quarterly progress reports regarding the sale of the issue.

All of the following statements are true about Registration by Filing EXCEPT: A. the issuer must have minimum earnings levels for 2 of the past 3 years B. copies of any offering materials must be included in the registration filing C. the issuer must not have defaulted on any interest payments within the past year D. registration becomes effective 10 business days after the filing is complete

The best answer is D. Registration by Filing becomes effective 5 business days after the filing is complete. 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. •If no stop order is in effect, registration is effective on the 5th business day after filing and payment of required filing fees is made, or any shorter period so designated by the Administrator.

Which of the following securities can be registered by qualification in a State? I Direct Participation Program II Fractional Interest in an Oil and Gas Program III Voting Trust Certificates IV Pre-organization Certificates A. I and II only B. III and IV only C. II, III, IV D. I, II, III, IV

The best answer is D. Registration by Qualification in a State is the most difficult method and can be used for ANY security - and all of the choices listed are defined as securities. It is typically used for a company's initial public offering where there is no Federal SEC registration, so the State has no other information about the issuer and the issuer must "qualify" to have its securities registered in the State. In contrast, if an issuer is registering with the SEC, it can use the Federal SEC registration as its State registration document under "Registration by Coordination." If an issuer has previously registered securities with the SEC and State, it is a "seasoned issuer" and the State knows who the issuer is. Then the issuer can use the simpler method of Registration by Filing (Notification) in the State.

Which statements regarding registration of a security in a State are FALSE? I Registration is effective for a time period of 1 year II Once registration is declared effective in a State, it is effective in any other State in which a registration statement is filed III A registration statement can be filed in a State by a person other than an issuer IV To maintain registration in a State quarterly and annual financial statements must be filed with the Administrator A. I and III B. I and IV C. II and III D. II and IV

The best answer is D. Registration statements filed in a State are good for 1 year, so Choice I is true. Once registration is declared effective in 1 State, it is not automatically effective in any other State in which a registration statement is filed. Each State acts independently, making Choice II false. A registration statement can be filed by an underwriter or attorney acting for an issuer; or it can be filed any anyone who has securities that need to be State registered in order for them to be sold; making Choice III true. There is no State filing of an issuer's quarterly and annual financial statements - these are required to be filed by SEC-registered issuers under the Act of 1934 and are public documents, so Choice IV is false.

Under the provisions of the Uniform Securities Act, all of the following statements are true about an investment adviser's initial registration EXCEPT: A. if no denial order is in effect and no proceeding is pending, registration becomes effective at noon of the thirtieth day after an application is filed B. the Administrator may, by rule or order specify an earlier effective date than the thirtieth day after an application is filed C. the Administrator may, by order defer the effective date until noon of the thirtieth day after the filing of any amendment D. if no denial order is in effect and no proceeding is pending, the Administrator must give immediate effectiveness to the application if the registrant is transacting business in the state as a registered broker-dealer

The best answer is D. The wording in the Uniform Securities Act is that: "If no denial order is in effect and no proceeding is pending, registration becomes effective at noon of the thirtieth day after an application is filed." It then goes on to say that: "The Administrator may by rule or order specify an earlier effective date and may by order defer the effective date until noon of the thirtieth day after the filing of any amendment." Choice D is a bunch of nonsense!

All of the following are defined as investment advisers that are EXEMPT from registration in a State EXCEPT an adviser with no place of business in the State that: A. gives advice to no more than 5 clients in the State in the past 12 months B. gives advice solely to broker-dealers C. gives advice solely to registered investment companies D. distributes financial reports not based on specific client situations

The best answer is D. This is a very picky question that sees if you know the difference between an exclusion and an exemption. Exempt from registration as an investment adviser (meaning these are defined as investment advisers but they do not have to register in the State) is any person with no place of business in the State whose only clients are other advisers; federal covered advisers; broker-dealers; deposit taking institutions; insurance companies; investment companies; employee benefit plans with assets of at least $1,000,000; and governmental agencies. Also exempt from registration as an investment adviser is any person that has no place of business in the State that has 5 or fewer clients in the State in the past 12 months. Excluded from the definition of an investment adviser are investment adviser representatives; depository institutions; broker-dealers; professionals who only give incidental advice; publishers of general circulation periodicals that do not give investment advice about specific client situations; and federal covered advisers.

To qualify for the private placement exemption, all of the following are required EXCEPT: A. any purchases must be made with investment intent B. no more than 10 persons can purchase the issue during a 12 month period C. no commissions can be paid for soliciting individuals to purchase the issue D. all purchasers must reside in one state

The best answer is D. To qualify for a private placement exemption, no more than 10 persons can purchase the issue within a 12 month period under the Act. All purchases must be made with investment intent; and no commissions can be paid to anyone except for solicitations of financial and institutional investors. There is no requirement that all of the purchasers reside in one state - the limitation is 10 purchasers of the issue per year. The purchasers can reside anywhere within the United States.

All of the following are EXCLUDED from the definition of a broker-dealer under the Uniform Securities Act EXCEPT a firm with no place of business in the State that: A. has a few clients in the State with a de minimis exemption B. deals exclusively with issuers of securities C. deals exclusively with other broker-dealers D. dealers exclusively with insurance companies

The best answer is A. Excluded from the definition of a broker-dealer under Uniform State Law are persons with no place of business in the State that effect transactions exclusively with issuers; other broker-dealers; depository institutions; insurance companies; investment companies; and pension trusts. These persons are not dealing with the general public. Note that if the broker-dealer has an office in the State and deals with any of these persons - it would be required to register in that State. Now for the picky part! The "de minimis" exemption for broker-dealers is only offered in a minority of States, and typically applies to out-of-state broker-dealers who only have 3 or fewer clients in that State. Thus. Choice A qualifies for the exemption and does not have to register because it is exempt from registration (as opposed to being excluded from the definition and therefore not being required to register). Thus, Choice A is defined as a broker-dealer, but it is one that is exempt from registration in that State. Yes, this must be known for the exam.

A "non-issuer" corporation directs its employees to solicit orders for non-exempt securities. For this work, the corporation is paying commissions to the employees. Under the Uniform Securities Act, the corporation: A. falls under the definition of a "broker-dealer" which must be registered B. falls under the definition of an "issuer" that must register C. falls under the definition of an "investment adviser" that must register D. is exempt from the definition of a "broker-dealer" and does not have to registered

The best answer is A. If the corporation is a "non-issuer," it is not selling its own securities. It is selling the securities of other companies - which is the definition of a "broker-dealer." Furthermore, since it is paying a commission to its agents, the transactions are not exempt. This firm must be registered as a broker-dealer and its agents are required to be registered as well.

The Administrator can require the filing of sales literature related to which of the following transactions? A. An underwriter purchasing the stock of an issuer in a firm commitment underwriting B. A for-profit company issuing securities that are not exchange listed C. An investment company that is making purchases of listed stock in the secondary market D. An offer of bonds made by a State government that guarantees payment of interest and principal

The best answer is B. The Administrator can require the filing of sales literature, unless the security, or transaction, is exempt. Transactions between an underwriter and an issuer are exempt; secondary market transactions of listed securities are exempt; and municipal securities are exempt. A corporation issuing securities that are not exchange listed is a non-exempt transaction where the securities must be registered, so the Administrator can require the filing of sales literature used in connection with the offer of these securities.

An investment adviser located in State A only deals with very large hedge fund investors that are located in State B. The adviser is not required to be registered with the SEC because it currently has $20,000,000 of assets under management. Which statement is TRUE regarding State registration requirements? A. The adviser must register in State B where its customers are located, but it is exempt from registration in State A B. The adviser must register in State A where it has its office, but it is exempt from registration in State B C. The adviser must register in both State A and State B D. The adviser is not required to register in any State because it is exempt

The best answer is B. The basic rule on State registration is that if you have an office in that State, then you must register in that State. If you have no office in a State, but you solicit customers in that State, then you must register in that State as well. However, if you have no office in a State and you only deal with institutional investors in that State (e.g., hedge funds), then registration is not required.

Under the Uniform Securities Act, a person who has no place of business in a State, and who transacts securities business only with financial institutions in that State, is: A. defined as a broker-dealer and must register B. excluded from the definition of a broker-dealer and need not register C. defined as an investment adviser and must register D. excluded from the definition of an investment adviser and need not register

The best answer is B. Under the Uniform Securities Act, a "broker-dealer" is defined as a person that engages in the business of effecting securities transactions for the account of others; or a person that engages in the trading of securities for its own account. However, firms that have no place of business in the State, and who only deal with professional investors, are excluded from the definition and do not have to register. Note that this person does not fall under the definition of an investment adviser, since to be an investment adviser, one must render advice about securities for a fee.

An investment adviser has determined that it can register as a federal covered adviser. This means that the adviser: I solicits clients on behalf of other investment advisers II currently operates in at least 15 States III has at least $25,000,000 of assets under management IV provides financial planning to customers for compensation as a regular business A. I and III B. I and IV C. II and III D. II and IV

The best answer is C. Advisers with $100,000,000 or more of assets under management must register with the SEC as "Federal Covered Advisers" and cannot be required to be registered in each State (though each State can require a notice filing). The SEC then issued some interpretations regarding this requirement. These are: Advisers that have between $100,000,000 and $110,000,000 of assets under management have the choice of registering either at the State or Federal level. Thus, SEC registration as an adviser is truly only required once an adviser has $110,000,000 or more of assets under management. The SEC then issued interpretations regarding so-called "mid-size" advisers, which are advisers with at least $25,000,000 under management. These are: Mid-size advisers that are not required to be registered in a State where they have their principal office must register with the SEC (there are a handful of States that do not require investment advisers to register and this forces them to register with the SEC and be regulated by someone!); Mid-size advisers that do business in 15 or more States can choose to register with the SEC rather than having to register with, and be regulated by, 15 or more States.

Registration by Filing would be used by which of the following? I A new company that is registering securities for the first time in the State II An established company that has previously registered securities with the Securities and Exchange Commission III An officer of a publicly held company selling unregistered shares of that company under SEC Rule 144 A. I only B. I and II C. II and III D. I, II, III

The best answer is C. Registration by Filing is used by established "seasoned" companies for which there is already substantial trading activity and marketplace information. Essentially, this method lets established companies use the prospectus filed with the SEC under the Securities Act of 1933, as the filing document with the State. This is the easiest and least costly State registration method. In addition, this is a method commonly used by non-issuers to offer shares in the State. As an example, an officer of a company holds unregistered shares of that company. If the company has registered shares outstanding, and is current in its SEC filings, the officer can sell the shares under SEC Rule 144, which registers the shares federally. To register the shares in the State, the officer would use this Registration by Filing procedure.

If the Administrator summarily suspends a registration of an agent, which of the following statements are TRUE? I The Administrator must notify the agent promptly that the order has been entered II The Administrator must obtain a court order prior to issuing its own order III An opportunity for a hearing must be given within 15 days of written request IV The individual is prohibited from acting as an agent in that State A. I and II only B. III and IV only C. I, III and IV D. I, II, III, IV

The best answer is C. The Administrator is permitted to summarily suspend a registration, which means that he or she can take this action without obtaining a court order. If the administrator does this, the agent must be notified promptly of the action and the reasons for the action; and the agent must be given the opportunity for a hearing within 15 days of the agent making a written request.

The Administrator may deny or revoke an agent's license for which of the following reasons? I The agent has filed an application that is materially incomplete II The agent has made material misrepresentations to the Administrator III The agent has failed to post a surety bond IV The agent has failed to maintain minimum net capital A. I and II only B. III and IV only C. I, II, III D. I, II, IV

The best answer is C. There is no minimum net capital standard for agents - only for broker-dealers and investment advisers. The Administrator can deny or revoke an agent's license if the registration application is materially incomplete or if it contains material misrepresentations. The Administrator can also require the posting of a surety bond and the passing of an examination.

Which of the following persons is required to register as an investment adviser under the Uniform Securities Act? A. An attorney who writes a legal opinion included in the registration statement filed with the State for a new non-exempt securities offering B. A broker-dealer who gives investment advice in the regular course of business executing transactions for customers C. An agent of a broker-dealer who gives investment advice as part of his or her regular duties and who charges a fee for such advice D. A broker-dealer that charges an annual flat fee to customers for both investment advice and portfolio trade executions

The best answer is D. An attorney that renders a legal opinion is not giving advice about investing in securities - the opinion covers the validity and legality of the securities offering. A broker-dealer is not considered to be an investment adviser unless it charges separately for advice. If the broker-dealer's compensation comes solely from commissions, then the broker-dealer does not fall under the investment adviser definition. On the other hand, if a broker-dealer offers an account that charges a flat fee or a fee as a percentage of assets - this is a "wrap" account that is an advisory product and registration at the State level as an adviser is required (thus, Choice D would have to register in the State as an investment adviser). Regarding Choice C, be careful! Choice C defines an "investment adviser representative" that would have to register at the State level - it does not define an "investment adviser."

Which of the following is NOT required to be included in the State registration application of a broker-dealer or investment adviser? A. Consent to service of process B. Business history of applicant C. Fingerprints of the officers D. Books and records of the broker-dealer used by the applicant

The best answer is D. State registration applications for a broker-dealer or investment adviser must include: •The applicant's form and place of organization; •The applicant's proposed method of business; •The qualifications and business history of the applicant and each of its officers or partners; •Any injunction, administrative order or conviction of a misdemeanor involving a security or any aspect of the securities business; and any conviction of a felony; •The applicant's financial condition and history; and •Any information to be furnished to a client (the "brochure") if the applicant is an investment adviser. Also note that the initial application must be accompanied by a consent to service of process, which appoints the Administrator as attorney for the applicant. Any lawsuits filed in court against a broker-dealer or investment adviser will result in a subpoena sent to the Administrator; who will then forward it to the registrant (broker-dealer or investment adviser) that is being sued. As part of the registration application, fingerprints are required by most states (Choice C). However, there is no requirement for filing of the books and records of the broker-dealer as part of the application, make Choice D the best one offered. (Note, however, that the Administrator has the power to inspect books and records of a BD or IA at will.)

If an agent changes his place of employment from one broker-dealer to another, the registration must be transferred: A. immediately B. within 10 days C. within 30 days D. within 90 days

The best answer is A. If an agent changes his place of employment, the registration must be transferred promptly under the Act. The best choice given in this question is to transfer the registration immediately. (Please note, in contrast, that notification to the Administrator when an investment adviser representative is terminated is only given by the investment adviser; or if the representative is associated with a federal covered adviser, the notice is only given by the representative.)

To register an issue by filing, the issuer must be: I in business for the past 3 years II profitable for 2 of the past 3 years III in business for the past 5 years IV profitable for 2 of the past 5 years A. I and II B. I and IV C. II and III D. III and IV

The best answer is A. To qualify for registration by filing, an issuer must have been in business continuously for the past 3 years, and must have net earnings for 2 of the past 3 years.

Which term is NOT defined under the Uniform Securities Act? A. Broker-dealer B. Registered representative C. Investment Adviser D. Investment Adviser Representative

The best answer is B. The Uniform Securities Act defines a "broker-dealer," it defines an "agent" of a broker-dealer (which is a registered representative, but this is the federal name, not the State name); it defines an "investment adviser;" and it defines an "investment adviser representative" (the agent of an investment adviser). Note the inconsistency here!

Which of the following are defined as a "State" under the Uniform Securities Act? I Hawaii II Puerto Rico III Virgin Islands IV Key West A. I only B. II and III C. I, II, III D. I, II, III, IV

The best answer is C. "State" is defined under the Act to be any state, territory, possession of the United States, the District of Columbia, and Puerto Rico. Key West is part of the State of Florida; it is not a territory or possession.

In order to make an offer of a non-exempt security, an agent of a broker-dealer: A. must be registered in the State in which he or she resides and the broker-dealer is located B. must be registered in the State where he or she is offering the security C. must be registered in the State in which he or she resides and the broker-dealer is located and must be registered in the State where he or she is offering the security D. need not be registered

The best answer is C. Agents of broker-dealers must register in the State where they are physically located; and also must register in each State in which they make offers of securities. Also note that the fact that the security involved is non-exempt (such as common stock) has no bearing. To offer any security in a State, whether exempt or non-exempt, the agent must be registered in the State.

A surety bond requirement for registration of a broker-dealer: A. protects each customer against loss of principal in the event of the failure of the broker-dealer B. can be met by using the broker-dealer's existing fidelity bond coverage C. can be used by any person who has an enforceable legal claim against the broker-dealer D. can be met by giving the State a lien on the broker-dealer's real property in lieu of posting cash, securities, or an indemnity policy

The best answer is C. Broker-dealers, as a condition of registration in a State, can be required to post a surety bond. This must be posted as either cash, securities, or an indemnity policy issued by an insurance company. In the event that there is a legal action taken against the broker-dealer in the State, the bond can be used to pay any claims against the broker-dealer that are affirmed by a court of law.

Which of the following are defined as correspondence? I Written letter to a client II E-mail III Instant message IV Group e-mail A. I only B. II and IV only C. I, II, III only D. I, II, III, IV

The best answer is C. Correspondence is an item of an individual nature to a customer and includes a written communication, an e-mail or an instant message. A group e-mail would fall under the definition of "sales literature." Sales literature is defined as a communication to 25 or more existing or prospective customers.

When is a bank considered to be a broker-dealer? A. Never, because banks are excluded from the definition of a broker-dealer under the Uniform Securities Act B. If an assistant manager at the bank solicits a customer to obtain a mortgage from the bank, which the bank then sells to Fannie Mae, which packages the mortgage into a pass-through certificate C. If a teller of the bank, when assisting a customer that is making a deposit of a payroll check, offers the customer a money market mutual fund that is primarily invested in Treasury Bills D. If a customer service representative at a bank call center offers a bank certificate of deposit of a customer that asks about an investment that is FDIC-insured and that cannot lose value

The best answer is C. Even though banks are excluded from the definition of broker-dealers and their employees are excluded from the definition of an agent when selling bank products, this is most definitely not the case when the bank and its agents are offering securities. If securities are being sold by the bank, then the bank must establish a separate broker-dealer subsidiary and its employees selling the securities must be registered as agents of the broker-dealer. Mutual funds are a security - it makes no difference that the mutual fund is holding money market instruments (which are exempt securities). Note, in contrast, that a mortgage and a CD are bank products - not securities.

An individual is being paid to sell securities and is being compensated on a commission basis. The commissions are being paid by both the broker-dealer and the issuer. This person is defined as a(n): A. agent of the issuer only B. agent of the broker-dealer only C. agent of both the issuer and the broker-dealer D. none of the above

The best answer is C. If an individual works for either a broker-dealer or an issuer and sells securities of that issuer, that individual is defined as an agent under the Act. In this case, because he is being compensated by both the issuer and the broker-dealer, he or she would be an agent of both. An individual is excluded from the definition of an agent of an issuer only if that person effects transactions with existing employees or officers of the issuer and no commissions are paid; or that individual represents an issuer in either selling exempt securities or exempt transactions; or that individual only offers or sells securities to institutions.

If an investment adviser is an individual, which of the following items would be included in the computation of adviser's net capital? A. Goodwill B. Automobile C. Accounts receivable D. Copyright

The best answer is C. Net capital is really the adviser's "liquid net worth." It is liquid assets minus all liabilities. For an adviser that is an individual, excluded from assets that count in net capital are any non-liquid assets, including deferred charges, goodwill, franchise rights, organizational expenses, patents, copyrights, home, home furnishings, automobiles and any other personal items that cannot be readily converted to cash. Basically, this means that the only assets that count in the computation for an individual adviser are cash, accounts receivable and marketable securities positions. Note, however, that if the adviser is a partnership or corporation, the computation is permitted to include automobiles and furnishings used in the adviser's business. Why State law permits this is anyone's guess, but this point should be known for the exam!

Offers of pre-organization certificates are exempt under the Uniform Securities Act if which of the following are TRUE? I Commissions or other compensation may be received in connection with the offering II Commissions or other compensation may not be received in connection with the offering III Advertisements are permitted IV Advertisements are not permitted A. I and III B. I and IV C. II and III D. II and IV

The best answer is C. Offers of pre-organization certificates are exempt under the Uniform Securities Act if no commissions are paid for soliciting potential subscribers; the number of subscribers is limited to 10 persons; and no payment is made by any subscriber. (This generally parallels the private placement exemption under State law, except that advertising is allowed for pre-organization certificates -but not for private placements.) Note that advertisements for such offerings are permitted because the intent of this law is to enable a new enterprise to obtain the minimum number of subscribers required to form the business under corporate law.

The State Administrator is empowered to require the filing of advertising and sales literature relating to offers of which of the following? I U.S. Government securities II Municipal securities III Agency securities IV Equity securities A. I and III only B. II and IV only C. IV only D. I, II, III, IV

The best answer is C. The Administrator can require filing of advertising and sales literature unless the security involved is exempt; or the security is offered in an exempt transaction; or the security involved is a federal covered security. An equity security, such as common stock or preferred stock in a corporation, is non-exempt. U.S. Governments municipals and agencies are exempt securities, so the Administrator cannot require the filing of advertising related to these issues.