Series 63 – Practice Exam Questions – Flashcards

The broker-dealer may solicit the customer in State B without registering in State B. If a broker-dealer effects a transaction in a state (unless an exemption is available), the broker-dealer must be registered in that state. One of the exemptions available, however, covers the instance where an existing customer of a registered broker-dealer is vacationing in another state. That customer may be contacted while on vacation in the other state without the broker-dealer being required to register in that state.

I, II, & III 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. 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. The gift of a security is not considered to be a sale unless the security is assessable. Common stock is non-assessable; therefore, it is simply a gift, not a sale.

10 years An applicant's registration can be denied if he or she was convicted of a misdemeanor involving securities or any felony within the past 10 years.

capital gains

are unregistered Securities sold through a private placement are unregistered and are an exempt transaction. Under Uniform State Law, a private placement is defined as an offer to no more than 10 persons in a 12 month period.

Issue injunctions The Administrator can issue subpoenas even to persons outside the Administrator's state. It is also possible for the Administrator to conduct investigations to determine if any securities laws have been broken and to hold hearings. It is not possible, however, for the Administrator to issue an injunction against the alleged violator. The Administrator may only petition the appropriate court to issue an injunction.

I only To be considered to be a sale, there must be some consideration or exchange of value. Sales do not include bona fide pledges of securities as collateral for loans, stock dividends, corporate mergers approved by stockholders, the exchange of corporate assets in consideration of stock of another corporation, or acts incidental to judicially-approved reorganizations in which securities are issued in exchange for other outstanding securities.

I & III only The intentional omission of any material information is fraud. Even though government bonds are exempt securities, they are not exempt from the anti-fraud provisions and deceptive statements are always considered fraud. Immaterial facts need not be disclosed.

Exempt transaction whether the security involved is exempt or non-exempt Unsolicited customer orders in the secondary market by or through a broker-dealer are considered to be exempt transactions under the Act whether the securities involved are exempt or non-exempt. The Administrator may require that the customer acknowledge that the sale was unsolicited in writing.

Limited partnership interests Under the Uniform Securities Act, U.S. government bonds, securities issued by an exchange or NASDAQ-NMS listed companies, and securities issued by charitable organizations are exempt. Limited partnership interests are defined as a security under the Act and are non-exempt.

State registration by notice filing or coordination may be available. To be registered in a state by notice filing or by coordination, a federal registration statement must be filed for the security under the Securities Act of 1933. Such registration does not exempt the security from state registration nor is every federal registered security a federal covered security. Any security may be registered by qualification but a security would have to be registered by qualification only if filing or coordination were not available.

Lend or borrow money or securities from a customer Note the word 'never' in the question. Agents may effect transactions not recorded on their broker-dealer books or records if the transactions are authorized in writing by their broker-dealer prior to execution. They may also share profits or losses in the account of a customer with the written authorization of the customer and the broker-dealer that the agent represents. Agents may also divide or split their commissions with any person who is also registered as an agent for the same broker-dealer or for a broker-dealer under direct or indirect common control. Agents may never engage in the practice of lending or borrowing money or securities from a customer.

I, II, & III In general, the Administrator must provide appropriate prior notice, opportunity for hearing, written findings of fact, and conclusions of law.

Investment adviser Although a lawyer is exempt from registration as an investment adviser if his or her advisory services are incidental to the performance of his or her duties, a lawyer who holds himself or herself out to be an adviser by advertising his or her services would have to register.

II, III, & IV The de minimus exemption applies to IA firms, not to agents or broker-dealers. It states that IAs who have no place of business in the state but are registered in another state need not register in this state if their business is limited to advising five or fewer clients during the preceding 12 months.

1934

Orders issued by other states To register in this state, broker-dealer firms must file Form B/D with the Administrator. This form requires the broker-dealer to list the firm's officers and directors and their backgrounds but does not require that their credit history be disclosed or that the backgrounds of other employees be included. Misdemeanors need only be disclosed if they involve the securities, investment, banking, or insurance business and occurred within the past 10 years. All administrative orders issued against the firm or its officers and directors by Administrators in other states must be disclosed.

I, II, III, & IV An application for registration as a broker, dealer, agent, IA, or IAR requires the applicant to disclose all of this information including whether or not he or she has ever been convicted of a misdemeanor involving securities or any felony; however, an application for registration may only be denied for violations that occurred during the past 10 years.

II. & IV. Under the Uniform Securities Act, the Administrator may require a minimum capital for registered broker-dealers subject to the limitations of Section 15 of the Securities Exchange Act of 1934. The Administrator may also establish minimum financial requirements for investment advisers subject to the limitations of Section 222 of the Investment Advisers Act of 1940.

If he or she is registered in this state Canadian broker-dealers cannot do business in a state without first registering in that state even if their Canadian client is only a temporary resident in the state.

He or she is in violation of the Uniform Securities Act Although the agent is not guilty of using inside information, he or she is guilty of making a misleading or untrue statement of a material fact in connection with the purchase or sale of a security.

For one year from its effective date Under the Uniform Securities Act, every securities registration is effective for one year from its effective date regardless of the method used.

Uniform Securities Act

SEC Regulation A

securities, transactions

Only when it is in the public interest

incidental

Restricted stock

Either the investment advisory firm or the investment advisor representative If an investment advisor representative terminates employment with an investment advisor (IA), who must notify the Administrator depends upon how the IA firm is registered. If the firm is a state registered advisor, then the firm has to notify the Administrator; if the firm is a federal registered advisor, then the IAR has to notify the Administrator.

insurance

The agent is under the supervision and training of a broker-dealer It would not be in the public interest to deny, refuse to renew, or terminate an agent for lack of experience as long as that agent is under the training and supervision of a broker-dealer firm.

Surety bonds

Petition the court to require that the agent produce the requested records The Administrator has broad powers to conduct investigations and issue subpoenas requiring witnesses to appear and records to be produced. If an agent fails to produce the required records, the Administrator may petition the court for enforcement.

discretionary authority

material Under the USA, exempt securities are exempt from state registration and the advertising and sales literature filing requirements but not the anti-fraud rules. Agents must disclose all material information to potential investors whether the security is exempt or non-exempt.

Issuers Although the state administrator may require agents, broker-dealers, and investment advisors to post surety bonds as a condition of state registration, there are no bond requirements for issuers.

Notice filing As a result of the National Securities Markets Improvements Act, states no longer register federal covered securities by notification; however, the Administrator may require issuers of mutual fund shares to file a copy of the registration statement filed with the SEC with the state as well as a consent to service of process and to pay proper fees. This is known as "notice filing."

Lack

When selling non-NASDAQ OTC stocks, broker-dealers must disclose their compensation to customers both at the time of the sale and again on the confirmation. Confirmations are usually sent to customers the next business day after the trade date.

investment advisor representative Think of an investment advisor as an advisory firm, which is usually a corporation. An "investment adviser representative" is any partner, officer, director, or other individual who represents the IA firm other than clerical or administrative staff persons. They are two separate categories of registration. As such, registering as an IAR does not make you an IA.

Investment company securities Federal covered securities need not be registered with the state administrator. Although investment company securities (open-end and closed-end mutual funds and units investment trusts) are federally covered, the Administrator may require them to make a notice filing at the state level. This consists of the payment of fees, filing copies of the documents filed with the SEC, and filing a consent to service of process form.

The agent is guilty of using fictitious information to execute a trade that would have otherwise been prohibited.

Mixing customer securities with those owned by the firm in its proprietary accounts Under NASAA's Statement of Policy, broker-dealer firms cannot fail to segregate their customers' free securities from those held in the firm's proprietary account. "Free securities" are those that the customer is not required to pledge to the firm as collateral for a margin loan.

They are non-exempt. Unsolicited, non-issuer transactions are exempt under the USA, not issuer transactions. Non-issuer transactions take place in the secondary market; issuer transactions take place in the primary market.

I, II, III, & IV In connection with the solicitation of investment company shares, broker-dealers and agents must not state or imply to a customer that the shares sold without a commission are "no-load" or have "no sales charge" if there is associated with the purchase of the shares a front-end load, a contingent-deferred sales load, a SEC Rule 12b-1 fee (if such fee in total exceeds 0.25% of average fund assets per year), or, in the case of closed-end investment company shares, underwriting fees, commissions, or other offering expenses.

All 11 offers are in violation of the private placement exemption. A private placement of new securities is considered to be an exempt transaction under the Act. This means that the securities being sold are exempt from state registration if the issuer follows the private placement rule which states that the number of persons receiving offers (whether a sale is made or not) is restricted to no more than 10 in any 12 month period and that no commissions may be paid. Remember, the issuer of securities sold in a private placement must be able to prove that he or she is entitled to the exemption. If he or she violates the rule and makes more than 10 offers in a 12 month period, the Administrator may revoke the exemption and find the issuer guilty of offering unregistered securities to the public. The purpose of the private placement exemption is to allow small companies to raise capital by selling their new securities privately without registration, which is very expensive.

If the IA firm is state registered, then the firm must notify the Administrator. If the IA firm is federally covered, then it is the IAR who must notify the state.

Non-exempt Although securities issued by recognized foreign governments and their sub-divisions are considered to be exempt from state registration under the USA, securities issued by foreign corporations are non-exempt.