[Jan-2024] Uniform Securities State Law Series63 Exam Practice Test Questions Dumps Bundle!

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NEW QUESTION # 21
Assuming the security is not registered under the Uniform Securities Act, which of the following would not be exempt from state registration?

• A. a variable annuity contract offered by an insurance company with offices in the state
• B. a stock that is listed on the OTC Bulletin Board
• C. a stock that is listed on the American Stock Exchange
• D. a put option on a stock that sells in the over-the-counter market

Answer: B

Explanation:
Explanation
A stock that is listed on the OTC Bulletin Board would not be exempt from state registration unless it already happens to be registered under the Uniform Securities Act. Variable annuities and stocks listed on the American Stock Exchange are classified as federal covered securities by the NSMIA of 1996 and are exempt from state registration. An amendment to the Securities and Exchange Act of 1934 exempts option contracts from state registration.

NEW QUESTION # 22
Painting the tape refers to

• A. the illegal activity of a group of investors who buy and sell a security among themselves to create an artificially high volume of trading in hopes of luring investors to buy the security.
• B. the prohibited practice of excessively trading on a client's account that is used by some broker-dealers and/or their agents to generate more commissions for themselves.
• C. the practice of buying large amounts of a security to drive its price up artificially.
• D. the unethical practice of investment advisers who issue "buy" recommendations for stocks that they own themselves without disclosing the fact.

Answer: A

Explanation:
Explanation
Painting the tape refers to the illegal activity of a group of investors who buy and sell a security among themselves to create an artificially high volume of trading in hopes of luring investors to buy the security. This is an attempt to manipulate the market and, as such, is illegal.

NEW QUESTION # 23
Trevor is currently a registered agent in the state of Connecticut where he has been employed by Connect
& Company, a broker-dealer that is registered in Connecticut and has subsidiary operations in
Massachusetts, New Jersey, and New York. Trevor has moved to Massachusetts and is now associated
with one of Connect's subsidiaries, a broker-dealer registered in the state. Trevor has applied to the
Administrator of Massachusetts for registration as an agent. Can Trevor execute purchases and sales for
clients while his registration is still pending?

• A. It depends. Trevor can execute some purchases and sales, but only for clients that he already had who
  may have recently relocated to Massachusetts and only for sixty days while his registration is pending.
• B. No. Until he is informed by the Administrator of Massachusetts that his application has been accepted,
  Trevor may not effect any securities transactions in Massachusetts.
• C. Yes. Trevor can execute trades for new clients he solicits, but only for sixty days while his registration
  is pending.
• D. Yes. Because Trevor is a registered agent in another state and is affiliated with a broker-dealer that is
  registered in the state of Massachusetts, he is not restricted from executing trades.

Answer: A

Explanation:
It depends. Because he is a registered agent in another state and the broker-dealer he is
now affiliated with is registered in the state of Massachusetts, Trevor can execute purchases and sales,
but only for existing clients while his registration with the Massachusetts Administrator is still pending and
only for sixty days. This assumes, of course, Trevor has no violations that would restrict him from
registering in Massachusetts.

NEW QUESTION # 24
Stu Pede is an agent with broker-dealer Cavalier. A customer calls with a request to establish a classic IRA and asks for Stu's advice regarding where the money in the IRA should be invested. Stu suggests a municipal bond fund, explaining to his client that the interest income earned on it will be tax-free at the federal level, and some of it may even be tax-free at the state and local levels.
Has Stu engaged in any prohibited practices?

• A. No. Although Stu has given investment advice, it was solicited by the client, and Stu received no additional compensation for the advice.
• B. Yes. Municipal bonds are not suitable investments for a classic IRA, and Stu can have his license revoked or suspended.
• C. Yes. Stu is an agent with a broker-dealer. He is not an investment adviser representative and is not allowed to make recommendations regarding investments to the firm's clients.
• D. No. Although municipal bonds are not suitable investments for a classic IRA, Stu obviously didn't know this and is merely guilty of stupidity.

Answer: B

Explanation:
Explanation
Yes. When Stu recommends an investment in municipal bonds for a classic IRA account, he has made an unsuitable recommendation, which is a prohibited practice, and he can have his license revoked or suspended.
Municipal bonds are not suitable investments for a classic IRA because municipal bonds pay interest that is at least free from federal taxation, so they offer a lower yield than fully taxable bonds of similar risk. The money in a classic IRA grows tax-free anyway, so the client is getting a lower yield with no benefit.

NEW QUESTION # 25
Needy Investment Advisers, LLC needs a loan. One of its wealthier clients has offered to lend the firm the
money at the prime rate of interest. A promissory note is drawn up stipulating the terms of the loan. Based
on these facts,

• A. Needy is not in danger of violating any securities laws since the loan was unsolicited and has been
  properly executed via a promissory note.
• B. Needy will be in violation of securities laws unless a waiver of compliance form is signed by the client
  and submitted to the administrator.
• C. Needy is in violation of securities laws only if the face value of the note is for $50,000 or more.
• D. Needy is in violation of securities laws by acting as an issuer of securities.

Answer: D

Explanation:
In accepting a loan from a wealthy client, Needy is in violation of securities laws by acting as
an issuer of securities. Under NASAA Model Rules, investment advisers may not borrow money from
clients unless the client is in the business of lending money, as would be the case if the client were a
financial institution. It doesn't matter if the client is in agreement with the loan; waiver of compliance
agreements are prohibited by both the NASAA Model Rules and the Investment Advisers Act of 1940. Nor
does it matter that the loan was unsolicited and formalized with a promissory note.

NEW QUESTION # 26
According to the NASAA Model Rules, which of the following institutions would not be considered a qualified custodian?

• A. a bank that is insured by a private, state-sponsored insurance company
• B. a savings institution that is insured by the FDIC
• C. a broker-dealer that is registered with the state
• D. a foreign financial institution

Answer: A

Explanation:
Explanation
According to the NASAA Model Rules, a bank that is insured by a private, state-licensed insurance company would not be considered a qualified custodian. Registered broker-dealers, foreign financial institutions, and banks and savings institutions that are insured by the FDIC are on the list of qualified custodians.

NEW QUESTION # 27
BigCash Broker-Dealers is registered in the state and is in the process of purchasing a smaller
broker-dealer, Target Investments, as a subsidiary. Target Investments is also registered in the state.
After completing the purchase, what actions must BigCash take regarding registration of its new
subsidiary?

• A. BigCash must file a new application with the state to register its new subsidiary and must also pay the
  annual filing fees required by the Administrator.
• B. BigCash need do nothing since Target Investments was already duly registered with the state as a
  broker-dealer.
• C. BigCash must file a new application with the state to register its new subsidiary, but will be able to
  utilize the remainder of any annual filing fees that Target Investments had paid for the year.
• D. BigCash will need to pay the annual filing fees required by the Administrator, but will not need to file a
  new registration application.

Answer: C

Explanation:
After completing the purchase, BigCash will have to file a new registration application for its
new subsidiary, but BigCash can utilize the remainder of any annual filing fees that Target Investments
had paid for the year. Although registration applications are never transferable, annual filing fees are.

NEW QUESTION # 28
Which of the following would a firm not be expected to provide to the Administrator when registering an issue of securities with the state?

• A. The firm will be expected to provide all of the above to the Administrator when registering an issue of securities with the state.
• B. the agreement between the issuing firm and the underwriters.
• C. all sales and advertising materials that will be used in conjunction with the offering.
• D. the agreement among the underwriters themselves.

Answer: A

Explanation:
Explanation
The firm will be expected to provide all of the above-sales and advertising materials to be used in the offering, the agreement between the issuing firm and its underwriters, and the agreement among the underwriters themselves.

NEW QUESTION # 29
Under the guidelines of the Bank Secrecy Act (BSA), the Treasury Department now requires
broker-dealers to obtain and keep certain information relating to clients that make or receive funds
transfers that involve

• A. $10,000 or more.
• B. $100,000 or more.
• C. $5,000 or more.
• D. $3,000 or more.

Answer: D

Explanation:
Under the guidelines of the BSA, the Treasury Department now requires broker-dealers to
obtain and keep information relating to clients that make or receive funds transfers that involve $3,000 or
more. If the transaction is a cash transaction over $10,000, the same rules apply, and a Currency
Transaction Report must be filed with FinCEN. Under the USA Patriot Act, if the broker-dealer thinks that
a transaction of $5,000 or more is suspect, the broker-dealer must file a suspicious activity report (SAR.)

NEW QUESTION # 30
Which of the following actions is the Administrator of a state empowered to take?

• A. impose civil penalties in cases of fraud
• B. gather evidence
• C. The Administrator of a state has the authority to take all of the above actions.
• D. require restitution for the victims of a scam

Answer: B

Explanation:
The Administrator of a state can gather evidence, but it cannot impose any civil penalties,
including the requirement of restitution to victims. These actions can only be performed by a court of law.

NEW QUESTION # 31
Which of the following does not describe a prohibited practice for broker-dealers under the NASAA Model Rules?
I. SecureMoney Broker-Dealers has received a request from a client who wants SecureMoney to "identify a few solid firms in the Asian market and invest up to $20,000 in them." SecureMoney executes the purchases and receives the requisite signed discretionary authorization from the client before the settlement date.
II. CanDo Broker-Dealers executes a margin transaction for a client, promptly receiving a signed, written margin agreement from the client after the transaction takes place.
III. GetErDone Broker-Dealers receives a call from a client who wants to purchase some securities on margin.
GetErDone has the client come into the office to sign a properly executed margin agreement prior to effecting the transaction.

• A. None of the selections are prohibited practices.
• B. II and III only
• C. III only
• D. I and III only

Answer: B

Explanation:
Explanation
Neither Selection II nor Selection III describes a prohibited practice for broker-dealers under the NASAA Model Rules. Broker-dealers are permitted to execute margin transactions for clients as long as they receive a signed, written margin agreement promptly after the initial margin transaction takes place. The agreement need not be signed beforehand. Discretionary authorizations do need to be signed before the broker-dealer executes any discretionary transactions for a client, so Selection I describes a prohibited practice.

NEW QUESTION # 32
Needy Investment Advisers, LLC needs a loan. One of its wealthier clients has offered to lend the firm the money at the prime rate of interest. A promissory note is drawn up stipulating the terms of the loan. Based on these facts,

• A. Needy will be in violation of securities laws unless a waiver of compliance form is signed by the client and submitted to the administrator.
• B. Needy is in violation of securities laws only if the face value of the note is for $50,000 or more.
• C. Needy is not in danger of violating any securities laws since the loan was unsolicited and has been properly executed via a promissory note.
• D. Needy is in violation of securities laws by acting as an issuer of securities.

Answer: D

Explanation:
Explanation
In accepting a loan from a wealthy client, Needy is in violation of securities laws by acting as an issuer of securities. Under NASAA Model Rules, investment advisers may not borrow money from clients unless the client is in the business of lending money, as would be the case if the client were a financial institution. It doesn't matter if the client is in agreement with the loan; waiver of compliance agreements is prohibited by both the NASAA Model Rules and the Investment Advisers Act of 1940. Nor does it matter that the loan was unsolicited and formalized with a promissory note.

NEW QUESTION # 33
Moe is a registered investment adviser doing business under the name of MoeMoney Investment Advisers, LLC. Larry, Curly, and Mary all hold positions with the firm. Larry is on the board of directors; Mary is a sales representative for the firm; and Curly is an administrative assistant, who performs clerical duties.
Given that Moe is already a registered investment adviser, which of the other three are automatically registered as investment adviser representatives?

• A. Mary and Curly only
• B. Larry, Mary and Curly
• C. Larry only
• D. Larry and Mary only

Answer: C

Explanation:
Explanation
As a director of the firm, Larry would automatically be registered as an investment adviser representative of MoeMoney Investment Advisers. Although directors and officers of the firm are automatically registered as investment adviser representatives, Mary, as a salesrepresentative, would have to apply for her own registration. Curly does not need to be registered since he performs only clerical duties.

NEW QUESTION # 34
Once a person has filed an application with the Administrator, and in doing so has truthfully disclosed every material fact, how long does the Administrator have after the effective date of the registration to commence a proceeding to deny, suspend, or revoke that person's license based on those facts?

• A. 60 days.
• B. 30 days.
• C. one year.
• D. 90 days.

Answer: D

Explanation:
Explanation
If a person has appropriately and truthfully disclosed every material fact on its application for registration, the Administrator has 90 days after the registration becomes effective to commence a proceeding to deny, suspend, or revoke the license. If the Administrator has known about the fact for longer than this, he may not begin a proceeding against that person according to the Uniform Securities Act.

NEW QUESTION # 35
Rich Quick is a broker-dealer registered in the state of Massachusetts. He occasionally trades on
abnormalities he observes in bond yield spreads for his own account, short selling a bond that appears to
be overpriced based on its yield and buying a bond that is identical in almost every respect except for the
price, which is less than that of the other bond. He has been able to earn arbitrage profits 95% of the time
when he does this. Rich Quick

• A. is in violation of securities laws. Arbitrage is a prohibited activity.
• B. is trading on insider information, which is a violation of securities laws.
• C. is skilled if he is able to earn profits 95% of the time using this strategy.
• D. engaged in a fraudulent activity.

Answer: C

Explanation:
If Rich Quick is able to earn profits 95% of the time by trading on abnormalities he observes
in bond yield spreads, he is skilled. There is nothing illegal in what he is doing. Arbitrageurs attempt to
earn profits when they observe what they believe to be mispriced securities, and this is an accepted
activity. Rich is not using insider information; bond yields are publicly available information.

NEW QUESTION # 36
A-2-Z Associates is a full service brokerage and is also in the investment advisory industry, charging its
clients for investment advice for additional remuneration. Which of the following statements is true?

• A. A-2-Z can charge the client only an advisory fee when it is serving as an investment adviser; no
  commissions may be collected.
• B. A-2-Z can charge the client both an advisory fee for its advice and a commission on any trade the client
  makes based on the advice. This is all laid out in the advertising brochures full service brokerage firms
  like A-2-Z provide their prospective clients.
• C. A-2-Z can charge an individual client an advisory fee for its advice or a commission when it executes a
  trade that the client makes based on that advice, but not both.
• D. A-2-Z can charge the client both an advisory fee for its advice and a commission for the execution of a
  trade based on that advice, but it must inform the client of its potential conflict of interest in doing so and
  get the client's written consent.

Answer: D

Explanation:
A-2-Z can charge a client it advises an advisory fee for its advice and a commission for the
execution of a trade based on that advice, but it must inform the client of the potential conflict of interest
and get the client's written consent. It must also provide an itemized statement of all such agency cross
transactions performed for the client at least annually.

NEW QUESTION # 37
Jack is employed by NewCorp, which is engaging in an initial public offering (IPO). Jack will need to register as a sales representative if he:

• A. engages in transactions with the underwriters of the IPO for the purpose of taking the firm public.
• B. participates in the selling of the new stock to individual investors.
• C. Jack will need to register as a sales representative if he performs any one of the above activities.
• D. represents NewCorp in any transactions with financial institutions.

Answer: B

Explanation:
Explanation
Jack will need to register as a sales representative if he participates in the sale of new stock to individual investors. Those who deal directly with the public need to register as sales representatives under the Uniform Securities Act. If Jack limits his involvement to transactions with the underwriters or financial institutions, he need not register.

NEW QUESTION # 38
Although an Administrator has broad powers, he or she cannot:

• A. formulate rules and orders.
• B. deliver a judicial injunction.
• C. gather evidence.
• D. issue subpoenas involving compulsory attendance.

Answer: B

Explanation:
Explanation
An Administrator has broad powers, but he or she cannot deliver a judicial injunction because an Administrator does not have the authority bestowed on a court of law. The Administrator can issue subpoenas to require attendance, participate in evidence gathering, and formulate rules and orders.

NEW QUESTION # 39
Ken Con is an agent with Blue Sky Broker-Dealers. He gets up early each morning so that he can study
any late-breaking news that may affect the markets and figure out ways to incorporate this news into
conversations with select clients in order to pressure them to restructure their portfolios by selling
holdings they have in one particular industry to invest the money in another particular industry. Ken has
been very successful with this strategy and executes more trades for his clients than any other agent with
the firm, but is he in danger of losing his license?

• A. Yes. Ken is engaging in churning, a prohibited practice and can have his license revoked or
  suspended.
• B. Yes. Ken is guilty of the prohibited practice of "tailgating."
• C. No. Ken is just a successful sales person who is working harder than the other agents in the firm.
• D. It depends. If his clients have lost money, Ken may lose his license; but if a review indicates that his
  clients' accounts earn profits, then his license is safe.

Answer: A

Explanation:
Yes. If Ken is getting up each morning in order to collect news that he can use to pressure
his clients to buy and sell their securities, Ken is engaging in churning and can have his license revoked
or suspended for this prohibited practice. A lot of the news might have a short-term effect on a particular
industry, but any profits gained by trying to time the market will often not be sufficient to cover the
commissions that the investor had to pay on the transactions and the taxes they may have to pay on the
short-term capital gains they realized when they sold securities. Regardless, it doesn't matter whether his
clients' accounts show a profit or not.

NEW QUESTION # 40
You have recently discovered that a security you purchased has not been registered with the state, nor is
it exempt from registration. You can file a civil claim against the seller as long as you do so within

• A. one year from discovery.
• B. three years from discovery or five years from the event, whichever comes first.
• C. five years.
• D. two years from discovery or three years from the event, whichever comes first.

Answer: D

Explanation:
If you discover that a security you purchased has not been registered with the state and was
sold unlawfully, you can file a civil claim against the seller as long as you do so within two years from
discovery or three years from the event, whichever comes first, under the guidelines of the Uniform
Securities Act. Therefore, if you know about an unlawful sale for more than two years or if the sale took
place more than three years ago, you cannot sue. The statute of limitations has expired.

NEW QUESTION # 41
The 1988 Insider and Securities Enforcement Act indicates that a person convicted of insider trading can be subject to which of the following penalties?

• A. up to 5 years in prison and a fine of $1,500,000 or both
• B. up to 7 years in prison and a fine equal to 200% of the amount of profits gained or losses avoided
• C. up to 3 years in prison, a $5,000 fine, or both
• D. up to 10 years in prison and a fine of $1 million or up to 3 times the amount of profits gained, or

Answer: D

Explanation:
Explanation
The 1988 Insider Trading and Securities Enforcement Act increased the penalties for a person convicted of insider trading to up to 10 years in prison and a fine of $1 million or up to 3 times the amount of profits gained, or losses avoided.

NEW QUESTION # 42
Nancy's Aunt Ethel died, making Nancy executrix of her estate. In going through Aunt Ethel's belongings,
Nancy discovered some stock certificates that she learned had been issued by a small New Jersey firm
that was still in business. The problem lay in the fact that Nancy's Aunt Ethel had moved from New Jersey
to Florida years ago, and the stock is registered only in the state of New Jersey. Nancy herself is a
resident of Massachusetts. What does Nancy have to do in order to sell this stock?

• A. Nancy can sell the stock without a problem as executrix of her aunt's estate.
• B. Nancy will need to contact a securities law firm in Florida to help her register the stock in the state of
  Florida.
• C. Nancy will have to establish a mailing address in New Jersey before she can legally sell this stock.
• D. Nancy will need to contact a broker-dealer licensed in the state of New Jersey to help her with the sale
  of this stock.

Answer: A

Explanation:
Nancy can sell the stock without a problem as executrix of her aunt's estate. This is
considered to be a fiduciary transaction and, as such, it is an exempt transaction.

NEW QUESTION # 43
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