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60 Cards in this Set

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1.
State "blue sky" laws provide for:
I Registration of broker-dealers
II Registration of agents
III Registration of investment
advisers
IV Registration of investment
adviser representatives
a. I only
b. I and III
c . II and IV
d. I, II, III, IV
D. State blue sky laws provide for registration of broker-dealers and agents; registration of investment advisers and investment adviser representatives; and registration of securities issues.
2.
The basic definition of a "security" IS:
a. an investment in a common enterprise for profit with management by a third party
b. an undivided interest in a business enterprise with other parties
c. an investment that is
transferable to another person
d. any investment made for profit
A The basic definition of a security is: an investment In a common enterprise for profit, with management provided by a third party.
3.
Which of the following does NOT qualify as an exempt transaction under the Act?

a. A sale of common stock to an
insurance company
b. A sale of preferred stock by an
executor of an estate
c. A sale of an outstanding security
that is listed on the New York
Stock Exchange
d. An isolated sale of corporate bonds
on behalf of an issuer
D. Isolated "non-issuer" transactions are exempt. These are transactions that take place in the secondary (trading) market. An isolated "issuer" transaction is not exempt. In this case, a corporate issuer is selling bonds, which is a security that must be registered under the Act. The sale of common stock to an insurance company is an exempt transaction, since sales to financial institutions are exempt. The sale of preferred stock by an executor of an estate is an exempt transaction, since sales by fiduciaries are exempt. Any security of an issuer that is listed on a recognized stock exchange such as the New York Stock Exchange is also exempt under the so-called "blue chip" exemption. Since these companies are also registered with the SEC under the Securities and Exchange Act of 1934, secondary market trading of these securities falls under the exemption given to "non-issuer transactions in outstanding securities of companies registered under the 1934 Act."
4.
All of the following transactions are exempt EXCEPT an offer of securities made to a(n):
a. insurance company
b. individual with a $1,000,000
net worth
c. broker-dealer
d. savings institution
B Transactions with financial or institutional investors are exempt under the Uniform Securities Act. This would. include, insurance companies, broker-dealers, banks, and' savings and loans. There is no provision in the Act for an exemption for a sale to an individual with a high net worth, so Choice b is incorrect.
5.
All of the following securities are exempt from registration under the Act EXCEPT:
a. Unlisted debentures of a company whose common stock is listed on the Pacific Stock Exchange
b. Equipment trust certificates issued by a railroad subject to ICC regulation
c. Common stock issued by savings and loans
d. Preferred stock issued by
industrial corporations
D. Stock issued by industrial corporations is non-exempt. Under State law, senior securities (bonds and preferred stock) of companies listed on a recognized stock exchange are exempt. This is termed a blue chip exemption. Securities of issuers subject to ICC regulation (common carriers) are exempt. Issues of banks and savings and loans are exempt (these are regulated by the State banking laws).
6.
Which of the following individuals must be registered as agents of a broker-dealer?
I A person who only accepts orders from customers
I I A person who only trades securities for the firm's trading account
I I I A person who is a silent partner in the broker-dealer
IV A person who is a partner, officer, or director of a broker-dealer
a. I only
b. I and II
c. III and IV
d. I, II, IV
B The Act defines an agent as any individual who represents an issuer or broker-dealer in effecting securities transactions. Under this definition, any person who accepts customer orders or who trade'9' must register as an agent. Silent partners of broker-dealers do not register as agents because they have no business role in the firm other than contributing funds. They do not effect securities trades. An individual who is a partner, officer, or director of a broker-dealer also does not have to register as an agent. This individual is already registered as a principal of the firm through the broker-dealer registration.
7.
All of the following persons are either excluded from the definition of a broker-dealer, or are exempt from registration as a broker-dealer, EXCEPT a firm:
a. effecting securities trades with an office in the State that deals exclusively with other broker-dealers
b. effecting securities trades with no office in the State that deals exclusively with trust companies and other financial institutions
c. with no place of business in the State that does not have more than 5 clients in the State within a year
d. that is a trust company with an office in that State that deals with the public
A. A firm is not defined as a broker-dealer if it has no place of business in the State and transacts solely with issuers, other broker-dealers. and financial institutions. However, if a firm that effects securities trades has an office in a State, it is defined as a broker-dealer and must register in the State. A firm with no place of business in the State that does not have more than 5 clients in the State within 12 months is defined as a broker-dealer, but is exempt from registration. Banks, S & LIs, and trust companies are also excluded from the definition of a broker-dealer.
8. 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
I I I in business for the past 5
years
I V profitable for 2 of the past
5 years
a. I and II
b. I and IV
c. II and III
d. III and IV
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. '
9. To register as a broker-dealer, the Administrator can require all of the following EXCEPT:
a. Minimum dollar amount of net
capital
b. Minimum dollar amount of surety
bond coverage
c. Passing a written examination d. Meeting minimum experience
standards
D To register as a broker-dealer, the Administrator can require minimum dollar amounts of net capital; minimum dollar amounts of surety bond coverage; and the passing of an examination. There are no minimum experience standards.
10. The type of state securities registration that relies on the prospectus information filed with the SEC under Federal law is registration by:
a. filing
b. coordination
c. qualification
d. information
B Registration by coordination "coordinates" State registration the same with a Federal registration. The same information that is filed with the SEC is filed with the State. When the SEC registration becomes effective, the State registration becomes effective.
11. Which of the following IS an acceptable investment advisory contract provision?
a. "The investment adviser may assign the contract to another party at any time upon verbal notice"
b. "The investment adviser shall receive 10% of any capital gains achieved as annual compensation"
c. "The investment adviser shall receive 1%. Qf all assets invested as annual compensation"
d. "The investment adviser may change its management structure without notification to customers"
c. Investment advisers can receive a fee based on a percentage of all assets under management; however, they cannot be compensated based solely on capital gains achieved. Investment advisers are prohibited from assigning contracts unless written notice is given to the client. Investment advisers must advise their clients of any management changes in writing (if the adviser is a partnership).
12. Which of the following transactions is included in the definition of "sale?"

a. An unsuccessful attempt to dispose of a -.security for value
b. A gift of a non-assessable security
c. A security given to a person as a "gift" with the sale of another security
d. An unexecuted contract to sell a
security (an open order)
C The definition of a sale is a contract to sell a security, or an interest in a security, for value. Choice c is considered to be a sale since the security was "given" with the sale of another security. Therefore, the value of that gift was included as part of the sale price, so the "gift" was actually sold for value. An unsuccessful attempt to sell a security for value is not a "sale" - rather it is defined as an "offer." A gift of a non-assessable security is a "gift" - not a sale. A gift of an assessable security is a "sale," since the seller is relieved of any future liability. An open order is not a sale until the order is executed.
13. Which of the following is NOT defined as a security?
a. Variable annuity contract
b. Unit investment trust
c. Individual retirement account
d. Commodity option contract
C Under the Act, IRA's and Keogh's are not defined as securities. Variable annuities are securities under the Act (since the purchaser bears the investment risk), as are unit investment trusts and commodity option contracts.
14. Upon entry of a "stop order." the Administrator must notify those affected by the order that:
a. the registration has been revoked
b. an opportunity for a hearing is available
c. sale of the issue can continue until any charges are proven
d. the Administrator has filed criminal charges
B If an Administrator enters a "stop" order, halting the sale of an issue that has been registered, 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.
15. The Administrator can subpoena the records of a broker-dealer or agent:
a. only after a violation has occurred
b. if he suspects that a violation has
occurred
c. only if written customer
complaints are received by the
Administrator
d. only if criminal charges are
being filed against that person
B The Administrator can subpoena the records of a broker-dealer if he suspects that a violation has occurred or after it is known that a violation has occurred. There is no requirement that records can be subpoenaed only if written customer complaints are received by the Administrator or if criminal charges are filed.
16. An agent sells unregistered non exempt securities to a customer, and has the customer sign a statement that he is aware that the securities are unregistered. The agent receives a commission for the trade. This transaction is:
a. allowed under the isolated non¬
issuer transaction exemption
b. allowed under the private
placement exemption
c. null and void under the Act,
subjecting the agent to
civil liabilities
d. allowed since the customer
acknowledged the status of the securities in writing
C The sale of unregistered non-exempt securities is a violation of the Act which incurs civil liabilities. The transaction is null and void and the seller is obligated to buy back the security at the original cost plus 6% interest.
17. Which of the following business practices does not violate the Uniform Securities Act?
a. Borrowing money from a customer, evidenced by a
promissory note with a fixed maturity and a stated rate of interest
b. Managing funds for a customer as an investment adviser under an oral contract
c. Recommending the services of a particular investment adviser to a customer
d. Exercising discretionary power
in a customer account without written authorization from the customer
C Recommending the services of a particular investment adviser is not prohibited under the Act. Borrowing money from a customer is a violation; oral investment advisory contracts are a violation (these must be in writing); and exercising discretion without a written power of attorney is a violation.
18. An agent receives correspondence from his uncle about the uncle's securities account that the agent handles. This letter is considered:
a. the private property of the agent and can be disposed of as the agent sees fit
b. the private property of the agent but must be kept on file for 2 years
c. a record of the broker-dealer, subject to examination by the Administrator
d. a record of the broker-dealer, but is not subject to examination by the Administrator
C written documents about customer accounts are a record that can be examined by the Administrator. They must be kept on file for the time period specified under Federal securities law by the broker-dealer; or such period as set by the Administrator. The "old" law used to require a record retention period of 3 years, which may still be tested.
19. All of the following are EX C L U DE D from the definition of an investment adviser under the Uniform Securities Act EXCEPT a(n):
a. federal covered adviser
b. broker-dealer
c. adviser with no place of business
in the State whose only clients are broker-dealers
d. investment adviser representative
C 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. EX C L U D E D 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.
20. A customer calls his agent on Friday after the markets have closed and tells him to sell his position in XYZ stock when the market opens on Monday. The customer is holding the XYZ shares at his home, but is leaving tomorrow on a 2 week vacation. The customer asks the broker to come over to his house tonight to pick up the securities. The agent should:
a. have the customer execute a stock power before taking custody
b. put the stock in his personal safe
deposit box over. the weekend
c. tell the customer to wait until he
returns from the vacation to
execute the trade
d. not take custody of the securities but should have the customer send the securities directly to the brokerage firm by registered mail or delivery service
d. Agents and broker-dealers are prohibited from commingling customer funds and securities with their own funds and securities. The agent cannot take these customer securities into his possession - this is a violation. He can have the customer send them directly to the broker-dealer for delivery on the sale, however.
21.
A customer can give an agent discretion to trade orally if the:
a. agent only decides the price and
time of execution
b. agent only decides the security to be traded
c. customer is traveling for a limited
time period
d. agent only decides the size of the trade
A A trade is not considered to be discretionary if the agent decides only the price and time of execution. If the agent chooses any more than this, such as the security to be traded or the number of shares to be traded, the trade is "discretionary" and requires a written power of attorney from the customer.
22.
Which of the following statements may be made by an agent about a new securities issue that is being registered by qualification?
a. "Because this is the most difficult registration process, you are guaranteed that the issue is safe"
b. "The Administrator has approved of the offering once registration is effective"
c. "The security is being registered
in the State"
d. "The issue is selling out fast to
knowledgeable investors"
c. Making untrue or coercive statements is a violation of the Act. Stating that the security is registered with the State is true. Stating that "you are guaranteed;" "the Administrator approved;" or "the issue is selling out fast;" is either
untrue or coercive and is prohibited.
23.
Which of the following is NOT allowed under the Uniform Securities Act?
a. An agent registered with a broker-dealer also is a licensed insurance agent at a life insurance company
b. An agent registered with a broker-dealer also is a licensed real estate agent at a real estate company
c. An agent registered with a broker-dealer also is licensed as an agent for a mutual fund dealer
d. An agent is registered with two affiliated broker-dealers who have an office in the same location
C As a general rule, an agent cannot be registered with two
different broker-dealers at the same time under the Uniform Securities Act. (Please note, however, that a few States still permit so called "dual registration" but this is the exception to the general pattern.) Since an insurance company or a real estate company is not defined as a broker-dealer, there is no problem with an agent working for either of these firms. A mutual fund dealer is defined as a broker-dealer since the firm effects securities transactions. An agent cannot be registered at the same time with one broker¬dealer and another mutual fund dealer. Two "affiliated" broker dealers at the same location are treated as one broker-dealer, since they are under common control. Thus, an agent could be registered with both affiliated broker-dealers without a problem.
24.
The Administrator may issue a stop order for a securities issue "in registration" for all of the following reasons EXCEPT:
a. The sale of the securities tends to work a fraud on investors
b. The spread taken by the
underwriters is excessive
c. The issuer's business is illegal in
that State
d. The issuer's business is unproven
in that State
d.. The Administrator may issue a stop order for an issue "in registration" if it is in the public interest and the sale works a fraud on investors; or the underwriter's compensation (spread) is excessive; or the issuer's business is illegal in the State. The issuer's business being unproven in the State has no bearing on halting registration.
25.
An Administrator is allowed to start a suspension or revocation action against a registered broker-dealer:
I On the basis of facts known at the time of the initial registration
I I After one year has elapsed from the time a broker dealer withdraws from registration
I I I On the basis of a conviction for violating the Securities Exchange Act of 1934
IV On the basis of a suspension order being entered by the Administrator of another State
a. I and II
b. III and IV
c. I, III, IV
d. I, II, III, IV
b. The Administrator cannot suspend or revoke a broker-dealer's registration on the basis of facts known at the time of the initial. registration. If there was a problem with the initial registration based on those facts, then registration would have been denied. If a broker-dealer withdraws from registration, after I year elapses, legal proceedings cannot begin against the broker-dealer to suspend or revoke the registration. The Administrator can start a suspension or revocation action if another State suspends the firm or if the firm is convicted of violating the Securities Exchange Act of 1934.
26.
A purchaser may void a securities transaction:
a. within 5 business days of the trade
b. if the trade is contrary to the provisions of the Act
c. if the security involved is exempt
d. if the broker-dealer also is registered as an investment adviser and has charged a commission on the trade
B A purchaser may void a securities transaction if trade is the contrary to the provisions of the Act. Civil liabilities apply and the purchaser must be paid the original cost of the security plus 6% interest and any attorney's costs by the seller.
27. Regarding the previous question, if a transaction is voided, the seller must recover:

a. the original cost of the securities
b. interest computed at 6% on the amount invested, less any income received from the security
c. any attorney's fees expended by the purchaser
d. all of the above
d... See previous explanation.
28. Which of the following is defined as an offer which comes under a State Administrator's jurisdiction?
a. An offer to sell a security made by an agent in another state to a customer that lives in the Administrator's state
b. Neither the customer nor the agent reside in the Administrator's state, but the offer is made in the State while the customer is on a brief vacation
c. The offer is made by TV broadcast originating from another State
d. Neither the customer nor the agent reside in the Administrator's state, but the offer is accepted in the State by the customer while on vacation
A An offer made by an out of state agent into another State comes under both State Administrators' jurisdictions. Offers made through a television broadcast originating in another State are excluded from the Administrator's jurisdiction in the State where received, Only the Administrator in the State from the broadcast originates has jurisdiction. If a customer is briefly vacationing in a and is contacted by his broker-dealer (who has no office in that State) while he is vacation, then the broker-dealer does not have to be registered in that State (and therefore its agents do not have to be registered). Thus, this offer would not fall under the jurisdiction of the Administrator of the State in which the customer is vacationing.
29. Transactions that violate the Act are voidable at the option of the:
a. Issuer
b. Purchaser
c. Seller
d. Administrator
B Transactions that violate the Act are voidable by the purchaser. The seller is obligated under civil liabilities to pay the investor the original cost of the securities plus 6% interest.
30. Which of the following are prohibited business practices?
I Exercising discretion in a customer account after obtaining written customer authorization
I I Taking a portion of the gains in an account funded solely by a customer with written permission of the customer
I I I Executing an order to buy an exempt unregistered security
IV Soliciting orders for unregistered non-exempt securities
a. I and II
b. II and IV
c. III and IV
d. I, II, III, IV
b. Discretion can be exercised in a customer account after a written power of attorney is obtained from the customer. Sharing in the gains of a customer account is prohibited unless there is a written agreement between the agent and the customer approved by the broker-dealer and the agent only shares based on the proportion of capital that he contributes to the acc0l"t. Executing an order to buy an exempt unregistered security is allowed. For example, U.S. Government bonds are exempt unregistered securities. Soliciting orders for unregistered non-exempt securities is prohibited.. For instance, common stock is a non-exempt security. If the security is not registered, orders cannot be solicited.
31. Which of the following transactions are voidable by the buyer?
I A customer was unknowingly sold stocks at prices higher than the current market at the time of the trade
I I Material facts were unknowingly omitted by the agent who sold the stock to the customer
I I I A customer was unknowingly sold unsuitable securities
a. I only
b. I and II
c. II and III
d. I, II, III
d. Civil liability under the Act allows that certain transactions are "null and void" and the seller must offer to buy back the securities at the original cost plus 6% interest. For civil liabilities to apply, there cannot be willful intent to defraud the customer. All of these transactions were performed "unknowingly," so they are all voidable.
32. The Administrator is authorized to do all of the following EXCEPT:
a. revoke the registration of all agents associated with a broker¬ dealer when the broker-dealer's registration is revoked
b. subpoena the books and records of a broker-dealer after a suspension order is issued
c. suspend a registration pending a hearing without stating a reason for the suspension
d. obtain an injunction against any person suspected of violating the Act
c. The Administrator cannot suspend a registration pending a hearing unless a reason for the suspension is stated. The Administrator can revoke the registration of all agents associated with a broker-dealer if the broker-dealer's registration is revoked. This must happen because an agent must be affiliated with a broker-dealer to be registered. The Administrator can subpoena books and records; and can obtain an injunction in court against any person suspected of violating the Act.
33. The Administrator can deny, suspend or revoke registration of an agent's license for which of the following reasons?
I The registration application omits a material fact that would have a bearing on the registration
I I The agent has intentionally delayed delivery of fully paid customer securities, using the securities for his own purposes
III The agent's registration has been suspended in another state
IV The agent has not paid required registration fees
a. I and II only
b. III and IV only
c. I, II, IV
d. I, II, III, IV
D The Administrator can deny, suspend or revoke registration if it is found that the registration application omits a material fact that would have a bearing on the registration; if the agent has intentional1y delayed delivery of fully paid customer securities (this is a prohibited practice); if the agent's registration has been suspended in another State; or if the agent has not paid required registration fees.
34. An agent of a broker-dealer recommends a security to a customer. The customer buys 1000 shares, paying the firm a commission. The stock reaches a new market high in two weeks. Which statement is true?
a. The .firm can charge the customer a separate amount for investment advice
b. The firm can increase the commission charged to the customer based on the excellent performance of the investment
c. The agent can accept a large gift from the client for the advice
d. The only compensation that can be accepted by the broker-dealer is the original commission charged
d. The only fee that can be accepted is the original commission charged. It is prohibited to be paid based on the gains in a customer's account. A broker¬dealer earns its fee for investment advice within the commission charged. It cannot charge a separate fee for investment advice, since this would be a "double charge" to the customer.
35. Which of the following are violations of the Uniform Securities Act?
I Recommending the purchase of a security from a listing provided by a broker-dealer's research department
I I Recommending the purchase of a security based on material inside information
III Recommending the purchase of a security based on overheard rumors
IV Recommending the purchase of a security without fully describing the material facts about the transaction
a. I and II only
b. III and IV only
c. II, III, IV
d. I, II, III, IV
C Using material inside information; inducing purchases based on rumor; and not fully describing the material facts of a transaction are all prohibited practices. Recommending a security from a listing provided by a broker-dealer is normal industry practice and is allowed.
36. Which of the following is considered to be a violation of the Uniform Securities Act?
a. Showing the previous years' performance of an investment when recommending the purchase of a security
b. Telling a customer that capital losses on investments are tax deductible, within IRS limits
c. Telling a customer that excellent
future performance is certain
d. Telling a customer that a registration statement has been filed with the Administrator for a non-exempt issue
c. No guarantees can be made to customers, so one cannot tell a customer that excellent future performance is "certain." The other statements are all factual and reasonable.
37. When an agent changes employment from one broker-dealer to another, the agent's registration must be transferred:
a. immediately
b. within 10 days
c. within 30 days
d. at renewal time
A . When an agent changes his employer, the registration must be transferred promptly. (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.)
38. Referring to the previous question, notification of the change of employer must be made by the:
a. agent
b. previous employer
c. new employer
d. all of the above
D When an agent moves from one broker-dealer to another, the old broker dealer, the new broker-dealer, and the agent must notify the Administrator.
39. Registration by Filing would most likely be used for:
a. an issue that is being registered In another State
b. an issue that is being registered
with the SEC
c. a secondary offering from an
established company
d. a primary offering from a new
company
C Registration by Filing can be used by established companies that have been in continuous operation for the past 3 years, who already have registered securities with the Securities and Exchange Commission. A "secondary" offering by an issuer is defined as an issue from a company that already has registered
securities outstanding.
40. An investment adviser who has no place of business in a State is exempt from registration if:
I The firm's clients consist solely of institutional investors in the State
I I The firm has no more than 5 clients other than financial or institutional investors within a 12 month period
I I I The firm's advice relates
solely to municipal securities
a. I only
b. I and II
c. II and III
d. I, II, III
b. An investment advisor with no place of business in a State is exempt from registration if its clients consist solely of institutional investors; or if the firm has no more than 5 clients in that State in a' 12 month period other than institutional investors. Under State law, no exemption from registration as an investment adviser is permitted if the firm's advice relates solely to exempt securities such as municipals. Please note however, that an adviser that gives advice solely about U. S. Government securities is a type of "federal covered adviser" that is not required to register in the State.
41. An agent accepts an unsolicited telephone order from a new customer to buy 200 shares of a listed common stock. The salesman has the order executed and then forwards the new account form, with the executed order ticket, to the manager. Which statement is true?
a. The agent's actions are prohibited since the account must be approved by the manager prior to opening
b. The agent's actions are prohibited since the customer must open a new account in person
c. The agent's actions are allowed as long as the manager approves of the first trade
d. The agent acted properly
A. The procedure to open a new account is to have the manager approve the opening of the account prior to the first trade. It is prohibited for the agent to execute the trade before the manager approves the account's opening.
42. The President of a small company owns 100% of the company's stock. The President sells some of the company's stock to four employees and officers of that company without taking a commission. Under the Act, the President is:
a. considered to be an agent who must be registered
b. selling securities in an exempt
transaction, so o registration IS
required
c. selling exempt securities, so no
registration is required
d. considered to be an issuer, and the
shares must be registered
B Common stock of a corporation is a non-exempt security that must be registered unless it is sold in an exempt transaction. This transaction qualifies as a private placement since the offer is made to less than 10 persons and no commission is being taken by the President. Private placements are exempt transactions.
43. A private placement under the Uniform Securities Act is defined as an offer to:
a. 10 persons or less in 12 months
b. 35 person or less in 12 months
c. 10 person or less in 18 months
d. 35 person or less in 18 months
A. A private placement is defined under the Uniform Securities Act as an offer to no more than 10 persons in a year.
44. An agent may engage in which of the following transactions?
I Performing investment advisory services for customers as long as they are solely incidental to his work as a broker and no fees are charged
I I Soliciting orders for non¬exempt unregistered securities if he is registered
I I I Effecting transactions in a State where he is not registered, but the broker¬dealer is registered
IV Effecting transactions in a State where the broker¬dealer is not registered, but he is registered
a. I only
b. I and II
c. III and IV
d. I, II, III, IV
A An agent can perform advisory services for clients as long as they are incidental to his work and no compensation is taken for the advisory work. Agents cannot solicit orders for unregistered non-exempt securities (but they can solicit orders for unregistered exempt securities such as U.S. Governments or Municipals). Agents cannot effect trades in a State where they are not registered; or where their broker-dealer is not registered.
45. Which of the following are defined as broker-dealers that must register in a State?
I Any person who effects
securities trades for the
account of others
I I Any person who effects
securities trades for his own
account
I I I Any person with no place of business in the state who
has less than 6 clients in the State in the last 12 months
IV Issuers of securities
a. I and II
b. III and IV
c. I, II, and IV
d. I, II, III, IV
A. Any person who effects securities trades for the account of others or for the firm's account is defined as a broker-dealer and must register in the State. Persons with no place of business in a State who have no more than 5 clients in that State within 12 months are exempt from registration in the State. Issuers of securities are excluded from the definition.
46. Which of the following is defined as an investment adviser?
a. An accountant who recommends investment types to clients as part of his accounting service
b. An officer of a trust department at a bank who makes investment decisions for various trust accounts
c. An investment column published in a bona-fide newspaper with a general circulation
d. A person, who for compensation, advises others about buying and selling securities
D An investment adviser is defined as a person, who for compensation, advises others about buying and selling securities.
47. Which individual is defined as an "agent"?
a. A principal of a broker-dealer
b. A secretary who takes customer orders
c. A clerk who solely performs
clerical functions
d. A silent partner of a broker-
dealer
B An agent is defined as any individual who represents an issuer or broker-dealer in effecting securities transactions. The definition excludes principals of broker-dealers; clerical employees who do not take customer orders; and silent partners.
48. Which of the following are Federal covered investment advisers?
I Investment advisers managing assets of at
least $25,000,000
I I Investment advisers to investment companies registered under the Investment Company Act of 1940
I I I Investment advisers to
insurance companies
a. I only
b. I and II
c. II and III
d. I, II, III
B Federal covered investment advisers are advisers managing at least $25,000,000 of assets; and investment advisers to investment companies. These are regulated at the. Federal level only. Investment advisers to insurance companies are not defined as federal covered advisers, since insurance companies are regulated at the State level only. Federal covered advisers need only register with the SEC; they are not required to register with the State; though they may be required to file notice with the State. .
49. States are NOT permitted to require the registration of a person:
I who is excluded from the
definition of an investment adviser under the
Investment Advisers Act of
1940
I I who is registered with the Securities and Exchange Commission as an investment adviser
I I I with no place of business in the State who gives investment advice to fewer than 6 clients who are residents of the state during the preceding 12 months
a. I only
b. I and II
c. II and III
d. I, II, III
D The intent of the National Securities Markets Improvements Act of 1996 was to eliminate duplicate registration of investment advisers at both the Federal and State levels. Thus, any Federal covered adviser is exempt from State registration - only Federal registration with the SEC is required under the Investment Advisers Act of 1940. Federal covered advisers are defined as investment advisers managing at least $25,000,000 of assets; investment ""'advisers to investment companies; and any person who is excluded from the definition of an investment Adviser under the 1940 Act. Thus, Choice I is not required to register in the State since it is excluded from registration with the SEC as a Federal covered adviser. Choice II is not required to register with the State since it is already registered with the SEC. Choice III is not required to register with the State under the Uniform Securities Act's "de minimis" exemption.
50. States are permitted to require registration of:
a. investment advisers managing
assets of at least $25,000,000
b. investment advisers to investment companies registered under the Investment Company Act of 1940
c. investment adviser
representatives with a place of
business in the state
d. investment adviser
representatives that do not have a place of business in the state
C States cannot require registration of investment advisers that manage assets of at least $25,000,000 - these are federal covered advisers that need only register with the SEC under the Investment Advisers Act of 1940. Investment advisers to investment companies are also federal covered advisers that need only register with the SEC. However, States can still require the registration of investment adviser representatives that have a place of business in that State for any investment adviser ¬whether federal covered or not.
51. 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
D
52. All of the following statements are true regarding persons that transact business in a State EXCEPT:
a. Investment advisers must register
in the State
b. Investment adviser representatives must register In
the State
c. Federal covered advisers must
register in the State
d. Representatives of federal
covered advisers must register In the State
C
53. If an investment adviser buys out another investment advisory firm, which statement is true about filing fees paid to the State?
a. Two additional separate filing fees must be paid for each of the advisory firms
b. A new filing fee covering the entire year must be paid for the combined advisory firm
c. An additional pro-rata filing fee covering the balance of the year for the combined advisory firm must be paid
d. No additional filing fee is
required
D
54. Under the Uniform Securities Act, a person who violates the provisions of the Act can be subject to:
I Criminal Penalties
I I Civil Penalties
III Administrative Censure IV Administrative Suspension
a. I and III
b. I and IV
c. II and III
d. II and IV
B
55. An agent receives confidential information of a material nature about a registered corporation. Which statements are true?
I The information cannot be transmitted to someone who might trade that company's
stock based on that information
II The information cannot be used as the basis for making trades in that company's stock
III The information cannot be used to make recommendations to buy that company's stock
IV The information cannot be used to make recommendations to sell that company's stock
a. I and II only
b. III and IV only
c. I, II, III
d. I, II, III, IV
D
56. Registration by qualification becomes effective:
a. concurrent with the registration statement filed with the SEC becoming effective
b. on a date set by the
Administrator
c. 10 days after filing
d. 30 days after filing
B
57. Transactions in which of the following securities are exempt from the anti-fraud provisions of the Uniform Securities Act?

I U.S. Government bonds
II U.S. Government agency
III Municipal bonds
IV Corporate bonds
a. I and II only
b. III and IV only
c. I, II, III
d. None of the above
D
58. Which of the following are NOT considered to be "churning"?
I Exchanging income fund shares for growth fund shares for a customer who has a capital gains investment objective
I I Day trading by an agent with discretionary authority in a customer margin account where the customer has a speculative investment objective
I I I Recommending trades in a customer account with the objective of producing commissions for the agent
IV Swapping a municipal bond for another municipal bond to obtain a capital loss deduction
a. I and II only
b. III and IV only
c. I, II, and IV
d. I, II, III, IV
C
59. Which of the following statements by an agent are prohibited under the Uniform Securities Act?

I "All securities registered for trading on an exchange are suitable for you to invest in"
II "All securities registered for trading on NASDAQ are speculative"
III "All small capitalization securities that are not listed on NASDAQ are unregistered"
I V "Some securities are traded
in more than one market"
a. I and III only
b. II and IV only
c. I, II, III
d. I, II, III, IV
C
60. The Administrator may deny or revoke a registration by:

a. rule
b. order
c. edict
d. subpoena
B