Chapter 1 Practice Questions-Part A

Front 1

Under the provisions of the Uniform Securities Act, a "person" includes:

I A parent that is acting as custodianII An adult coupleIII MunicipalityIV Corporation

Back 1

A "person," as defined under the Act, can be just about anyone who has legal authority to issue or trade securities. A custodian account opened for a minor is a person (note that a minor acting on his or her own is not a "person" since a minor has no legal authority to trade securities). An adult couple is a "person" (when they open a joint account). A municipality is a person. Finally, a corporation is a person.

Front 2

Under the Uniform Securities Act, all of the following are defined as "persons" EXCEPT: A. General partner in a limited partnership B. Public utility selling to public investors C. Administrator of the State D. Municipality selling industrial development bonds

Back 2

A "person," as defined under the Act, can be just about anyone who has legal authority to issue or trade securities. A general partner in a limited partnership makes all decisions for the limited partners, including whether securities will be issued or traded, and hence, is a "person." Issuers of securities (e.g., corporations, governments, etc.) are also defined as "persons." The State Administrator is not defined as a "person"; rather, he or she is defined as the "administrator" - that is, the State securities commission, commissioner, or secretary empowered to carry out the Act's provisions.

Front 3

Under the Uniform Securities Act, an investment adviser may be formed as any of the following EXCEPT a(n): A. corporation B. partnership C. association D. broker-dealer

Back 3

Investment advisers (and broker-dealers) can be formed as any legal operating entity, such as a corporation, partnership, sole proprietorship, association, etc. Investment advisers cannot be formed as broker-dealers; nor can broker-dealers be formed as investment advisers. Each is a legally separate entity, and each is regulated separately.

Front 4

Investment advisers may be formed as: I PartnershipsII CorporationsIII Associations

A. I only B. II only C. III only D. I, II, III

Back 4

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.

Front 5

Which of the following are defined as "issuers" under the Uniform Securities Act? I For corporate securities, the corporation itself is the issuerII For collateral trust certificates, the person performing the functions of depositor under the Trust agreement is the issuerIII For equipment trust certificates, the corporation is the issuerIV For oil and gas program fractional interests, the owner of the minerals is the issuer A. I only B. II and III only C. I, II, and III only D. I, II, III, IV

Back 5

Under the Uniform Securities Act, issuers of securities must register the issue in the State (unless an exemption is available). The legal definition of the "issuer" depends on the type of security being issued. For corporate securities, the corporation itself is the issuer. For collateral trust certificates, the person performing the functions of depositor under the Trust agreement is the issuer. For equipment trust certificates, the corporation is the issuer. Finally, for oil and gas program fractional interests, the Act states that there is no defined "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.)

Front 6

Primary market offerings are: A. exempt transactions B. issuer transactions C. non-issuer transactions D. private placement transactions

Back 6

A trade in the primary market is a new issue being sold to the public for the first time. This is an issuer transaction since the sale proceeds go to the issuer.

Front 7

Under the Uniform Securities Act, which of the following would be defined as a "non-issuer" transaction? A. An initial public offering of common stock by a corporation B. The sale of open-end mutual fund shares C. The sale of a security effected on the New York Stock Exchange floor D. The sale of limited partnership interests in a private placement

Back 7

A "non-issuer" transaction is one where the proceeds do not go to the issuer; this is a normal secondary market trade, such as a trade performed on the NYSE floor. An issuer transaction is one where the proceeds go to the issuer. Initial public offerings; mutual fund offerings, and private placements of limited partnerships are all "issuer" transactions, since the proceeds of the sale go to the issuer.

Front 8

An issuer has filed a registration statement in the State proposing to offer 500,000 shares in a combined primary and secondary distribution, consisting of 300,000 newly issued shares and another 200,000 shares being offered by the officers of the firm. Under Uniform State Law, the 200,000 shares being sold by selling shareholders are a(n): A. issuer distribution B. non-issuer distribution C. commingling of securities D. exempt transaction

Back 8

An issuer transaction is one where the proceeds of the offering go to the issuer - the primary distribution of 300,000 shares meets this definition. A "non-issuer" transaction is one where the proceeds of the offering go to someone other than the issuer. The secondary offering of 200,000 shares where the proceeds are going to selling shareholders (officers of the company) meets this definition.

Front 9

An institutional buyer is defined under the Uniform Securities Act as: A. an institution with at least $100 million of assets available for investment B. an accredited investor as defined under Rule 506 of Regulation D of the Securities Act of 1933 C. any person defined by the Administrator by rule or order D. any institution that is regulated by the Federal Reserve, SEC, or State Insurance or Banking Commissioners

Back 9

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 minimum capital standards to be defined as an institutional buyer.

Front 10

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

Back 10

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.

Front 11

Under the Uniform Securities Act, the term "broker-dealer" includes which of the following? A. A person in the business of trading securities for his own account or for the account of other persons B. Agents who execute trades for broker-dealers C. Banks D. Issuers of securities

Back 11

The term "broker-dealer" is defined as a person who: * Engages in the business of effecting securities transactions for the account of others Engages in the business of trading for his own account (known as "proprietary trading")
* Agents: These are individuals who represent the broker-dealer when performing securities transactions, basically sales representatives Banks, Savings Institutions, and Trust Companies: These firms are separately regulated under State and Federal banking laws. Issuers: (except when an issuer effects transactions other than with respect to its own securities)

Front 12

A broker-dealer is defined as a person who: A. for compensation, engages in the business of advising others as to the value of securities B. engages in the business of effecting securities transactions for the account of others or for his own account C. issues or proposes to issue a security D. is not a bank, savings institution, or trust company

Back 12

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. Choice A is the definition of an investment adviser. Choice C is the definition of an issuer. Choice D is too broad to be a definition of anything.

Front 13

An agent of a broker-dealer effects a securities trade for a customer privately, where the transaction is neither known to the broker-dealer nor is it recorded on the books of the broker-dealer. This individual is defined as a: A. statutory broker-dealer B. statutory issuer C. statutory investment adviser D. statutory administrator

Back 13

If an agent of a broker-dealer engages in a securities transaction that is not known to the broker-dealer (a so-called "private securities transaction"), a prohibited practice has occurred. All securities transactions effected by agents must be known to the broker-dealer; must be recorded on the books of the broker-dealer; and must be supervised by the broker-dealer. If the agent performs a "private securities transaction" that is not known to the broker-dealer, then that agent has, himself, become a broker-dealer under this definition. As such, he would have to register in the State as a "statutory" broker-dealer before effecting such a transaction.

Front 14

An agent of a broker-dealer has been spending his spare time, at night and on weekends, on the Internet. The agent has been trading a thinly traded stock listed in the Pink Sheets, and has accounted for more than 50% of the trading volume in the stock. The agent has also been sending out e-mails to potential investors, recommending the stock. The agent has not informed his broker-dealer of these activities, since they only occur when the broker-dealer is closed. Which statement is TRUE regarding the applicability of the Uniform Securities Act to these activities? A. The agent is defined as a statutory broker-dealer and must register in the State B. Activities effected through the Internet are exempt from the provisions of the Uniform Securities Act C. A violation of the Uniform Securities Act will occur only if there is a customer complaint lodged against the agent with the Administrator D. The State Administrator can issue a stop order against the agent's broker-dealer for these actions

Back 14

The agent is operating outside the scope of his authority as the employee of the broker-dealer and the broker-dealer is not aware of his activities. The agent should have notified his broker-dealer of these "work" activities and followed any instructions of the broker-dealer (which would not have permitted this). Because the agent is trading such a large volume of the stock, he or she would be considered to be a "statutory broker-dealer" under Uniform State Law and must register as such. Remember, a broker-dealer is a person that is in the business of trading securities for others or for its own account (this individual is trading for his own account as a business). Furthermore, an unregistered broker-dealer cannot solicit orders in the State - which this individual is doing by sending out e-mails recommending the stock. The State Administrator can issue a stop order against the individual in this case, but would not issue a stop order against the broker-dealer (since the broker-dealer is not the one trading these securities) - making Choice D incorrect.

Front 15

Under the Uniform Securities Act, an agent that sells securities to a customer in a transaction that is not recorded on the books and records of his or her broker-dealer: A. can only do so if the securities involved, or the transactions, are exempt B. can only do so if the transactions are unsolicited C. will cause the agent's registration to be revoked D. will cause the agent to become a statutory broker-dealer

Back 15

Agents are prohibited from effecting securities transactions for customers unless the trades are known to the broker-dealer; are supervised by the broker-dealer; and are recorded on the books and records of the broker-dealer. This agent is "selling away" from his firm and is executing trades for customers that are not being recorded by the broker-dealer. He or she becomes a "statutory broker-dealer" under the Uniform Securities Act and is required to register in the State as such.

Front 16

Two individuals sponsor golf tournaments to which they invite venture capitalists that seek to be matched with wealthy potential investors. The individuals sponsoring the event intend to collect a finder's fee paid by the venture capitalist if he or she receives funds from an investor that attended the golf tournament. Which statement is TRUE based on these facts? A. The 2 individuals are not defined as broker-dealers since they are in the business of hosting golf tournaments B. The 2 individuals are not defined as broker-dealers because they do not receive compensation from investors C. The 2 individuals are defined as broker-dealers because they will receive compensation if an investor is matched to a venture capitalist D. The 2 individuals are defined as broker-dealers because they are matching a buyer and seller of securities

Back 16

A broker-dealer is defined as a person engaged in the business of effecting securities transactions for others or for its own account. When deciding whether a firm is considered to be a "broker-dealer," the regulators look to see if compensation is being paid. If compensation is not being paid, then that firm is not "in the business" of effecting securities transactions. If it is being paid, in any form, then it is "in the business" and is defined as a broker-dealer that must register. These individuals will receive a finder's fee for matching a buyer and seller of securities, so they are being compensated for effecting a securities transaction. They are both "statutory" broker-dealers that must be registered in the State.

Front 17

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

Back 17

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.

Front 18

A firm is retained by a company that wishes to make acquisitions of other companies to act as a finder. The finder can be considered to be a broker-dealer: A. under no circumstances B. if it receives compensation contingent on the closing of a deal C. if it receives a flat fee for services rendered D. if it signs a written contract with the company

Back 18

"Finders" operate in a grey area, which may, or may not, require registration as a broker-dealer. First of all, if the acquisition transaction only involves the sale of assets, as opposed to the sale of securities, then there is no requirement to be registered as a broker-dealer. Second, if the finder receives a retainer fee or flat compensation, then the finder is not considered to be a broker-dealer. If the finder receives transaction-based compensation, such as compensation contingent of the closing of the deal, the finder can be considered to be a statutory broker-dealer that must register.

This question is not clear as to whether the transaction involves the sale of assets or securities, but it always best to go with the choice that is the most restrictive!

Front 19

A firm is in the business of assisting in mergers and acquisitions of companies. Although the firm does not structure the transactions and does not receive a set fee, the firm does receive monetary compensation in the form of a percentage of the overall deal. Under these facts, the firm is: A. defined as a broker-dealer regardless of the compensation received B. defined as a broker-dealer as the percentage of the overall deal satisfies the compensation component C. not defined as a broker-dealer because it does not receive a predetermined fee D. not defined as a broker-dealer based upon the facts of the situation

Back 19

A broker-dealer is defined as a person engaged in the business of effecting securities transactions for others or for its own account. A firm that assists in mergers and acquisitions is considered to be effecting a securities transaction. In a merger or acquisition, all of the equity securities of one company are being "purchased" by another company. Also, when deciding whether a firm is considered to be a "broker-dealer," the regulators look to see if compensation is being paid. If compensation is not being paid, then that firm is not "in the business" of effecting securities transactions. If it is being paid, in any form, then it is "in the business" and is defined as a broker-dealer that must register. Notice that the wording "is in the business" is how the question starts!

Front 20

Under the Uniform Securities Act, which of the following could NOT be considered to be a "broker-dealer"? A. Credit union B. Attorney C. Investment adviser D. Market maker

Back 20

The best answer is A. The term "broker-dealer" is defined as a person who: * Engages in the business of effecting securities transactions for the account of others Engages in the business of trading for his own account (known as "proprietary trading")
* Agents: These are individuals who represent the broker-dealer when performing securities transactions, basically sales representatives Banks, Savings Institutions, and Trust Companies: These firms are separately regulated under State and Federal banking laws. Issuers: (except when an issuer effects transactions other than with respect to its own securities).

A credit union is a savings institution, so it is excluded from the definition and CANNOT be defined as a broker-dealer. This is the case because banks and savings institutions are already regulated by the State, so this avoids double regulation. On the other hand, an attorney or an investment adviser is not excluded from the definition and would be defined as a broker-dealer if that person were to offer securities in the State for compensation. Finally, a market maker is a dealer in the securities and clearly falls under the definition.

Front 21

Which person is EXCLUDED from the definition of a broker-dealer under the Uniform Securities Act? A. A person with no place of business in the State who solely effects exempt transactions for customers that reside in the State B. A person with no place of business in the State who solely effects transactions in federal covered securities in the State C. A person with no place of business in the State that effects underwriting transactions with other broker-dealers in the State D. A person with no place of business in the State who only effects securities transactions with accredited investors in the State

Back 21

The Uniform Securities Act excludes from the definition of a broker-dealer, any person who has no place of business in the State and who transacts business exclusively with: * issuers of securities involved in the transaction; or other broker-dealers; or banks, savings institutions, trust companies, insurance companies, investment companies, or pension plans. Basically, this provision states that an "out-of-state" broker-dealer that is not dealing with the public, will not have to register in the State. Choices A and B are broker-dealers that are dealing in either exempt transactions or federal covered securities. These are not excluded from the definition, since they can be dealing with the general public. Choice D is a broker-dealer that is only dealing with accredited investors (an individual with either $200,000 annual income or $1,000,000 net worth under Federal law). These persons are also considered to be the "public" - since these dollar limits are not that high. The broker-dealer with no place of business in the State that only deals with other broker-dealers in the State clearly meets the exclusion.

Front 22

Which of the following is (are) NOT considered to be a "broker-dealer" under the Uniform Securities Act? I A person who effects securities transactions for its own accountII A person who effects securities transactions for the account(s) of othersIII An agent of a broker-dealer who effects securities transactionsIV An agent of a broker-dealer who effects securities transactions that are not recorded on the books of the broker-dealer A. III only B. I and II only C. I, II and IV only D. I, II, III, IV

Back 22

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. Thus, Choice I and Choice II are defined as "broker-dealers." An "agent" of a broker-dealer (Choice III), is an individual associated with a broker-dealer, who represents the broker-dealer in effecting securities transactions. An agent is a person who is not considered to be a broker-dealer. If an agent of a broker-dealer engages in so-called "private securities transactions," a prohibited practice has occurred. All securities transactions effected by agents must be known to the broker-dealer; must be recorded on the books of the broker-dealer; and must be supervised by the broker-dealer. If the agent performs a "private securities transaction" that is not known to the broker-dealer, then that agent has, himself, become a broker-dealer under this definition. As such, he would have to register in the State as a broker-dealer before effecting such a transaction. Thus, Choice IV is a "statutory" broker-dealer.

Front 23

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

Back 23

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.

Front 24

Under the Uniform Securities Act, a broker-dealer that has no place of business in a state does NOT have to register if the firm: A. deals solely with the public in that state B. solicits orders for non-exempt securities in the state C. effects securities trades from its own account on a principal basis with customers in that state D. has a few clients in a state with a broker-dealer "de minimis" rule in the preceding 12 months

Back 24

If a broker-dealer deals with the public, it must register in that State. If the firm has no place of business and deals solely with issuers or financial institutions, it does not have to register. Therefore, Choice A must register as a broker-dealer.

Soliciting orders or effecting trades on a principal basis have no bearing on whether a firm must register as a broker-dealer. A broker-dealer is defined as a firm that engages in securities trades for its own account (principal or proprietary trading) or one that effects trades for others. Therefore Choices B and C must register as a broker-dealer.

The "de minimis" rule for broker-dealers is available in a minority of States. A broker-dealer with no office in the State that only does a "few" trades" in the State in a year would be exempt from registration as long as the State had a broker-dealer "de minimis" rule. Therefore, Choice D is not required to register.

Front 25

Which of the following would be defined as a broker-dealer in State A? A. The municipal bond department of a bank located in State A B. A person who gives advice about investing in securities in State A C. A broker-dealer located in State B who has an existing active customer who moves to State A D. An agent of a broker-dealer who effects trades in securities in State A

Back 25

Banks are excluded from the definition of a broker-dealer, making Choice A incorrect. Choice B defines an investment adviser; not a broker-dealer. Choice D defines an agent of a broker-dealer; not the broker-dealer itself.

Choice C gets at an interesting point. Because the customer has moved and is now located in another State (State A), and the customer is "active" -meaning the customer is trading securities, then the firm must be registered as a broker-dealer in State A (and the agent servicing the customer account must be registered in State A as well).

Front 26

An individual acts as a finder, facilitating mergers and acquisitions of companies that are both publicly and privately held. The individual searches for companies that appear to be compatible and that will either enjoy a revenue enhancement or cost reduction benefit from the transaction. The individual just introduces the parties to the proposed transaction, but has no involvement in the agreements or valuation. Upon the closing of the deal, the individual is paid a percentage of the transaction. Under NASAA rules, this individual A. needs to register as a broker-dealer in the State because he or she is receiving transaction based compensation B. needs to register as an investment adviser in the State because he or she is giving advice about investing in securities C. does not need to register as a broker-dealer in the State because the clients involved are institutional investors D. does not need to register as an investment adviser in the State because he or she has no involvement in the agreements or valuation

Back 26

This is a bit vague, but NASAA's (and the SEC's) stance on finders is that if they receive compensation that is "transaction based" - such as in this case because the finder will be paid a fee contingent on the closing of the deal - then the finder is a "statutory broker-dealer" that must be registered. This individual is not an investment adviser, because investment advisers do not earn transaction-based compensation. They earn an advisory fee, that is either a flat fee or a percentage fee - but they cannot earn a fee on each transaction (otherwise they become broker-dealers).

Front 27

Which of the following individuals would be defined as an "agent" under the Uniform Securities Act? A. The manager of a broker-dealer who does not solicit nor take orders B. A silent partner in the broker-dealer C. A trader who is authorized to accept customer orders D. A clerk who solely performs back-office functions

Back 27

An individual who takes, or solicits orders, from the public falls under the definition of "agent." Individuals who do not solicit the public, or who solely perform clerical or managerial duties, do not fall under the definition. Thus, managers who have no sales function, clerks who have no sales function, and silent partners do not fall under the definition.

Front 28

Which of the following individuals is defined as an "agent" under the Uniform Securities Act? I An individual who represents a broker-dealer selling exempt securities to the publicII An individual who represents a broker-dealer selling securities listed on a national stock exchangeIII An individual who represents an issuer in an exempt transactionIV An individual who represents an issuer in a transaction with existing employees without accepting a commission A. I and II only B. III and IV only C. I, II, IV D. I, II, III, IV

Back 28

An agent is an individual who represents a broker-dealer selling any type of security - whether it is exempt or non-exempt. Individuals who represent issuers in trading exempt securities or in exempt transactions are not defined as agents. An individual who represents an issuer in a transaction with existing employees without taking a commission is engaging in an exempt transaction (since no commission is taken) and therefore is excluded from the definition of agent.

Front 29

Two companies, Company A and Company B, are involved in a securities offering. Company B is selling its stock. Company A's employees help sell the shares. Company A receives commissions from Company B and pays the commissions to its staff. Therefore, the employees of Company A are: A. agents of a broker-dealer B. their own broker-dealer C. independent contractors D. agents of an issuer

Back 29

Since Company A's employees are being compensated for selling the shares of Company B, Company A is defined as a "broker-dealer" and Company A's employees are agents of the broker-dealer. Both Company A and its employees would be required to register in the State. Also note that Company B would be defined as an "issuer" in this transaction, but this is not part of the question.

Front 30

If an individual works for either a broker-dealer or an issuer and sells securities of that issuer earning a commission, that individual is defined as a(n): A. agent B. broker-dealer C. issuer D. Administrator

Back 30

The best answer is A. If an individual works for either a broker-dealer or an issuer and sells securities of that issuer and receives a commission, that individual is defined as an agent under the Act. 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 effects an exempt transaction.

Front 31

Which of the following persons would be defined as an "agent" under the Uniform Securities Act? A. April Showers, an administrative assistant in the Treasurer's Department at Rainwear Industries, who sells Rainwear common stock to Rainwear employees under Rainwear's ESOP B. John Q. Public, a municipal employee that accepts tender offers from the public for new issues of general obligation bonds being sold by New York City C. Marvin Mercenary, the President of Capital Industries, who sells Capital Industries common stock to the public D. Ima Pigg, the Controller of PorkPie Products, who negotiates and sells a private placement of PorkPie stock to institutional investors

Back 31

An "agent" is an individual who represents a broker-dealer or issuer in effecting securities transactions. Under this definition, the President of Capital Industries offering common stock to the public is defined as an agent.

The Act specifically EXCLUDES from the definition of an agent, any individual who represents issuers in trading specified exempt securities. Thus, the employee of New York City offering its bonds is excluded from the definition.

Also, the Act excludes from the definition of an "agent," any individual who represents an issuer offering securities issued in connection with Savings, Pension, Profit Sharing Plans, and Employee Stock Option Plans (ESOPs).

The Act also EXCLUDES from the definition of an "agent," those individuals who represent issuers in "exempt transactions." These individuals do not have to be registered in the State. Generally, exempt transactions are trades that do not involve the public. Transactions with financial or institutional investors, as defined under the Act (including banks, financial institutions, trusts, insurance companies, investment companies, underwriters, and pension plans) are exempt because the investors are sophisticated, and are not deemed to require legislative protection.

Front 32

A company offers a salary reduction defined contribution plan to its employees that adheres to ERISA Rule 404(c). It is administered by the firm's Human Resources (HR) department. The individual in HR who oversees enrollment of employees in the plan receives a bonus for any employees that purchase the company's stock in the plan. This employee is: A. defined as an agent who must register in the State B. defined as an issuer who must register in the State C. not defined as an agent and is not required to register in the State D. not defined as an issuer and is not required to register in the State

Back 32

An agent represents either a broker-dealer or an issuer in effecting securities transactions. The key here is that this individual gets a bonus when employees buy that company's shares in the 401(k) plan. If he or she was not compensated with the bonus, then this individual is excluded from the definition of an agent. Since the bonus is being paid, this does not apply and the individual must register as an agent in the State.

(ERISA Rule 404(c) is actually irrelevant to this question. It gives employers who offer self-directed 401(k) plans relief from potential liability for bad-performing investments. To get this relief, the plan must give employees investment options, that when combined, tend to provide diversification and reduce risk. Also, it must allow the employees to change their investment allocations at least every 3 months.)

Front 33

Which individual would NOT be exempt from the definition of an "agent" under the Uniform Securities Act? A. An employee of a corporation who processes 401(k) contributions, issuing shares of the company's stock to the company's employees B. An issuer official of the City of Pittsburgh who authorizes the sale of a new issue of general obligation bonds to the public C. An officer of a privately held company who authorizes the sale of shares of the company to an underwriter D. An officer of a publicly held company who offers the company's bonds, which are rated AA by an NSRO, to the public

Back 33

The Act defines individuals who represent issuers effecting securities transactions with the public as "agents" who must be registered. Thus, Choice D meets this definition. The Act exempts from licensing as an "agent," those individuals who do not deal with the public. Thus, individuals representing issuers who deal solely with underwriters or financial institutions are not defined as "agents" who must be registered. Also, individuals who represent issuers of exempt securities (governments, agencies, municipals) offering these securities to the public, are exempt from State registration. Finally, an individual who represents an issuer in selling securities of that issuer to that issuer's employees (as long as no commissions are paid) is not considered to be an agent. This would be the company employee that processes 401(k) contributions and distributions.

Front 34

An issuer hires an agent and registers that individual to distribute an offering of its securities. Which statement is TRUE under NASAA rules? A. If the agent solicits transactions in a State where the agent is not registered, the issuer can be held liable B. If the agent finishes distributing this securities offering and there is time left until the agent's registration lapses at year end, he or she can work for another issuer distributing that issuer's securities C. The agent is only permitted to sell the issuer's securities to employees of that issuer D. The agent must also affiliate with a registered broker-dealer in order to distribute the offering of securities

Back 34

The definition of an "agent" under State law is an individual who represents a broker-dealer or issuer effecting, or attempting to effect, purchases or sales of securities. Thus, Choice D is incorrect. An example of an agent of an issuer would be a general partner of a limited partnership who hires a "wholesaler" to market partnership units to investors. This individual is an agent of the issuer, marketing securities to the public and the agent must be registered in the State where the agent resides to do so. The agent must also be registered in each State where he or she solicits individuals to buy partnership units. Choice B is false because if this person goes to work for another issuer, that issuer must register this person as an agent of that issuer. Choice C gets at an exclusion from the definition of an "agent" which is given to an employee of an issuer who only sells that issuer's securities to issuer employees without being compensated for those sales. This exclusion from registration is designed for issuer employees who place employee funds in stock purchases of that employer through stock option or retirement plans. It has no bearing on this question.

Front 35

Which of the following individuals is NOT EXCLUDED from the definition of a "sales representative" under the Uniform Securities Act? A. An individual who represents an issuer in isolated non-issuer transactions B. An individual who represents an issuer in transactions with underwriters C. An individual who represents an issuer in transactions with financial institutions D. An individual who represents an issuer in transactions with investors

Back 35

The Act defines individuals who represent issuers effecting securities transactions with the public as "agents" who must be registered. Thus, Choice D meets this definition. The Act exempts from licensing as an "agent," those individuals representing issuers who do not deal with the public. Thus, individuals representing issuers (not broker-dealers) who deal solely with underwriters or financial institutions are not defined as "agents" who must be registered. Also, if that individual representing an issuer only performs an exempt transaction, such as an occasional trade ("an isolated non-issuer transaction"), he or she is excluded from being licensed as an "agent."

Front 36

An individual who represents an issuer in the sale of that issuer's securities and who earns a commission on each transaction would be defined as an "agent" under the Uniform Securities Act if that individual represents the issuer: A. in sales of specified exempt securities B. effecting exempt transactions C. in sales of covered securities D. effecting sales of securities to employees of the issuer

Back 36

This one is picky! The Uniform Securities Act only excludes individuals who represent issuers in sales of securities to employees of that issuer (say when an employee makes a purchase of the issuer's stock in the issuer's 401(k) plan) as long as no commission is paid. If a commission is paid, then that individual would be defined as an "agent." Note that the requirement that no commission be paid does not apply to the other exclusions from the definition of an agent.

Excluded from the definition of an agent are individuals who represent issuers (not broker-dealers) in:

* Sales of specified exempt securities such as Treasury, Agency and Municipal debt (but not all exempt securities); Exempt transactions, such as the sale of securities only to institutions or underwriters; Sales of specified covered securities (basically private placement issues and sales to persons with investment assets of at least $5,000,000 and investment managers handling assets of at least $25,000,000) - however if the individual is selling federally covered "nationally traded" securities or investment company securities, he or she must register as an agent; and Sales of securities to employees of that issuer if no remuneration is paid - (the example here is a corporate employee who places company stock into employee 401(k) accounts).

Front 37

An individual who represents an issuer selling federally covered investment company securities: A. is not required to register as an agent in the State B. must register as an agent in the State if compensation is being paid for this activity C. must register as an agent in the State if the individual is not federally registered D. must register as an agent in the State

Back 37

If an individual represents an issuer selling a security that must be SEC-registered and compensation is paid for this activity, then the individual must register in the State. Both "nationally traded securities" and investment company securities are "federal covered," but because they are non-exempt and are SEC-registered, this individual must be registered in the State to sell them. If the individual were representing the issuer selling exempt securities, such as Treasuries, Agencies and Municipals, then the individual is not defined as an agent.

The exclusion from registration given to an individual who represents an issuer in transactions in specified "covered securities" only applies to private placements and to sales to qualified investors (wealthy investors).

Front 38

An officer of an issuer is engaged in the sale of that issuer's securities to the public. The issuer's securities are federal covered. The officer is: A. excluded from the definition of an agent because the securities involved are federal covered B. not defined as an agent because officers of issuers are excluded C. defined as an agent who must register in the State D. defined as an issuer and is not required to register in the State

Back 38

Individuals representing issuers in the sale of certain "specified" securities are excluded from the definition of an agent. These include individuals who represent issuers selling:

* Treasury, Agency and Municipal securities;
* Bank issues;
* Money market instruments;
* Contracts issued in connection with pension plans;
* To employees of that issuer if no compensation is paid; and
* To qualified (wealthy) purchasers.

In these transactions, either the security being sold is extremely safe (such as governments, agencies or municipals); or the sale is not being made to the general public.

Note that there is no exclusion for the sale of federal covered securities by an individual. An individual who sells either federal or non-federal covered securities for an issuer is defined as an agent who must register in the State. This makes sense because the State wants to "capture" and register as many agents as it can! (Remember, it gets an annual fee for each registered agent.)

Front 39

Which individual is defined as an agent under the Uniform Securities Act? A. An individual representing a broker-dealer who takes phone messages from clients that wish to purchase or sell listed stocks B. An individual representing a broker-dealer who takes unsolicited orders for partnership units C. An individual representing an investment adviser who provides advice to clients about investing in securities D. An individual who works for an issuer selling that issuer's stock to the issuer's employees

Back 39

We can quickly eliminate Choices C and D. Choice C defines an Investment Adviser Representative (IAR), while Choice D is an individual that is excluded from the definition of an agent because he or she is representing the issuer, selling that issuer's securities to the issuer's employees (e.g., stock option plan securities). Note that this exclusion requires that the employee not receive commissions, which the question does not address. So we are down to either Choice A or Choice B.

The Act defines an "agent" as an individual who represents a broker-dealer or issuer in effecting, or attempting to effect, purchases or sales of securities. In Choice A, the individual takes "messages," while in Choice B, the individual takes "orders." Taking an "order" clearly is "effecting a securities transaction." Taking a "message" is vague - if the individual taking the message just took a name and phone number to be returned, then he or she is not an agent. If the individual taking the message actually wrote down the details of the order, then he or she is an "agent." The question does not give detail on this - so, given the choice of "order" or "message" - we go with order! Note that it makes no difference if an order is solicited or unsolicited - the individual taking the order must be registered.

Front 40

An individual who represents an issuer in selling securities of that issuer to the issuer's employees; and who does not earn a commission for this work; is defined under the Uniform Securities Act as a(n): A. agent B. broker-dealer C. issuer D. none of the above

Back 40

An agent is an individual who represents a broker-dealer selling any type of security - whether it is exempt or non-exempt.

Individuals who represent issuers in trading exempt securities or in exempt transactions are not defined as agents. Thus, only an individual who represents an issuer selling non-exempt securities (for example, that issuer's common stock) to the public is defined as an agent.

An individual who represents an issuer in a transaction with existing employees without taking a commission is engaging in an exempt transaction (since no commission is taken) and therefore is excluded from the definition of agent. The example here is an issuer-employee that works in the pension department of the company and who places employee purchases of company shares into employee 401(k) accounts.

This person also does not fall under the definition of an agent; a broker-dealer; or an issuer; so the best choice is D, none of the above.

Front 41

Under the Uniform Securities Act, an investment adviser is any person who is compensated for rendering advice about which of the following? A. Investment contracts B. Endowment policies C. Annuity contracts that periodically pay a fixed amount D. Bank issued certificates of deposit

Back 41

To be an investment adviser, advice must be given about securities - and an investment contract is a security (e.g., a contractual monthly investment plan that requires a fixed payment amount monthly for a minimum time period to buy a designated mutual fund). Endowment policies and fixed annuities are insurance products, not securities. A bank issued certificate of deposit is a bank product and is not a security.

Front 42

Which of the following individuals is defined as an Investment Adviser under the provisions of the Uniform Securities Act?

A. The publisher of a financial newsletter that covers the relative merits of different insurance policies B. An accountant that offers advice on investing in fixed annuity contracts for an additional charge C. A lawyer that offers advice about investments in corporate stocks and bonds for an additional charge D. The publisher of research reports about corporate stocks that are distributed only to institutional investors

Back 42

For a lawyer or accountant to be excluded from the definition of an investment adviser, he or she must only give incidental advice about investing in securities and cannot charge separately for the advice.

Choices A and B are not required to register as investment advisers in the State because they are giving advice about insurance products, not about securities.

Choice D does not have to register because only financial publications that tailor their recommendations to specific client situations fall under the definition.

Front 43

Which of the following is a federal covered adviser? A. An investment adviser with $10,000,000 of assets B. An investment adviser with $50,000,000 or less of assets C. An investment adviser with $100,000,000 of international assets D. An investment adviser to individuals that are accredited investors under Regulation D

Back 43

A "Federal covered investment adviser" is one that must register with the SEC only; and that is not required to register with the State (though the State can still require a notice filing). These are the larger investment advisers and include any adviser to an investment company; and any adviser with $100,000,000 or more of assets under management. In this question, the best choice offered is the adviser with $100,000,000 of assets under management must register with the SEC. It makes no difference if the assets are international securities - if the adviser is based in the U.S., which we must assume, and meets the minimum asset test, then it must register with the SEC.

Front 44

If an investment adviser is "federal covered," this means that the adviser: A. is registered with the proper agencies B. has at least $115,000,000 of assets under management C. has clients in more than 1 state D. offers advice only to accredited investors

Back 44

A federal covered adviser that must register with the SEC (instead of registering in the State) is either an adviser to investment companies; or an adviser with at least $100,000,000 of assets under management. The SEC issued an interpretation that if an adviser has between $100,000,000 and $110,000,000 of assets, it has the option of registering with the SEC, so the only adviser that must register with the SEC is one that has at least $115,000,000 of assets under management. In addition, the SEC issued an interpretation that advisers that operate in 15 or more States and that have at least $25,000,000 of assets under management, may register with the SEC and thus do not have to register in multiple States.

Front 45

Which of the following are permitted to register with the SEC as a Federal Covered Adviser? I An adviser with $10,000,000 of assets under managementII An adviser with $25,000,000 of assets under managementIII An adviser that is currently registered in 10 StatesIV An adviser that is currently registered in 15 States A. I and III B. I and IV C. II and III D. II and IV

Back 45

Advisers with $25,000,000 or more of assets under management that do business in 15 or more States are "mid-sized" advisers that may register with the SEC. The theory is that they are doing business in so many States that it is easier to do a single Federal SEC registration than having the adviser register in each of the 15 (or more) States in which it does business.

Note that once an adviser has $110,000,000 of assets under management, it must register with the SEC. Now the adviser is so large that it makes no difference how many, or how few, States the adviser is doing business in.

Front 46

Under the Uniform Securities Act, all of the following are excluded from the definition of an investment adviser EXCEPT: A. issuers B. lawyers C. accountants D. teachers

Back 46

The Uniform Securities Act excludes from the definition of an investment adviser: lawyers, accountants, teacher, and engineers who give advice that is solely incidental to their professional practice; and who do not charge separately for giving advice. Issuers are not excluded from the definition.

Front 47

Under the Uniform Securities Act, which of the following are EXCLUDED from the definition of an investment adviser? I TeacherII EngineerIII LawyerIV Accountant A. I and II only B. III and IV only C. II, III, IV D. I, II, III, IV

Back 47

Specifically excluded from the definition of an investment adviser under the Uniform Securities Act are lawyers, accountants, teachers, and engineers who give advice about securities that is incidental to their professional practice.

Front 48

Under the Uniform Securities Act, which of the following persons with no place of business in a State is EXCLUDED from the definition of an "Investment Adviser"? A. A person who gives advice for a fee about public utility mortgage bond issues B. A person who gives advice for a fee about municipal securities C. An insurance company that renders advice about securities for a fee to its clients D. A trust that receives special compensation for rendering advice about securities

Back 48

Excluded from the definition of an investment adviser are: * Investment Adviser representatives (agents) Depository Institutions (banks, savings and loans, trusts) Professionals (accountants, lawyers, teachers, engineers, whose performance of these services is wholly incidental to their professional practice) Broker-dealers Newsletters that give general investment advice Federal covered advisers Thus, the trust company (Choice D) is excluded from the definition of an investment adviser. Note that none of the other choices fits the definition of a Federal covered adviser, and that insurance companies that give advice (Choice C) are not afforded an exclusion.

Front 49

Which of the following persons with no place of business in a State, is EXCLUDED from the definition of an "Investment Adviser"? A. A bank that receives special compensation for rendering advice about securities B. A person who gives advice for a fee about investment grade corporate bonds C. A person who gives advice for a fee about municipal securities D. A person who gives advice about securities for a fee solely to lawyers and accountants

Back 49

The best answer is A. Excluded from the definition of an investment adviser are: * Investment Adviser representatives (agents) Depository Institutions (banks, savings and loans, trusts) Professionals (accountants, lawyers, teachers, engineers, whose performance of these services is wholly incidental to their professional practice) Broker-dealers Newsletters that give general investment advice Federal covered advisers Thus, the bank (Choice A) is excluded from the definition of an investment adviser. A person who gives advice about corporate or municipal securities is not on this list; and therefore is not excluded. While a lawyer or an accountant who gives incidental advice about securities is excluded from the definition of an investment adviser; a person who gives advice about securities to lawyers or accountants is defined as an investment adviser.

Do not confuse this exclusion with those persons who are defined as investment advisers; but whose type of work exempts them from registration. For example, an adviser with no place of business in the State, who only gives advice to "professional investors," is exempt from registering in the State. There is no State exemption available to advisers who only give advice on certain exempt securities such as municipals. (Please note, however, that a person who gives advice solely about U.S. Government securities is defined as a Federal covered adviser, and would be excluded from registration in the State.)

Front 50

Which of the following are EXCLUDED from the definition of an investment adviser under the Uniform Securities Act? I An employee of an investment adviserII A federal covered adviserIII A savings and loan institutionIV A broker-dealer A. I only B. I and II C. III and IV D. I, II, III, IV

Back 50

If a person is excluded from the definition of an investment adviser, then that person will not have to register in the State as such.

Excluded from the definition of an investment adviser are:

* employees of investment advisers (they must register separately as agents of the adviser in the State); depository institutions and broker-dealers (who are regulated at both the State and Federal level under other laws); Federal covered advisers (who are regulated by the SEC; or who are excluded from the federal definition of an investment adviser - so the State can't require their registration as well); professionals who give incidental advice; and publishers of general content investment advice not based upon the specific situation of each client.

Front 51

Which of the following would be defined as an investment adviser under the Uniform Securities Act? A. U.S. Trust Corp. B. Washington Savings and Loan Corp. C. AIM Investment Advisers, a firm with $400,000,000,000 of assets under management D. Greenwich Investment Counsel, a firm that offers research and asset allocation services to accredited investors

Back 51

Any deposit-taking institution is excluded from the definition of an investment adviser under the Uniform Securities Act (USA), making Choice A and Choice B incorrect. Federal covered advisers are also excluded from the definition of an investment adviser under USA. Since any adviser with $100,000,000 of assets or more under management is a Federal covered adviser, Choice C is incorrect as well. There is no exclusion from the definition of an investment adviser for advisers that only deal with accredited (wealthy) investors. Note, however, that there is an exemption available for investment advisers that have no business location in the State and that only deal with other advisers or with institutions. This exemption is not available to advisers that deal with wealthy individuals, however.

Front 52

Who must register in a State as an investment adviser? A. A person selling a subscription to a service that gives timing of buy and sell orders for specific investment company securities that are exchange traded B. An investment adviser representative who has been registered with an investment adviser for more than 5 years C. An on-line broker-dealer who offers a "no maximum number of trades" program for a 90-day period for a set dollar amount D. A bank that is offering "Raise-Your-Rate" Certificates of Deposit for a set promotional period

Back 52

This question gets at an interesting lawsuit filed against brokerage firms by investment advisers when these brokerage firms started offering non-managed fee based accounts. For an annual flat fee, the brokerage firm client could trade an unlimited amount. The investment advisers argued that a "flat fee" product is an advisory product that requires investment adviser registration - and they won. Thus, any flat fee product offered by a broker-dealer is considered to be an advisory product and requires that the firm and each agent register as an IA and IAR respectively in order to sell these. Choice A is incorrect because general market newsletters are not investment advisers - they only become IAs if they tailor advice to a specific client situation. Choice B makes no sense; and Choice D is incorrect because banks are excluded from the definition of an investment adviser.

Front 53

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

Back 53

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."

Front 54

Under the Uniform Securities Act, which of the following would be defined as an investment adviser? A. U.S. Trust Corporation B. Countywide Savings and Loan C. IZZI Advisers, which has $110 million of assets under management D. ACCO Publishers, which has a website that charges for customized financial plans based on customer input

Back 54

Under State law, any deposit-taking institution is excluded from the definition of an investment adviser, removing Choices A and B as possibilities. Choice C is a Federal covered adviser (since it has over $110 million of assets) that must register with the SEC only. It is excluded from the State definition, so the State cannot require this firm to register in the State. Choice D fits the definition, because the adviser gives customized investment advice for a fee - it makes no difference that the advice is not rendered in person.

Front 55

Which of the following would likely be required to register as an investment adviser representative? A person who: A. assists other investment adviser representatives B. trains other investment adviser representatives C. supervises other investment adviser representatives D. registers other investment adviser representatives

Back 55

The best answer is C. NASAA states that an "investment adviser representative" that must be registered is a person who: * makes recommendations or otherwise renders advice regarding securities; manages accounts or portfolios of clients; determines which recommendation or advice regarding securities should be given; solicits, offers or negotiates for the sale of, or sells, investment advisory services; or supervises employees who perform any of the foregoing

Front 56

The provisions of the Uniform Securities Act include: I Anti-fraudII Common law deceitIII Registration of securitiesIV Registration of broker-dealers, investment advisers, and their agents A. I and II B. III and IV C. I and IV D. I, II, III, IV

Back 56

The Uniform Securities Act is adopted in each State to prevent fraud in the sale of securities to the public. Aside from the anti-fraud statutes, it also prohibits deceptive practices when offering securities to the public ("common law deceit provisions"). The Act requires that securities offerings be registered in the State (unless an exemption is available); and that broker-dealers, investment advisers, and their agents register in the State (unless an exemption is available).

Front 57

The State Administrator has the power to do which of the following to a federal covered adviser? A. Increase the number of audits that the Administrator makes of the adviser B. Establish minimum financial requirements that are more stringent than the requirements of the Investment Advisers Act of 1940 C. Require the adviser to file financial reports other than those filed under the Investment Advisers Act of 1940 D. Require the adviser to keep records other than those required under the Investment Advisers Act of 1940

Back 57

Because of federal supremacy, the State Administrator cannot require anything of a federal covered adviser that is already covered under the Investment Advisers Act of 1940. The State Administrator can, however, audit any adviser, federal covered or not, who does business in the State.

Front 58

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

Back 58

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!

Front 59

State "blue sky" laws provide for: I Registration of broker-dealersII Registration of agentsIII Registration of investment advisersIV Registration of issuers A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV

Front 60

State "blue sky" laws provide for registration of all of the following EXCEPT: A. broker-dealers B. agents C. investment advisers D. issuers

Back 60

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. Note that the issuer itself is not registered in the state under the Uniform Securities Act - only the securities that it issues are registered.

Front 61

Under the Uniform Securities Act, which of the following persons must register as a broker-dealer in a state? I A firm with no place of business in the state that has no clients in the stateII A firm with no place of business in the state that has 25 clients in the state over the preceding 12 monthsIII A firm with a place of business in the state that deals exclusively with issuersIV A firm with a place of business in the state that deals exclusively with financial institutions A. I and II only B. III and IV only C. II, III, IV D. I, II, III, IV

Back 61

The Act excludes from the definition of a "broker-dealer" any firm that has no place of business in the State that does not have clients in the State; or that deals solely with issuers, broker-dealers, or financial institutions. Note that if a broker-dealer has an office in a State, then it must register in that State, regardless of who its customers may be.

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, so Choice II does not qualify for the exemption and must register.

Note that if a firm has an office in a state, then it must register in that state (since the firm is physically in that state). If the firm has an office in the state, it is not exempt from registration if it only deals with "professional" investors - to get the exemption, the firm must not have an office in that state.

Front 62

A broker-dealer that has a place of business in State B does not have an office in State A. It would be required to register in State A if it: I sold securities to customers in State AII made an offer to sell securities to customers in State AIII effects securities transactions solely with institutional investors in State AIV effects securities transactions solely with issuers in State A A. I and II only B. III and IV only C. I, II, III, IV D. None of the above

Back 62

Because this broker-dealer does not have an office in State A, it is not required to register in State A unless it makes offers of securities; recommends securities; or sells securities to customers in State A. However, if the broker-dealer is dealing with sophisticated investors in State A, such as institutional investors; or if it is dealing only with issuers in State A (who would also be sophisticated investors); these are exempt transactions and registration in State A is not required. On the other hand, if the broker-dealer had a place of business in State A, it would have to register in State A regardless.

Front 63

A broker-dealer that is registered in New York and that is not registered in any other State may effect transactions in securities: A. with any existing customer that is a New York resident that is vacationing anywhere in the United States B. with any new customer that is a New York resident that is vacationing anywhere in the United States C. with any New York resident located in any part of the United States D. only in New York and not in any other State

Back 63

An exemption from registration is given to broker-dealers that have a place of business in a State (thus they must be registered in that State) that are dealing with pre-existing customers who are temporarily visiting other States. This addresses the fact that people travel widely throughout the United States and if that citizen who is on vacation in another State effects a securities transaction with his or her existing broker-dealer, then the State where the customer is vacationing will not require the broker-dealer and its agents to register. Note that the exemption does not apply to new customers; only to pre-existing customers.

Front 64

An agent for a broker-dealer, both of which are registered in the State of Illinois, receives a telephone call from an existing customer who is on a layover in the airport in Atlanta, Georgia. The customer directs the agent to buy 1,000 shares of ABCD stock at the market. Which statement is TRUE? A. In order to accept this order, the agent must be registered in the State of Georgia only B. In order to accept this order, the agent must be registered in the State of Illinois only C. In order to accept this order, the agent must be registered in both the State of Georgia and the State of Illinois D. The agent can accept this order without needing registration in any jurisdiction because it was unsolicited

Back 64

Since the agent and broker-dealer are physically located in Illinois, they must be registered in the State of Illinois. This is an existing customer who is calling from an airport in Georgia. There is no requirement for the agent or the broker-dealer to be registered in Georgia to take this order. If the State of Georgia inquired about this transaction, the agent and broker-dealer could claim the exemption available when an existing customer is temporarily located in another State.

Front 65

A broker-dealer is physically located and registered in State A. The broker-dealer has an existing client in State A who is a student finishing undergraduate studies. The client has just been accepted to medical school in State B. Which statement is TRUE about the broker-dealer contacting the client while she is in medical school in State B? A. The broker-dealer can contact the client while she is in medical school in State B without having to register in State B using the "existing customer" exemption B. The broker-dealer can contact the client while she is in medical school in State B without having to register in State B because the client is attending a not-for-profit educational institution C. The broker-dealer can contact the client while she is in medical school in State B without having to register in State B because of the reciprocity agreements that all States maintain regarding registration requirements D. The broker-dealer must be registered in State B in order to contact the client while she is in medical school in State B

Back 65

Because the client will be in State B for an extended period of time (medical school is 4 years), this is not a "vacation" and the broker-dealer cannot rely on the "vacationing customer" exemption. To continue to do business with this client, the BD (an agent) must be registered in State B.

Front 66

A Canadian broker-dealer has some clients who are "snowbirds" who spend their winters in State Z, which is one of the southernmost States. The broker-dealer does not have an office in State Z and it is not registered there. The clients wish to effect securities transactions while they are residing in State Z. Does this broker-dealer have to register in State Z? A. No - the broker-dealer can effect securities transactions in State Z without registering there as long as the firm has 5 or fewer clients in the State B. No - the broker-dealer can effect securities transactions in State Z for existing customers who are temporarily residing in the State C. Yes - because the broker-dealer's customers are physically present in State Z D. Yes - because the customers are being solicited by the broker-dealer to effect securities transactions while they are in State Z

Back 66

Canadian broker-dealers with no office in a State are allowed to effect securities business with existing customers who are "vacationing" in a State, without having to be registered in that State. A NASAA interpretation that only applies to Canadian broker-dealers says that Canadian BDs can contact existing customers who are temporarily residing in the United States without having to register in a State, as long as the client is in the U.S. for less than ½ year and intends to return to Canada.

Thus, the Canadian BD can contact existing clients who are spending the winter in State Z without having to register in State Z.

Note that the Canadian BD cannot contact prospective clients in the U.S - only existing clients can be contacted. And also note that this rule does NOT apply to a U.S. BD registered in one State that contacts an existing client who is temporarily in another State. In this case, if the client spends more than 30 days in the other State, that BD must be registered in the other State.

(Also note that Choice A could also be correct, but this provision is not consistently applied in all States for broker-dealers (in contrast, it is consistently applied for investment advisers) and the question does not detail how many existing clients the broker-dealer has in State Z.)

Front 67

Which statements are TRUE regarding registration of agents? I Agents can be registered in a state without affiliating with a broker-dealerII Agents can only be registered in a state if they are affiliated with a broker-dealerIII Agents must only be registered in the state where they have an officeIV Agents must be registered in any state into which they direct offers of securities A. I and III B. I and IV C. II and III D. II and IV

Back 67

Agents can only be registered if they are affiliated with a broker-dealer that is registered. Agents cannot register on their own in a state. Agents must register in the state where they physically reside and must also register in any state into which they direct offers of securities.

Front 68

Under the Uniform Securities Act, an unregistered individual employed by a registered broker-dealer may sell securities: A. in exempt transactions only B. if the securities are exempt C. if the public is not solicited D. under no circumstances

Back 68

Unregistered agents are not permitted to sell under the Act, whether or not the securities involved are exempt. The only way for a person to avoid registration as an agent is to be excluded from the definition of an agent. For example, individuals who represent issuers trading exempt securities or effecting exempt transactions are not defined as agents. Individuals who represent broker-dealers effecting securities trades (exempt or non-exempt) are defined as agents under the Act.

Front 69

Which of the following individuals that offer securities to the public on behalf of a broker-dealer must be registered in the State? I Full-time employeesII Part-time employeesIII Independent contractorsIV Officers

Back 69

Any employee, either full-time or part-time, that offers securities to customers must be registered in the State as an agent of the broker-dealer. Just because an individual is an independent contractor and not an employee does not mean that they are not required to be registered in the State. Any individual who represents a broker-dealer selling securities is an agent who must be registered (unless an exemption is available). Note that many brokerage firms and broker-dealers that have agents that work out of their homes, legally structure these arrangements as "independent contractor" relationships and not as employment relationships. Then the employing firm is not responsible for health and pension benefits that are given to employees. However, these independent contractors are still defined as "agents" that must register in the State. And, of course, the agent's broker-dealer must be registered in the State. Finally, all officers of broker-dealers become registered in the State, regardless of whether they offer securities to the public or not, because they are named in the broker-dealer registration application filed in the State.

Front 70

An agent of a broker-dealer, both of whom are located in State A, accepts an order from a customer located in State B where they have no offices. Who must register in State B? A. The broker-dealer B. The agent C. Neither the broker-dealer nor the agent D. Both the broker-dealer and the agent

Back 70

This question isn't very clear, but here goes.

We don't know if the customer located in State B is an existing customer that is vacationing in State B or a new customer in State B. So let's assume that he is a new customer.

We also don't know if the broker-dealer is doing only a few transactions in State B, and qualifies for a "de minimis" exemption (and this is only offered by a minority of States), so let's assume that this also is not the case.

The exemption given to "unsolicited customer transactions" only applies to the requirement for the securities to be registered in the State - it has nothing to do with the requirement that broker-dealers and agents that are doing business in the State must be registered in the State. So, the broker-dealer located in State A and its agent, even though they have no office in State B, are doing business in State B, and must register in State B.

Front 71

A broker-dealer registered in States A and B has an agent that is registered in State A. The agent takes an unsolicited order from a customer in State B. The agent will have to register in State B if: A. this is an existing customer who resides in State A but is temporarily vacationing in State B B. the customer is the issuer of the securities involved in the transaction C. this is an isolated transaction D. the customer is an accredited investor

Back 71

If an agent of a broker-dealer resides in the State; or is a non-resident who solicits customers in a State; then the agent must be registered in the State.

An exemption is granted to the broker-dealer (and also the agent) having to register in the State if the firm has no office in the State and is contacting an existing customer who is temporarily in that State (e.g., a customer who is on vacation).

An exclusion is granted to non-resident broker-dealers (and their agents) who are only dealing with issuers or financial institutions.

Another exemption that is available in many States permits an out-of-State broker-dealer to effect an isolated trade in that State without having to register.

If the broker-dealer or agent is not a resident, but is dealing only with wealthy investors in the State, there is no exemption granted and both must be registered in the State.

Front 72

A Canadian agent has an existing client who goes on vacation to Seattle, Washington. The agent wishes to contact the customer in Seattle about an investment that he wishes to recommend. The agent: A. is required to register in the State of Washington, as must the employing broker-dealer B. need not register in the State of Washington because the customer is on vacation C. is able to do business in the State of Washington as long as the agent is registered in Canada D. is required to register in the State of Washington, but the broker-dealer is not required to do so

Back 72

The Uniform Securities Act addresses Canadian broker-dealers and investment advisers, since their customers often travel extensively in the United States. As long as a Canadian broker-dealer or investment adviser does not have a place of business in the United States, it is exempt from registration (as are its agents) when effecting trades for pre-existing customers who are temporarily residing in the United States for less than ½ year and who intend to return to Canada.

Regarding Choice C, the agent cannot do business in the State of Washington unless he or she is registered there. For example, the agent cannot solicit new clients in the State of Washington and cannot solicit existing clients who spend too much time in the State of Washington (more than ½ year) without being registered in the State of Washington.

The exception only applies to Canadian BDs and IAs (and their agents) with no place of business in a State whose existing clients temporarily visit the U.S.

Front 73

An agent is not yet registered with his broker-dealer. Until registration is effective, the agent is permitted to: A. sell limited partnership units to accredited investors B. process client paperwork in an administrative office on behalf of a registered representative C. accept unsolicited customer orders D. solicit the sale of variable annuities to customers

Back 73

An unregistered individual can perform clerical duties. This person cannot solicit customers to buy securities; and cannot sell securities to customers. To accept customer orders (whether solicited or unsolicited), the agent must be registered.

Front 74

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

Back 74

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.

Front 75

An agent doing business in one state would like to solicit in a neighboring state. Which statement(s) are TRUE? I The broker-dealer must be registered in the neighboring stateII The broker-dealer need not be registered in the neighboring stateIII The agent must be registered in the neighboring stateIV The agent need not be registered in the neighboring state A. I and III B. I and IV C. II and III D. II and IV

Back 75

To do business in a given state, both the broker-dealer and agent must be registered in that state, unless an exemption is available.