Securities Regulations and Compliance, Exams of Nursing

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SERIES 63 – EXAM 2024/2025 WITH

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An existing customer of a broker-dealer registered in State A is vacationing in State B. Can the broker-dealer solicit the customer? - Precise Answer ✔✔The broker-dealer may solicit the customer in State B without registering in State B. If a broker-dealer effects a transaction in a state (unless an exemption is available), the broker-dealer must be registered in that state. One of the exemptions available, however, covers the instance where an existing customer of a registered broker-dealer is vacationing in another state. That customer may be contacted while on vacation in the other state without the broker-dealer being required to register in that state. Which of the following is/are defined as either a "sale" or an "offer to sell" common stock of an issuer? I. Any offer to sell the common stock for value II. Any solicitation of an offer to buy the common stock for value III. The sale of a bond with detachable warrants to buy the common stock of that issuer IV. The gift of the common stock to an employee of the issuer - Precise Answer ✔✔I, II, & III The definition of a "sale" is every contract of sale, contract to sell, or disposition of a security or interest in a security for value. The definition

of an "offer to sell" is every attempt or offer to dispose of or solicitation of an offer to buy a security. In addition, the sale or offer of a security that includes rights or warrants to buy another security is considered to be an offer or sale of the other security. The gift of a security is not considered to be a sale unless the security is assessable. Common stock is non-assessable; therefore, it is simply a gift, not a sale. An applicant's registration can be denied by the Administrator if that individual was convicted within the past ___________ of any misdemeanor involving a security or any aspect of the securities business or any felony. - Precise Answer ✔✔10 years An applicant's registration can be denied if he or she was convicted of a misdemeanor involving securities or any felony within the past 10 years. It is prohibited for an investment adviser to be compensated only on the basis of __________ achieved. It is allowable for the adviser to receive a percentage of all assets under management (even if this value includes capital gains) or for a fixed fee arrangement to be established. - Precise Answer ✔✔capital gains Securities that are sold through a private placement _________. - Precise Answer ✔✔are unregistered Securities sold through a private placement are unregistered and are an exempt transaction. Under Uniform State Law, a private placement is defined as an offer to no more than 10 persons in a 12 month period.

The Administrator is NOT empowered to __________. - Precise Answer ✔✔Issue injunctions The Administrator can issue subpoenas even to persons outside the Administrator's state. It is also possible for the Administrator to conduct investigations to determine if any securities laws have been broken and to hold hearings. It is not possible, however, for the Administrator to issue an injunction against the alleged violator. The Administrator may only petition the appropriate court to issue an injunction. Under the Uniform Securities Act, the term 'sale' or 'sell' includes which of the following? I. A disposition of a security for consideration II. A stock dividend given to stockholders in lieu of a cash dividend III. An exchange of stock in a merger transaction which is approved by stockholders - Precise Answer ✔✔I only To be considered to be a sale, there must be some consideration or exchange of value. Sales do not include bona fide pledges of securities as collateral for loans, stock dividends, corporate mergers approved by stockholders, the exchange of corporate assets in consideration of stock of another corporation, or acts incidental to judicially-approved reorganizations in which securities are issued in exchange for other outstanding securities. Which of the following actions could constitute fraud? I. Omission of any material fact II. Omission of any known fact

III. A deceptive statement made in connection with the sale of a government bond - Precise Answer ✔✔I & III only The intentional omission of any material information is fraud. Even though government bonds are exempt securities, they are not exempt from the anti-fraud provisions and deceptive statements are always considered fraud. Immaterial facts need not be disclosed. If a broker-dealer receives an unsolicited customer order to buy a security in the secondary market, this is a(n): - Precise Answer ✔✔Exempt transaction whether the security involved is exempt or non- exempt Unsolicited customer orders in the secondary market by or through a broker-dealer are considered to be exempt transactions under the Act whether the securities involved are exempt or non-exempt. The Administrator may require that the customer acknowledge that the sale was unsolicited in writing. Which type of securities is not exempt under the Uniform Securities Act? - Precise Answer ✔✔Limited partnership interests Under the Uniform Securities Act, U.S. government bonds, securities issued by an exchange or NASDAQ-NMS listed companies, and securities issued by charitable organizations are exempt. Limited partnership interests are defined as a security under the Act and are non- exempt.

Under the Uniform Securities Act, registration of a security under the Securities Act of 1933 means that: - Precise Answer ✔✔State registration by notice filing or coordination may be available. To be registered in a state by notice filing or by coordination, a federal registration statement must be filed for the security under the Securities Act of 1933. Such registration does not exempt the security from state registration nor is every federal registered security a federal covered security. Any security may be registered by qualification but a security would have to be registered by qualification only if filing or coordination were not available. Agents may never __________. - Precise Answer ✔✔Lend or borrow money or securities from a customer Note the word 'never' in the question. Agents may effect transactions not recorded on their broker-dealer books or records if the transactions are authorized in writing by their broker-dealer prior to execution. They may also share profits or losses in the account of a customer with the written authorization of the customer and the broker-dealer that the agent represents. Agents may also divide or split their commissions with any person who is also registered as an agent for the same broker-dealer or for a broker-dealer under direct or indirect common control. Agents may never engage in the practice of lending or borrowing money or securities from a customer. Under the Uniform Securities Act, disciplinary proceedings generally require the Administrator to provide which of the following?

I. Appropriate prior notice II. Opportunity for a hearing III. Written findings of fact and conclusions of law - Precise Answer ✔✔I, II, & III In general, the Administrator must provide appropriate prior notice, opportunity for hearing, written findings of fact, and conclusions of law. An attorney who advertises his or her advisory services in the yellow pages would have to register as a(n): - Precise Answer ✔✔Investment adviser Although a lawyer is exempt from registration as an investment adviser if his or her advisory services are incidental to the performance of his or her duties, a lawyer who holds himself or herself out to be an adviser by advertising his or her services would have to register. A broker-dealer firm may do business in this state without registering with the Administrator if it has no office in the state and it deals exclusively with: I. Five or less non-institutional clients II. Other Broker-dealers III. Insurance companies IV. Trust Companies - Precise Answer ✔✔II, III, & IV

The de minimus exemption applies to IA firms, not to agents or broker- dealers. It states that IAs who have no place of business in the state but are registered in another state need not register in this state if their business is limited to advising five or fewer clients during the preceding 12 months. The record keeping requirements set by the state administrator may not exceed those required under the federal Securities Exchange Act of __________. - Precise Answer ✔✔ 1934 Under the USA, broker-dealer firms seeking to register in this state must disclose what? - Precise Answer ✔✔Orders issued by other states To register in this state, broker-dealer firms must file Form B/D with the Administrator. This form requires the broker-dealer to list the firm's officers and directors and their backgrounds but does not require that their credit history be disclosed or that the backgrounds of other employees be included. Misdemeanors need only be disclosed if they involve the securities, investment, banking, or insurance business and occurred within the past 10 years. All administrative orders issued against the firm or its officers and directors by Administrators in other states must be disclosed. Under the USA, a broker, dealer, agent, I/A, or IAR may obtain initial registration by filing with the Administrator an application together with a consent to service of process. The application shall contain whatever information the Administrator requires concerning which of the following? I. The applicant's form and place of organization

II. The applicant's proposed method of doing business III. The qualifications and business history of the applicant IV. Convictions of all misdemeanors involving securities and any conviction of a felony - Precise Answer ✔✔I, II, III, & IV An application for registration as a broker, dealer, agent, IA, or IAR requires the applicant to disclose all of this information including whether or not he or she has ever been convicted of a misdemeanor involving securities or any felony; however, an application for registration may only be denied for violations that occurred during the past 10 years. Under the USA, the Administrator may impose net capital requirements upon: I. Agents II. Broker-dealers III. Investment adviser representatives IV. Investment advisers - Precise Answer ✔✔II. & IV. Under the Uniform Securities Act, the Administrator may require a minimum capital for registered broker-dealers subject to the limitations of Section 15 of the Securities Exchange Act of 1934. The Administrator may also establish minimum financial requirements for investment advisers subject to the limitations of Section 222 of the Investment Advisers Act of 1940.

A broker-dealer that is a resident of Canada and has no office in this state may effect transactions in securities with or for a person from Canada who temporarily resides in this state with whom the Canadian broker-dealer had a bona fide broker-dealer client relationship before the person entered the United States: - Precise Answer ✔✔If he or she is registered in this state Canadian broker-dealers cannot do business in a state without first registering in that state even if their Canadian client is only a temporary resident in the state. If an agent tells his or her clients that he or she has inside information but does not use it to execute trades: - Precise Answer ✔✔He or she is in violation of the Uniform Securities Act Although the agent is not guilty of using inside information, he or she is guilty of making a misleading or untrue statement of a material fact in connection with the purchase or sale of a security. Under the Uniform Securities Act, the registration of a security that was registered by notice filing will be effective: - Precise Answer ✔✔For one year from its effective date Under the Uniform Securities Act, every securities registration is effective for one year from its effective date regardless of the method used.

Under the __________, stocks and bonds issued by insurance companies are considered to be exempt securities; however, variable life insurance policies and variable annuities issued by insurance companies are not. These products must be registered. Further, remember that fixed insurance policies and fixed annuities are not securities. - Precise Answer ✔✔Uniform Securities Act SEC Regulation _____ is a federal exemption, not a state exemption. Regulation A allows issuers to sell relatively small issues of securities to the public by filing a shorter, simplified registration statement with the SEC rather than a full registration statement. - Precise Answer ✔✔SEC Regulation A Securities issued in connection with employee benefit plans, such as employee stock purchase plans, saving plans, pension plans, and/or profit sharing plans, are considered to be exempt __________ under the USA, not exempt __________. - Precise Answer ✔✔securities, transactions When can the state administrator use an agent's lack of experience as the only grounds for the denial of registration? - Precise Answer ✔✔Only when it is in the public interest Under the Uniform Securities Act, broker-dealers are excluded from the definition of an investment advisor only if the advisory services are __________ to their brokerage business and they receive no special or separate compensation for offering advice. - Precise Answer ✔✔incidental

Under the Uniform Securities Act, registration statements may be filed by the issuer, the underwriting broker-dealer, or by selling stockholders who own restricted stock that was obtained in a private placement. __________ may not be resold unless it is either registered or sold under another exemption. - Precise Answer ✔✔Restricted stock Who has to notify the Administrator when an investment advisor representative terminates employment with his or her investment advisory firm? - Precise Answer ✔✔Either the investment advisory firm or the investment advisor representative If an investment advisor representative terminates employment with an investment advisor (IA), who must notify the Administrator depends upon how the IA firm is registered. If the firm is a state registered advisor, then the firm has to notify the Administrator; if the firm is a federal registered advisor, then the IAR has to notify the Administrator. Under the Uniform Securities Act, __________ companies are not specifically excluded from the definition of an investment advisor. - Precise Answer ✔✔insurance The state administrator may not use lack of experience as grounds for agent termination if: - Precise Answer ✔✔The agent is under the supervision and training of a broker-dealer

It would not be in the public interest to deny, refuse to renew, or terminate an agent for lack of experience as long as that agent is under the training and supervision of a broker-dealer firm. __________ are a type of casualty insurance and are often required by government agencies as a condition to licensing or registration. If an IA firm has discretionary authority over customer accounts or has custody of customer securities or monies, the Administrator may require the firm to post a surety bond or an equivalent amount of cash and/or marketable securities in order to protect customers against losses due to check forgery, lost securities, or fraudulent trading. - Precise Answer ✔✔Surety bonds Under the USA, if an agent refuses to comply with a subpoena, the state administrator may: - Precise Answer ✔✔Petition the court to require that the agent produce the requested records The Administrator has broad powers to conduct investigations and issue subpoenas requiring witnesses to appear and records to be produced. If an agent fails to produce the required records, the Administrator may petition the court for enforcement. Advance written __________ (limited power of attorney) is required for both the amount and the type of stock to be purchased. It is not required for timing or price so an agent is able to use his or her best judgment in those areas. - Precise Answer ✔✔discretionary authority

Under the Uniform Securities Act (USA), issuers of exempt securities must give potential investors all __________ information. - Precise Answer ✔✔material Under the USA, exempt securities are exempt from state registration and the advertising and sales literature filing requirements but not the anti- fraud rules. Agents must disclose all material information to potential investors whether the security is exempt or non-exempt. The state administrator may require a surety bond for all of the following EXCEPT: Agents Broker-dealers Investment Advisors Issuers - Precise Answer ✔✔Issuers Although the state administrator may require agents, broker-dealers, and investment advisors to post surety bonds as a condition of state registration, there are no bond requirements for issuers. Under the Uniform Securities Act, the Administrator may require issuers of mutual fund shares to file a copy of the registration statement filed with the SEC, a consent to service of process, and to pay fees. This procedure is called: - Precise Answer ✔✔Notice filing As a result of the National Securities Markets Improvements Act, states no longer register federal covered securities by notification; however,

the Administrator may require issuers of mutual fund shares to file a copy of the registration statement filed with the SEC with the state as well as a consent to service of process and to pay proper fees. This is known as "notice filing." __________ of prior corporate earnings is not a sufficient reason for the state administrator to issue a stop order denying or suspending a registration statement. In fact, many new companies are start-ups with no track record of prior earnings. - Precise Answer ✔✔Lack When selling non-NASDAQ OTC stocks, broker-dealers must disclose their compensation to customers: - Precise Answer ✔✔When selling non-NASDAQ OTC stocks, broker-dealers must disclose their compensation to customers both at the time of the sale and again on the confirmation. Confirmations are usually sent to customers the next business day after the trade date. Under the USA, which who would not have to register as an investment advisor? - Precise Answer ✔✔investment advisor representative Think of an investment advisor as an advisory firm, which is usually a corporation. An "investment adviser representative" is any partner, officer, director, or other individual who represents the IA firm other than clerical or administrative staff persons. They are two separate categories of registration. As such, registering as an IAR does not make you an IA.

Under the USA, the state administrator may require notice filings be made for which of the following federal covered securities? - Precise Answer ✔✔Investment company securities Federal covered securities need not be registered with the state administrator. Although investment company securities (open-end and closed-end mutual funds and units investment trusts) are federally covered, the Administrator may require them to make a notice filing at the state level. This consists of the payment of fees, filing copies of the documents filed with the SEC, and filing a consent to service of process form. You are registered as an agent only in state A. Your client moves to state B but maintains a vacation home in state A. If you continue to make trades for this client using his or her vacation home address, you are guilty of: - Precise Answer ✔✔The agent is guilty of using fictitious information to execute a trade that would have otherwise been prohibited. What is co-mingling? - Precise Answer ✔✔Mixing customer securities with those owned by the firm in its proprietary accounts Under NASAA's Statement of Policy, broker-dealer firms cannot fail to segregate their customers' free securities from those held in the firm's proprietary account. "Free securities" are those that the customer is not required to pledge to the firm as collateral for a margin loan.

What is true about unsolicited, issuer transactions? - Precise Answer ✔✔They are non-exempt. Unsolicited, non-issuer transactions are exempt under the USA, not issuer transactions. Non-issuer transactions take place in the secondary market; issuer transactions take place in the primary market. Under NASAA's Statement of Policy regarding Dishonest or Unethical Business Practices by Broker-Dealers and Agents in Connection with Investment Company Shares, when selling investment company shares, broker-dealers and agents may not state or imply to a customer that shares sold without a commission are no-load or have no sales charge if there is ______ associated with the purchase. I. A front-end load II. A contingent-deferred sale load III. A 12b-1 fee that exceeds 0.25% of average net fund assets per year IV. In the case of closed-end funds, commissions or other offering expenses - Precise Answer ✔✔I, II, III, & IV In connection with the solicitation of investment company shares, broker-dealers and agents must not state or imply to a customer that the shares sold without a commission are "no-load" or have "no sales charge" if there is associated with the purchase of the shares a front-end load, a contingent-deferred sales load, a SEC Rule 12b-1 fee (if such fee in total exceeds 0.25% of average fund assets per year), or, in the case of closed-end investment company shares, underwriting fees, commissions, or other offering expenses.

What is true if an agent offers securities in a private placement to 11 persons within a 12 month period? - Precise Answer ✔✔All 11 offers are in violation of the private placement exemption. A private placement of new securities is considered to be an exempt transaction under the Act. This means that the securities being sold are exempt from state registration if the issuer follows the private placement rule which states that the number of persons receiving offers (whether a sale is made or not) is restricted to no more than 10 in any 12 month period and that no commissions may be paid. Remember, the issuer of securities sold in a private placement must be able to prove that he or she is entitled to the exemption. If he or she violates the rule and makes more than 10 offers in a 12 month period, the Administrator may revoke the exemption and find the issuer guilty of offering unregistered securities to the public. The purpose of the private placement exemption is to allow small companies to raise capital by selling their new securities privately without registration, which is very expensive. Under the Uniform Securities Act, if an investment adviser representative is terminated, the Administrator must be promptly notified by: - Precise Answer ✔✔If the IA firm is state registered, then the firm must notify the Administrator. If the IA firm is federally covered, then it is the IAR who must notify the state.

Securities issued by a Canadian corporation whose stock trades on the Canadian Stock Exchange is exempt or non-exempt? - Precise Answer ✔✔Non-exempt Although securities issued by recognized foreign governments and their sub-divisions are considered to be exempt from state registration under the USA, securities issued by foreign corporations are non-exempt.