FINRA FINRA Certifications FINRA-SERIES-63 Questions & Answers

• Question 91:

  Skip is a registered agent with state. He recently quit his job with Venus Broker-Dealers to become affiliated with Mars Broker-Dealers.

  Which of the three entities must report this change to the state Administrator?

  A. Skip only

  B. Skip and either Mars or Venus, but not both

  C. Both Skip and Venus

  D. Skip, Mars, and Venus

  Correct Answer: D

  When Skip leaves one broker-dealer and signs on with another, all three entities-Skip, Mars, and Venus-must report this to the state Administrator. Under the Uniform Securities Act, when an agent leaves a broker-dealer, both the agent and the broker-dealer are required to report this to the state Administrator, and when an agent begins employment with a new broker-dealer, both the agent and the new broker-dealer must report it.

• Question 92:

  Which of the following persons falls under the definition of "broker-dealer," as defined by the Uniform Securities Act (USA)?

  A. Marge is a loan officer at Treadwater Bank and Trust.

  B. Juan is employed by TrustUs Corporation to sell shares of the firm's stock to the firm's employees and receives a commission on the shares he sells.

  C. Michaela is employed by GetErDone broker-dealers and sells both exempt and non- exempt securities to GetErDone's clients.

  D. MyTrades is a sole proprietorship owned by Nathan Newmoney, who has established the firm solely to make trades on his own account, thereby avoiding the commissions he would have to pay a middleman.

  Correct Answer: D

  MyTrades falls under the definition of "broker-dealer," as defined by the Uniform Securities Act since Nathan Newmoney is engaged in trading on his own account. The USA defines a broker-dealer as any person that conducts securities transactions on its own account or for others. Both Juan and Michaela are "agents" under the USA definition, and agents are specifically excluded from the definition of a broker-dealer. Marge is also excluded from the definition since she is a loan officer at a bank.

• Question 93:

  Which of the following statements regarding an open-end investment company is not true?

  A. Its shares are bought and sold through the company.

  B. Its securities are federal covered.

  C. Its shares may sell for either net asset value or greater than net asset value, but not below

  D. Its shares are bought and sold on exchange floors.

  Correct Answer: D

  The shares of an open-end investment company are not bought and sold on exchange floors. An open-end investment company is a mutual fund, and its shares are bought and sold through the company. The price per share will be either at net asset value as is the case with a no load fund, or above net asset value, as is the situation with a load fund, when the price is equal to net asset value + the sales charge (load.) Open-end investment company shares are federal covered and, as such, do not need to be registered with the state.

• Question 94:

  A margin transaction refers to a transaction

  A. that is illegal under the guidelines of the Uniform Securities Act.

  B. in which the client borrows some of the money that he is investing.

  C. in which a registered agent makes trades on a customer's account without that customer's knowledge.

  D. Both A and C are true statements.

  Correct Answer: B

  A margin transaction refers to a transaction in which the client borrows some of the money that he is investing. It is a recognized practice.

• Question 95:

  In accordance with the Telephone Consumer Protection Act of 1991 (TCPA), if a prospective client requests to be put on your firm's Do-Not-Call (DNC) list, the client must be kept on that list for

  A. 1 year.

  B. 2 years.

  C. 5 years.

  D. 10 years.

  Correct Answer: D

  If a prospective client requests being put on your firm's DNC list, you must keep that name on your list for 10 years, according to the TCPA.

• Question 96:

  You are employed as an agent with CanDo Broker-Dealers. Your brother is software engineer with VideoMagic. When you were talking to him on the phone the other day, he told you that he overheard a conversation by some of the firm's executives that indicated that VideoMagic was about to take over another software company.

  Which of the following would violate insider trading rules?

  I. The next day, you get an unsolicited call from a client requesting that you sell his shares in Video Magic, and you execute the trade.

  II. You buy stock in Video Magic's target firm in anticipation that its stock price will rise when the information becomes public.

  III.

  You recommend the stock of Video Magic's target firm to investors based on the fact that, on average, the stock price of target firms increases.

  A.

  I, II and III

  B.

  I and II only

  C.

  I and III only

  D.

  II and III only

  Correct Answer: D

  Only selections II and III are violations of insider trading rules. If you receive an unsolicited call from a client requesting a sale (or purchase) of that firm's stock, it is not considered to be an insider transaction. If you have insider information from you brother about the merger of VideoMagic with another firm, you cannot buy stock yourself in the target firm in anticipation of a rise in price, nor can you recommend the stock to customers based on your expectation of a stock price increase.

• Question 97:

  Until yesterday Maddie was a registered agent employed by the broker-dealer, QuikDeals. Yesterday afternoon, issues that had been brewing between her and another employee of the firm came to a head, and Maddie impulsively quit her job.

  At this point,

  A. Maddie has thirty days to find a job with another broker-dealer, or she will need to file a new registration application.

  B. Maddie has sixty days to find a job with another broker-dealer, or she will need to file a new registration application.

  C. Maddie will have to file a new application for registration with the Administrator upon finding employment with another broker-dealer since she is no longer considered to be a registered agent by the state.

  D. Maddie is required to call all of her clients at QuikDeals to inform them she is no longer employed there.

  Correct Answer: C

  When Maddie quit her job, her status as a state-registered securities agent was automatically terminated, and she will need to file a new application for registration with the Administrator upon obtaining a position with another broker-dealer. If she does so within thirty days, her registration will become effective as soon as she has filed her application and paid her application fee. While she is required to notify the Administrator that she has terminated her employment with QuikDeals, there is no requirement that she contact any of her clients at QuikDeals.

• Question 98:

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

  A. Needy will be in violation of securities laws unless a waiver of compliance form is signed by the client and submitted to the administrator.

  B. Needy is in violation of securities laws by acting as an issuer of securities.

  C. Needy is in violation of securities laws only if the face value of the note is for $50,000 or more.

  D. Needy is not in danger of violating any securities laws since the loan was unsolicited and has been properly executed via a promissory note.

  Correct Answer: B

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

• Question 99:

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

  A. 30 days.

  B. 60 days.

  C. 90 days.

  D. one year.

  Correct Answer: C

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

• Question 100:

  Which of the following entities must sign a "consent to service of process," thereby allowing the Administrator to receive legal documents that are meant to be served to the entity in place of that entity?

  I. agents

  II. investment advisers

  III. investment adviser representatives

  IV.

  broker-dealers

  A.

  I and IV only

  B.

  II and III only

  C.

  II and IV only

  D.

  I, II, III, and IV

  Correct Answer: D

  Agents, investment advisers, investment adviser representatives, and broker-dealers must all sign a consent to service of process, allowing the Administrator to receive legal documents in their stead. The consent to service of process must accompany the application for registration with the state or the documentation provided with a notice filing when permitted.