FINRA FINRA-SERIES-63 Online Practice Questions and Exam Preparation

FINRA FINRA-SERIES-63 Online Questions & Answers

• Question 131:

  Under the NASAA Model Rules, which of the following must an investment adviser provide its clients with at least once a year?

  A. the total number of agency cross transactions completed for the client during the period
  B. the total amount of commissions or other compensation that the investment adviser received or expects to receive in connection with agency cross transactions performed for the client during the period
  C. the number of any complaints that each of its investment adviser representatives has received during the period
  D. both A and B
  D. both A and B

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  Explanation/Reference:

  Under NASAA Model Rules, an investment adviser must provide its clients with the total number of agency cross transactions completed for the client during the period as well as the total amount of any commissions or other compensation that the investment adviser received or expects to receive in connection with agency cross transactions performed for the client during the period.

• Question 132:

  In order to maintain its registration with a state, a broker-dealer may be required to:

  I. take a written or oral exam.

  II. pay an annual filing fee.

  III. maintain a minimum net capital.

  IV.

  file all advertising material with the Administrator.

  A. I and II only
  B. II and III only
  C. II, III, and IV only
  D. I, II, III, and IV
  I. take a written or oral exam. II. pay an annual filing fee. III. maintain a minimum net capital. IV. file all advertising material with the Administrator.
  D. I, II, III, and IV

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  Explanation/Reference:

  In order to maintain its registration with a state, a broker-dealer may be required to take a written or oral exam, pay an annual filing fee, maintain a minimum net capital, and file all advertising material with the state's Administrator. The Administrator of each state has the authority to determine the specific requirements for the state. All of the selections are within the realm of the Administrator's jurisdiction.

• Question 133:

  When selling shares in a closed-end investment company, an agent must inform the client of any

  I. commissions

  II. underwriting fees

  III.

  miscellaneous offering expenses

  A. I, II and III
  B. I only
  C. I and II only
  D. I and III only
  I. commissions II. underwriting fees III. miscellaneous offering expenses
  A. I, II and III

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  Explanation/Reference:

  When selling shares in a closed-end investment company, an agent must inform the client of any commissions, underwriting fees, or miscellaneous other offering expenses involved.

• Question 134:

  Individual states are prohibited from requiring a broker-dealer or investment adviser to file financial reports more frequently than:

  A. once a year.
  B. twice a year.
  C. four times a year.
  D. twelve times a year.
  C. four times a year.

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  Explanation/Reference:

  Individual states are prohibited from requiring a broker-dealer or investment adviser to file financial reports more frequently than four times a year. Under the Securities and Exchange Act of 1934, individual states are prohibited from imposing more stringent requirements than those already required by the SEC, and the SEC requires quarterly reporting. Therefore, a state may not require that a broker-dealer or investment adviser file monthly reports with it.

• Question 135:

  Under the NASAA Model Rules, the statute of limitations for civil liabilities is

  A. the earlier of two years after the discovery of the facts and four years after the violation.
  B. the earlier of three years after the discovery of facts and five years after the violation.
  C. three years after the discovery of the facts and four years after the violation, whichever is greater.
  D. the earlier of two years after the discovery of facts and three years after the sale.
  D. the earlier of two years after the discovery of facts and three years after the sale.

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  Explanation/Reference:

  Under the NASAA Model Rules, the statue of limitations for civil liabilities is the earlier of two years after the discovery of facts and three years after the sale. This follows the recommendations provided by the Uniform Securities Act of 1956.

• Question 136:

  Which of the following describes an investment adviser that is not required to register with the state Administrator?

  A. MoeMoney Investment Advisers, LLC has an office in the state with a client base of fifty individuals.
  B. Financial Freedom Investment Advisers has no offices in the state although it does advise six wealthy individuals who are residents of the state.
  C. CanDo Broker-Dealers is a state-registered broker-dealer. It has begun to offer asset management services to a few of its wealthier clients for a small management fee equal to 0.1% of the assets under management.
  D. Buckeye Investment Advisers has no offices in the state, but it provides portfolio management services to an insurance company located in the state.
  D. Buckeye Investment Advisers has no offices in the state, but it provides portfolio management services to an insurance company located in the state.

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  Explanation/Reference:

  Buckeye Investment Advisers is not required to register with the state Administrator since it has no offices in the state and provides portfolio management services to an institutional investor within the state. Both MoeMoney and Financial Freedom must register since they advise more than 5 individual clients. It doesn't matter in that case whether they have offices within the state or not. CanDo is registered only as a broker-dealer, but it has begun offering investment advice for a fee, so it must also register with the state as an investment adviser.

• Question 137:

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

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

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  Explanation/Reference:

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

• Question 138:

  The Administrator may require a firm to supply it with any prospectus, pamphlet, advertisement, or other sales literature intended for prospective investors unless the security

  I. will be sold only through an investment advisory firm.

  II. is a federal covered security.

  III.

  is issued by a state credit union.

  A. I, II and III
  B. I only
  C. II only
  D. II and III only
  I. will be sold only through an investment advisory firm. II. is a federal covered security. III. is issued by a state credit union.
  D. II and III only

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  Explanation/Reference:

  Only Selections II and III are correct. The Administrator may require a firm to supply it with any prospectus, pamphlet, advertisement, or other sales literature intended for prospective investors unless the security is a federal covered security or is issued by a state credit union, both of which are on a longer list of exempted securities. It doesn't matter whether or not the securities will be sold to clients of an investment advisory firm.

• Question 139:

  Carrie is a registered agent employed by CanDo Broker-Dealers. Her uncle is a minister who regularly refers his parishioners to Carrie, in return for which Carrie has agreed to donate a quarter of her commissions from these transactions to the parish.

  Is Carrie doing anything illegal?

  A. No. Carrie is just donating some of her commissions back to the church, and transactions with
  B. Yes. Carrie is splitting her commissions with an entity that is not affiliated with her broker-dealer
  C. It depends. As long as the church parishioners are aware of the arrangement between Carrie and
  D. It depends. If the church itself is a client of CanDo's, then it is considered to be affiliated with
  B. Yes. Carrie is splitting her commissions with an entity that is not affiliated with her broker-dealer

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  Explanation/Reference:

  Yes. Carrie is violating NASAA's Model Rules in splitting her commissions with an entity that is not a registered agent affiliated with her firm. It doesn't matter that the entity is a church, even if that church is itself a client of the broker-dealer.

• Question 140:

  A hypothecation agreement refers to

  A. an agreement wherein a client gives his broker-dealer discretion to purchase securities that the broker-dealer deems appropriate in whatever quantity the broker-dealer feels appropriate and at a time and price the broker-dealer believes is a good deal.
  B. an agreement that a client must sign prior to executing any short sales with the broker- dealer.
  C. an agreement signed by a client who is executing a margin transaction that allows the broker to hold the margined securities in street name as collateral for the loan.
  D. a document signed by a client indicating that he or she understands that some of the charts and examples presented in a broker-dealer's advertising literature are based on hypothetical trades.
  C. an agreement signed by a client who is executing a margin transaction that allows the broker to hold the margined securities in street name as collateral for the loan.

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  Explanation/Reference:

  A hypothecation agreement refers to an agreement signed by a client who is executing a margin transaction that allows the broker to hold the margined securities in street name as collateral for the loan.