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

FINRA FINRA-SERIES-63 Online Questions & Answers

• Question 151:

  Registered agent Ina Scent has had her license suspended by the state Administrator prior to an administrative hearing on the order.

  Which of the following statements is true regarding Ina's situation?

  A. Ina can sue the Administrator because she was not afforded a hearing before the suspension took place.
  B. Ina can make a written request that a hearing on the issue be scheduled within ten business days of her request and may continue working with clients while waiting for her day in court.
  C. Ina can make a written request that a hearing on the issue be scheduled within fifteen business days of her request and may not continue working with clients unless the Administrator vacates the order until final determination.
  D. Ina can immediately file an appeal of the suspension in a court of law.
  C. Ina can make a written request that a hearing on the issue be scheduled within fifteen business days of her request and may not continue working with clients unless the Administrator vacates the order until final determination.

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  Explanation/Reference:

  When Ina receives notice of her license suspension, she can make a written request that a hearing on the issue be scheduled within fifteen business days of her request. She cannot continue working with clients unless the Administrator vacates the order until final determination because her license is still suspended pending final determination. If, after the hearing, the order still stands, Ina can file an appeal of the suspension with a court of law if she does so within 60 days.

• Question 152:

  Jeremy Sly considered himself somewhat of an inventor. The only problem was that his day job interfered with his opportunity to exercise his creativity. He came up with a plan to get outside investors to support his inventive activities. To this end, he produced and distributed a brochure advertising partnership interests with a guaranteed return on investment of at least 15% after the first 12 months, based on what he had allegedly generated from his other (non-existent) inventions.

  Given these facts, is Jeremy guilty of any security violations under the Uniform Securities Act (USA)?

  A. No. The facts don't indicate whether any partnership interests were actually sold, and there can be no violation unless there is a sale.
  B. No. An interest in a partnership is not considered a security.
  C. No. It is not against the law to believe in oneself and promote one's ideas.
  D. Yes. Even an "offer" to sell securities must not contain any untruths.
  D. Yes. Even an "offer" to sell securities must not contain any untruths.

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  Explanation/Reference:

  Yes. Jeremy is guilty of security violations under the Uniform Securities Act when he provides misleading information when offering securities for sale, even if no securities are actually sold. Partnership interests fall under the definition of securities, and Jeremy's claim to have generated a return of at least 15% on other inventions that he never created is an absolute falsehood.

• Question 153:

  Which of the following is an example of a non-issuer transaction?

  A. IBM sells a new issue of bonds to an insurance company.
  B. Jose purchases a 10-year bond issued by Progress Energy when it has 6 years remaining to maturity.
  C. Google offers more shares of its stock for sale to the public.
  D. NewCorp, which has been a privately held company, is engaging in an initial public offering (IPO) of its stock.
  B. Jose purchases a 10-year bond issued by Progress Energy when it has 6 years remaining to maturity.

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  Explanation/Reference:

  When Jose buys a 10-year bond that has 6 years remaining to maturity, it is a non-issuer transaction since he is buying it in the secondary market from another investor, and Progress Energy does not benefit from the transaction. If a firm receives money when its securities are sold, it is considered an issuer transaction; otherwise it is a non-issuer transaction. When Progress Energy originally issued the bond, it had ten years to maturity, and Progress Energy received the proceeds from the bond issue; that was an issuer transaction. When Jose buys the bond, another investor is receiving the proceeds. When IBM sells new bonds, regardless of whether it is to the general public or to an institutional investor, IBM receives the proceeds from the transaction, so it is an issuer transaction. Similarly, when a firm that is already publicly held, like Google, sells more shares, the firm receives money from the sale, just as when a firm that is going public for the first time, like NewCorp, receives the proceeds generated through the IPO. Those are examples of issuer transactions.

• Question 154:

  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
  I. agents II. investment advisers III. investment adviser representatives IV. broker-dealers
  D. I, II, III, and IV

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  Explanation/Reference:

  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.

• Question 155:

  Ari Gaunt is a registered agent employed by Small andAssociates Broker-Dealers. He has been notified of a hearing regarding the revocation of his license for making unauthorized trades on some of his clients' accounts.

  Which of the following statements is necessarily true?

  A. If Ari is found guilty and has his license revoked, Small and Associates will have its license revoked as well and must reapply for reinstatement by filling out an application and paying the requisite filing fees.
  B. If Ari is found guilty and has his license revoked, Small and Associates will be subject to a fine.
  C. If Ari is found guilty and has his license revoked, he can appeal the decision in a court of law if he files the appeal within sixty days.
  D. The Administrator of the state can assess Ari with both civil and criminal penalties.
  C. If Ari is found guilty and has his license revoked, he can appeal the decision in a court of law if he files the appeal within sixty days.

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  Explanation/Reference:

  If Ari is found guilty of making unauthorized trades on his clients' accounts and has his license revoked, he can appeal the decision in a court of law if he files the appeal within sixty days. Small and Associates license is not in danger as long as the firm has been providing competent supervision of Ari and its other agents. It will not be required to pay a fine based on Ari's fraudulent activities. Ari may end up with civil and criminal penalties, but the Administrator cannot assess them. Only a court of law can do that.

• Question 156:

  Assuming there is not a stop order or a proceeding pending, under the registration by coordination process a security's registration with the state becomes effective:

  A. only when it is approved by the state Administrator, regardless of whether it has been approved by the SEC.
  B. immediately after approval by the SEC as long as the registration statement has been on file for at least 20 days or the Uniform Securities Act has provided an exemption to this waiting period.
  C. immediately subsequent to approval by the SEC, regardless of how long the registration statement has been on file.
  D. only when it is approved by the state Administrator, who will review the registration documentation upon notification that SEC approval has been granted.
  B. immediately after approval by the SEC as long as the registration statement has been on file for at least 20 days or the Uniform Securities Act has provided an exemption to this waiting period.

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  Explanation/Reference:

  Under the registration by coordination process, the security's registration with the state becomes effective immediately after approval by the SEC as long as the registration has been on file for at least 20 days or the Uniform Securities Act has provided an exemption to this waiting period. This assumes, of course, that there is not a stop order or a proceeding pending.

• Question 157:

  Nancy's Aunt Ethel died, making Nancy executrix of her estate. In going through Aunt Ethel's belongings, Nancy discovered some stock certificates that she learned had been issued by a small New Jersey firm that was still in business. The problem lay in the fact that Nancy's Aunt Ethel had moved from New Jersey to Florida years ago, and the stock is registered only in the state of New Jersey. Nancy herself is a resident of Massachusetts.

  What does Nancy have to do in order to sell this stock?

  A. Nancy can sell the stock without a problem as executrix of her aunt's estate.
  B. Nancy will need to contact a securities law firm in Florida to help her register the stock in the state of Florida.
  C. Nancy will need to contact a broker-dealer licensed in the state of New Jersey to help her with the sale of this stock.
  D. Nancy will have to establish a mailing address in New Jersey before she can legally sell this stock.
  A. Nancy can sell the stock without a problem as executrix of her aunt's estate.

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  Explanation/Reference:

  Nancy can sell the stock without a problem as executrix of her aunt's estate. This is considered to be a fiduciary transaction and, as such, it is an exempt transaction.

• Question 158:

  Registration by coordination is provided for by which of the following federal securities acts?

  A. Securities Act of 1933
  B. Securities and Exchange Act of 1934
  C. Investment Advisers Act of 1940
  D. Investment Company Act of 1940
  A. Securities Act of 1933

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  Explanation/Reference:

  The Securities Act of 1933 is the Act that requires that all new securities be registered and provides for registration by coordination.

• Question 159:

  A-2-Z Associates is a full service brokerage and is also in the investment advisory industry, charging its clients for investment advice for additional remuneration. Which of the following statements is true?

  A. A-2-Z can charge an individual client an advisory fee for its advice or a commission when it executes a trade that the client makes based on that advice, but not both.
  B. A-2-Z can charge the client both an advisory fee for its advice and a commission on any trade the client makes based on the advice. This is all laid out in the advertising brochures full service brokerage firms like A-2-Z provide their prospective clients.
  C. A-2-Z can charge the client both an advisory fee for its advice and a commission for the execution of a trade based on that advice, but it must inform the client of its potential conflict of interest in doing so and get the client's written consent.
  D. A-2-Z can charge the client only an advisory fee when it is serving as an investment adviser; no commissions may be collected.
  C. A-2-Z can charge the client both an advisory fee for its advice and a commission for the execution of a trade based on that advice, but it must inform the client of its potential conflict of interest in doing so and get the client's written consent.

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  Explanation/Reference:

  A-2-Z can charge a client it advises an advisory fee for its advice and a commission for the execution of a trade based on that advice, but it must inform the client of the potential conflict of interest and get the client's written consent. It must also provide an itemized statement of all such agency cross transactions performed for the client at least annually.

• Question 160:

  Ken Con is an agent with Blue Sky Broker-Dealers. He gets up early each morning so that he can study any late-breaking news that may affect the markets and figure out ways to incorporate this news into conversations with select clients in order to pressure them to restructure their portfolios by selling holdings they have in one particular industry to invest the money in another particular industry.

  Ken has been very successful with this strategy and executes more trades for his clients than any other agent with the firm, but is he in danger of losing his license?

  A. Yes. Ken is engaging in churning, a prohibited practice and can have his license revoked or suspended.
  B. It depends. If his clients have lost money, Ken may lose his license; but if a review indicates that his clients' accounts earn profits, then his license is safe.
  C. Yes. Ken is guilty of the prohibited practice of "tailgating."
  D. No. Ken is just a successful sales person who is working harder than the other agents in the firm.
  A. Yes. Ken is engaging in churning, a prohibited practice and can have his license revoked or suspended.

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  Explanation/Reference:

  Yes. If Ken is getting up each morning in order to collect news that he can use to pressure his clients to buy and sell their securities, Ken is engaging in churning and can have his license revoked or suspended for this prohibited practice. A lot of the news might have a short-term effect on a particular industry, but any profits gained by trying to time the market will often not be sufficient to cover the commissions that the investor had to pay on the transactions and the taxes they may have to pay on the short-term capital gains they realized when they sold securities. Regardless, it doesn't matter whether his clients' accounts show a profit or not.