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

FINRA FINRA-SERIES-63 Online Questions & Answers

• Question 161:

  Kevin has a pair of season tickets to the Boston Red Sox games. He and his wife can't attend all the games themselves, so Kevin has created "packages" of eight games each that he is listing for sale on Craig's List.

  Do these "packages" meet the definition of securities, and, if so, does Kevin need to register them with the state before offering them for sale?

  A. If Kevin will be profiting from the sale of the packages, the packages are defined to be securities, but since he's selling the packages to only a few people, he will not have to register them with the state. (Kevin may, however, be guilty of violating ticket scalping laws.)
  B. Only if Kevin will be selling the packages at or below cost are the packages not considered to be securities, in which case Kevin will not have to register them with the state.
  C. The packages are not considered to be securities since each package is merely a purchase and sale agreement between Kevin and another person. There is no third party involved. Because they do not meet the definition of securities, Kevin does not need to register them with the state.
  D. Statements A and B are both true statements.
  C. The packages are not considered to be securities since each package is merely a purchase and sale agreement between Kevin and another person. There is no third party involved. Because they do not meet the definition of securities, Kevin does not need to register them with the state.

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  Explanation/Reference:

  The packages are not considered to be securities since each package is simply a purchase and sale agreement between Kevin and another person, with no third party involvement; and since they are not securities, Kevin need not register them with the state. A buyer of one of the packages is not expecting to earn a profit on this investment "solely through the efforts of others," which is one of the defining characteristics of a security, as ruled by the U.S. Supreme Court in 1946.

• Question 162:

  Your client calls you with a market order to purchase 500 shares of the stock of Oracle and asks when payment will be due. If today is Wednesday, September 15th, you inform the client that payment is due on

  A. Monday, September 20th.
  B. Thursday, September 16th.
  C. Friday, September 17th.
  D. Saturday, September 18th.
  A. Monday, September 20th.

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  Explanation/Reference:

  If your client places an order to purchase 500 shares of Oracle on the open market on Wednesday, September 15th, payment will be due on Monday, September 20th. The settlement date for stock transactions is T + 3, which means the third business day after the trade. Saturday is not a business day.

• Question 163:

  Rich Quick is a broker-dealer licensed in the state of Massachusetts and has offices only within the state. Two of Rich Quick's clients regularly vacation in Florida during the winter months, and Rich Quick executes trades for them when they call him from out-of-state.

  Based on these facts,

  I. Rich Quick needs to register as a broker-dealer in the state of Florida as well.

  II. Rich Quick needs to register only as an agent in the state of Florida.

  III. Rich Quick needs to establish an office in the state of Florida in order to transact business.

  IV.

  Rich Quick need not register in Florida.

  A. Statements I and III are true.
  B. Statements II and III are true.
  C. Only Statement I is true.
  D. Only Statement IV is true.
  I. Rich Quick needs to register as a broker-dealer in the state of Florida as well. II. Rich Quick needs to register only as an agent in the state of Florida. III. Rich Quick needs to establish an office in the state of Florida in order to transact business. IV. Rich Quick need not register in Florida.
  D. Only Statement IV is true.

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  Explanation/Reference:

  Based on the facts provided, Rich Quick need not register in Florida since he has no offices in the state of Florida, and he is conducting business for existing clients who are merely vacationing in Florida and are not residents of the state.

• Question 164:

  In which of the following scenarios is an investment adviser representative required to disclose the fact that someone other than the representative performed the research on which his advice to the client is based?

  I. The investment adviser representative recommends the same asset allocation for his client that a buddy of his did after his buddy had done some research for a client with similar characteristics.

  II. The investment adviser representative provides a recommendation for his client based on research provided by a broker-dealer that provides the investment adviser with its analysts' recommendations in return for trades that the investment adviser executes using the services of the broker-dealer, as well as a couple of other research sources he finds on the internet.

  III.

  The investment adviser representative submitted his client's information to a data base that provided a recommendation for the asset allocation of the client's investment monies that the adviser deemed was sound and, therefore, recommended it to his client.

  A. I only
  B. II only
  C. III only
  D. I and III only
  I. The investment adviser representative recommends the same asset allocation for his client that a buddy of his did after his buddy had done some research for a client with similar characteristics. II. The investment adviser representative provides a recommendation for his client based on research provided by a broker-dealer that provides the investment adviser with its analysts' recommendations in return for trades that the investment adviser executes using the services of the broker-dealer, as well as a couple of other research sources he finds on the internet. III. The investment adviser representative submitted his client's information to a data base that provided a recommendation for the asset allocation of the client's investment monies that the adviser deemed was sound and, therefore, recommended it to his client.
  D. I and III only

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  Explanation/Reference:

  An investment adviser representative is required to disclose the fact that someone else performed the research on which advice to the client is based in scenarios described in I and III only. If the representative provides a recommendation to the client based solely on the recommendations provided by others to whom he provided the data, he must disclose this. However, if the adviser representative has based his recommendations on his own assessment of analysts' reports and recommendations, as is suggested in Selection II, then there is no disclosure requirement.

• Question 165:

  Which of the following does not describe a prohibited practice for broker-dealers under the NASAA Model Rules?

  I. SecureMoney Broker-Dealers has received a request from a client who wants SecureMoney to "identify a few solid firms in the Asian market and invest up to $20,000 in them." SecureMoney executes the purchases and receives the requisite signed discretionary authorization from the client before the settlement date.

  II. CanDo Broker-Dealers executes a margin transaction for a client, promptly receiving a signed, written margin agreement from the client after the transaction takes place.

  III.

  GetErDone Broker-Dealers receives a call from a client who wants to purchase some securities on margin. GetErDone has the client come into the office to sign a properly executed margin agreement prior to effecting the transaction.

  A. None of the selections are prohibited practices.
  B. I and III only
  C. II and III only
  D. III only
  I. SecureMoney Broker-Dealers has received a request from a client who wants SecureMoney to "identify a few solid firms in the Asian market and invest up to $20,000 in them." SecureMoney executes the purchases and receives the requisite signed discretionary authorization from the client before the settlement date. II. CanDo Broker-Dealers executes a margin transaction for a client, promptly receiving a signed, written margin agreement from the client after the transaction takes place. III. GetErDone Broker-Dealers receives a call from a client who wants to purchase some securities on margin. GetErDone has the client come into the office to sign a properly executed margin agreement prior to effecting the transaction.
  C. II and III only

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  Explanation/Reference:

  Neither Selection II nor Selection III describes a prohibited practice for broker-dealers under the NASAA Model Rules. Broker-dealers are permitted to execute margin transactions for clients as long as they receive a signed, written margin agreement promptly after the initial margin transaction takes place. The agreement need not be signed beforehand. Discretionary authorizations do need to be signed before the broker-dealer executes any discretionary transactions for a client, so Selection I describes a prohibited practice.

• Question 166:

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

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  Explanation/Reference:

  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 167:

  To continue operating as an agent, broker-dealer, investment adviser, or investment adviser representative next year, you must pay the filing fee to renew your license with the state Administrator by

  A. January 15th of the new year.
  B. January 30th of the new year.
  C. December 31st of this year.
  D. the anniversary date of the original issue date on your license.
  C. December 31st of this year.

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  Explanation/Reference:

  To continue operating as an agent, broker-dealer, investment adviser, or investment adviser representative next year, you must pay your filing fee to renew your license by December 31st of this year. Otherwise, your license will expire. There is no grace period.

• Question 168:

  Alter Advisers and Associates is a small investment adviser partnership registered only in a single state. One of the partners has died, and the surviving spouse has sold that partnership interest to the surviving partners.

  Which of the following statements are true?

  I. Alter Advisers must inform the state Administrator of this event.

  II. Alter Advisers must inform the SEC of this event.

  III.

  Alter Advisers must notify the firm's clients of this event.

  A. I only
  B. I and II only
  C. I and III only
  D. I, II, and III
  I. Alter Advisers must inform the state Administrator of this event. II. Alter Advisers must inform the SEC of this event. III. Alter Advisers must notify the firm's clients of this event.
  C. I and III only

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  Explanation/Reference:

  Only Selections I and III are correct. If one of the partners dies, Alter Advisers must inform both the state Administrator and the firm's clients of this event. This represents a change in the partnership. The SEC need not be notified since Alter Advisers is not registered with the SEC.

• Question 169:

  In accordance with the National Securities Markets Improvement Act of 1996, which of the following is a federal covered adviser and, therefore, exempt from registering with the state Administrator?

  I. An adviser who does business in 26 states.

  II. An adviser who manages the portfolio of a mutual fund that is registered with the SEC.

  III.

  An adviser with $35 million in assets under management

  A. All of the selections meet the qualifications of a federal covered adviser.
  B. I and II only
  C. II and III only
  D. I and III only
  I. An adviser who does business in 26 states. II. An adviser who manages the portfolio of a mutual fund that is registered with the SEC. III. An adviser with $35 million in assets under management
  C. II and III only

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  Explanation/Reference:

  The advisers described in Selections II and III are federal covered advisers and, therefore, exempt from registering with the state Administrator. An adviser who advises a registered investment company, as in Selection II, and an adviser with over $30 million in assets under management, as in Selection III are exempt. In order to be exempt from registration, the adviser in Selection I would have to be doing business in more than 30 states.

• Question 170:

  Nat Smart was employed as an investment adviser representative and sold many of his clients on a municipal bond fund of which he was fond, telling his clients that the returns earned on it were completely free from federal taxation. Unfortunately, he had some unhappy clients when, at the end of the year, they discovered that they had to pay federal tax on the capital gains earned by the fund when it sold some of the bonds it held. Nat was as surprised as they were.

  Based on these facts, which of the following statements is necessarily true?

  I. Because Nat was as surprised as they were, he is guiltless.

  II. Nat is subject to civil liability payments.

  III.

  Nat will be subject to the criminal penalties for fraud and may spend time in prison.

  A. I only
  B. II only
  C. II and III only
  D. III only
  I. Because Nat was as surprised as they were, he is guiltless. II. Nat is subject to civil liability payments. III. Nat will be subject to the criminal penalties for fraud and may spend time in prison.
  B. II only

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  Explanation/Reference:

  Only Selection II is an accurate statement. In telling his clients that the returns earned on a municipal bond fund were totally tax-free, Nat misled the clients, whether intentionally or not. This constitutes fraud, and Nat is, at a minimum subject

  to civil liability payments, so this is "necessarily" true.

  Whether or not Nat will be subject to criminal penalties for fraud and spend time in prison depends on his ability to prove that he had no knowledge that he was misleading his clients.