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

FINRA FINRA-SERIES-63 Online Questions & Answers

• Question 201:

  Which of the following would not appear on an order ticket?

  A. the stock symbol
  B. the account number of the client buying or selling the security
  C. the settlement date
  D. the agent's commission
  D. the agent's commission

  ---

  Explanation/Reference:

  The agent's commission does not appear on an order ticket. It does appear on the trade confirmation, however, which the client receives.

• Question 202:

  Investment Adviser Foo Lish, LLC has begun serving as a custodian of its clients' assets. Foo Lish, LLC must now

  I. file a new U-5 form with the Administrator.

  II. meet higher net capital requirements than before.

  III. file an updated Form ADV with the Administrator.

  IV.

  pay a CPA to do an annual unannounced audit of the firm.

  A. I, II, III, and IV
  B. II, III, and IV only
  C. II and III only
  D. I and II only
  I. file a new U-5 form with the Administrator. II. meet higher net capital requirements than before. III. file an updated Form ADV with the Administrator. IV. pay a CPA to do an annual unannounced audit of the firm.
  B. II, III, and IV only

  ---

  Explanation/Reference:

  Selections II, III, and IV are correct. When Foo Lish begins serving as a custodian of its clients' assets, it must file an updated Form ADV with the Administrator, meet higher net capital requirements than before, and pay a CPA to do an annual unannounced audit of the firm. The U-5 form is filed when a representative leaves the firm.

• Question 203:

  Which of the following is not in itself a reason for the Administrator to deny, suspend, or revoke the license of a person?

  A. The applicant has never before worked in the securities industry although he has received the requisite training.
  B. Some of the information supplied on the registration application was found to be false.
  C. The person has been convicted of check kiting within the past ten years.
  D. The person is a broker-dealer whose agents have repeatedly been accused of churning and burning, according to written client complaints.
  A. The applicant has never before worked in the securities industry although he has received the requisite training.

  ---

  Explanation/Reference:

  An Administrator may not deny, suspend, or revoke the license of a person simply because the applicant has never before worked in the securities industry if that person has received the training necessary. The Uniform Securities Act specifically states that the order cannot be entered ". . .solely on the basis of lack of experience if the applicant or registrant is qualified by training, knowledge, or both."

• Question 204:

  In which of the following scenarios would the Administrator of a state not have jurisdiction?

  I. A monthly newspaper published by a resident of the state who is not a registered investment adviser has a column in which the publisher makes specific investment recommendations for clients who write in for advice. About 80% of the circulation of the publication is to out-of-state residents.

  II. An internet blog posted by an out-of-state resident makes investment recommendations.

  III.

  An out-of-state firm solicits buyers for its promissory notes within the state.

  A. I only
  B. II only
  C. I and II only
  D. I, II, and III
  I. A monthly newspaper published by a resident of the state who is not a registered investment adviser has a column in which the publisher makes specific investment recommendations for clients who write in for advice. About 80% of the circulation of the publication is to out-of-state residents. II. An internet blog posted by an out-of-state resident makes investment recommendations. III. An out-of-state firm solicits buyers for its promissory notes within the state.
  C. I and II only

  ---

  Explanation/Reference:

  The administrator of a state would not have jurisdiction in the scenarios described in Selections I and II. In Selection I, more than 2/3 of the circulation of the newspaper is outside the state, which excludes it from the jurisdiction of the Administrator. Selection II describes an electronic communication that originates from outside the state, which excludes it. Selection III constitutes an offer to sell securities within the state, and this will always fall under the jurisdiction of the Administrator of the state.

• Question 205:

  A client calls CanDo Broker-Dealers with a market-not-held order to buy 5,000 shares of China Security and Surveillance Technology, Inc. (CSR), which sells on the NYSE, "at a good price today." The stock had opened at $5.13, traded as high as $5.36 during the day, and closed at $5.10. CanDo executed the purchase at a price of $5.31, so at market close, the client had lost $1,050. The client can

  A. sue CanDo for not getting him the best price of the day-or anything close to it.
  B. refuse to pay CanDo commissions for the purchase.
  C. refuse to pay for the stock on the settlement date.
  D. do nothing about it.
  D. do nothing about it.

  ---

  Explanation/Reference:

  If a client calls CanDo with a market-not-held order to buy 5,000 shares of CSR, he is leaving the price and timing of the trade to the broker's discretion, and the broker cannot be held responsible if the price turns out not to be optimal after-the-fact. The client still owes CanDo its commissions, and to refuse to pay for the stock on the settlement date would subject the client to criminal penalties.

• Question 206:

  Jack is employed by NewCorp, which is engaging in an initial public offering (IPO). Jack will need to register as a sales representative if he:

  A. engages in transactions with the underwriters of the IPO for the purpose of taking the firm public.
  B. represents NewCorp in any transactions with financial institutions.
  C. participates in the selling of the new stock to individual investors.
  D. Jack will need to register as a sales representative if he performs any one of the above activities.
  C. participates in the selling of the new stock to individual investors.

  ---

  Explanation/Reference:

  Jack will need to register as a sales representative if he participates in the sale of new stock to individual investors. Those who deal directly with the public need to register as sales representatives under the Uniform Securities Act. If Jack limits his involvement to transactions with the underwriters or financial institutions, he need not register.

• Question 207:

  A tombstone advertisement is

  A. an offer to sell a new security.
  B. the announcement of a new security that may become available for purchase.
  C. the only type of advertisement that an investment advisory firm is allowed to use.
  D. an offer to sell a new security that is being issued by an Arizona firm.
  B. the announcement of a new security that may become available for purchase.

  ---

  Explanation/Reference:

  A tombstone advertisement is an announcement of a new security that may become available for purchase. It is the only type of advertisement that is allowed during the "cooling off period" once a firm has filed a registration statement for a new security. It is not an offer to sell the security, an act that is strictly prohibited during this period.

• Question 208:

  Which of the following would not be a prohibited activity for a broker-dealer?

  I. A broker-dealer tells a client that a municipal revenue bond offered by the city of Boston, Massachusetts is almost risk-free because it is backed by the taxes paid to the city, and the city generates a lot of tax dollars.

  II. A broker-dealer sells a client some bonds that the broker-dealer has in its portfolio, after informing the client that it is acting as a seller in the transaction.

  III. A broker-dealer purchases some stock that a client is selling for its own portfolio, after informing the client that it is acting as a buyer in the transaction.

  IV.

  A broker-dealer purchases 1,000 shares of Southwest Airlines for a client who calls and asks the broker-dealer to buy some shares of a domestic airline stock at a good price for him and receives written discretionary authority from the client two days later, prior to the settlement date.

  A. I only
  B. II and III only
  C. I and IV only
  D. II, III and IV only
  I. A broker-dealer tells a client that a municipal revenue bond offered by the city of Boston, Massachusetts is almost risk-free because it is backed by the taxes paid to the city, and the city generates a lot of tax dollars. II. A broker-dealer sells a client some bonds that the broker-dealer has in its portfolio, after informing the client that it is acting as a seller in the transaction. III. A broker-dealer purchases some stock that a client is selling for its own portfolio, after informing the client that it is acting as a buyer in the transaction. IV. A broker-dealer purchases 1,000 shares of Southwest Airlines for a client who calls and asks the broker-dealer to buy some shares of a domestic airline stock at a good price for him and receives written discretionary authority from the client two days later, prior to the settlement date.
  B. II and III only

  ---

  Explanation/Reference:

  Only Selections II and III describe activities that are not prohibited for a broker-dealer. A broker-dealer can act as a dealer and either sell securities that it owns to a client, as described in Selection II, or buy securities from a client, as described in Selection III, to hold in its own portfolio as long as it discloses to the client that it is doing so. A broker- dealer cannot tell a client that a revenue bond issued by the city of Boston, Massachusetts is almost risk-free since there is a risk of default, especially in the case of a revenue bond, which is not backed by the full taxing power of the city, but only by the revenues generated by a specific project. Moreover, there are other risks involved in bond investments, such as interest rate risk, so Selection I is a prohibited activity. A broker-dealer cannot make a discretionary trade for a client that involves more than just price and time within receiving written authorization prior to executing the trade, so Selection IV also describes a prohibited activity.

• Question 209:

  Penny Swyne, an agent employed by Bear Broker-Dealers, has received a written complaint via e-mail from Mr. Wolf regarding her performance as his agent. What are Ms. Swyne's legitimate options?

  A. Ms. Swyne can call Mr. Wolf and offer to meet him for a romantic dinner and try to convince him to revoke the complaint.
  B. As illegal as it may sound, since the complaint was via e-mail, Ms. Swyne can hit the delete button and make it all go away.
  C. Ms. Swyne must forward the complaint to the state Administrator.
  D. Ms. Swyne must provide Bear Broker-Dealers with a copy of the complaint.
  D. Ms. Swyne must provide Bear Broker-Dealers with a copy of the complaint.

  ---

  Explanation/Reference:

  Ms. Swyne must provide Bear Broker-Dealers with a copy of the complaint sent by Mr. Wolf. Bear Broker-Dealers is required to respond to this complaint in writing and keep a record of it. E-mails are treated the same as snail-mails.

• Question 210:

  Trevor is currently a registered agent in the state of Connecticut where he has been employed by Connect and Company, a broker-dealer that is registered in Connecticut and has subsidiary operations in Massachusetts, New Jersey, and New York. Trevor has moved to Massachusetts and is now associated with one of Connect's subsidiaries, a broker-dealer registered in the state. Trevor has applied to the Administrator of Massachusetts for registration as an agent.

  Can Trevor execute purchases and sales for clients while his registration is still pending?

  A. No. Until he is informed by the Administrator of Massachusetts that his application has been accepted, Trevor may not affect any securities transactions in Massachusetts.
  B. Yes. Because Trevor is a registered agent in another state and is affiliated with a broker- dealer that is registered in the state of Massachusetts, he is not restricted from executing trades.
  C. Yes. Trevor can execute trades for new clients he solicits, but only for sixty days while his registration is pending.
  D. It depends. Trevor can execute some purchases and sales, but only for clients that he already had who may have recently relocated to Massachusetts and only for sixty days while his registration is pending.
  D. It depends. Trevor can execute some purchases and sales, but only for clients that he already had who may have recently relocated to Massachusetts and only for sixty days while his registration is pending.

  ---

  Explanation/Reference:

  It depends. Because he is a registered agent in another state and the broker-dealer he is now affiliated with is registered in the state of Massachusetts, Trevor can execute purchases and sales, but only for existing clients while his registration with the Massachusetts Administrator is still pending and only for sixty days. This assumes, of course, Trevor has no violations that would restrict him from registering in Massachusetts.