FINRA FINRA Certifications FINRA-SERIES-63 Questions & Answers

• Question 211:

  Maddie, a registered agent affiliated with broker-dealer QuikDeals, quit her job on the spur of the moment. Under the guidelines of the Uniform Securities Act (USA), who is responsible for notifying the Administrator?

  A. QuikDeals has the sole responsibility for notifying the Administrator. Maddie is no longer deemed to be an agent after she terminated her relationship with QuikDeals, so she need do nothing.

  B. Maddie has the sole responsibility for notifying the Administrator.

  C. It depends. If Maddie becomes affiliated with another broker-dealer within thirty days, then she must notify the Administrator of her termination with QuikDeals and her current affiliation with the new firm. Otherwise, only QuikDeals must notify the Administrator.

  D. Both QuikDeals and Maddie are responsible for notifying the Administrator.

  Correct Answer: D

  Under the guidelines of the USA, when Maddie quits her job as a registered agent with QuikDeals, both QuikDeals and Maddie are responsible for notifying the Administrator. Both the broker-dealer and the agent involved are required to notify the Administrator whenever an agent begins or ends her association with the broker-dealer.

• Question 212:

  Mr. Sailor is cruising through the Bahamas when he learns that a healthcare company in which he owns stock is being sued by former patients, doctors, nurses, and even the federal government. He doesn't have his broker's number handy, and he doesn't have internet access, so he calls his son and tells him to call the broker and instruct the broker to sell his shares. As a registered agent for his broker, you take the call.

  Should you execute this transaction?

  A. Yes. This is a legitimate request from a client, and you are required to follow the client's instructions.

  B. No, not unless you and your broker-dealer have a written document that gives Mr. Sailor's son the power-of-attorney to trade on his account.

  C. Yes, as long as the son presents proper identification that proves his relationship to Mr. Sailor, such as a birth certificate.

  D. Yes, as long as the son is at least 21 years old and not a minor child.

  Correct Answer: B

  No, you cannot execute this transaction unless you and your broker-dealer have a written document that gives Mr. Sailor's son the power-of-attorney to trade on his account. Otherwise, you will be executing an order from an unauthorized third party, which is a prohibited practice, and you can lose your license for doing so.

• Question 213:

  Joe Romeo is a broker-dealer registered with the state. He has recently hired Betty Buxom as his administrative assistant. As part of her duties, he has given her the responsibility for effecting the purchases and sales of securities for some of

  his firm's smaller accounts. Ms. Buxom has never applied for nor been granted registration as a broker-dealer or agent.

  Based on these facts,

  A. the Administrator is required by the Uniform Securities Act to revoke Joe Romeo's registration and file criminal and civil charges against him.

  B. there is no problem as long as Ms. Buxom registers with the state as an agent within thirty days.

  C. the Administrator may elect to revoke or suspend Joe Romeo's registration, and Joe may also face both civil and criminal penalties.

  D. the Administrator is required to turn the case over to the state's district attorney, who will file criminal charges against both Joe Romeo and Betty Buxom.

  Correct Answer: C

  Since Joe Romeo has allowed Betty Buxom to execute trades, a duty that can legally be performed only by a registered broker-dealer or agent, the Administrator may elect to revoke or suspend Joe Romeo's registration, and Joe may also face civil and criminal penalties. Ms. Buxom needed to be registered as an agent prior to effecting any transactions in the securities markets; there is no grace period. The Administrator is not required to take any action, however.

• Question 214:

  Mr. L. Ranger is an agent for a broker-dealer and has overheard "talk" that a merger between two well-known high-tech companies is about to take place. Mr. Ranger knows that, on average, in these instances the target firm's price spikes. He calls his client and good friend, Mr. Tonto, and tells him of the rumor, suggesting that Tonto might want to buy shares in the target firm. He tells Mr. Tonto that if the rumor isn't true, the target firm's price may not spike at all and may, in fact, decline, and suggests that Mr. Tonto not invest any money he isn't willing to lose. Mr. Ranger knows that his friend likes to gamble, and decided he wouldn't be much of a friend if he didn't inform Tonto of this potential opportunity.

  Has Mr. L. Ranger violated any laws or engaged in any prohibited practices?

  A. No. Mr. Ranger and Mr. Tonto are friends, so there can be no violations of any laws or practices because of their non-business relationship.

  B. Yes. Mr. Ranger has engaged in fraud in telling Mr. Tonto about the rumor, given that the merger hasn't been officially announced by the two companies.

  C. No. Mr. Ranger has informed Mr. Tonto that the merger is just a rumor and has informed him of the risk involved. Mr. Ranger is knowledgeable about his friend's risk tolerance level as well and recognizes this investment as one his good friend might want to take.

  D. Yes. Mr. Ranger is privy to knowledge that is not available to the general public and both he and Mr. Tonto will be guilty of illegal insider trading if Mr. Tonto trades on Mr. Ranger's information.

  Correct Answer: C

  No, Mr. Ranger has not violated any laws or engaged in any prohibited practices in his recommendation to Mr. Tonto. He has simply informed Mr. Tonto of the rumor and has told him of the risk involved, and he has not lied or misled Mr. Tonto about the investment. He is also well aware of his friend's risk tolerance level, so he is not making an unsuitable recommendation. This is not considered insider trading since there is no way Mr. Ranger can know whether or not the rumor is true. Selection A is not true because there can be violations of laws or practices, even if the agent and client are friends.

• Question 215:

  You had the misfortune of working as a registered agent for an unscrupulous broker-dealer. You weren't privy to any of it, but apparently, your broker-dealer was guilty of some fraudulent activities and has had his license revoked. In this instance,

  A. you can simply find another broker-dealer to hire you and have your license transferred to him.

  B. you are no longer a licensed agent with the state and must reapply for a license in order to work for another broker-dealer.

  C. the state Administrator will assign you and any other affected agents to work for other broker-dealers registered with the state.

  D. you must wait until the broker-dealer's day in court before you can work in the securities industry again because the Administrator will want to be certain that you knew nothing of it.

  Correct Answer: B

  If you were employed as an agent for a broker-dealer who has had his license revoked, you are no longer a licensed agent with the state and you will have to reapply for a license and pay the requisite filing fees in order to work for another broker-dealer. Your license terminated when your affiliation with the unscrupulous broker ended, even though it was through no fault of your own. Since you have done nothing for which to be penalized, however, your registration becomes effective upon your filing and paying your fees.

• Question 216:

  Rich Writewell wants to begin publishing an independent weekly financial newsletter that will provide investment recommendations as well as other financial news items to the general public. Rich hopes that his newsletter will achieve nationwide circulation within a few months.

  Which of the following statements is true?

  A. Rich will have to register as an investment adviser since his publication will include investment recommendations.

  B. Rich will have to register as an investment adviser only if he sells this newsletter to the public. If the publication is to be distributed free of charge, he will not have to register.

  C. Rich may be exempt from registering as an investment adviser if he is a lawyer, accountant, engineer, or teacher. Otherwise, he will have to register.

  D. Rich will not have to register as an investment adviser since he is publishing a legitimate financial newsletter for distribution to the general public.

  Correct Answer: D

  Rich will not have to register as an investment adviser since he is publishing a legitimate financial newsletter that will be distributed to the general public. The definition of the term "investment adviser" excludes publishers of bona fide business or financial publications that are published regularly and have general circulation.

• Question 217:

  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

  Correct Answer: A

  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 218:

  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.

  Correct Answer: B

  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 219:

  Jack Bean is employed by Giant Investment Advisers, LLC. His job duties include advising clients on the asset allocations of their portfolios. Jack Bean is

  A. an investment adviser representative.

  B. an investment adviser.

  C. an administrative assistant.

  D. an agent.

  Correct Answer: A

  As an employee of Giant Investment Advisers who provides investment advice to clients, Jack Bean is an investment adviser representative. Giant is the investment adviser. Agents are employed by broker-dealers.

• Question 220:

  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

  Correct Answer: B

  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.