FINRA FINRA Certifications FINRA-SERIES-63 Questions & Answers

• Question 221:

  You are a registered agent with a large brokerage firm. Your client is a very busy woman. She is interested in purchasing 500 shares of Google, but she thinks this morning's opening price is too high. She's going to be in meetings and then on a transatlantic flight. She wants the purchase to take place today because she believes Google's price is just going to keep rising with only the occasional daily ups and downs. She wants you to use your discretion and try to get her the best price for the stock in today's trading session.

  Which of the following statements are true?

  A. You have to tell her that you can't do this without a signed discretionary authorization from her, and there's none on file.

  B. You tell her that you can do this for her, but only if you execute it as a margin transaction.

  C. You tell her you can enter it for her as a "market not held" order.

  D. You tell her to have her secretary type up a discretionary authorization for her to sign and drop in the mail before she boards the plane. As long as the written authorization is in the mail, you can place the order.

  Correct Answer: C

  You can tell her that you will be able to execute this for her as a "market not held" order that permits you to use your discretion in timing the purchase in order to try to get a better price than currently exists. As long as you are only being requested to use your discretion in the timing and price of the transaction, and not in the actual security being traded or the size of the trade, you do not need written authorization. However, if written authorization is required, you must have it in your hand before you can effect a transaction. In other words, it isn't good enough for it to be in the mail.

• Question 222:

  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

  Correct Answer: D

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

• Question 223:

  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

  Correct Answer: C

  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 224:

  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.

  Correct Answer: C

  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 225:

  Bob Gogetter is an agent with CanDo Broker-Dealers. One of Bob's clients is out of the country and cannot be contacted. The client holds some stock in a company that just released some information that should make its stock price soar. Bob knows that this client would probably want to increase his holdings, so Bob opens a margin account for his client and borrows the money to buy shares. As it happened, the stock price did soar, and Bob's client earned a sizeable profit.

  Is Bob in violation of any securities acts?

  A. No. Bob has a fiduciary responsibility to his client to act in his best interest, and Bob knew this.

  B. No, but only because Bob's client profited from Bob's intervention. If the stock had declined in.

  C. Yes. It is against the law for an agent to open a margin account for a client without the client's.

  D. Yes. Bob is guilty of prohibited practice of churning.

  Correct Answer: C

  Yes. When he opened a margin account for a client without the client's written authorization, Bob committed a securities violation. This is strictly prohibited regardless of whether the client profited or not.

• Question 226:

  Which of the following would meet the requirements for an "exempt security?"

  A. a $500,000 promissory note that matures in two years

  B. commercial paper with a $100,000 face value and a maturity of five months that is rated AA by Standard and Poors

  C. a $25,000 promissory note that matures in three months

  D. commercial paper with a $200,000 face value and a maturity of three months that is rated BB by Standard and Poors

  Correct Answer: B

  An issue of commercial paper with a $100,000 denomination and a maturity of five months with an AA rating from Standard and Poors meets the requirements for an "exempt security." A short-term security, with no more than 270 days to maturity, that has a denomination of at least $50,000, and has a rating of AAA, AA, or A from a recognized rating agency is exempt from registration with the state Administrator.

• Question 227:

  Which of the following persons would not be required to register with the state as an agent under the guidelines of the Uniform Securities Act (USA)?

  A. Keith is a salaried employee of Middlesex County in Massachusetts who sells revenue bonds issued by the county to the public.

  B. John is employed by TrustUs Corporation to sell shares of the firm's stock to the firm's employees and receives a commission on the shares he sells.

  C. Stefan is a sales representative for SecureMoney Broker-Dealers and sells only mutual fund shares.

  D. Preetham is part-owner of SecureMoney Broker-Dealers and executes the purchase and sale of securities for the firm's customers.

  Correct Answer: A

  Keith would not have to register as an agent since he is a salaried employee of a county in Massachusetts selling county-issued bonds to the public. He is not representing a broker- dealer; he is not receiving a commission on the bonds he sells; and he is selling exempt (government-issued) securities. John receives a commission on his sales, so he is considered to be an agent. Stefan is a sales representative employed by a broker-dealer, which makes him an agent under USA guidelines. Even though Preetham is part-owner of the broker-dealer for which he is effecting transactions, he is acting as an agent in doing so.

• Question 228:

  Which of the following scenarios would not be considered a "sale," as defined by the Uniform Securities Act (USA)?

  I. Yoshito owned shares of Minnow Corporation and received shares of Whale Corporation from Whale when it merged with Minnow.

  II. Olivia's uncle, an agent with SecureMoney Brokers, sold Olivia ten call options on the stock of Microsoft.

  III. Hans purchased a bond of Indebted Corporation that had detachable warrants and subsequently sold the warrants.

  IV.

  Tom pledged some shares of stock he owned personally to secure a business loan for his company.

  A.

  Neither I nor II would be considered sales.

  B.

  Neither II nor III would be considered sales.

  C.

  Neither I nor IV would be considered sales.

  D.

  Neither III nor IV would be considered sales.

  Correct Answer: C

  Neither Scenario I nor Scenario IV describes sales as defined by the USA. When an investor receives securities from Company X when Company X merges with a company in which the investor owns stock, Company X is not considered to have sold those securities to the investor. Likewise, when a person uses securities he owns as collateral for a loan, the USA does not consider this to be a sale of the securities.

• Question 229:

  An investment adviser or its representative may

  A. only exercise any discretionary power in the purchase or sale of securities for a client's account after receiving written authority prior to the execution of the transactions.

  B. exercise discretionary power in the purchase or sale of securities for a client's account as long as it receives written discretionary authority over the account within 10 business days of the first discretionary transaction placed, assuming oral authority has already been given.

  C. exercise discretionary power in the purchase or sale of securities for a client's account as long as.

  D. exercise discretionary power in the purchase or sale of securities for a client's account only after.

  Correct Answer: B

  An investment adviser or its representative may exercise discretionary power in the purchase or sale of securities for a client's account as long as it receives written discretionary authority over the account within 10 business days of the first transaction placed, assuming oral authority has already been given.

• Question 230:

  Which of the following is not considered to be a security, as defined by the Uniform Securities Act (USA)?

  A. a debenture

  B. a certificate of deposit (CD)

  C. a put option

  D. an annuity contract wherein an insurance company promises to pay a fixed sum, either in a lump amount or through periodic payments.

  Correct Answer: D

  The Uniform Securities Act excludes annuity contracts wherein an insurance company promises either to pay a fixed sum, either in a lump amount or through periodic payments, from its definition of a security. Debentures, CDs, and option contracts are all classified as securities under the USA.