FINRA FINRA Certifications FINRA-SERIES-63 Questions & Answers

• Question 41:

  The trade confirmation must be received by the customer no later than

  A. one week after the settlement date.

  B. the settlement date.

  C. the day after the trade takes place.

  D. five business days after the settlement date.

  Correct Answer: B

  Trade confirmations must be received by the customer no later than the settlement date.

• Question 42:

  Price pegging refers to

  A. the practice of buying large amounts of a security to drive its price up artificially.

  B. the illegal activity of a group of investors who buy and sell a security among themselves to create an artificially high volume of trading in hopes of luring investors to buy the security.

  C. the prohibited practice of excessively trading on a client's account that is used by some broker-dealers and/or their agents to generate more commissions for themselves.

  D. the unethical practice of investment advisers who issue "buy" recommendations for stocks that they own themselves without disclosing the fact.

  Correct Answer: A

  Price pegging refers to the practice of buying large amounts of a security to drive its price up artificially. This is a form of illegal price manipulation.

• Question 43:

  Under the NASAA Model Rules, the statute of limitations for civil liabilities is

  A. the earlier of two years after the discovery of the facts and four years after the violation.

  B. the earlier of three years after the discovery of facts and five years after the violation.

  C. three years after the discovery of the facts and four years after the violation, whichever is greater.

  D. the earlier of two years after the discovery of facts and three years after the sale.

  Correct Answer: D

  Under the NASAA Model Rules, the statue of limitations for civil liabilities is the earlier of two years after the discovery of facts and three years after the sale. This follows the recommendations provided by the Uniform Securities Act of 1956.

• Question 44:

  A broker-dealer is required to keep his records for how long?

  A. at least three years

  B. at least five years

  C. at least seven years

  D. broker-dealer is required to keep his records for as long as he is registered in the state.

  Correct Answer: A

  A broker dealer is required to keep his records at least three years.

• Question 45:

  Which of the following does not necessarily have to be included in the contract between an investment adviser and an individual client, according to the Uniform Securities Act (USA)?

  A. the compensation agreement, which cannot be a percentage of the capital gains or capital appreciation earned on the portfolio for all but the wealthiest of individual clients.

  B. a statement stipulating that the contract cannot be assigned to another party without the client's consent

  C. if the investment adviser is a partnership, a statement indicating that the client will be notified

  D. if there is any change in the partners within a reasonable time perioda statement of the investment policy that has been agreed upon between the adviser and the client

  Correct Answer: D

  A statement of the investment policy does not have to be included in the contract between an investment adviser and an individual client. The statement of investment policy is generally developed after the contract is signed.

• Question 46:

  Which of the following describes an investment adviser that is not required to register with the state Administrator?

  A. MoeMoney Investment Advisers, LLC has an office in the state with a client base of fifty individuals.

  B. Financial Freedom Investment Advisers has no offices in the state although it does advise six wealthy individuals who are residents of the state.

  C. CanDo Broker-Dealers is a state-registered broker-dealer. It has begun to offer asset management services to a few of its wealthier clients for a small management fee equal to 0.1% of the assets under management.

  D. Buckeye Investment Advisers has no offices in the state, but it provides portfolio management services to an insurance company located in the state.

  Correct Answer: D

  Buckeye Investment Advisers is not required to register with the state Administrator since it has no offices in the state and provides portfolio management services to an institutional investor within the state. Both MoeMoney and Financial Freedom must register since they advise more than 5 individual clients. It doesn't matter in that case whether they have offices within the state or not. CanDo is registered only as a broker-dealer, but it has begun offering investment advice for a fee, so it must also register with the state as an investment adviser.

• Question 47:

  Although an Administrator has broad powers, he or she cannot:

  A. issue subpoenas involving compulsory attendance.

  B. gather evidence.

  C. deliver a judicial injunction.

  D. formulate rules and orders.

  Correct Answer: C

  An Administrator has broad powers, but he or she cannot deliver a judicial injunction because an Administrator does not have the authority bestowed on a court of law. The Administrator can issue subpoenas to require attendance, participate in evidence gathering, and formulate rules and orders.

• Question 48:

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

  A. lending money to clients for them to invest

  B. borrowing money from a client

  C. charging commissions that are significantly higher than those charged by other broker- dealers

  D. providing a client with a copy of their most recent balance sheet upon request

  Correct Answer: A

  Lending money to clients for them to invest is not a prohibited practice. This is otherwise known as a margin transaction.

• Question 49:

  An agent cannot tell a client that a mutual fund is "no load" if the fund has

  I. a front-end load

  II. a contingent deferred sales load

  III.

  12b-1 fees

  A.

  I, II or III

  B.

  I or II only

  C.

  I only

  D.

  I or III only

  Correct Answer: B

  If a fund has either Selection I or Selection II, an agent cannot tell a client it is "no load." If the fund has either a front-end load, a contingent deferred sales load, or both, the client must be told that the fund has a load. If the 12b-1 fees on a fund are 0.25% or less of the annual average net assets, it is not considered to be a load fund.

• Question 50:

  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.

  Correct Answer: D

  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.