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

FINRA FINRA-SERIES-63 Online Questions & Answers

• Question 71:

  Under which of the following scenarios can a client legitimately sue a purported professional in the securities industry and expect an award for damages?

  I. The securities were sold by an agent whose registration was not yet effective with the state, but who had already applied for registration.

  II. The security was a variable annuity, and the sales representative neglected to reveal the details of the surrender clause to the client.

  III.

  The security was the stock of a company, the stock had recently been registered with the state for sale, had been granted registration, and the selling agent had told his client that the security had been state-approved for sale.

  A. I only
  B. II and III only
  C. I and III only
  D. I, II, and III
  I. The securities were sold by an agent whose registration was not yet effective with the state, but who had already applied for registration. II. The security was a variable annuity, and the sales representative neglected to reveal the details of the surrender clause to the client. III. The security was the stock of a company, the stock had recently been registered with the state for sale, had been granted registration, and the selling agent had told his client that the security had been state-approved for sale.
  D. I, II, and III

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  Explanation/Reference:

  All of the selections are scenarios describing instances in which a client can legitimately sue a purported professional in the securities industry and expect an award for damages. A client can legitimately sue a purported professional in the securities industry and expect an award for damages if the agent is not yet effectively registered to effect securities transactions in the state; if the professional has neglected-intentionally or otherwise-to inform the investor of all the relevant information involving the security, such as any surrender clause involved; or if the agent has indicated that a state-registered security has in any way been approved by the state.

• Question 72:

  Under the Uniform Securities Act (USA), which of the following statements would be disallowed?

  A. The government of the U.S. guarantees a 3% interest rate, to be paid semiannually, on a new 5-year Treasury note.
  B. A sales representative of GetErDone Broker-Dealers guarantees that a client can expect an average annual rate of return of 2% on a mutual fund investment the sales representative is selling, pointing to the fact that the fund has returned an average annual rate of return of 6% over the past ten years.
  C. An insurance company guarantees a fixed payment of $300 a month for life on an annuity it is selling.
  D. Neither the statements in Selections B or C would be allowed under the guidelines of the Uniform Securities Act.
  B. A sales representative of GetErDone Broker-Dealers guarantees that a client can expect an average annual rate of return of 2% on a mutual fund investment the sales representative is selling, pointing to the fact that the fund has returned an average annual rate of return of 6% over the past ten years.

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  Explanation/Reference:

  A sales representative (aka an agent) of a broker-dealer may not make any guarantees. Only three entities are allowed to make guarantees under the Act: Parent companies, which may guarantee the securities of one of its subsidiaries, the

  U.S. government, and insurance companies.

• Question 73:

  Which of the following would fall under the definition of "agent," as defined by the Uniform Securities Act (USA)?

  A. Joe works as an administrative assistant for broker-dealer GetErDone, doing data entry, filing client forms that contain confidential information, and directing calls to registered representatives of the firm.
  B. Freedom broker-dealers executes the purchase and sale of securities for its customers.
  C. TrustUs Bank has a subsidiary operation that sells mutual funds to the public.
  D. None of the above would fall under the definition of "agent," as defined by the Uniform Securities Act (USA.)
  D. None of the above would fall under the definition of "agent," as defined by the Uniform Securities Act (USA.)

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  Explanation/Reference:

  None of the selections describe an "agent," as defined by the Uniform Securities Act (USA.) Joe is not executing trades for clients of the broker-dealer, and clerical assistants are not classified as agents. Agents must be individuals, so a firm like Freedom broker-dealers would not be considered an agent. A bank is not an individual, and banks are even excluded from the definition of a broker-dealer.

• Question 74:

  Vious and Associates is a small broker-dealer trying to generate more business. To this end, the firm had a professional four-color brochure printed that provides the years of industry experience of its management along with other information. The firm's founder, Ms. D. Vious, is listed as having over 30 years of experience in the industry. Ms. D. Vious has worked for broker-dealers for over 30 years, but for 20 of those 30 years, she was a secretary. Has D. Vious violated any securities laws?

  A. No. Technically, Ms. D. Vious does have over 30 years of experience in the industry, even though it was not in the capacity of an agent or a broker-dealer.
  B. No. Ms. D. Vious' years of experience is not a material fact that would affect an investor's investment decision.
  C. Yes. The broker-dealer is making a misleading statement in an advertising brochure in order to convince investors to do business with the firm.
  D. No. Advertising brochures are not securities.
  C. Yes. The broker-dealer is making a misleading statement in an advertising brochure in order to convince investors to do business with the firm.

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  Explanation/Reference:

  Yes. The broker-dealer is making a misleading statement in an advertising brochure in order to convince investors to do business with the firm. This is deceitful and misleading, and persons involved in the securities industry are prohibited from making deceitful and misleading statements.

• Question 75:

  For how long after the effective date is a security's registration valid?

  A. three months
  B. six months
  C. one year
  D. two years
  C. one year

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  Explanation/Reference:

  A security's registration is valid for one year after the effective date, which is the date the Administrator approves the registration. If the entire issue has not been sold in this time frame, the offering may be renewed.

• Question 76:

  The 1988 Insider and Securities Enforcement Act indicates that a person convicted of insider trading can be subject to which of the following penalties?

  A. up to 10 years in prison and a fine of $1 million or up to 3 times the amount of profits gained, or
  B. up to 3 years in prison, a $5,000 fine, or both
  C. up to 5 years in prison and a fine of $1,500,000 or both
  D. up to 7 years in prison and a fine equal to 200% of the amount of profits gained or losses avoided
  A. up to 10 years in prison and a fine of $1 million or up to 3 times the amount of profits gained, or

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  Explanation/Reference:

  The 1988 Insider Trading and Securities Enforcement Act increased the penalties for a person convicted of insider trading to up to 10 years in prison and a fine of $1 million or up to 3 times the amount of profits gained, or losses avoided.

• Question 77:

  Under NASAA Model Rules, it is permissible for the registered representative of a broker- dealer to split his or her commission with

  I. a client.

  II. the broker-dealer with which the registered representative is affiliated.

  III. another registered representative working for the same broker-dealer.

  IV.

  the administrative assistant who directs calls to the registered representative and provides other services for the agent.

  A. I, II, III, and IV
  B. I, II, and III only
  C. II, III, and IV only
  D. II and III only
  I. a client. II. the broker-dealer with which the registered representative is affiliated. III. another registered representative working for the same broker-dealer. IV. the administrative assistant who directs calls to the registered representative and provides other services for the agent.
  D. II and III only

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  Explanation/Reference:

  Only Selections II and III are correct. Under NASAA Model Rules, a registered representative of a broker-dealer is entitled to split his or her commission only with his or her broker-dealer or with another registered representative of that broker-dealer. He is not permitted to share commissions with a client or with anyone who works for the broker- dealer, but is not a registered agent.

• Question 78:

  Which of the following securities would not necessarily be exempt from state registration?

  A. a stock listed on the Tokyo Stock Exchange
  B. a bond guaranteed by the Canadian government
  C. a bond issued by another state's employees' credit union
  D. a stock listed as a NASDAQ National Market Issue.
  A. a stock listed on the Tokyo Stock Exchange

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  Explanation/Reference:

  Stocks listed on the Tokyo Stock Exchange would not necessarily be exempt from state registration. Stocks that are registered with the SEC, such as NASDAQ National Market Issue stocks, securities issued or guaranteed by the Canadian government, and securities issued or guaranteed by banks or credit unions are all exempt.

• Question 79:

  An agent working for a broker-dealer mistakenly sends an investment adviser some bonds that the adviser purchased on behalf of his client instead of directing the bonds to the financial institution that is serving as the qualified custodian of the client's funds.

  If the investment adviser wants to avoid being considered custodian of this client's account, what must the adviser do?

  A. Record what securities were sent, when he received them, and when he forwarded them--which
  B. Record what securities were sent, when he received them, and when he forwarded them--which must be within three business days-to his client.
  C. Record what securities were sent, when he received them, and when he forwarded them--which must be within twenty-four hours-to his client.
  D. Record what securities were sent, when he received them, and when he forwarded them--which must be within twenty-four hours-to the qualified custodian of the client's funds.
  C. Record what securities were sent, when he received them, and when he forwarded them--which must be within twenty-four hours-to his client.

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  Explanation/Reference:

  In order to avoid being considered custodian of his client's account, the investment adviser needs to record what securities he had been sent, when he received them, and when he returned them-which must be within three business days-to the sender.

• Question 80:

  Broker-dealer Nebulous opted to withdraw its registration with the state. Six months later, the Administrator finds that Nebulous had been engaged in fraudulent securities transactions.

  Which of the following statements is true?

  A. The Administrator is unable to take disciplinary action against Nebulous because the self-initiated withdrawal became effective 30 days after the application was filed.
  B. The Administrator is only able to take disciplinary action if the misdeeds are discovered within three months of the effective date of the withdrawal, so Nebulous slipped by this time.
  C. The Administrator has five years from the discovery of the misdeed to take disciplinary action, so Nebulous will have to be on the lookout for a long time to come.
  D. The Administrator can take disciplinary action against Nebulous for up to one year, so Nebulous is in trouble.
  D. The Administrator can take disciplinary action against Nebulous for up to one year, so Nebulous is in trouble.

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  Explanation/Reference:

  Even though Nebulous withdrew its registration from the state, the Administrator has up to a year to take disciplinary action against the broker-dealer if he discovers that Nebulous has been engaged in fraudulent securities transactions after the fact. The Administrator can retroactively begin a revocation or suspension proceeding. Criminal courts can initiate proceedings anytime within five years of the alleged misdeeds.