[Oct 16, 2024] Pass Uniform Securities State Law Series63 Exam With 251 Questions
Ultimate Guide to Prepare Free FINRA Series63 Exam Questions and Answer
NEW QUESTION # 93
The C&S Railroad is in the process of issuing new bonds. Before these bonds can be offered for sale,
- A. they must be registered with the SEC since railroads are involved in interstate commerce.
- B. None of the above statements is true.
- C. they must be registered in every state in which the bonds will be sold to investors.
- D. they must be registered with the SEC and in each state through which the railroad passes.
Answer: B
Explanation:
None of the statements is true because securities issued by highly regulated industries, such
as the railroad industry are exempt from registration with both the SEC and the states.
NEW QUESTION # 94
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. Yes, as long as the son presents proper identification that proves his relationship to Mr. Sailor, such as
a birth certificate. - C. 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. - D. Yes, as long as the son is at least 21 years old and not a minor child.
Answer: C
Explanation:
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.
NEW QUESTION # 95
In its capacity as a full service broker, A-2-Z Associates is also in the investment advisory industry,
charging its clients for investment advice for additional remuneration. One of the firm's clients has been
advised to buy some U.S. government treasury inflation-protected securities (TIPS.) A-2-Z is a dealer in
these securities in the secondary market. Which of the following statements is true?
- A. A-2-Z can only sell the client TIPS if it informs the client it is acting as the seller in this transaction and
receives the client's written consent before the transaction is settled. - B. Under no circumstances may A-2-Z sell the client TIPS that A-2-Z holds in its own portfolio. This would
be a conflict of interest. - C. A-2-Z can sell the client TIPS from its own portfolio as long as it tells the client that it is taking on the
part of the seller in the transaction. - D. A-2-Z can sell the client TIPS indirectly by getting a 3rd party-another broker-dealer-to effect the sale.
Answer: A
Explanation:
A-2-Z can only sell a client TIPS from its own portfolio if it informs the client that it is acting as
the seller in this transaction and receives the client's written consent before the settlement date of the
transaction.
NEW QUESTION # 96
A margin transaction refers to a transaction
- A. in which a registered agent makes trades on a customer's account without that customer's knowledge.
- B. Both A and C are true statements.
- C. that is illegal under the guidelines of the Uniform Securities Act.
- D. in which the client borrows some of the money that he is investing.
Answer: D
Explanation:
Explanation
A margin transaction refers to a transaction in which the client borrows some of the money that he is investing.
It is a recognized practice.
NEW QUESTION # 97
As an agent, which of the following statements about the Securities Investor Protection Corporation (SIPC) can you legitimately make to your client?
- A. The SIPC is the FDIC of the stock and bond markets."
- B. "The SIPC is a government agency that was created by an Act of Congress to protect investors against losses in the stock and bond market."
- C. "The SIPC is a government agency created by an Act of Congress to combat fraud."
- D. "The SIPC was established to restore funds to investors when the brokerage firm they have been using is bankrupt or in financial distress."
Answer: D
Explanation:
Explanation
The statement that you can legitimately make about the SIPC to your client is that it was established to restore funds to investors when the brokerage firm they have been using is bankrupt or in financial distress. The SIPC does not insure investors against losses in the stock and bond markets like the FDIC does bank deposits, and it does not combat fraud.
NEW QUESTION # 98
Which of the following is an example of a non-issuer transaction?
- A. Google offers more shares of its stock for sale to the public.
- B. NewCorp, which has been a privately held company, is engaging in an initial public offering (IPO) of its stock.
- C. Jose purchases a 10-year bond issued by Progress Energy when it has 6 years remaining to maturity.
- D. IBM sells a new issue of bonds to an insurance company.
Answer: C
Explanation:
Explanation
When Jose buys a 10-year bond that has 6 years remaining to maturity, it is a non-issuer transaction since he is buying it in the secondary market from another investor, and Progress Energy does not benefit from the transaction. If a firm receives money when its securities are sold, it is considered an issuer transaction; otherwise it is a non-issuer transaction. When Progress Energy originally issued the bond, it had ten years to maturity, and Progress Energy received the proceeds from the bond issue; that was an issuer transaction. When Jose buys the bond, another investor is receiving the proceeds. When IBM sells new bonds, regardless of whether it is to the general public or to an institutional investor, IBM receives the proceeds from the transaction, so it is an issuer transaction. Similarly, when a firm that is already publicly held, like Google, sells more shares, the firm receives money from the sale, just as when a firm that is going public for the first time, like NewCorp, receives the proceeds generated through the IPO. Those are examples of issuer transactions.
NEW QUESTION # 99
Which of the following does not need to be included in an investment advisory contract?
- A. the term of the contract
- B. a statement that the contract cannot be assigned to another party without the client's consent
- C. the advisory fees and the formula used to compute them
- D. the total amount of money that the investment adviser currently has under management
Answer: D
Explanation:
The amount of money that the investment adviser currently has under management need
not be included in an investment advisory contract. The contract does have to include the term of the
contract, the advisory fees and the formula used to compute them, and a statement that the contract
cannot be assigned to another party without the client's consent, along with other information.
NEW QUESTION # 100
Which of the following is not a security, as defined by the Uniform Securities Act?
I. an option contract
II. a futures contract on gold
III. a 401K plan
IV. a variable annuity
- A. Selections II, III and IV are not securities.
- B. Only Selection III is not a security.
- C. None of the selections listed are securities.
- D. Only Selections II and III are not securities.
Answer: D
Explanation:
Only Selections II and III are not securities. Neither retirement plans nor commodity futures
contracts are deemed to be securities by the Uniform Securities Act. A 401K plan may be invested in
securities, but it is not a security itself. A gold futures contract is a contract between two parties for the
delivery of the underlying asset, gold. The profits (or losses) are not dependent on the performance of an
outside party, which is a critical element, based on a 1946 U.S. Supreme Court decision, which defines a
security as "an investment of money. . . with profits to come solely from the efforts of others."
NEW QUESTION # 101
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. Jack will need to register as a sales representative if he performs any one of the above activities.
- D. participates in the selling of the new stock to individual investors.
Answer: D
Explanation:
Explanation
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.
NEW QUESTION # 102
Shady Corporation's executives are concerned over the firm's steadily declining stock price and decide to do something about it. They each decide to make significantly large purchases of their firm's stock in order to stabilize and hopefully even to drive up its price, reasoning that they can sell the stock for the higher price down the road and profit from the transaction. You are a broker-dealer for the firm's executives.
Are Shady's executives planning to do anything illegal?
- A. No. It's a win-win. They are using their own money to buy stock of their firm, and this can help drive the stock price up and put profits in their pockets.
- B. Yes. To purchase shares of their own company is considered to be illegal insider trading.
- C. No. As long as they follow the rules and report their purchases to the SEC, it is not illegal for them to purchase shares of their firm's stock.
- D. Yes. Although it is not illegal for them to purchase shares of their firm's stock, they cannot do so in order to try to manipulate the price of the stock.
Answer: D
Explanation:
Explanation
Yes. Although it is not illegal for Shady's executives to purchase shares of their firm's stock, in this case they are planning to do something illegal in deciding to make significantly large purchases of their firm's stock in order to manipulate the price. This is an example of price pegging.
NEW QUESTION # 103
Alter Advisers & 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, II, and III
- B. I and III only
- C. I and II only
- D. I only
Answer: B
Explanation:
Explanation
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.
NEW QUESTION # 104
AllTime Investment Advisers advertises that its phones are manned 24/7, so that a client "doesn't have to lie awake all night worrying about a financial problem." In fact, AllTime does have a answering service that answers calls in the evenings and on the weekends when its offices are closed. The service informs the caller of the firm's business hours, which will be the earliest opportunity the caller will have to talk to an investment adviser representative.
Is this a violation of any securities laws?
- A. No. It's not a violation of any securities laws, but the firm probably won't retain many clients this way.
- B. It depends. If, before a client signs a contract with the firm, it is made clear that investment adviser representatives are not, in fact, available to him 24/7, then AllTime is in the clear.
- C. Yes. The Uniform Securities Act prohibits investment advisers from making deceptive statements in the solicitation of clients as well as in advising clients.
- D. No. The firm's phones are manned 24/7, so it hasn't lied.
Answer: C
Explanation:
Explanation
Yes. The Uniform Securities Act prohibits investment advisers from making deceptive statements in the solicitation of its clients, so when AllTime suggests in its advertisements that a client will be able to talk to someone who can relieve his worries, AllTime has violated the law and is guilty of fraud.
NEW QUESTION # 105
Which of the following would meet the requirements for an "exempt security?"
- A. commercial paper with a $100,000 face value and a maturity of five months that is rated AA by
Standard and Poors - B. commercial paper with a $200,000 face value and a maturity of three months that is rated BB by
Standard and Poors - C. a $500,000 promissory note that matures in two years
- D. a $25,000 promissory note that matures in three months
Answer: A
Explanation:
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.
NEW QUESTION # 106
Cal Turner calls his client and recommends that the client sell his shares in the Alpha High Quality Bond
Fund and use the proceeds to buy shares in the Omega High Quality Bond Fund. Cal has done nothing
unethical if his recommendation is based on the fact that
- A. the Omega Fund has a front-end load.
- B. It would always be unethical for Cal to recommend that a client sell shares in one fund in order to buy
shares of another fund that has the same investment objective. - C. the Alpha Fund has a back-end load.
- D. the Alpha Fund has been performing poorly relative to other funds in the same category.
Answer: D
Explanation:
Cal has done nothing unethical if his recommendation that a client sell his shares in the
Alpha Fund and buy shares of the Omega Fund is due to the fact that the Alpha Fund has been
performing poorly relative to other funds in the same category. While past performance is no guarantee of
future performance, a client may not want to hang on to a fund that isn't returning as much as its
competition.
NEW QUESTION # 107
To continue operating as an agent, broker-dealer, investment adviser, or investment adviser
representative next year, you must pay the filing fee to renew your license with the state Administrator by
- A. December 31st of this year.
- B. the anniversary date of the original issue date on your license.
- C. January 30th of the new year.
- D. January 15th of the new year.
Answer: A
Explanation:
To continue operating as an agent, broker-dealer, investment adviser, or investment adviser
representative next year, you must pay your filing fee to renew your license by December 31st of this year.
Otherwise, your license will expire. There is no grace period.
NEW QUESTION # 108
It has come to the attention of the Administrator of the state that Samuel Shyster provided false
information on his application to become a registered investment adviser with the state. Prior to revoking
Samuel's license, the Administrator will provide Samuel with which of the following?
I. prior notice
II. an opportunity to fill out a new registration statement
III. an opportunity for a hearing
IV. a written statement regarding the facts and the legal consequences
- A. I, II, and III
- B. I, II, III, and IV
- C. I, II, and IV
- D. I, III, and IV
Answer: D
Explanation:
Prior to revoking Samuel's license, the Administrator will provide Samuel with prior notice (I),
an opportunity for a hearing (III), and a written statement regarding the facts and the legal consequences
(IV).
NEW QUESTION # 109
Under the Uniform Securities Act, which of the following does not need to be included when filing to register a security issue with the state?
- A. All of the above documents must be included when filing to register a security with the state.
- B. a copy of the firm's articles of incorporation and bylaws, or the equivalent
- C. a copy of any indenture applying to the security being registered
- D. copies of the underwriter agreements
Answer: A
Explanation:
Explanation
The Uniform Securities Act specifies that the initial registration statement should be accompanied by all of the documents listed in the first three selections-a copy of the firm's articles of incorporation and bylaws or their equivalent; copies of any underwriter agreements; and a copy of any indenture that applies to the security being registered. Moreover, these are only some of the documents that need to be included.
NEW QUESTION # 110
Which of the following statements would not be in violation of NASAA rules regarding the sale of investment company shares?
I. "Investing your money in shares of this money market mutual fund is identical to putting your money in a savings account at a bank, except the money market fund provides a higher return." II. "Our U.S. government bond fund is invested only in government bonds issued by the U.S. government and is, therefore, a risk-free investment." III. "You are investing $22,000 in this fund today. The fund has a 5% load at this investment level, but if you sign a letter of intent to invest another $3,000 within the next 13 months, your load will be reduced to 4%. If something comes up and you can't invest the extra $3,000 within 13 months, you will only need to pay the difference in the two loads."
- A. I, II, and III
- B. I and II only
- C. I only
- D. III only
Answer: D
Explanation:
Explanation
Only Selection III would not violate NASAA rules regarding the sale of investment company shares because it is the only true statement. If a fund has a breakpoint at $25,000 that triggers a reduced front-end load and allows an investor to receive the reduced load charge if the investor signs a letter of intent stipulating that the additional investment will be made within 13 months, the only penalty to the investor who doesn't meet the breakpoint is payment of the difference in the two loads. Investing in shares of a money market mutual fund is not identical to putting money in a savings account at a bank. The bank account is insured by the FDIC in most cases; the money market mutual fund is not insured by the FDIC, and the investor can lose money (although, to date, money market mutual funds have covered any losses that they've experienced and not passed those losses onto their investors.) A U.S. government bond fund that is invested only in U.S. government bonds is free from default-risk, but it is still subject to interest rate risk. If interest rates increase, the value of the bonds in these funds-and therefore the fund itself-will decrease.
NEW QUESTION # 111
A bond issue has recently been registered with the state Administrator.
Which of the following statements are true?
- A. Both A and B are true statements.
- B. An investor can feel secure in buying the bond because it has recently been registered, which means that the state Administrator finds it to be of sound quality at this point in time.
- C. The bond may now be offered for sale in the state.
- D. The issuer may now offer this bond for sale, and any other bonds that the issuer may want to offer for sale in the future will be able be sold after the issuer executes a notice filing.
Answer: C
Explanation:
Explanation
When a bond issue has been effectively registered with the state Administrator, it can be offered for sale in the state. The bond's acceptance by the Administrator simply means that the issuer has supplied enough information in order for an investor to judge the quality of the bond for himself; it in no way implies that the bond is of sound quality. It could, in fact, be a very risky security and still have met the registration requirements.
NEW QUESTION # 112
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 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. - D. the Administrator may elect to revoke or suspend Joe Romeo's registration, and Joe may also face
both civil and criminal penalties.
Answer: D
Explanation:
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.
NEW QUESTION # 113
In an arrangement between MoeMoney Investment Advisers and one of the firm's clients, the YourMoney
mutual fund, part of MoeMoney's compensation is based how the fund performs compared to the S&P
5 00 Index. If the return on the fund exceeds the return on the index, MoeMoney gets a bonus. The S&P
5 00 had a return of negative 8% this year, and the fund returned a negative 2%, so MoeMoney invoiced
the client for the bonus. Has MoeMoney violated any securities laws?
- A. Yes. Under no circumstances can a bonus be part of an investment adviser's compensation package
according to the Uniform Securities Act. - B. Yes. It is a violation of the Uniform Securities Act for an investment adviser to earn a bonus if a portfolio
it manages loses money. - C. No. The fund beat the return on the S&P 500 Index, so MoeMoney is entitled to the bonus, based on its
agreement with YourMoney. - D. Yes. An investment adviser's compensation cannot be based on the capital appreciation of the
portfolio.
Answer: C
Explanation:
No. MoeMoney has not violated any securities laws. Even though the fund's return was
negative, it still beat the return on the S&P 500 Index, and MoeMoney is entitled to the bonus. The
Uniform Securities Act does not prohibit compensation agreements like this one as long as the client is a
sophisticated investor, such as a mutual fund. This would not be permitted if the client were your average
individual investor.
NEW QUESTION # 114
Mr. Noah Scruples is a registered representative with CanDo Broker-Dealers. A client calls and wants
Noah to purchase shares of a mutual fund the client has read about. CanDo is not authorized by this
particular fund to effect purchases or sales of the fund shares. Can Noah execute the order anyway?
- A. No. This is a prohibited practice known as selling away.
- B. No. This would be considered money laundering, which is highly illegal.
- C. No. This is a prohibited practice known as front running.
- D. Yes. Since this is an unsolicited trade, Noah can execute the transaction on behalf of his client.
Answer: A
Explanation:
No. If CanDo is not authorized to effect purchases and sales of the fund, Noah would be
engaged in the prohibited practice known as selling away if he were to execute the order. If his
broker-dealer is not authorized to trade a security, Noah can't either.
NEW QUESTION # 115
S. White and Associates is an investment adviser registered in the state of Kentucky and, as such, is meeting Kentucky's minimum net capital requirement for investment advisers. The firm recently registered with the state of Virginia and has opened an office there. Virginia has a significantly higher net capital requirement for its investment advisers.
Which of the following statements is true?
- A. According to the Uniform Securities Act, S. White will have to meet Virginia's higher requirement.
- B. According to the Investment Advisers Act of 1940, S. White needs only to meet the net capital requirement of Kentucky.
- C. According to the Investment Advisers Act of 1940, S. White will have to maintain a minimum net capital equal to the average of the net capital requirements of the two states.
- D. According to the Securities Exchange Act of 1934, S. White needs to meet at least the minimum net capital requirement specified by that Act since it is now operating in multiple states.
Answer: B
Explanation:
Explanation
Since S. White is already registered in the state of Kentucky and meeting the net capital requirement of that state, the Investment Advisers Act of 1940 stipulates that Virginia cannot require a higher minimum net capital. The Act states that if an investment adviser is registered in one state and is meeting its net capital requirement, a second state cannot impose a higher net capital requirement on the investment adviser.
NEW QUESTION # 116
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