Ch. 1 Overview

Question 1

Exempt

Answer 1

Not required to be registered with a regulator

Question 2

Non-exempt

Answer 2

May need to be registered with a regulator

Question 3

Once established that a security is non-exempt, what is the next determination to be made?

Answer 3

Federal or state

Question 4

State level regulations follow what guidelines?

Answer 4

Uniform Securities Act

Question 5

Federal level regulations follow what guidelines?

Answer 5

Securities and Exchange Commission (SEC)

Question 6

Is a variable annuity a security?

Answer 6

Yes

Question 7

A person is:

Answer 7

any legal entity that’s not deceased, is not a minor and is not mentally incompetent

Question 8

Under the Uniform Securities Act, a person may include:

Answer 8

individuals, corporations, partnerships, sole proprietorships, issuers and state administrators (office + individual)

Question 9

What is a broker-dealer?

Answer 9

a person in the business of effecting securities transactions for the accounts of others or for its own account

Question 10

When is a firm acting in the capacity of a broker?

Answer 10

when it effects securities transactions on behalf of its clients

Question 11

When is a firm acting in the capacity of a dealer?

Answer 11

effects securities transactions for its own account; buying for own inventory with a markdown or selling from its own inventory and charging a markup

Question 12

What is a market maker?

Answer 12

a dealer providing liquidity

Question 13

What are the two types of agents?

Answer 13

one who represents a broker-dealer and one who represents an issuer of securities

Question 14

What is an Agent of a Broker-Dealer?

Answer 14

A non-clerical individual who represents a broker-dealer in effecting securities transactions

Question 15

Should salespersons of broker-dealers, without exception, who effect securities transactions be registered?

Answer 15

Yes, salespersons of broker-dealers must be registered without exception

Question 16

Does every employee of a broker-dealer need to be licensed? If no, please provide an example.

Answer 16

No. A clerical worker does not need to be licensed.

Question 17

What is an Agent of an Issuer?

Answer 17

A non-clerical individual who represents an issuer in effecting securities transactions with the public involving the issuer’s securities

Question 18

What is an investment adviser?

Answer 18

Any person (usually a firm rather than a person) that, for compensation, engages in the business of providing others with securities-related advice, reports or analysis.

Question 19

What are the ABCs that must be satisfied to meet the definition of investment adviser?

Answer 19

1. Providing ADVICE about securities
2. Providing those services as a BUSINESS
3. Receiving COMPENSATION for these services

Question 20

What is an investment adviser representative?

Answer 20

Any partner, officer, director or other individual who is associated with an investment adviser that:

• manages recommendations or gives advice regarding securities
• manages accounts or portfolios of clients
• determines which recommendations or what advice should be given
• solicits/offers/negotiates the sale of investment advisory services
• supervises employees performing those functions

Question 21

The Uniform Securities Act is a model law, which means:

Answer 21

that it’s not the actual law of any one state but can be customized by a state to suit its own needs

Question 22

The State Securities Regulator is also known by [ ] and does what?

Answer 22

Known as the Administrator and

Question 23

What does NASAA stand for and what does it do?

Answer 23

North American Securities Administrators Association and is responsible for updating USA and maintaining contents of Series 63 exam

Question 24

How to identify federal regulation references versus USA references?

Answer 24

Federal regulation has a number in the title whereas USA references do not.

Question 25

The Securities Act of 1933 requires.... and what is the purpose? It is also known as what?

Answer 25

that certain securities be registered with the SEC in order to be offered or sold to the public purpose is for investors to be provided with enough relevant information about the offering to make an informed decision Also know as Blue Sky Laws

Question 26

What did the Securities Exchange Act of 1934 do?

Answer 26

Established the SEC

Question 27

What did the Investment Advisers Act of 1940 do?

Answer 27

Governs investment advisers and that they must register with the SEC

Question 28

What is the NSMIA 1996 and what did it do?

Answer 28

National Securities Markets Improvement Act and created specific categories of securities that are exempt from formal state registration and are not regulated at the state level

Question 29

Which securities are exempt from state registration based in NSMIA 1996?

Answer 29

1) Securities listed on US exchanges (NYSE, NASDAQ, etc) 2) Certain regulation D offerings (private placement) 3) Municipal securities issued outside of the state 4) Securities issued by registered investment companies

Question 30

``` According to the Uniform Securities Act, an officer of an issuer selling securities to the public is considered an: a. Agent of the issuer b. Agent of a broker-dealer c. Associated person d. HR person and exempt ```

Answer 30

(A) A person acting in the manner described is an agent of the issuer and is required to register. An officer who sells issuer securities to employees, or engages in certain exempt transactions, and who doesn’t receive special compensation for these transactions is not an agent. The term associated person is not used in the Uniform Securities Act.

Question 31

A brokerage firm executes an existing customer’s buy order by locating a contraparty and charges the client a commission for executing the trade. In what capacity is the firm acting? a. Broker b. Dealer c. Market maker d. Investment adviser

Answer 31

(A) The brokerage firm is acting in the capacity of a broker for the transaction since it’s representing its client by locating someone willing to take the other side of the trade. Firms acting as brokers in trades earn a commission. If the firm had acquired the security for its own inventory, or sold it to customer from its own inventory, and included a markup or markdown, it’s acting as a dealer.

Question 32

Which of the following choices is NOT considered an agent? a. A manufacturing corporation when issuing its common stock b. Norm, a representative of a broker-dealer, who sells U.S. government securities c. Carla, the CEO of a broker-dealer, who still buys and sells securities for the accounts of a few family members and friends d. Cliff, a sales assistant at a broker-dealer, who accepts client orders when his boss is unavailable

Answer 32

(A) An agent is an individual who represents a broker-dealer or an issuer in effecting securities transactions, although there are a number of exceptions for persons representing an issuer. Both Norm and Carla represent a broker-dealer in effecting transactions, so they’re agents, regardless of the nature of their customers or the securities they sell. Since Cliff accepts client orders, he’s also considered an agent. Choice (a) is not an agent since an agent is an individual, not a corporation or other legal entity.

Question 33

The main goal of blue-sky laws is to: a. Raise revenue for state governments b. Prevent investors from losing money c. Preempt federal securities laws d. Protect investors from fraudulent securities transactions

Answer 33

(D) The main goal of state securities laws (blue-sky laws) is to protect investors from fraudulent securities transactions. Note that investors may lose money even in legitimate securities transactions, since all securities transactions have some risk.

Question 34

The Uniform Securities Act is: a. The actual law governing state securities regulations b. The actual law governing the federal regulations c. The model law governing state securities statutes d. The model law governing corporate governance

Answer 34

(C) The Uniform Securities Act is a model law governing state securities statutes. The USA gives guidance to individual states when they draft their own securities statutes, but the USA itself is not the actual law of any one state.

Question 35

Under the Uniform Securities Act, which is the BEST answer for the name given to the person who educates investors and enforces a state’s securities laws? a. State’s Attorney b. Administrator c. Secretary of State d. Director of Enforcement

Answer 35

(B) The USA uses the term Administrator to refer to an official or office that administers and enforces a state’s securities law. The specific official that performs this function varies from state to state.

Question 36

A state securities Administrator believes that a broker-dealer is in danger of becoming bankrupt. The Administrator orders the broker-dealer to maintain a minimum net capital of 200% of the federal minimum. How is this action viewed under NSMIA? a. State Administrators are not allowed to set net capital requirements for broker-dealers. b. State Administrators are not allowed to impose requirements that are more stringent than SEC regulations. c. State Administrators are free to set whatever requirements they feel are necessary to maintain fair and equitable markets within their own state. d. The broker-dealer must first be offered a hearing on the matter.

Answer 36

(B) Under NSMIA, state securities Administrators are not allowed to impose requirements that are more stringent than SEC regulations.

Question 37

The securities act that’s responsible for empowering the SEC as a federal regulatory agency is the: a. Securities Exchange Act of 1933 b. Securities Exchange Act of 1934 c. Investment Company Act of 1940 d. National Securities Markets Improvement Act of 1996

Answer 37

(B) In 1934, Congress passed the Securities Exchange Act. Among many items, the Act is responsible for empowering the Securities and Exchange Commission to enforce the securities laws.