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Flashcards in Test 2 Review Deck (15)
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1

An insurance agent works in an office building down the hall from a broker-dealer. They are not affiliated. What compensation may the agent receive from the broker-dealer in exchange for referrals?

Insurance referrals

2

Mark W. is an agent of Broker-Dealer X. Unknown to his firm, Mark spends his evenings trading the stock of a small, unlisted company through Internet bulletin boards. He dominates and controls the trading in this stock. Under the Uniform Securities Act, which of the following statements is TRUE of Mark's activities?

Mark W. may have to register as a broker-dealer

Mark W. appears to be in the business of effecting transactions in securities for others and for his own account, and may need to register as a broker-dealer in those states in which he is doing business. The fact that he is using the Internet does not provide an exemption. (75436)

3

Melinda, an agent for Broker-Dealer X, finds a handwritten note on her desk left by a client who frequently stops by her office. In the note, the client states that she is unhappy with the recommendations that Melinda has made recently. Melinda recommended only stocks that the firm's research department had on its Buy List. The client has lost money on some of the recommendations that she accepted. Which of the following statements is TRUE regarding this note?

It is considered an unethical practice for agents to fail to notify a supervisor of written customer complaints. Such complaints do not need to conform to a specific format—any written grievance from a customer should be considered a complaint. The decision regarding how to respond to a complaint is a supervisory or management issue.

4

The LEAST suitable investment for Mrs. McCarthy, a 70-year-old investor, would be a:

Treasury note
Utility stock fund
Fixed annuity
Raw land limited partnership

Raw land limited partnerships are highly speculative and do not provide the current income return that the majority of elderly investors are seeking.

5

According to the Uniform Securities Act, which of the following entities or individuals must register as a broker-dealer in State A?

a) The trust department of a bank located in State A
b) A financial planner located in State A
c) A broker-dealer located in State B, that occasionally effects transactions for clients vacationing in State A
d) A company incorporated in State A that processes transactions for other financial institutions

d) A company incorporated in State A that processes transactions for other financial institutions

6

An agent overhears that the chairman of a large manufacturing firm may be ousted because of erratic social behavior. The agent decides to call all clients who own shares of the manufacturing corporation and tell them to liquidate their positions. Under the Uniform Securities Act, which of the following statements is TRUE?

This action constitutes a prohibited use of a rumor to induce a purchase or sale:

Liquidating client positions based on hearsay constitutes the prohibited use of a rumor to induce a transaction. If this were material insider information, the only step the agent could take would be to notify her supervisor.

7

An agent handling a client's account may share in the profits or losses as long as all of the following conditions are met, EXCEPT:

a) The client has approved of it in writing
b) The broker-dealer employing the agent has approved it
c) The client and agent have a mutual agreement as to the proportion of profits and losses the agent will share
d) The agent may only share in direct proportion to the amount the agent has contributed to the client's account

c) The client and agent have a mutual agreement as to the proportion of profits and losses the agent will share

8

Under the Uniform Securities Act, which of the following practices is/are prohibited?

I) Accepting orders from a client's secretary without written third-party authorization
II) Recommending securities without regard for the client's financial resources
III) Quoting a price that is unrelated to the current market

I, II, III

9

Under the Uniform Securities Act, which of the following issuers must file a registration statement with the State Administrator?

I) Companies with stock listed on the Over-The-Counter Bulletin Board (OTCBB)
II) Federal savings and loan associations
III) Federal credit unions
IV) For-profit corporations

I and IV

10

Which of the following is not a security as defined by the USA?

a) A certificates of interest in a profit-sharing agreement
b) A certificate of interest in a mining title
c) A preorganization certificate
d) A futures contact in precious metals

d) A futures contact in precious metals

11

The maximum civil penalty for insider trading violations is:

The maximum civil penalty for insider trading violations is three times the amount gained or loss avoided (treble damages). The maximum criminal penalties per violation for individuals are a fine of $5,000,000, 20 years in prison, or both. Corporations are subject to a criminal penalty of $25,000,000 per violation. (75878)

12

If a security is said to be guaranteed under the Uniform Securities Act, it is guaranteed as to:

Prevention of investment loss, Interest, Dividends, Principal

13

Allied Advisory Services is a registered investment adviser with its home office in the state of Virginia. The minimum financial requirement for an investment adviser in Virginia is a net worth of $50,000. The firm would like to open an office and provide advisory services in Maryland; however, the minimum net worth requirement in Maryland is $100,000. What action should the firm take in order to open its office in Maryland?

Leave its current net worth as is:
According to the Uniform Securities Act, the minimum capital requirements of the state where an investment adviser maintains its principal place of business sets its registration requirements. No other state may impose higher requirements than the adviser's home state. (75597)

14

Under the Uniform Securities Act, which of the following statements is/are FALSE concerning the definition of a broker-dealer?

a) A person who has no place of business in a state and effects transactions only with institutional buyers is not considered a broker-dealer
b) A person who has no place of business in a state and effects transactions only with other broker-dealers is not considered a broker-dealer
c) A person who has no place of business in a state and effects transactions with fewer than five clients is not considered a broker-dealer
d) A person who has a place of business in State A and sells to existing customers that are residents of State B is considered a broker-dealer in State A

c) A person who has no place of business in a state and effects transactions with fewer than five clients is not considered a broker-dealer

There is no de minimis exemption from the definition of a broker-dealer.

15

Roberta Smith has passed the Uniform Securities Agent State Law Examination but has not been granted registration by the Administrator. She may participate in:

a) Prospecting personally
b) Prospecting by mail only
c) Accepting unsolicited orders only
d) None of the activities of an agent

d) None of the activities of an agent