Series 63 Practice Exam

1. Two agents arrange simultaneous buy and sell orders in a thinly traded security to create the appearance of active trading without any change in beneficial ownership. What is this?

• A. A prohibited market manipulation through matched orders or wash trading
• B. A permissible liquidity-providing arrangement if disclosed to the issuer
• C. An exempt transaction because both sides are broker-dealers
• D. A legitimate cross trade requiring only customer consent

2. An agent effects a transaction in a customer's account without the customer's prior authorization and without written discretionary authority. What is this?

• A. An unauthorized transaction, a prohibited practice
• B. A permissible accommodation if the trade is profitable
• C. Time and price discretion
• D. An exempt transaction under the Act

3. An agent recommends an aggressive growth stock to a retired customer whose stated objective is capital preservation and whose income is fixed. What is the primary violation?

• A. Making an unsuitable recommendation given the customer's objectives and financial situation
• B. Churning, because a single trade is excessive
• C. Commingling, because the funds are the customer's
• D. No violation, because the customer may reject the recommendation

4. An agent omits telling a customer that the recommended bond issuer has missed its two most recent interest payments. Under the Act's antifraud provision, is an omission actionable?

• A. Yes, but only if the customer suffers an actual loss
• B. No, provided the information appears somewhere in the prospectus
• C. No; only affirmative false statements are actionable
• D. Yes; omitting a material fact necessary to make statements not misleading is prohibited

5. A customer buys a security in a cash account intending to sell it before payment is due, with no ability or intention to pay for it. What is this called?

• A. Freeriding
• B. Arbitrage
• C. Hypothecation
• D. Rehypothecation

6. An agent effects transactions in a customer's account that are excessive in size and frequency in light of the customer's resources and objectives, generating substantial commissions. What is this practice called?

• A. Front running
• B. Freeriding
• C. Churning
• D. Matched orders

7. A broker-dealer wishes to act as principal in a trade with an advisory client and disclose that capacity. Which is the more demanding standard the agent should understand?

• A. Advisory principal trades generally require disclosure and client consent for each transaction
• B. Advisory principal trades require nothing beyond a confirmation
• C. Principal trades are prohibited in all circumstances
• D. Only the broker-dealer's capacity on a brokerage trade requires consent

8. An agent shares directly in the profits and losses of a customer's account. Under the model rules, what is generally required?

• A. Written authorization from the customer and the firm, with sharing proportionate to the agent's financial contribution
• B. Sharing is permitted only in losses, never in profits
• C. Only the customer's oral consent
• D. Nothing, provided the customer benefits overall

9. An agent is asked by a customer to hold the customer's mail for an extended period while the customer travels. What is the general rule?

• A. Mail may never be held for any customer under any circumstance
• B. Mail may be held indefinitely on oral instruction
• C. Mail may be redirected to the agent's home address
• D. Mail may be held only on written instruction and generally for a limited period, subject to firm procedures

10. An agent learns that his firm is about to publish a research report recommending a stock and buys the stock for his own account before publication. What is this?

• A. Front running, a prohibited practice
• B. A permissible personal trade if disclosed after the fact
• C. An exempt transaction because it is unsolicited
• D. Permissible because research reports are public documents

11. An agent deposits a customer's check into the agent's personal bank account, intending to forward the funds to the firm the following week. What violation has occurred?

• A. Commingling of customer funds with the agent's own funds
• B. Churning of the customer's account
• C. A permissible accommodation if the funds are forwarded intact
• D. Front running of a customer order

12. A customer's account statement shows a security the customer says he never authorized. The agent asks the customer to sign a blank order ticket to paper the file. What violations are involved?

• A. Unauthorized trading plus falsification of firm books and records
• B. Only a bookkeeping irregularity with no securities law consequence
• C. No violation if the customer ultimately signs
• D. Only a suitability violation

13. An agent borrows money from a customer who is not a lending institution and not a family member. Under the model rules, is this permitted?

• A. Always permitted between consenting adults
• B. Permitted only if the customer's account is discretionary
• C. Always permitted if the loan is documented and bears market interest
• D. Generally prohibited unless the firm's written procedures permit it and specified conditions are met

14. An agent tells a customer that if the recommended stock declines, the agent will personally make up any loss. Is this permissible?

• A. No, guaranteeing a customer against loss is a prohibited practice
• B. Yes, if the agent has the financial capacity and puts it in writing
• C. Yes, if the broker-dealer approves the arrangement in advance
• D. Yes, provided the customer is an accredited investor

15. A customer asks an agent about the tax consequences of a proposed municipal bond swap. What is the appropriate response?

• A. Explain the general features and recommend the customer consult a qualified tax professional
• B. Provide definitive tax advice, since municipal bonds are tax exempt
• C. Refuse to discuss the security at all
• D. Guarantee the tax outcome in writing

16. An agent recommends a security and, when asked about risk, tells the customer the state Administrator has registered the security so it must be a sound investment. What is wrong with this statement?

• A. It is acceptable if the security is registered by qualification
• B. Nothing; registration does signify Administrator approval
• C. It understates the Administrator's role in setting the offering price
• D. It falsely implies registration is an approval or endorsement of the security's merits

17. A firm's advertisement for a security registered by qualification is prepared for distribution to state residents. What may the Administrator require?

• A. Filing of the sales literature and advertising with the Administrator
• B. Prepayment of anticipated civil penalties
• C. Approval by every purchaser before distribution
• D. Nothing; advertising is outside the Administrator's authority

18. An agent maintains a personal blog about investing and, without telling the firm, posts a static page recommending a security the firm underwrites. When the firm discovers the page, the correct analysis is that:

• A. The posting is permissible because a blog is interactive and therefore never requires prior approval
• B. The static page is a firm communication subject to principal approval, content standards, and recordkeeping, and the agent's failure to submit it violates those obligations
• C. Only the recordkeeping obligation applies; content standards reach printed material only
• D. Personal social media is outside the rules entirely because the agent posted it on their own time

19. A broker-dealer's information security committee is deciding which written materials SEC Regulation S-P requires. The firm's clearest obligation is to:

• A. Adopt written policies and procedures reasonably designed to safeguard customer records and information, addressing administrative, technical, and physical safeguards
• B. Encrypt every internal email regardless of content
• C. Obtain written customer consent before sharing information with the firm's clearing broker for trade processing
• D. Publish its information security procedures on its public website

20. A customer buys a listed equity call and, at expiration, the option is out of the money. Regarding option valuation, which statement about the premium the customer paid is accurate?

• A. The entire premium consisted of time value, which decayed to zero, and the customer's loss is limited to the premium paid
• B. The customer may recover the intrinsic value of the contract from the writer at expiration
• C. The customer's loss is unlimited because the underlying continued to fall
• D. The premium is refunded by the clearing organization when a contract expires unexercised

21. A broker-dealer wants to share a customer list, including account numbers and transaction histories, with an unaffiliated marketing company. Under SEC Regulation S-P, the firm must:

• A. Provide the customer a notice describing the disclosure and a reasonable opportunity to opt out before sharing nonpublic personal information with the unaffiliated third party
• B. Obtain the customer's affirmative written consent in every case, because opt-out is never sufficient
• C. Do nothing further, because account numbers are not nonpublic personal information
• D. Seek approval from the state administrator before any disclosure of customer information

22. A broker-dealer posts a piece on its public website promoting its options services, including a hypothetical showing only profitable outcomes. Under FINRA Rule 2210's content standards, the central defect is that the communication:

• A. Is not fair and balanced, because it omits the material risks that would let an investor evaluate the strategy
• B. Was posted online rather than mailed, which the rule does not permit for options material
• C. Used a hypothetical at all, which the content standards prohibit outright
• D. Failed to name the exchange on which the options trade

23. A customer holds a listed equity call option with a strike price above the current market price of the underlying stock, and the option has three months remaining to expiration. Regarding the valuation of that option, which statement is correct?

• A. The option has no intrinsic value, but it may still command a premium reflecting time value
• B. The option has intrinsic value equal to the strike price minus the market price
• C. The option has no intrinsic value and no premium, because it cannot be exercised profitably
• D. The option has no intrinsic value, but its premium reflects time value; that time value erodes as expiration approaches

24. An agent emails 30 retail customers a one-page piece on a listed equity option strategy. The piece describes the potential gains from writing covered calls and closes with a line inviting recipients to call the agent. The firm's registered options principal never saw it. Under FINRA Rules 2210 and 2360, the most serious problem is that:

• A. The piece was distributed by email, and options material may be delivered only in paper form
• B. The communication was a retail communication concerning options that required approval by a qualified options principal before use, and it presented potential gains without balanced disclosure of risks
• C. The piece named a specific strategy, which is prohibited in any communication reaching more than one retail customer
• D. Nothing, provided the agent sends the options disclosure document within a reasonable time after the customer opens a position

25. An agent's customer wants to buy shares on margin in a newly opened margin account. The agent is unsure of the current initial margin percentage. Which statement correctly describes how Regulation T operates here?

• A. Regulation T is set by the state administrator, who publishes the percentage for each firm doing business in the state
• B. Regulation T governs the extension of credit by broker-dealers for securities purchases; the applicable initial margin percentage is set by the Federal Reserve Board, which publishes the current figure
• C. Regulation T sets the maintenance margin level that triggers a house call from the firm
• D. Regulation T applies only to options accounts and has no bearing on equity purchases

26. An agent at a broker-dealer receives an order from a customer's spouse, who is not named on the account and holds no written authority. The agent records the order on a ticket showing the customer as the originator. Under FINRA Rule 4512 and SEC Rule 17a-3, the essential defect is that:

• A. the order ticket must identify the person who actually placed the order, and no third-party trading authority is on file
• B. the ticket is acceptable because a spouse is presumed to have authority over a household account
• C. the defect is cured if the customer later confirms the trade in writing after settlement
• D. spousal orders are permitted only in joint accounts, so the account title should have been changed first

27. A customer's margin account falls below the maintenance requirement after a sharp decline in the portfolio. Under FINRA Rule 4210, the firm's response is best described as:

• A. Issuing a maintenance call for the deficiency, with the firm permitted to impose a house requirement stricter than the minimum the rule sets
• B. Closing the account immediately, because no cure of a maintenance deficiency is permitted
• C. Waiting until the customer's next deposit, because maintenance levels are advisory only
• D. Referring the deficiency to the state administrator, who sets each firm's maintenance requirement

28. A customer buys a listed equity put with a strike price of $50 when the underlying trades at $44. The customer paid a premium of $8 per share. Ignoring commissions, the intrinsic value and the time value of this option are, respectively:

• A. $6 of intrinsic value and $2 of time value
• B. $8 of intrinsic value and no time value
• C. No intrinsic value and $8 of time value, because the option has not been exercised
• D. $2 of intrinsic value and $6 of time value

29. Under the Uniform Securities Act, a person who represents a broker-dealer in effecting securities transactions is defined as which of the following?

• A. An agent
• B. An investment adviser representative
• C. An issuer
• D. A federal covered adviser

30. An agent is convicted of a felony unrelated to securities eight years before applying for registration. What is the general effect?

• A. It is generally outside the ten-year lookback used for statutory disqualification purposes, though the Administrator may still consider fitness
• B. It requires the applicant to post a surety bond of 1 million dollars
• C. It has no relevance whatsoever to any registration decision
• D. It results in automatic permanent denial regardless of timing

31. An individual sells securities exclusively on behalf of an issuer in transactions that are themselves exempt, and receives no commission. Under the Uniform Securities Act, is that individual an agent required to register?

• A. Yes; anyone selling any security must register as an agent
• B. Yes, unless the issuer is a federal covered issuer
• C. No; representing an issuer in exempt transactions without compensation generally falls within an exclusion
• D. No, because issuers are never subject to state law

32. An agent is compensated with a percentage of the commissions generated in the accounts he services. Does this compensation structure by itself violate the Uniform Securities Act?

• A. No; transaction-based compensation is permitted, though it heightens the need for suitability discipline
• B. Yes; agents may only be paid a flat salary
• C. Yes; commissions may only be paid to the broker-dealer, never shared with agents
• D. No; and suitability obligations do not apply where compensation is commission based

33. An agent's registration is effective. The agent leaves one broker-dealer to join another. What happens to the registration?

• A. It remains with the former employer until the next renewal date
• B. It is not automatically transferred; the agent, the former employer and the new employer must each notify the Administrator promptly
• C. It terminates permanently and the agent must requalify by examination
• D. It transfers automatically upon the new firm's hiring decision

34. A broker-dealer wants to pay ongoing transaction-based compensation to a retired agent who has let their registration lapse, in return for the continuing revenue from accounts the agent once serviced. Under FINRA Rule 2040, what governs whether the firm may do so?

• A. The payment is always permitted because the retiree performed the work while properly registered
• B. The payment is prohibited outright; no member may ever pay a formerly registered person after registration lapses
• C. The payment is permissible only under a contract entered into in accordance with the conditions FINRA sets for continuing commissions to retiring representatives
• D. The payment is permitted if the retiree signs a statement agreeing not to solicit new business

35. A broker-dealer's compliance officer is designing supervision for outside brokerage accounts. Which purpose best explains why FINRA Rule 3210 requires the executing firm to be told of the associated person's status?

• A. It allows the executing firm to charge the associated person institutional commission rates
• B. It allows the employing member to receive duplicate confirmations and statements so it can supervise the person's trading
• C. It transfers supervisory responsibility for the account to the executing firm
• D. It exempts the account from the employing member's written supervisory procedures

36. A broker-dealer registered in several states hires an agent who will contact prospective clients in each of those states. The firm's compliance manager argues that because the broker-dealer itself is properly registered everywhere it does business, the agent need only be registered in the state where she physically works. Is the compliance manager correct?

• A. Yes, because an agent's authority derives from the broker-dealer's registration
• B. Yes, provided the agent never travels to the other states
• C. No, because the agent must be registered in each state in which she effects or attempts to effect transactions, unless an exemption applies
• D. No, because agents must register in every state in which the broker-dealer holds a registration, whether or not they contact clients there

37. A registered agent of a broker-dealer opens a personal brokerage account at an unaffiliated broker-dealer. Under FINRA Rule 3210, which step is required before the account is opened?

• A. The agent must obtain the prior written consent of the employing member firm
• B. The agent must obtain the prior written consent of the executing broker-dealer only
• C. The agent must notify the state administrator of the outside account
• D. The agent must obtain the employing member's prior written consent and notify the executing firm in writing of the association

38. A broker-dealer discovers that an agent has been using an account at an unaffiliated financial institution — not another broker-dealer — in which securities transactions are effected. The agent argues that FINRA Rule 3210 does not apply because the account is not at a member firm. How should the firm treat the account?

• A. The agent is correct; Rule 3210 reaches only accounts carried by FINRA member firms
• B. The rule's consent and notification obligations extend to accounts at other financial institutions in which securities transactions can be effected
• C. The rule applies only if the agent has discretionary authority over the outside account
• D. The rule applies only to accounts holding securities the employer firm itself distributes

39. An agent of a member firm wants to open a brokerage account at another member firm. Under FINRA Rule 3210, what must the agent do before the account is opened?

• A. Nothing in advance; the agent need only report the account on the next annual compliance questionnaire
• B. Obtain a no-objection letter from FINRA's registration department
• C. Notify the state administrator of the state in which the account will be held
• D. Obtain prior written consent from the employer member firm

40. A broker-dealer files an application to register an individual as an agent. Before the application becomes effective, the individual begins calling prospects in the state and taking indications of interest in a new offering, though no tickets are written until the registration is granted. How should this activity be characterized under the Uniform Securities Act?

• A. Permissible, because no transaction was actually executed until the registration became effective
• B. Permissible, because a pending application gives the individual conditional authority to solicit in the state
• C. A violation, because soliciting offers to buy is itself agent activity requiring effective registration
• D. A violation only if the individual was compensated for the calls; uncompensated solicitation is outside the definition of agent

41. A member firm proposes to pay a referral fee to a non-registered marketing consultant for each brokerage account the consultant refers that funds and trades. Under FINRA Rule 2040, the central question the firm must answer is:

• A. Whether the consultant carries errors and omissions insurance
• B. Whether the compensation is transaction-based, such that the recipient's activity would require registration
• C. Whether the consultant's fee is paid annually rather than per referral
• D. Whether the referred customers are accredited investors

42. A broker-dealer closes a private placement and wants to pay a finder's fee to a former agent who introduced the investors. The former agent's registration lapsed before the introductions were made and was never reinstated. Applying FINRA Rule 2040, what is the firm's position?

• A. The payment is permitted because the recipient was previously registered with the firm
• B. The payment is permitted if it is characterized as a consulting fee rather than transaction-based compensation
• C. The firm may not pay transaction-based compensation to a person who was unregistered when the activity requiring registration occurred
• D. The payment is permitted if the firm reports it to the state Administrator within the period the Administrator prescribes

43. A firm that stands ready to buy and sell a particular security for its own account, quoting both a bid and an ask price, is acting in which capacity?

• A. As an agent (broker) executing on behalf of a customer
• B. As a market maker (dealer) trading for its own account
• C. As a transfer agent
• D. As a custodian

44. A broker-dealer maintains custody of customer funds and securities. Which additional requirement is the Administrator most likely to impose?

• A. Minimum net capital and a surety bond, together with segregation and recordkeeping requirements
• B. A prohibition on charging any commission
• C. Mandatory registration of every customer with the Administrator
• D. A requirement that all customers be accredited investors

45. When must an applicant for registration as a broker-dealer or agent file a consent to service of process?

• A. Annually with each renewal
• B. With the initial application, and it remains in effect permanently
• C. Only if the applicant has no office in the state
• D. Only when the Administrator opens an investigation

46. The difference between the bid price and the ask price of a security is commonly referred to as the:

• A. Coupon
• B. Spread
• C. Par value
• D. Dividend

47. The Administrator may require a registered broker-dealer to post a surety bond. In lieu of the bond, what may the Administrator accept?

• A. A deposit of cash or securities in the required amount
• B. A personal guarantee from the firm's principal
• C. An indemnification agreement from the clearing firm
• D. Nothing; a surety bond is the only permitted form

48. A broker-dealer is registered in State A, where it maintains its only office. It has one existing customer who moves to State B, and the firm continues to service that account without soliciting anyone else in State B. Must the firm register in State B?

• A. No, a broker-dealer with no place of business in the state dealing only with existing customers is generally excluded
• B. Yes, any transaction with a resident triggers registration
• C. Yes, unless the customer signs a waiver of state protection
• D. No, because broker-dealers are federal covered and never register with states

49. Registrations of broker-dealers, agents and investment advisers under the Uniform Securities Act generally expire on what date unless renewed?

• A. June 30 of each year
• B. The anniversary of the original effective date
• C. December 31 of each year
• D. They do not expire once granted

50. May an Administrator deny a broker-dealer's registration solely because the applicant lacks experience?

• A. No; lack of experience alone is not a sufficient basis, though it may be considered alongside other factors
• B. No; the Administrator may never consider experience at all
• C. Yes; experience is an absolute statutory prerequisite
• D. Yes, but only for applicants under the age of 25

51. Summit Securities is registered in State A only. A State A customer spends the winter in State B, and while there calls Summit's office in State A to place trades. Summit has no office in State B and does no other State B business. Is Summit required to register in State B?

• A. Yes, because it effected a transaction while the customer was physically in State B
• B. No, because a broker-dealer with no place of business in the state that deals with an existing customer temporarily present in the state is excluded from the definition
• C. No, because a broker-dealer only ever needs to register in its home state
• D. Yes, unless the customer signs a waiver of State B's registration requirement

52. After Form BD is filed and registration granted, Northbrook Securities discovers that a disclosure answer in the filing was inaccurate when made. Under USA §201's filing requirements, what is the firm's obligation?

• A. It must promptly file a correcting amendment, because the information in the application must be kept current and accurate for as long as the registration is in effect
• B. It may correct the answer at the next annual renewal
• C. No action is required because the registration has already become effective
• D. It must withdraw the registration and reapply with corrected information

53. An agent of Cobalt Securities sends a prospective client an email from a personal account describing a private placement, using a message thread the firm does not archive. The firm's manual prohibits personal-account business email. Under FINRA Rule 3110, what is the firm's supervisory responsibility regarding this correspondence?

• A. None, because the message was sent from a personal account outside the firm's systems
• B. The firm must have procedures for the review of incoming and outgoing correspondence relating to its investment banking or securities business, and a written prohibition alone does not satisfy that duty if the firm does not act to enforce it
• C. The firm satisfies the rule by requiring the agent to sign an annual attestation that she used only firm systems
• D. Review is required only for correspondence sent to more than a threshold number of retail investors

54. During the year, Redwood Securities relocates its headquarters, adds a new controlling owner, and hires a new chief compliance officer. Which describes the firm's obligation regarding Form BD?

• A. Report the changes at the next annual renewal, since Form BD is only reviewed once a year
• B. File an amendment to Form BD promptly after each change that makes the form inaccurate, because the firm has a continuing duty to keep it current
• C. File a new initial Form BD and restart the registration process
• D. Notify only FINRA, since state Administrators receive no Form BD updates

55. Beacon Hill Securities adopts written supervisory procedures but never tests whether they are being followed, and never designates anyone to review them. A registered principal says the firm has met FINRA Rule 3110 because the procedures exist and are in writing. What is the defect in that position?

• A. A supervisory system must be reasonably designed and actually implemented — including designated supervisors, review of the business, and testing of the procedures — not merely written
• B. Written procedures satisfy Rule 3110 provided each registered representative signs an acknowledgment of receipt
• C. Rule 3110 applies only to branch offices, so a firm operating from a single location has no supervisory obligation
• D. The firm must instead adopt the state Administrator's model supervisory procedures verbatim

56. Under the Uniform Securities Act, a purchaser who buys a security sold in violation of the Act may generally recover which of the following?

• A. Only the difference between the purchase price and current market value
• B. Nothing, because the Act provides only administrative remedies
• C. Triple the purchase price as punitive damages
• D. The purchase price plus interest and reasonable attorney fees, less any income received on the security

57. On what basis may an Administrator deny, suspend or revoke a registration under the Uniform Securities Act?

• A. Solely because a competitor has filed a complaint
• B. Only after a criminal conviction has been entered
• C. Where the action is in the public interest and a specified statutory ground exists
• D. Solely because the Administrator disagrees with the firm's business model

58. The Administrator wishes to stop an ongoing violation immediately without first holding a hearing. What tool is available?

• A. A cease and desist order, subject to the person's right to request a hearing afterward
• B. A criminal conviction entered by the Administrator
• C. An order permanently barring the person with no right of appeal
• D. Nothing; a hearing must always precede any order

59. Under the Uniform Securities Act, any condition or agreement by which a customer purports to waive compliance with the Act is treated how?

• A. It is enforceable if approved by the Administrator
• B. It is void
• C. It is enforceable if signed and notarized
• D. It is enforceable if the customer is accredited

60. What are the maximum criminal penalties for a willful violation of the Uniform Securities Act as generally tested?

• A. A fine of up to 5,000 dollars, imprisonment of up to three years, or both
• B. A fine of up to 10,000 dollars and imprisonment of up to five years
• C. A fine of up to 1,000 dollars and no imprisonment
• D. Imprisonment of up to ten years with no fine

61. A regulatory framework in which a self-regulatory organization oversees its member firms while itself being subject to government oversight is an example of what regulatory structure?

• A. Direct government-only regulation
• B. Self-regulation operating under government oversight
• C. Fully unregulated market activity
• D. Regulation exclusively by individual firms with no external body

62. The Administrator issues a stop order suspending the effectiveness of a registration statement. What must accompany or follow that action?

• A. Prompt notice to the interested parties and an opportunity for a hearing
• B. A criminal referral to the state attorney general in every case
• C. Automatic revocation of all agents' registrations at the firm
• D. A permanent bar on the issuer from ever registering again

63. Under the Uniform Securities Act, what is the general limitation period for bringing a civil action for a securities violation?

• A. Five years after the sale, with no discovery rule
• B. One year after the sale in all circumstances
• C. Ten years after discovery of the violation
• D. Two years after discovery of the violation or three years after the sale, whichever occurs first

64. A seller who has violated the Uniform Securities Act offers the buyer a written rescission offer. If the buyer does not accept within the period stated in the offer, what is the general consequence?

• A. The buyer loses the right to bring a civil action based on that violation
• B. The offer automatically renews every 30 days
• C. The Administrator must approve the rescission before it is effective
• D. The buyer retains all rights indefinitely regardless of the offer

65. Which of the following is within the Administrator's authority under the Uniform Securities Act?

• A. Waiving the Act's antifraud provisions for institutional clients
• B. Imposing a prison sentence directly after an administrative hearing
• C. Conducting investigations inside or outside the state and issuing subpoenas for witnesses and records
• D. Approving the investment merits of a registered offering

66. A state Administrator wishes to halt an offering that is currently in registration because the registration statement contains a materially misleading omission. Which action is available to the Administrator with respect to that registration statement?

• A. Issue a stop order denying, suspending, or revoking the effectiveness of the registration statement, subject to notice and opportunity for hearing
• B. Nothing; once filed, a registration statement may be challenged only by a court
• C. Order the SEC to withdraw the federal filing
• D. Convict the issuer's officers of securities fraud

67. During an investigation, an Administrator issues a subpoena to a firm's compliance officer, who refuses to appear and produce the requested records. Under the Uniform Securities Act, what is the Administrator's most direct means of compelling compliance?

• A. Apply to the appropriate court for an order compelling compliance, with refusal punishable as contempt of court
• B. Jail the compliance officer directly, because the Administrator holds contempt power
• C. Immediately revoke the firm's registration without notice or any opportunity for a hearing
• D. Take no action, because subpoena power extends only to persons registered in the state

68. An agent believes a state Administrator's final order barring him from association with any broker-dealer in the state was based on a misreading of the record. Which statement best describes his avenue for challenging that order?

• A. He may obtain judicial review of the final order by filing a petition in the appropriate court within the time the statute allows, and the Administrator publishes the applicable period
• B. He has no recourse, because a final order of the Administrator is not reviewable by any court
• C. He may appeal only to NASAA, which writes the state law examination and therefore oversees state Administrators
• D. He must first sue the Administrator for damages, and only a judgment in that suit will vacate the order

69. Under the Uniform Securities Act, which of the following is included in the definition of an offer to sell?

• A. A gift of assessable stock
• B. A bona fide pledge of securities as loan collateral
• C. A stock dividend where nothing of value is given by the holder
• D. A bona fide gift of non-assessable stock

70. In the event that a corporation is liquidated, which class of claimants generally has the LOWEST priority to the firm's remaining assets?

• A. Preferred stockholders
• B. General (unsecured) creditors
• C. Common stockholders
• D. Secured creditors

71. Which of the following characteristics is generally associated with preferred stock as compared to common stock?

• A. A higher priority claim on dividends and assets than common stock
• B. Greater voting control over corporate decisions than common stock
• C. An unlimited right to share in the firm's growth beyond a stated amount
• D. A guaranteed return of principal superior to that of bondholders

72. Which statement BEST describes the economic function of a securities market?

• A. It guarantees that all investors earn a profit on their holdings
• B. It facilitates the flow of capital from savers to entities that need financing
• C. It eliminates all investment risk for participants
• D. It sets fixed prices for all securities that cannot change

73. Which of the following would most likely qualify as an exempt transaction under the Uniform Securities Act?

• A. A sale of securities to a registered investment company
• B. A general solicitation of a new equity issue to retail residents
• C. An agent recommending a growth stock to a retired customer
• D. A public advertising campaign for a start-up's shares

74. To which securities do the Uniform Securities Act's antifraud provisions apply?

• A. Only federal covered securities
• B. All securities, including exempt securities and those sold in exempt transactions
• C. Only non-exempt securities sold to retail customers
• D. Only securities registered by qualification

75. Who bears the burden of proving that an exemption from registration is available under the Uniform Securities Act?

• A. The purchaser of the security
• B. The Administrator, who must disprove it
• C. The clearing firm that settled the trade
• D. The person claiming the exemption

76. An issuer sells its securities to ten non-institutional purchasers in a state during a twelve-month period, with no general advertising and no commissions paid to anyone other than a registered agent. Which exemption is most likely in play?

• A. The isolated non-issuer transaction exemption
• B. The unsolicited brokerage transaction exemption
• C. The fiduciary transaction exemption
• D. The private placement exemption for a limited number of non-institutional offerees

77. A state Administrator and the SEC both have authority over a fraudulent offer made in the state involving a federal covered security. What is the general position?

• A. State antifraud authority survives federal preemption of registration, so both may act
• B. Only the SEC may act, because federal covered securities are wholly preempted
• C. Only the state may act, because the offer occurred in the state
• D. Neither may act until the offering is complete

78. Which of the following is NOT a security under the Uniform Securities Act?

• A. A fixed annuity contract
• B. A variable annuity contract
• C. A certificate of interest in an oil and gas program
• D. A limited partnership interest

79. Which of the following BEST distinguishes an equity security from a debt security?

• A. Equity must be repaid at maturity, while debt need not be
• B. Equity is always guaranteed a fixed return, while debt is not
• C. Equity represents an ownership interest, while debt represents a creditor relationship
• D. Debt confers voting rights, while equity does not

80. Under the Uniform Securities Act, which method of securities registration is available to an issuer whose offering is also registered with the SEC and which becomes effective simultaneously with federal effectiveness?

• A. Notice filing only
• B. Registration by coordination
• C. Registration by consent
• D. Registration by qualification

81. An investor buys shares of a publicly traded company from another investor on a stock exchange. In which market did this transaction take place?

• A. The primary market, because the shares were issued by the company
• B. The secondary market, because the trade was between investors
• C. The primary market, because it occurred on an exchange
• D. A private placement market

82. A candidate preparing to become licensed asks which credential the Series 63 itself supplies. Which answer correctly characterizes the exam?

• A. It is the state law examination for broker-dealer representatives, testing the Uniform Securities Act of 1956 as amended by NASAA, and it is written by NASAA and administered by FINRA
• B. It is a federal securities law examination administered by the SEC
• C. It is the sole qualification examination for investment adviser representatives in every state
• D. It is written by FINRA and administered by NASAA at NASAA testing centers

83. Under SEC Rule 203A-1, an investment adviser whose assets under management have risen or fallen across the dividing line between state and federal registration is affected as follows:

• A. The rule provides a buffer and an annual-updating-amendment timetable so an adviser need not switch registration on every market fluctuation
• B. The rule requires the adviser to change registration status the day its assets cross the line
• C. The rule applies only to investment adviser representatives, not to advisory firms
• D. The rule permanently exempts any adviser once federally registered from ever returning to state registration

84. An investment adviser representative is employed by an adviser that is registered with the SEC rather than with any state. The representative has a place of business in State A and solicits clients there. Which statement best describes the registration consequence?

• A. The representative must register in State A even though the firm is federally covered, because states retain authority over representatives with a place of business in the state
• B. The representative is exempt from all state registration because the employing adviser is SEC-registered
• C. The representative must register with the SEC, because representatives follow the registration status of the firm
• D. The representative need not register anywhere, because the firm's federal registration covers all supervised persons

85. A state-registered investment adviser employs an assistant who schedules client review meetings, mails out quarterly performance packets prepared by the portfolio team, updates address changes in the firm's client database, and answers the main phone line. She never discusses the firm's recommendations, never describes the firm's services or fees to prospects, and receives a fixed salary with no share of advisory fees. Under the definition of an investment adviser representative in the Uniform Securities Act §401, which statement is correct?

• A. She is not an investment adviser representative, because her duties are clerical and ministerial rather than advisory or solicitation activity.
• B. She is an investment adviser representative, because any individual employed by a registered adviser who has access to client account information must register.
• C. She is an investment adviser representative, because she is compensated by an adviser and her work supports the delivery of advisory services.
• D. She must instead register as an agent of a broker-dealer, since she handles client communications for a securities firm.

86. An investment adviser representative registered in State B has no place of business in State C but, over several months, gives advice to a handful of individual clients who reside in State C. Which analysis of State C registration is correct?

• A. No registration is ever required in State C absent a place of business there
• B. Registration in State C may be required, because the de minimis relief for advisers without a place of business is limited to a small number of clients — a figure the Administrator publishes
• C. Registration in State C is required on the first advisory contact, regardless of client count
• D. Registration in State C is required only if the representative advertises in State C newspapers

87. A state-registered adviser hires an individual who will manage discretionary accounts. The Administrator, reviewing the IAR application, wants assurance the individual will be adequately overseen. Under the Act's registration provisions, on what basis may the Administrator act?

• A. The Administrator may impose conditions on, or deny, a registration where the applicant or the associated adviser fails to meet standards of qualification, supervision, or financial and business repute the Act specifies
• B. The Administrator may act only after the representative has harmed a client
• C. The Administrator has no authority over supervisory arrangements, which are solely a federal concern
• D. The Administrator must approve any application whose form and fee are complete

88. An individual applies for registration as an investment adviser representative. Her application is complete and truthful, and she has no disciplinary history, but the Administrator's examiner believes she is too inexperienced to advise retail clients on her own. Under the registration provisions of the Uniform Securities Act (§§201-204), what may the Administrator do?

• A. Consider inexperience together with her training and knowledge, and if it acts against the application, do so only after notice and an opportunity for a hearing.
• B. Deny the application summarily on the ground of inexperience alone, since suitability of personnel is committed entirely to the Administrator's discretion.
• C. Take no action of any kind, because an applicant with no disciplinary history is entitled to registration as a matter of right.
• D. Refer the application to FINRA, which decides IAR licensing questions because it administers the state law examination.

89. An investment adviser representative's registration in a state is effective. The representative wishes to voluntarily withdraw it. Under USA §204, which statement about withdrawal is correct?

• A. Withdrawal is immediate on filing and ends the Administrator's jurisdiction at once
• B. Withdrawal becomes effective after a period set by statute, and the Administrator retains jurisdiction to institute a revocation or bar proceeding for a further period after withdrawal
• C. Withdrawal requires the Administrator's affirmative written consent in every case
• D. Once withdrawn, the registration cannot be the subject of any Administrator proceeding

90. An economist employed by a state-registered advisory firm publishes general market commentary, is paid a salary with no bonus tied to advisory revenue, and has no contact with clients. A colleague at the same firm solicits advisory clients at seminars. Under the Uniform Securities Act's definition of an investment adviser representative (USA §401), which statement is accurate?

• A. Both are investment adviser representatives, because both are employed by a registered investment adviser
• B. The colleague who solicits advisory clients is an investment adviser representative; a person whose function is clerical or ministerial, or who has no advisory or solicitation role, is excluded
• C. Neither is an investment adviser representative, because only the firm's principal officers meet the definition
• D. Only the economist is an investment adviser representative, because publishing commentary is the provision of advice about securities

91. An adviser's registration application in a state is filed but the Administrator has taken no action on it. The firm's newly hired representative wants to begin calling prospects about advisory services immediately. Under USA §§201-202, what is the correct position?

• A. The representative may solicit only existing clients of the firm until the application is granted
• B. The representative may not transact advisory business until the registration becomes effective; a filed application is not authority to act
• C. The representative may solicit in any state except the one where the application is pending
• D. The representative may solicit at once, because an application on file constitutes conditional registration

92. An investment adviser with assets under management above the federal threshold registers with the SEC rather than the state. What is such an adviser called?

• A. A federal covered adviser
• B. An exempt reporting agent
• C. A state-registered adviser
• D. An unregistered adviser

93. A person gives advice about securities as an incidental part of their profession and receives no special compensation for that advice. Which exclusion from the investment adviser definition may apply?

• A. The exclusion for lawyers, accountants, teachers and engineers whose advice is solely incidental and uncompensated separately
• B. The exclusion for anyone who advises fewer than one hundred clients
• C. The exclusion for anyone who does not maintain custody
• D. The exclusion for anyone who advises only about exempt securities

94. Summit Wealth, a state-registered investment adviser, is drafting its standard client agreement. Its compliance officer reviews the NASAA model rule on advisory contracts. Which of the following must the written contract address?

• A. The adviser's expected annual rate of return on the client's portfolio.
• B. The amount of any prepaid fee that will be refunded if the contract is terminated early, and whether the adviser is granted discretionary authority.
• C. A clause permitting the adviser to assign the contract to a successor firm without notifying the client.
• D. A waiver of the client's right to bring an action under the Uniform Securities Act.

95. An applicant files for registration as an investment adviser in State Y. She holds a graduate degree in finance and has passed the required examinations, but she has never worked in the securities industry. The Administrator proposes to deny the application solely because of her lack of experience. Under the Uniform Securities Act, may the Administrator do this?

• A. Yes, but only after a hearing at which the applicant may present character witnesses.
• B. No; an Administrator may deny an application only for a criminal conviction or a prior revocation.
• C. Yes; the Administrator has unlimited discretion to deny any initial application.
• D. No; lack of experience alone is not a ground for denial when the applicant is qualified by training or knowledge, though the Administrator may condition the registration.

96. Dana opens an office in State X, prints business cards describing herself as an investment adviser, and begins advertising that she will recommend securities to individuals for an annual fee. She has not yet signed a single client and does not qualify as a federal covered adviser. Under the Uniform Securities Act, which statement is correct?

• A. She need not register until she has received her first advisory fee from a client.
• B. She must be registered with the State X Administrator, or qualify for an exemption, before transacting business as an investment adviser, and holding herself out as one is transacting business.
• C. She may register as an agent of a broker-dealer in lieu of investment adviser registration.
• D. She is only required to make a notice filing with the Administrator because she has no clients.

97. Harbor Advisory has been registered with the Administrator of its home state for several years. Its assets under management have now grown past the level at which the Investment Advisers Act of 1940, through §203A, allocates the adviser to federal jurisdiction (the current figure is published by the SEC and the Administrator). What is the consequence for Harbor's state registration?

• A. Harbor keeps its state registration and adds SEC registration, so that both regulators can examine its books.
• B. Harbor registers with the SEC and becomes a federal covered adviser; the state may require a notice filing and fee but can no longer require registration.
• C. Harbor's state registration continues unchanged because the adviser's principal office remains in the state.
• D. Harbor may choose whichever regulator it prefers as long as it discloses the choice on Form ADV.

98. Pine Ridge Advisors, a state-registered investment adviser, keeps client data on a password-protected server behind a firewall and its two principals agree verbally on how to handle a data breach. During a routine examination, the Administrator's staff ask for the firm's information security program. Under the NASAA model rule on information security, what deficiency is the examiner most likely to cite?

• A. The firm has no written, maintained and enforced policies and procedures covering physical security and cybersecurity, and no evidence of periodic review.
• B. None; the firm has adequate technical controls and a shared understanding of breach handling.
• C. The firm must retain an outside cybersecurity vendor; internal controls are never sufficient.
• D. The firm should have registered its server location with the Administrator as a branch office.

99. Ridgeline Advisory, a state-registered adviser, has written authorization from each client to instruct the qualified custodian to deduct Ridgeline's quarterly advisory fee directly from the client's account. Ridgeline holds no client cash or securities itself. Under the NASAA model custody rule, which statement is correct?

• A. Ridgeline does not have custody as long as the fee is deducted no more than once per quarter.
• B. Ridgeline has custody and must undergo the same surprise examination as an adviser that physically holds client securities, with no alternative available.
• C. Ridgeline does not have custody because the assets stay at an independent qualified custodian.
• D. Ridgeline has custody, but if it meets the direct-fee-deduction conditions, such as sending an itemized invoice to the custodian and to the client each time a fee is deducted and disclosing custody on its registration filing, it is relieved of the surprise examination requirement.

100. Cobalt Capital is a small firm whose only client is an investment company registered under the Investment Company Act of 1940. Its total assets under management are well below the published level that would otherwise require SEC registration. Where must Cobalt register as an investment adviser?

• A. With the Administrator of the state where Cobalt's principal office is located, because its assets are below the federal level.
• B. With the SEC, because an adviser to a registered investment company is a federal covered adviser regardless of assets under management.
• C. With both the SEC and every state in which the investment company's shares are sold.
• D. With neither, because advising a single institutional client is exempt from registration.