FINRA Series-63 - Uniform Securities State Law Examination

It is illegal to sell a mutual fund if the purchaser hasn’t received a prospectus. The purchaser must receive this no later than the date on which the trade confirmation is due. Short sales, margin transactions, and market-not-held orders are all legitimate.

Nuering Investment Advisers would not fall under the classification of “institutional investor.” Institutional investors are defined as banks, insurance companies, mutual funds, some pension plans, and broker-dealers registered under the Securities Exchange Act of 1934. Investment advisers are not part of this group.

A minor is not considered to be a person, as defined by the Uniform Securities Act. However, partnerships, corporations, and governmental subdivisions, such as school districts, are included in the definition.

Only Selections I and II are examples of manipulation in the securities market. It is considered to be manipulation if one firm engages another firm to make a series of purchases and sales that will make it appear that there is very active trading in the security; it is also considered manipulation if a broker-dealer encourages its agents to solicit sales of a security in which it has a short position since that broker-dealer is hoping that the sales will drive the price of the security down, thereby making the firm’s position profitable. Although the offer to sell a client bonds at a much higher price than their market price is illegal, it is not an example of price manipulation.

Under the circumstances described, Fast Eddie can execute the trade for Mr. Moneybags even though SafeAway stock is registered for sale only in the states of Colorado and Wyoming since neither Fast Eddie nor the broker-dealer solicited the transaction, making this an exempt transaction. However, the Massachusetts Administrator may demand that Fast Eddie and his broker-dealer provide proof that the trade was indeed unsolicited.

Under the guidelines of the USA, none of the entities described in Selections A, B, or C would be required to register with the state as a broker-dealer since the term, as defined by the USA, does not include agents, savings institutions, or entities with no offices in the state who deal exclusively with issuers and/or other broker-dealers, financial institutions, insurance companies, pension funds, or insurance companies. Selections B and C refer to a financial institution and an agent, respectively. In the scenario described in Selection A, the underwriter has no offices in the state and is dealing exclusively with the issuer of the bonds and insurance companies.

Registration by exception is not a method that is used to register securities with the state. Registration by notification is a method available for those securities that meet a certain set of criteria and requires the least amount of paperwork. Registration by coordination is the method used for most securities. Registration by qualification is the most burdensome method, requiring a voluminous amount of paperwork.

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.

Selections I, II, III, and IV-investment advisers, their representatives, and broker-dealers and their agents-are subject to accusations of churning. Any activity on the part of any of these parties that suggests that they are engaged in encouraging excessive trading on the accounts of their clients makes them subject to allegations of churning their customers’ accounts.

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.