FINRA Series-63 - Uniform Securities State Law Examination

It is only permissible for an investment adviser to borrow money from a client if that client is in the business of loaning money, as would be the case if the client is a bank, but not if the client is merely a close friend of the majority owner of the investment advisory firm.

Selections I, II, and III are all disallowed under the NASAA Model Rules. In Selection I, Broker-dealer Anon has made an unauthorized transaction and has also stolen from his client. The stop order indicated that the client’s Amazon.com order should be effected only if the stock dropped to $131 a share or less. Anon jumped the gun and sold it for $133, but only gave the client the specified price of $131 a share. In the scenario described in Selection II, Penny’s intentions might have been good, but an agent is not allowed to refund commissions. Anon is also in violation in Selection III’s scenario. A member of the selling group is expected to make “bona fide” public offerings of the securities allotted him. To purchase some of the securities for itself is prohibited.

During the “cooling off period” prospective investors may be given only a tombstone advertisement for the security.

According to the NASAA Model Rules, a bank that is insured by a private, state-licensed insurance company would not be considered a qualified custodian. Registered broker-dealers, foreign financial institutions, and banks and savings institutions that are insured by the FDIC are on the list of qualified custodians.

Under the guidelines of the USA, when Maddie quits her job as a registered agent with QuikDeals, both QuikDeals and Maddie are responsible for notifying the Administrator. Both the broker-dealer and the agent involved are required to notify the Administrator whenever an agent begins or ends her association with the broker-dealer.

Once an issuer has registered securities with the state, the documentation supplied in that registration statement can be incorporated into the registration statement for future securities the issuer wants to offer for sale by reference only for a period of five years.

Registration by qualification, in its simplest form, requires the issuer to supply voluminous amounts of information about both the firm and its directors, officers, and major shareholders. The state Administrator also has the authority to require even more documentation. It is the least favorite method of registration for obvious reasons.

The current yield on a bond fund is the return that the fund earned from interest income only. The return from interest income plus the return due to the capital appreciation of the securities make up the total return earned by the fund. The investor’s total return is equal to the return on the income received from the fund plus any change in the net asset value of the fund.

In recommending that Annie buy stock in Alcon because its stock is guaranteed to pay a dividend of $2.21 a share or higher, Goldie has committed fraud. The company itself could not even make such a guarantee legitimately. Goldie may also be guilty of an unsuitable recommendation since factors other than dividend yield-such as the risk of the investment--should have been considered. That being said, Goldie is permitted to make recommendations for specific investments as an agent of a broker-dealer, as long as she doesn’t receive special compensation for it.