Series 63: Uniform Securities State Law Examination

Joe Romeo is a broker-dealer registered with the state. He has recently hired Betty Buxom as his administrative assistant. As part of her duties, he has given her the responsibility for effecting the purchases and sales of securities for some of his firm’s smaller accounts. Ms. Buxom has never applied for nor been granted registration as a broker-dealer or agent. Based on these facts,

the Administrator is required by the Uniform Securities Act to revoke Joe Romeo’s registration and file criminal and civil charges against him.
there is no problem as long as Ms. Buxom registers with the state as an agent within thirty days.
the Administrator may elect to revoke or suspend Joe Romeo’s registration, and Joe may also face both civil and criminal penalties.
the Administrator is required to turn the case over to the state’s district attorney, who will file criminal charges against both Joe Romeo and Betty Buxom.

Correct answer: C

Explanation:

Since Joe Romeo has allowed Betty Buxom to execute trades, a duty that can legally be performed only by a registered broker-dealer or agent, the Administrator may elect to revoke or suspend Joe Romeo’s registration, and Joe may also face civil and criminal penalties. Ms. Buxom needed to be registered as an agent prior to effecting any transactions in the securities markets; there is no grace period. The Administrator is not required to take any action, however.

Until yesterday Maddie was a registered agent employed by the broker-dealer, QuikDeals. Yesterday afternoon, issues that had been brewing between her and another employee of the firm came to a head, and Maddie impulsively quit her job.

At this point,

Maddie has thirty days to find a job with another broker-dealer, or she will need to file a new registration application.
Maddie has sixty days to find a job with another broker-dealer, or she will need to file a new registration application.
Maddie will have to file a new application for registration with the Administrator upon finding employment with another broker-dealer since she is no longer considered to be a registered agent by the state.
Maddie is required to call all of her clients at QuikDeals to inform them she is no longer employed there.

Correct answer: C

Explanation:

When Maddie quit her job, her status as a state-registered securities agent was automatically terminated, and she will need to file a new application for registration with the Administrator upon obtaining a position with another broker-dealer. If she does so within thirty days, her registration will become effective as soon as she has filed her application and paid her application fee. While she is required to notify the Administrator that she has terminated her employment with QuikDeals, there is no requirement that she contact any of her clients at QuikDeals.

Maddie, a registered agent affiliated with broker-dealer QuikDeals, quit her job on the spur of the moment.

Under the guidelines of the Uniform Securities Act (USA), who is responsible for notifying the Administrator?

QuikDeals has the sole responsibility for notifying the Administrator. Maddie is no longer deemed to be an agent after she terminated her relationship with QuikDeals, so she need do nothing.
Maddie has the sole responsibility for notifying the Administrator.
It depends. If Maddie becomes affiliated with another broker-dealer within thirty days, then she must notify the Administrator of her termination with QuikDeals and her current affiliation with the new firm. Otherwise, only QuikDeals must notify the Administrator.
Both QuikDeals and Maddie are responsible for notifying the Administrator.

Correct answer: D

Explanation:

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.

Trevor is currently a registered agent in the state of Connecticut where he has been employed by Connect & Company, a broker-dealer that is registered in Connecticut and has subsidiary operations in Massachusetts, New Jersey, and New York. Trevor has moved to Massachusetts and is now associated with one of Connect’s subsidiaries, a broker-dealer registered in the state. Trevor has applied to the Administrator of Massachusetts for registration as an agent.

Can Trevor execute purchases and sales for clients while his registration is still pending?

No. Until he is informed by the Administrator of Massachusetts that his application has been accepted, Trevor may not affect any securities transactions in Massachusetts.
Yes. Because Trevor is a registered agent in another state and is affiliated with a broker-dealer that is registered in the state of Massachusetts, he is not restricted from executing trades.
Yes. Trevor can execute trades for new clients he solicits, but only for sixty days while his registration is pending.
It depends. Trevor can execute some purchases and sales, but only for clients that he already had who may have recently relocated to Massachusetts and only for sixty days while his registration is pending.

Correct answer: D

Explanation:

It depends. Because he is a registered agent in another state and the broker-dealer he is now affiliated with is registered in the state of Massachusetts, Trevor can execute purchases and sales, but only for existing clients while his registration with the Massachusetts Administrator is still pending and only for sixty days. This assumes, of course, Trevor has no violations that would restrict him from registering in Massachusetts.

Ms. Ding is an administrative assistant to the manager of a mutual fund. Most of her day is spent entering data onto a spreadsheet for her boss and answering phone calls. Some of the calls require her to provide information about the some of the fund’s financial aspects, such as its closing net asset value on the previous day.

What type of registration does Ms. Ding require in order to perform her duties?

Ms. Ding needs to apply for registration as an agent since she is providing financial information.
Ms. Ding needs to apply for registration as an investment adviser representative since she is providing information about a specific mutual fund.
Ms. Ding will need to apply for registration as both an agent and an investment adviser representative in this case since she is providing information about a mutual fund.
Ms. Ding does not need to apply for any type of registration. She is merely supplying information and is not engaged in the purchase or sale of the fund shares.

Correct answer: D

Explanation:

Since Ms. Ding is an administrative assistant who is merely providing some information about the fund and is not engaging in the purchase or sale of the fund shares, she does not need to apply for any type of registration. An employee who simply provides price and/or some other pertinent information to the public, but who does not engage in the purchase or sale of securities to the public and does not receive a commission based on the sale of securities is not considered to be an agent or an investment adviser.

Which of the following statements about agents is (are) false?

If an agent files for bankruptcy, the Administrator may elect to terminate that agent’s registration if the Administrator believes it is “in the public interest” to do so.
When an agent has a change of address, both he and his broker-dealer affiliate must inform the Administrator.
An agent must demonstrate a specific minimum level of financial stability for his registration application to be accepted.
All of the above are false statements.

Correct answer: C

Explanation:

The statement that an agent must demonstrate a specific minimum level of financial stability for his registration application to be accepted is false. The Administrator may require an agent to post a bond, but there are no specific minimum financial requisites that must be met. The Administrator also has the right to terminate an agent’s registration if the agent becomes bankrupt. Both the agent and his broker-dealer affiliate are required to inform the Administrator whenever there is a change in the agent’s personal information, such as a name change or a change of address.

Which of the following entities must sign a “consent to service of process,” thereby allowing the Administrator to receive legal documents that are meant to be served to the entity in place of that entity?

I. agents

II. investment advisers

III. investment adviser representatives

IV. broker-dealers

I and IV only
II and III only
II and IV only
I, II, III, and IV

Correct answer: D

Explanation:

Agents, investment advisers, investment adviser representatives, and broker-dealers must all sign a consent to service of process, allowing the Administrator to receive legal documents in their stead. The consent to service of process must accompany the application for registration with the state or the documentation provided with a notice filing when permitted.

Which of the following would fall under the definition of “agent,” as defined by the Uniform Securities Act (USA)?

Joe works as an administrative assistant for broker-dealer GetErDone, doing data entry, filing client forms that contain confidential information, and directing calls to registered representatives of the firm.
Freedom broker-dealers executes the purchase and sale of securities for its customers.
TrustUs Bank has a subsidiary operation that sells mutual funds to the public.
None of the above would fall under the definition of “agent,” as defined by the Uniform Securities Act (USA.)

Correct answer: D

Explanation:

None of the selections describe an “agent,” as defined by the Uniform Securities Act (USA.) Joe is not executing trades for clients of the broker-dealer, and clerical assistants are not classified as agents. Agents must be individuals, so a firm like Freedom broker-dealers would not be considered an agent. A bank is not an individual, and banks are even excluded from the definition of a broker-dealer.

None of the selections describe an “agent,” as defined by the Uniform Securities Act (USA.)

Joe is not executing trades for clients of the broker-dealer, and clerical assistants are not classified as agents. Agents must be individuals, so a firm like Freedom broker-dealers would not be considered an agent. A bank is not an individual, and banks are even excluded from the definition of a broker-dealer.

The 2003 NASAA Model Rule requires that investment advisers that are not federal covered maintain their records for at least

three years.
five years.
seven years.
Investment advisers must maintain their records for as long as they remain registered with the state.

Correct answer: B

Explanation:

Investment advisers are required to maintain their records for at least five years.

Individual states are prohibited from requiring a broker-dealer or investment adviser to file financial reports more frequently than:

once a year.
twice a year.
four times a year.
twelve times a year.

Correct answer: C

Explanation:

Individual states are prohibited from requiring a broker-dealer or investment adviser to file financial reports more frequently than four times a year. Under the Securities and Exchange Act of 1934, individual states are prohibited from imposing more stringent requirements than those already required by the SEC, and the SEC requires quarterly reporting. Therefore, a state may not require that a broker-dealer or investment adviser file monthly reports with it.

Individual states are prohibited from requiring a broker-dealer or investment adviser to file financial reports more frequently than four times a year.

Under the Securities and Exchange Act of 1934, individual states are prohibited from imposing more stringent requirements than those already required by the SEC, and the SEC requires quarterly reporting. Therefore, a state may not require that a broker-dealer or investment adviser file monthly reports with it.