State Securities Acts Practice Questions

Section I – State Securities Acts and related rules and regulations 

 

A. Regulation of Investment Advisers

1. When must an investment adviser provide clients a copy of form ADV Part II or a brochure containing similar information?

a. At the time of entering into an advisory contract, as long as the client can terminate the contract without penalty within three days
b. Within 24 hours of entering into an advisory contract
c. Within five days of entering into an advisory contract
d. At least 48 hours prior to entering into an advisory contract 

2. Federal covered investment advisers may be exempt from registration if they do not advertise as a planner and if in the last 12 months they have less than:

a. Fifteen clients
b. Three clients
c. Five clients
d. Ten clients

3. Which of the following are considered exempt from registration as an investment adviser under the Uniform Securities Act?

a. An investment adviser with no place of business in the state who gives investment advice only to federal covered advisers
b. An investment adviser representative
c. A federal covered adviser
d. A trust department of a bank 

 

 

B. Regulation of Investment Adviser Representatives 

 

4.  Which of the following statements about post-registration requirements are true?

I Sales representatives are subject to post-registration requirements
II Broker-dealers are subject to post-registration requirements
III Investment advisers are subject to post-registration requirements
IV Investment adviser representatives are subject to post-registration requirements

a. I & II
b. I & IV
c. II & III
d. I, II, III & IV 

5.  Under the Uniform Securities Act, which investment adviser representatives do not have to register with the Administrator?

a. Those that work for a federal covered adviser but have only clerical duties
b. Those that work for a federal covered investment adviser
c. Those that work for an investment adviser registered with the Administrator
d. Those that are a partner of an investment adviser firm registered with the Administrator

6. If an investment adviser representative terminates employment with a federal covered investment adviser, which of the following statements are true: 

a. Both the federal covered adviser and the investment adviser representative must notify the Administrator within 30 days
b. The investment adviser representative must notify the Administrator promptly
c. Both the federal covered adviser and the investment adviser representative must notify the Administrator promptly
d. The federal covered adviser must notify the Administrator promptly.

7. Under the Uniform Securities Act, registration requirements for an investment adviser representative may include all of the following except

a. Posting a surety bond
b. Filing a consent to service of process
c. Passing a qualification exam
d. All of the Above 

 

C. Regulation of Broker-dealers

 

8. Under the Uniform Securities Act, broker-dealer registration takes effect,

a. When the Administrator notifies them
b. Noon on the 30th day after the registration is filed
c. Noon on the 10th day after registration is filed
d. Noon on the 45th day after the registration is filed


9. Under the Uniform Securities Act, when registering a broker-dealer, an Administrator can require all of the following except:

a. Minimum experience standards
b. Passing a qualifying examination
c. Minimum dollar amount of net capital
d. Minimum dollar amount of surety bond coverage 

10. Under the Uniform Securities Act, the Administrator may deny, revoke or suspend a broker-dealer’s registration if the broker-dealer: 

I Fails to properly supervise employees
II Has been suspended by an Administrator in another state
III Has been convicted of a financial crime within the last ten years
IV Becomes insolvent

a. I & IV
b. I & III
c. II & III
d. I, II, III & IV

 

D. Regulations of Securities and Issuers

 

11. Under the Uniform Securities Act, qualified purchasers of federal covered securities include:

a. Individuals with investments of $3,000,000 or more, or investment managers with at least $25,000,000 under management
b. Individuals with investments of $2,500,000 or more, or investment managers with at least $30,000,000 under management 
c. Individuals with investments of $5,000,000 or more, or investment managers with at least $25,000,000 under management
d. Individuals with investments of $5,000,000 or more, or investment managers with at least $30,000,000 under management 


12. Which of the following persons would NOT be excluded from the definition of a sales representative?

a. A person who represents the issuer in a transaction with the underwriters
b. A person who represents the issuer in occasional non-issuer transactions
c. A person who represents the issuer in a transaction with investors
d. A person who represents the issuer in a transaction with financial institutions 

13. Which of the entities below does the definition of a broker-dealer under the Uniform Securities Act exclude? 

I A sales representative of a broker-dealer
II A securities issuer
III A representative of a securities issuer
IV Someone who has a place of business in the state but trades securities only for institutions

a. I
b. II & III
c. I, II, III & IV
d. I, II & III 

 

E. Remedies and Administrative Provisions

 

14. Under the Uniform Securities Act, the Administrator can revoke or suspend a sales representative’s registration if the applicant

I Was arrested for a securities-related issue
II Has been charged with a felony
III Supplied false information on the registration application

a. I, II & III
b. II & III
c. I & II
d. III only


15. The Administrator can refuse a sales representative’s application if the applicant has been convicted of a felony or securities misdemeanour in the past

a. 10 years
b. 20 years
c. 5 years
d. 2 years


16. Under the Uniform Securities Act, the Administrator of California may examine the financial books and records of all of the following, except
 

a. The branch office of a broker-dealer in California whose main office is in Illinois
b. A broker-dealer in Illinois that has no California branches and doesn’t trade in California
c. The main office in Illinois of the California branch referred to above
d. Investment adviser’s office in California

17. Under the Uniform Securities Act, if a sales representative fails to renew their registration, which of the following is true? 

a. Registration is revoked by the Administrator
b. Registration is automatically renewed
c. Registration expires
d. A 30 day grace period applies

 

Answer Key 

 

1. D
An investment advisor must provide a brochure to clients at least 48 hours prior to entering into the contract.  If the client has the right to terminate the contract without penalty within five days the brochure can be provided at the time of entering into the contract. 

2. D
As long as they have less than 10 clients and assuming none of the clients were registered investment companies.

3. A
An investment adviser with no place of business in the state who gives investment advice only to federal covered advisers is exempted.   Be careful of exempted vs. excluded. 

4. C 
Post-registration requirements include maintenance of books and records, required filings with the Administrator, providing customer reports and filing advertising and sales literature. These requirement apply only to broker-dealers and investment advisers, not to sale representatives and investment adviser representatives. 

5. D
Upon registration with the Administrator as an investment adviser, all partners, directors or officers of the firm are automatically registered  as investment adviser representatives. 

6. B
The federally covered investment adviser would not have to notify the State as they are not registered with the State. The investment adviser representative must notify the Administrator promptly of the termination.

7. B
An investment adviser representative may be required to pass an exam, file a consent to service of process and post a surety bond.  

8. B
The normal effective date is 30 days after the registration is filed. This also applies to registration of sales representatives, broker-dealers, investment advisers and investment adviser representatives. 

9. A
An administrator does not have the power to require any specific years of experience or other similar standard. However, the administrator does have the right to require the applicant to pass a qualifying exam and have a minimum net capital as well as a minimum surety bond coverage. 

10. D
The Administration may deny, revoke or suspend a broker-dealer’s registration for a number of reasons, including failure to supervise employees, becoming insolvent, conviction of a financial crime or suspension by an Administrator in another state.

11. C
Qualified purchasers are defined are persons with $5,000,000 or more invested, or an investment manager with $25,000,000 or more assets under management 

12. C
Since the Uniform Securities Act does exclude individuals who do not deal with the public from registering as a sales representative. There is also a category of exempt transactions for those who handle only isolated transactions with someone other than the issuer (typically in the secondary market). The term “isolated” is not defined, but would not include repeated transactions by the same person 

13. D
The Uniform securities act defines a securities issuer separately, and specifically excludes a representative of the issuer from the definition of a broker-dealer. A sales representative of a broker- dealer is also separately defined.

While someone who has no place of business in the state and trades securities only for institutions is excluded from the definition of a broker-dealer, in this question the individual does have a place of business in the state and so is included in the definition of a broker-dealer. 

14. D
The Administrator can deny, revoke or suspend the registration if the applicant has made false statements or omitted required information.  The applicant must be convicted of a felony or any securities-related crime, not simply charged or arrested.

15. A
The Administrator may deny the application if the conviction occurred within the last ten years. 

16. B 
The Administrator has jurisdiction over investment advisers, broker-dealers and sales representatives located in the state or involved with securities offers directed into the state. However, the Administrator has no jurisdiction over an office located outside the state, which has no branch office or securities activities within the state.

17. C
No action needs to be taken by the Administrator and no grace period applies. The representative must re-apply.

 

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