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Question 1 of 10
1. Question
Certain securities transactions that are only offered on a limited basis are considered exempt transactions as long as specific criteria are met. Which of the following is not a fit criteria?
Correct
Certain securities transactions that are only offered on a limited basis are considered exempt transactions as long as specific criteria are met. In order to qualify as an exempt transaction under this provision, the offering of the security must be private in nature and available to fewer than ten non-institutional investors within the state within the previous twelve-month period. In addition, the security must be sold based on the seller’s belief that these non-institutional buyers are purchasing the security solely for investment purposes. Finally, the transaction is not considered exempt if commissions or compensation of any type are paid for the solicitation of the non-institutional buyers described above.
Incorrect
Certain securities transactions that are only offered on a limited basis are considered exempt transactions as long as specific criteria are met. In order to qualify as an exempt transaction under this provision, the offering of the security must be private in nature and available to fewer than ten non-institutional investors within the state within the previous twelve-month period. In addition, the security must be sold based on the seller’s belief that these non-institutional buyers are purchasing the security solely for investment purposes. Finally, the transaction is not considered exempt if commissions or compensation of any type are paid for the solicitation of the non-institutional buyers described above.
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Question 2 of 10
2. Question
Securities transactions that are initiated by named fiduciaries are exempt. Which of the following are included in such transactions?
I. Transactions initiated by the executor of an estate.
II. Transactions initiated by the administrator of a trust.
III. Transactions initiated by sheriffs and marshals.
IV. Transactions initiated by bankruptcy trustees and receivers.
Correct
Securities transactions that are initiated by named fiduciaries are exempt. This exemption includes transactions initiated by the executor of an estate, the administrator of a trust, sheriffs and marshals, and bankruptcy trustees and receivers. This exemption is designed to ease the process for parties seeking to liquidate holdings in certain circumstances, including the death of the original owner, government seizure of property, and bankruptcy. Securities transactions conducted by institutional investors are considered exempt transactions. Institutional investors are typically associated with financial institutions and manage large sums of funds on behalf of others. For example, the person that manages the money in a pension fund or a mutual fund would be considered an institutional investor.
Incorrect
Securities transactions that are initiated by named fiduciaries are exempt. This exemption includes transactions initiated by the executor of an estate, the administrator of a trust, sheriffs and marshals, and bankruptcy trustees and receivers. This exemption is designed to ease the process for parties seeking to liquidate holdings in certain circumstances, including the death of the original owner, government seizure of property, and bankruptcy. Securities transactions conducted by institutional investors are considered exempt transactions. Institutional investors are typically associated with financial institutions and manage large sums of funds on behalf of others. For example, the person that manages the money in a pension fund or a mutual fund would be considered an institutional investor.
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Question 3 of 10
3. Question
Which is not an example of exempt securities transactions?
I. Transactions in which issuers transfer securities to their own underwriters.
II. Transactions in which a secured bond security is backed by either a deed of trust or a real mortgage.
III. Transactions that consist of an offer to rescind a previous, improper security transaction.
IV. Transactions that consist of an offer to sell (or the sale of) a security to a person that resides outside of the state, and who is not present in the state.
Correct
Transactions in which issuers transfer securities to their own underwriters are exempt.
Offerings made to existing security holders may qualify as exempt transactions. Such offerings qualify as exempt transactions if the offerings are made only to the issuer’s
existing security holders, and if no compensation or commission is paid for the solicitation of the transaction. Transactions in which a secured bond security is backed by either a deed of trust or a real mortgage qualify as exempt transactions as long as the whole deed of trust or real mortgage is offered with the bond as a package deal. Transactions that consist of an offer to rescind a previous, improper security transaction are considered exempt. Finally, transactions that consist of an offer to sell (or the sale of) a security to a person that resides outside of the state, and who is not present in the state, are exempt transactions.Incorrect
Transactions in which issuers transfer securities to their own underwriters are exempt.
Offerings made to existing security holders may qualify as exempt transactions. Such offerings qualify as exempt transactions if the offerings are made only to the issuer’s
existing security holders, and if no compensation or commission is paid for the solicitation of the transaction. Transactions in which a secured bond security is backed by either a deed of trust or a real mortgage qualify as exempt transactions as long as the whole deed of trust or real mortgage is offered with the bond as a package deal. Transactions that consist of an offer to rescind a previous, improper security transaction are considered exempt. Finally, transactions that consist of an offer to sell (or the sale of) a security to a person that resides outside of the state, and who is not present in the state, are exempt transactions. -
Question 4 of 10
4. Question
What information agents must request from their clients before making any recommendation?
I. Current finances.
II. Investment goals.
III. Need for investment stability.
IV. Health insurance if any.
Correct
The information that agents must request from their clients includes information regarding current finances, investment goals, and need for investment stability. These three factors will help the agent determine the amount of investment the client can reasonably afford, the types of securities that are best able to meet the clients investment goals (e.g., growth or income), and the appropriate mix of high-risk and low-risk investments for the particular client. Any securities transactions that the agent recommends must meet these client-driven factors. The Uniform Securities Act prohibits agents from recommending a securities transaction for a client that is inconsistent with the client’s investment objectives.
Incorrect
The information that agents must request from their clients includes information regarding current finances, investment goals, and need for investment stability. These three factors will help the agent determine the amount of investment the client can reasonably afford, the types of securities that are best able to meet the clients investment goals (e.g., growth or income), and the appropriate mix of high-risk and low-risk investments for the particular client. Any securities transactions that the agent recommends must meet these client-driven factors. The Uniform Securities Act prohibits agents from recommending a securities transaction for a client that is inconsistent with the client’s investment objectives.
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Question 5 of 10
5. Question
What is true about making investment decisions on behalf of client?
I. The agent must first obtain written authorization from the client that gives the agent power of attorney to exercise such decisions.
II. The agent’s right to make investment decisions is limited to the specific powers granted in the written authorization.
III. The client’s authorization allows the agent to choose which securities to invest in, when to purchase a particular security and when to sell, and the amount to invest in each security.
IV. The Uniform Securities Act prohibits agents from making investment decisions on behalf of their clients without first obtaining the required written authorization from the client.
Correct
Agents are permitted to make certain investment decisions on behalf of their clients; however, they may only do so under very specific circumstances. Before an agent can make any investment decision on behalf of a client, the agent must first obtain written authorization from the client that gives the agent power of attorney to exercise such decisions. The agent’s right to make investment decisions is limited to the specific powers granted in the written authorization. The client’s authorization allows the agent to choose which securities to invest in, when to purchase a particular security and when to sell, and the amount to invest in each security. The Uniform Securities Act prohibits agents from making investment decisions on behalf of their clients without first obtaining the required written authorization from the client.
Incorrect
Agents are permitted to make certain investment decisions on behalf of their clients; however, they may only do so under very specific circumstances. Before an agent can make any investment decision on behalf of a client, the agent must first obtain written authorization from the client that gives the agent power of attorney to exercise such decisions. The agent’s right to make investment decisions is limited to the specific powers granted in the written authorization. The client’s authorization allows the agent to choose which securities to invest in, when to purchase a particular security and when to sell, and the amount to invest in each security. The Uniform Securities Act prohibits agents from making investment decisions on behalf of their clients without first obtaining the required written authorization from the client.
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Question 6 of 10
6. Question
What is not true regarding sharing a client’s profits or losses?
Correct
As a general rule, agents cannot share a client’s profits or losses; however there are certain circumstances where this is permitted. If an agent obtains prior approval from a client in writing and shares ownership of an account with a client, the agent may share profits and losses associated with the joint account with the client. In this situation, profits and losses for the joint account are shared based on the percentage of account owned by each party. For example, if the agent owns fifteen percent of the account and the client owns eighty-five percent of the account, the account’s profits and loss will be split according to these percentages. Although agents are permitted to have joint accounts with their clients under the circumstances described above, broker-dealers are not. Broker-dealers are prohibited from establishing joint accounts with their clients.
Incorrect
As a general rule, agents cannot share a client’s profits or losses; however there are certain circumstances where this is permitted. If an agent obtains prior approval from a client in writing and shares ownership of an account with a client, the agent may share profits and losses associated with the joint account with the client. In this situation, profits and losses for the joint account are shared based on the percentage of account owned by each party. For example, if the agent owns fifteen percent of the account and the client owns eighty-five percent of the account, the account’s profits and loss will be split according to these percentages. Although agents are permitted to have joint accounts with their clients under the circumstances described above, broker-dealers are not. Broker-dealers are prohibited from establishing joint accounts with their clients.
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Question 7 of 10
7. Question
What is true regarding matching purchases?
I. Matching purchases is a form of market manipulation and is prohibited by the Uniform Securities Act.
II. Parties engaging in matching purchases are attempting to artificially increase the market value of a security.
III. The market manipulation occurs when parties agree to repeatedly buy and sell the same security or securities to create the illusi
on of substantial trading activity for the security or securities.IV. Once the market value of the security or securities has increased, the parties engaging in the matching purchases then sell their shares of the security at the artificially high price for a profit.
Correct
Matching purchases is a form of market manipulation and is prohibited by the Uniform Securities Act. Parties engaging in matching purchases are attempting to artificially increase the market value of a security. In this case, the market manipulation occurs when parties agree to repeatedly buy and sell the same security or securities to create the illusion of substantial trading activity for the security or securities. This illusion of activity is designed to entice investors to purchase shares of the security or securities and artificially drive up the market value of the security or securities. Once the market value of the security or securities has increased, the parties engaging in the matching purchases then sell their shares of the security at the artificially high price for a profit.
Incorrect
Matching purchases is a form of market manipulation and is prohibited by the Uniform Securities Act. Parties engaging in matching purchases are attempting to artificially increase the market value of a security. In this case, the market manipulation occurs when parties agree to repeatedly buy and sell the same security or securities to create the illusion of substantial trading activity for the security or securities. This illusion of activity is designed to entice investors to purchase shares of the security or securities and artificially drive up the market value of the security or securities. Once the market value of the security or securities has increased, the parties engaging in the matching purchases then sell their shares of the security at the artificially high price for a profit.
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Question 8 of 10
8. Question
How can a securities professional handle all securities transactions in an ethical manner?
I. By following the client’s order specifications.
II. By accurately recording all client transactions.
III. Backdating any of the records associated with a transaction is strictly prohibited.
IV. By not ignoring a client’s instructions regarding the purchase or sale of securities
Correct
A securities professional must handle all securities transactions in an ethical manner. This requirement is very broad and is not limited by specifically identified examples of ethical and unethical behavior. A securities professional is obligated to follow the client’s order specifications. Deliberately ignoring a client’s instructions regarding the purchase or sale of securities is strictly prohibited. All client transactions must be accurately recorded in the broker-dealer’s records unless the client has specifically requested in writing that the transaction not be recorded. In addition, the transaction record must be accurate. These requirements apply to all client transactions including private transactions. Backdating any of the records associated with a transaction is strictly prohibited, as such tactics could be use to falsify the purchase or sale price of a security. It is essential that all transactions conducted on behalf of a client be recorded properly and accurately.
Incorrect
A securities professional must handle all securities transactions in an ethical manner. This requirement is very broad and is not limited by specifically identified examples of ethical and unethical behavior. A securities professional is obligated to follow the client’s order specifications. Deliberately ignoring a client’s instructions regarding the purchase or sale of securities is strictly prohibited. All client transactions must be accurately recorded in the broker-dealer’s records unless the client has specifically requested in writing that the transaction not be recorded. In addition, the transaction record must be accurate. These requirements apply to all client transactions including private transactions. Backdating any of the records associated with a transaction is strictly prohibited, as such tactics could be use to falsify the purchase or sale price of a security. It is essential that all transactions conducted on behalf of a client be recorded properly and accurately.
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Question 9 of 10
9. Question
When cannot the investment adviser’s compensation based on performance?
Correct
Investment advisers are generally prohibited from tying their compensation to the performance of their clients’ securities. Under normal circumstances, investment advisers may be compensated in one of two ways: a flat fee for providing advice or a flat percentage of the assets in client’s investment portfolio to be paid at specific intervals (for example, annually or quarterly). This fee structure is designed to protect average investors. However, if the investment adviser serves institutional clients (for example, investment companies) or clients that either have a net worth of at least one and a half million dollars or that have at least seven hundred and fifty thousand dollars in an investment account with the firm, the investment adviser’s compensation for these clients may be based on performance.
Incorrect
Investment advisers are generally prohibited from tying their compensation to the performance of their clients’ securities. Under normal circumstances, investment advisers may be compensated in one of two ways: a flat fee for providing advice or a flat percentage of the assets in client’s investment portfolio to be paid at specific intervals (for example, annually or quarterly). This fee structure is designed to protect average investors. However, if the investment adviser serves institutional clients (for example, investment companies) or clients that either have a net worth of at least one and a half million dollars or that have at least seven hundred and fifty thousand dollars in an investment account with the firm, the investment adviser’s compensation for these clients may be based on performance.
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Question 10 of 10
10. Question
What is true regarding Agency cross transactions?
I. An investment adviser may act as an adviser and a broker for the same transaction.
II. The investment adviser is compensated for two activities: providing investment advice and acting as a broker for the actual transaction.
III. The investment adviser must notify its client of the conflict of interest, and the client must provide written consent for the transaction.
IV. The investment adviser is prohibited from advising both the buyer and the seller in the transaction.
Correct
In some instances, an investment adviser may act as an adviser and a broker for the same transaction. This activity is referred to as an agency cross transaction. When an investment adviser engages in an agency cross transaction, the investment adviser is compensated for two activities: providing investment advice and acting as a broker for the actual transaction. Because the investment adviser benefits from the transaction itself, the investment adviser must notify its client of the conflict of interest, and the client must provide written consent for the transaction. Although the investment adviser may act as both an adviser and a broker for the transaction, the investment adviser is prohibited from advising both the buyer and the seller in the transaction. The investment adviser must track all agency cross transactions and provide an itemized statement of these transactions on an annual basis.
Incorrect
In some instances, an investment adviser may act as an adviser and a broker for the same transaction. This activity is referred to as an agency cross transaction. When an investment adviser engages in an agency cross transaction, the investment adviser is compensated for two activities: providing investment advice and acting as a broker for the actual transaction. Because the investment adviser benefits from the transaction itself, the investment adviser must notify its client of the conflict of interest, and the client must provide written consent for the transaction. Although the investment adviser may act as both an adviser and a broker for the transaction, the investment adviser is prohibited from advising both the buyer and the seller in the transaction. The investment adviser must track all agency cross transactions and provide an itemized statement of these transactions on an annual basis.