NASAA Series 66 — All Questions

During twelve months an issuer offers its unregistered securities in one state to four banks, three insurance companies and nine individuals, paying no commissions. Which offerees count toward the ten-person ceiling of the limited-offering exemption?

• a.Only those individuals who actually purchase, because an offeree who declines is not counted
• b.The nine individuals and the three insurance companies, because only banks are excluded
• c.Only the nine individuals, because banks and insurance companies are institutional buyers excluded from the count✓
• d.All sixteen offerees, because the ceiling applies to every person who receives an offer

The ten-person limit counts persons other than the institutional buyers covered by the separate institutional exemption, which reaches banks, insurance companies, investment companies, pension trusts and similar buyers without any numerical cap. Here nine individuals are counted, which is within the limit. The count is of persons to whom the offer is directed, not of those who end up buying.Uniform Securities Act (1956) Sec. 402(b)(8) and (9)

An issuer sells a promissory note that matures in eight months, is issued in $100,000 denominations, and is rated in the second-highest category by a nationally recognized statistical rating organization. Under the Uniform Securities Act, how is the note treated?

• a.It is not exempt because exempt notes must be guaranteed by a bank organized under federal law
• b.It is an exempt security because it matures within nine months, has a $50,000 minimum denomination, and carries a top-three rating✓
• c.It is exempt only after the issuer files a notice with the Administrator ten days before sale
• d.It is not exempt because only notes maturing within 90 days qualify as commercial paper, and the longer maturity here disqualifies the instrument

The Act exempts a note, draft, bill of exchange or bankers' acceptance that is payable within nine months of issuance, is issued in denominations of at least $50,000, and is rated in one of the three highest categories by a nationally recognized rating organization. The note meets all three tests. No bank guarantee or advance notice is required.Uniform Securities Act (1956) Sec. 402(a)(10)

A corporation starts a profit-sharing plan under which employees receive investment contracts, and it wants the contracts exempt from registration. What must the corporation do to qualify for the employee-plan exemption?

• a.Register the plan by qualification and then withdraw the registration after one year
• b.File the plan with the Administrator within thirty days after the first employee enrolls
• c.Notify the Administrator in writing thirty days before the inception of the plan✓
• d.Offer the plan only to employees who are accredited investors with $1,000,000 of net worth

An investment contract issued in connection with an employees' stock purchase, savings, pension, profit-sharing or similar benefit plan is exempt if the Administrator is notified in writing thirty days before the plan begins. The notice comes before inception, not after enrollment, and no accredited-investor test applies.Uniform Securities Act (1956) Sec. 402(a)(11)

A state Administrator concludes that a particular offering of NYSE-listed stock has features that make the listed-securities exemption inappropriate for that deal. Which statement about the Administrator's power over exemptions is correct?

• a.The Administrator may deny or revoke the exemption for that specific security after notice and an opportunity for hearing✓
• b.The Administrator may revoke it retroactively and void sales that closed before the order was entered
• c.The Administrator has no power to revoke it, because the exemption for listed securities is absolute and no order can reach a listed security
• d.The Administrator may revoke the exemption only if the issuer has been convicted of securities fraud, and then only after the securities have been delisted

The Administrator may by order deny or revoke the exemptions for listed securities, nonprofit issuers and employee-plan contracts, and the exempt transactions, as to a specific security or transaction. Notice and an opportunity for hearing are required, though a summary order is allowed pending a hearing. No order operates retroactively, and a seller who proves it did not know of the order is not in violation. Securities of the United States or a state are not subject to this power.Uniform Securities Act (1956) Sec. 402(c)

In an enforcement proceeding, a seller claims its transaction was exempt from registration. Who bears the burden of proving the exemption?

• a.Neither, because the exemption is presumed once the seller asserts it in good faith
• b.The buyer, because the buyer must show the sale did not qualify
• c.The Administrator, because the state must prove every element of a violation
• d.The seller, because the person claiming an exemption must prove it✓

The Act places the burden of proving an exemption, or an exception from a definition, on the person claiming it. The Administrator does not have to disprove it, and good faith alone does not create a presumption.Uniform Securities Act (1956) Sec. 402(d)

An investment adviser has no place of business in a state. During the preceding twelve months, six individuals who live in that state paid it for advice, and it has no institutional clients there. What is the adviser's registration status in that state?

• a.It need not register, because the limit is ten clients rather than five
• b.It need not register, because it has no place of business in the state
• c.It need only file a consent to service of process and a notice with the Administrator
• d.It must register, because it exceeded five non-institutional clients in twelve months✓

An adviser without a place of business in the state escapes registration only if its in-state clients are institutional, or if it had no more than five other clients during the preceding twelve months. Six individual clients is one too many, so registration is required. Lacking a local office does not by itself excuse registration.Uniform Securities Act (1956) Sec. 201(c)

A state-registered investment adviser asks when its registration lapses if it is never renewed. Under the model Uniform Securities Act, when does a registration or notice filing expire?

• a.On December 31 of the year, unless it is renewed✓
• b.On June 30 of the year following the filing
• c.On the first anniversary of its effective date, whenever that falls
• d.Ninety days after the Administrator's last examination

Under the model Act, every registration or notice filing expires on December 31 unless renewed, regardless of when during the year it first became effective. An anniversary-based expiration is a bracketed alternative some states use, not the standard text.Uniform Securities Act (1956) Sec. 201(e)

An investment adviser applies for state registration on June 1 and the Administrator takes no action and starts no proceeding. On what date does registration become effective?

• a.June 11 at noon, the tenth day after filing
• b.August 1 at noon, the sixtieth day after filing
• c.June 16 at noon, the fifteenth day after filing
• d.July 1 at noon, the thirtieth day after filing✓

If no denial order is in effect and no proceeding is pending, registration becomes effective at noon of the thirtieth day after the application is filed. Thirty days after June 1 is July 1. The Administrator may set an earlier date by rule or order or defer the date by order until thirty days after an amendment.Uniform Securities Act (1956) Sec. 202(a)

A corporation is registered as a broker-dealer in a state. Its president and a vice president, both officers, also sell securities to customers. Must each file a separate agent application?

• a.No, but each must pass a qualifying examination within thirty days of the firm's registration, and the firm must file a separate fee for each
• b.No, because registration of the firm automatically registers any agent who is a partner, officer or director✓
• c.Yes, but only the one who deals directly with retail customers
• d.Yes, because every person who sells securities in the state needs an individual registration in addition to the registration of the firm itself

Registration of a broker-dealer automatically constitutes registration of any agent who is a partner, officer or director, or who occupies a similar position. The same rule applies to an investment adviser and its representatives who are partners, officers or directors. Other employees who sell still need their own registration.Uniform Securities Act (1956) Sec. 202(a)

An applicant for investment adviser registration was convicted of a felony unrelated to securities eight years ago. The Administrator finds that denying registration is in the public interest. May the Administrator deny registration on that ground?

• a.No, because a felony conviction is a ground only if it occurred within five years
• b.No, because only felonies involving securities can support a denial
• c.Yes, because any felony conviction within the past ten years is a ground for denial✓
• d.Yes, but only after the applicant has also been enjoined by a court

Among the grounds for denial, suspension or revocation is a conviction within the past ten years of any felony, or of a misdemeanor involving a security or any aspect of the securities business. The felony need not relate to securities, and the order must also be in the public interest. An injunction is a separate, independent ground.Uniform Securities Act (1956) Sec. 204(a)(2)(C)

An investment adviser's representatives repeatedly churned client accounts, and the firm's principals never reviewed the activity or set any procedures. On which ground may the Administrator act against the firm itself?

• a.Failure reasonably to supervise its representatives to assure compliance with the Act✓
• b.Failure to pay the proper filing fee, which supports a suspension of the registration
• c.Insolvency, because churning shows the firm cannot meet its obligations as they mature
• d.Conviction of the representatives, which is imputed to the firm automatically

Failing reasonably to supervise representatives and employees to assure compliance is a stated ground for action against an investment adviser. Insolvency requires an actual finding about the firm's finances. A fee deficiency supports only a denial order, which must be vacated once the deficiency is corrected. Nothing in the facts describes a conviction.Uniform Securities Act (1956) Sec. 204(a)(2)(J)

A final court order against an applicant was disclosed in the application before registration took effect. When may the Administrator begin a suspension or revocation proceeding based solely on that disclosed order?

• a.Only after the first renewal, when the order can be reexamined
• b.Only within the ninety days following the effective date of the initial registration✓
• c.At any time during the life of the registration, because a disclosed order remains a continuing ground for denial, suspension or revocation
• d.Never, because disclosure on the application waives the order permanently

The Administrator may not institute a suspension or revocation proceeding solely because of a final judicial or administrative order that the applicant made known before the registration took effect, unless the proceeding begins within ninety days after registration. Orders that are stayed or under appeal do not count, and the limit does not apply to renewals.Uniform Securities Act (1956) Sec. 204(a)

An applicant for registration as an investment adviser representative has only one year of experience, but the Administrator finds the applicant well qualified by education and knowledge of the securities business. May the Administrator deny registration on the ground of insufficient experience alone?

• a.Yes, because experience is the only measure of qualification the Act permits
• b.No, because an order may not rest solely on lack of experience if the applicant is qualified by training or knowledge✓
• c.Yes, because every applicant must show at least three years of supervised experience
• d.No, because qualification can never be a basis for denying a representative

The Act bars an order based solely on lack of experience when the applicant is qualified by training, knowledge, or both. Lack of qualification can be a ground, but the Administrator must also consider that a representative working under a registered adviser's supervision need not have the same qualifications as the adviser.Uniform Securities Act (1956) Sec. 204(b)(3)

A buyer pays $20,000 for a nonexempt, unregistered security, receives $1,500 of income on it, and later sells it for $12,000. Ignoring interest, costs and attorneys' fees, what damages can the buyer recover under the civil liability provision?

• a.$18,500, the consideration less the income received, because a tender is always required
• b.$10,500, the amount realized on disposal less the income received
• c.$8,000, the consideration less the amount realized on disposal
• d.$6,500, the consideration less the income received and less the amount realized on disposal✓

A buyer who no longer owns the security recovers what would have been recoverable on a tender, less the value of the security when disposed of. A tender would return the consideration less income received: $20,000 - $1,500 = $18,500. Subtracting the $12,000 realized gives $6,500. Interest, costs and fees would be added.Uniform Securities Act (1956) Sec. 410(a)

A seller who violated the Act mails a buyer a written offer to refund the consideration with interest, less income received. The buyer, who still owns the security, ignores the offer for 45 days and then sues. What is the likely outcome?

• a.The suit proceeds, because a refund offer never affects the buyer's statutory rights and the buyer may reject it and sue within the full limitation period
• b.The suit is barred, because the buyer did not accept the written offer within thirty days of receiving it✓
• c.The suit proceeds, because the buyer has sixty days to respond to a refund offer
• d.The suit is barred only if the buyer also signed a waiver of the Act when the original purchase was made, regardless of any later refund offer

A buyer may not sue if, before suit and while owning the security, the buyer received a written offer to refund the consideration with interest, less income received, and failed to accept within thirty days. A buyer who no longer owned the security must instead reject the offer in writing within thirty days. This is the Act's rescission-offer defense.Uniform Securities Act (1956) Sec. 410(g)

A brokerage account agreement contains a clause stating that the customer waives all rights under the state securities act. How does the Uniform Securities Act treat that clause?

• a.It is valid for registration claims but void for anti-fraud claims
• b.It is valid if the customer initials it separately from the signature page
• c.It is void, because any provision binding a buyer or advice recipient to waive compliance with the Act is void✓
• d.It is valid for sophisticated customers but void for retail customers

The Act voids any condition, stipulation or provision binding a person who acquires a security or receives investment advice to waive compliance with the Act or any rule or order under it. The protection does not depend on the customer's sophistication, on the claim asserted, or on separate initials.Uniform Securities Act (1956) Sec. 410(i)

A salesman employed by a broker-dealer materially aids the firm in selling securities by means of misleading statements. The firm is liable to the buyer under the civil liability section. Can the employee also be held liable?

• a.No, because liability reaches only partners, officers and directors of the firm, and an employed salesman is never personally answerable to the buyer
• b.No, because only the firm that sold the security can be sued by the buyer
• c.Yes, but only for the commission he personally earned on the sale, and not for the consideration the buyer paid, interest or attorney's fees
• d.Yes, jointly and severally, unless he proves he did not know and could not have known the facts through reasonable care✓

Persons who control a liable seller, including partners, officers, directors, those performing similar functions, employees who materially aid the conduct, and broker-dealers and agents who materially aid it, are jointly and severally liable to the same extent. The defense is that they did not know and, with reasonable care, could not have known of the facts.Uniform Securities Act (1956) Sec. 410(c)

The Administrator subpoenas an agent to testify in an investigation. The agent refuses on the ground that the testimony may incriminate him. What is the effect of the Act's investigative provision?

• a.He must testify, but his testimony may be used against him in a later criminal case, because compelled testimony carries no protection against prosecution
• b.He must testify only if the Administrator first obtains a court order of immunity
• c.He may refuse to answer, because the Fifth Amendment privilege overrides the Administrator's subpoena and no statute can compel the testimony
• d.He must testify, and he may not then be prosecuted for the matter he was compelled to testify about, except for perjury or contempt✓

No one is excused from testifying or producing records on self-incrimination grounds, but an individual compelled to testify after claiming the privilege may not be prosecuted or penalized for the matter, apart from perjury or contempt committed in testifying. The model Act's immunity does not depend on a separate court order.Uniform Securities Act (1956) Sec. 407(d)

The Administrator learns that a firm is offering securities in violation of the Act. Which action does the Act authorize the Administrator to take without a prior hearing?

• a.Order each buyer to rescind and return the securities
• b.Issue a cease and desist order directed to the persons engaged in the prohibited activity✓
• c.Revoke the registration of every agent of the firm automatically
• d.Impose a criminal fine of $5,000 on the firm directly

The Administrator may issue a cease and desist order with or without a prior hearing, or may sue to enjoin the conduct. A court, on a proper showing, may also order rescission, restitution or disgorgement, and the Administrator need not post a bond. Criminal fines come only from a conviction obtained through a prosecutor.Uniform Securities Act (1956) Sec. 408

An established company wants to register its equity securities by filing, the notification method, in a state. Which requirement must the company meet?

• a.It sells only through underwriters that contract as agents rather than as principals
• b.It has reported a profit in each of its last ten fiscal years without interruption and has paid dividends in at least five of those years
• c.It prices the stock below $5 per share so that the offering stays small
• d.It has been subject to Exchange Act reporting, and has filed all required material, for at least 36 calendar months✓

Registration by filing requires, among other things, that the issuer has been subject to Section 12 of the Exchange Act and has filed all required material under Sections 13 and 14 for at least 36 calendar months, that underwriters contract to purchase in a principal capacity, and that an equity security be offered at not less than $5 per share.Uniform Securities Act (1956) Sec. 302(a)

A certified public accountant gives investment advice to some audit clients, charges a separate fee for it, and advertises herself as a financial planner. Is she an investment adviser under the Uniform Securities Act?

• a.No, because every accountant is excluded from the definition regardless of the activity
• b.No, because she advises fewer than six clients
• c.Yes, because holding herself out as giving investment advice for compensation takes her outside the accountant exclusion✓
• d.Yes, but only if her advice involves securities listed on an exchange

The definition excludes a lawyer, accountant, engineer or teacher only when the advisory services are solely incidental to the practice of the profession. It also includes financial planners and others who hold themselves out as providing investment advice for compensation. Separate fees and a financial planner label are incompatible with the exclusion.Uniform Securities Act (1956) Sec. 401(f)

A broker-dealer agent recommends securities to customers as part of his normal brokerage duties and receives only his customary commissions. Is he an investment adviser under the Act?

• a.Yes, because any recommendation of a security makes a person an investment adviser, whatever the circumstances in which the recommendation is made
• b.Yes, because commissions are a form of compensation for advice
• c.Yes, because commissions are a form of compensation for advice, and any compensation of that kind makes the person an investment adviser
• d.No, because advice that is solely incidental to brokerage and earns no special compensation is excluded✓

A broker-dealer or its agent is excluded if its advisory services are solely incidental to its brokerage business and it receives no special compensation for them. Ordinary commissions are not special compensation. The exclusion is lost if the firm charges separately for advice.Uniform Securities Act (1956) Sec. 401(f)

A partnership adviser is preparing its standard client contract. Which provisions must the contract contain, unless the Administrator allows otherwise?

• a.No compensation based on a share of capital gains, no assignment without the client's consent, and notice of partnership membership changes✓
• b.A guarantee of minimum returns, arbitration of all disputes, a term of one year, and a clause waiving the client's rights under the Act and state law
• c.A performance fee of at least 20% of profits, no assignment of the contract, annual renewal by the client, and a clause permitting the adviser to hold client securities
• d.Arbitration of disputes, assignment on thirty days' notice, and a custody waiver

The model Act makes it unlawful for an adviser to enter, extend or renew a contract unless it provides in writing that the adviser will not be paid a share of capital gains or appreciation, that the contract cannot be assigned without the client's consent, and, for a partnership, that membership changes will be reported. Fees based on total asset value averaged over a period remain allowed.Uniform Securities Act (1956) Sec. 102(c)

An investment adviser takes custody of a client's securities, and no state rule prohibits custody. What must the adviser do to comply with the Act's custody provision?

• a.Post a bond equal to twice the value of the assets in custody
• b.Hold the securities only in the adviser's own name for safekeeping
• c.Notify the Administrator that it has or may have custody✓
• d.Obtain written approval from the Administrator before taking custody

Taking or having custody of client securities or funds is unlawful if the Administrator by rule prohibits it, or, absent a rule, if the adviser fails to notify the Administrator that it has or may have custody. Bonds may be required by rule or order, but the statute sets no multiple.Uniform Securities Act (1956) Sec. 102(e)

An unregistered financial planner located in one state mails advice about securities to a client in another state, where the client receives it. Under the Act's scope provision, where do the advisory-activity rules apply?

• a.In any state where an act instrumental in effecting the prohibited conduct is done, whether or not either party is there✓
• b.Only in the state where the planner has the principal office
• c.Only in a state where the client has resided for twelve months
• d.Only in the state where the recommended securities are listed

The adviser anti-fraud and registration provisions apply when any act instrumental in effecting prohibited conduct is done in the state, whether or not either party is physically there. This differs from the seller rules, which turn on where offers are made or accepted.Uniform Securities Act (1956) Sec. 414(f)

A dealer in another state mails a written offer to sell securities to a resident of the state. Under the Act, when is an offer to sell made in a state?

• a.Only when the offeror is physically present in the state at the time
• b.Only when the securities are physically delivered into the state
• c.When the offer originates from the state or is directed by the offeror to the state and received there✓
• d.Only when the offeree has lived in the state for at least a year

An offer is made in the state, whether or not either party is present, when it originates from the state or is directed by the offeror to the state and received at the place to which it is directed. Physical delivery of the securities is not required.Uniform Securities Act (1956) Sec. 414(c)

A newspaper of general, regular and paid circulation, published outside the state, carries an advertisement for a securities offering, and some copies reach residents of the state. Is an offer made in the state?

• a.Yes, unless the issuer registers the securities within thirty days after the first copy of the publication reaches a resident of that state
• b.No, because circulating a bona fide out-of-state publication of general, regular and paid circulation is not an offer made in the state✓
• c.No, but only if no resident of the state buys the securities
• d.Yes, because any circulation of the advertisement in the state is an offer there, regardless of whether it is a bona fide publication of general circulation

An offer is not made in the state merely because a bona fide newspaper or publication of general, regular and paid circulation published elsewhere circulates there, or because an out-of-state radio or television program is received there. A publication published in the state also qualifies if more than two-thirds of its circulation was outside the state during the past twelve months.Uniform Securities Act (1956) Sec. 414(e)

What must an applicant for registration under the Uniform Securities Act file along with the application?

• a.A bond equal to the applicant's net worth
• b.A written opinion from outside counsel on the applicant's qualifications
• c.An irrevocable consent appointing the Administrator as attorney to receive service of process in non-criminal actions✓
• d.A sworn waiver of the statute of limitations on civil claims

Every applicant for registration, and every issuer offering securities through an agent, must file an irrevocable consent to service of process naming the Administrator. Service on the Administrator is effective only if notice and a copy are promptly sent by registered mail to the defendant and an affidavit of compliance is filed.Uniform Securities Act (1956) Sec. 414(g)

A stockholder receives a stock dividend and gave nothing of value for it other than the surrender of a right to a cash dividend, and each stockholder could elect cash or stock. Has a sale of a security occurred under the Act?

• a.No, but only if the company paying the dividend is listed on a national exchange
• b.Yes, because every distribution of securities to existing holders is a sale
• c.No, because a qualifying stock dividend is excluded from the definitions of sale and offer✓
• d.Yes, because the stockholder gave up the right to cash, which is value

The definitions of sale and offer exclude bona fide pledges and loans, qualifying stock dividends, acts incident to a class vote on a merger, and acts incident to a judicially approved reorganization. For stock dividends the exclusion applies when stockholders may elect cash or stock and give nothing else of value.Uniform Securities Act (1956) Sec. 401(j)(6)

Under the Act's definition of sale, how is a purported gift of assessable stock treated?

• a.It is considered an offer and sale of a security✓
• b.It is exempt only if the donee is a charitable organization
• c.It is a bona fide gift outside the definition of sale
• d.It is an exempt isolated nonissuer transaction

Sale and offer include every disposition of a security or interest in a security for value, and a purported gift of assessable stock is considered an offer and sale. Likewise, a security given as a bonus with a purchase is part of the subject of the purchase and is considered offered and sold for value.Uniform Securities Act (1956) Sec. 401(j)(4)

A bank issues certificates of deposit to customers and also trades securities for its own account. Is the bank a broker-dealer under the Uniform Securities Act?

• a.Yes, unless the bank's trades are all with other banks
• b.No, but only if the bank has no place of business in the state
• c.No, because the definition of broker-dealer excludes a bank, savings institution or trust company✓
• d.Yes, because trading for its own account in the business of effecting transactions is the core definition

The definition of broker-dealer does not include an agent, an issuer, a bank, savings institution or trust company, or certain persons with no place of business in the state who deal only with specified institutions or existing out-of-state customers.Uniform Securities Act (1956) Sec. 401(c)

A customer places an unsolicited order to buy a nonexempt security through a registered broker-dealer in a nonissuer transaction. Which exemption from registration most directly applies?

• a.The exemption for offers to existing holders with a standby commission
• b.The exemption for preorganization certificates with ten subscribers
• c.The exemption for nonissuer transactions effected through a registered broker-dealer on an unsolicited order✓
• d.The exemption for isolated transactions by the issuer itself

The Act exempts any nonissuer transaction effected by or through a registered broker-dealer on an unsolicited order or offer to buy. The Administrator may require the customer to acknowledge in writing that the order was unsolicited, and the firm must keep the signed form.Uniform Securities Act (1956) Sec. 402(b)(3)

A person is convicted of willfully violating the Uniform Securities Act. Under the model Act, what is the maximum penalty?

• a.Imprisonment of up to one year with no fine allowed
• b.A fine of up to $10,000 and imprisonment of up to five years
• c.A fine of up to $5,000 with no possibility of imprisonment
• d.A fine of up to $5,000, imprisonment of up to three years, or both✓

A willful violation of the Act or of a rule or order is punishable on conviction by a fine of up to $5,000, imprisonment up to three years, or both. A person cannot be imprisoned for violating a rule or order if he proves he had no knowledge of it. States set their own penalties, often higher.Uniform Securities Act (1956) Sec. 409(a)

An issuer files a notice with the Administrator specifying the terms of an offer to its existing security holders, and pays no commission for soliciting them. How long must the issuer wait before relying on the exemption if the Administrator takes no action?

• a.Until the Administrator issues an order granting the exemption, which may take whatever time the review requires
• b.Thirty calendar days from the date of the notice, after which the exemption becomes effective unless an order disallows it
• c.Ten calendar days from the date of the notice, after which the exemption stands unless an order disallows it
• d.Five full business days, after which the exemption stands unless an order disallows it✓

The exemption for offers to existing security holders is available if no commission is paid for soliciting holders in the state, or if the issuer first files a notice of the terms and the Administrator does not disallow the exemption by order within the next five full business days. No affirmative grant is required.Uniform Securities Act (1956) Sec. 402(b)(11)

On Wednesday, October 28, 2026, an investor acquires enough shares to own 6% of a class of a company's registered equity securities, with no exemption available. Assuming no federal holidays fall in the period, by what date must the initial Schedule 13D be filed?

• a.Wednesday, November 4, because five business days run from the day after the acquisition✓
• b.Tuesday, November 3, because the acquisition date counts as the first business day
• c.Monday, November 2, because five calendar days run from the acquisition
• d.Monday, November 9, because ten calendar days run from the acquisition

A person who becomes the beneficial owner of more than five percent of a class of registered equity securities must file a Schedule 13D within five business days after the date of acquisition. The count starts the day after the acquisition: Thursday, Friday, Monday, Tuesday and Wednesday. The calendar-day counts reflect the older, longer deadline structures and do not apply to this filing.17 CFR 240.13d-1(a)

A mutual fund board adopts a redemption fee under Rule 22c-2 to deter short-term trading. Which statement describes the limits the rule places on that fee?

• a.The fee may not exceed five percent of the value of the shares redeemed and may apply to redemptions within a period of no less than thirty calendar days
• b.The fee may not exceed two percent of the value of the shares redeemed and may apply to redemptions within a period of no less than seven calendar days✓
• c.The fee has no percentage ceiling but may be charged only on shares redeemed within seven calendar days of purchase
• d.The fee may not exceed one percent of the value of the shares redeemed and may apply only to redemptions within the first ninety days

Rule 22c-2 lets a fund board approve a redemption fee of no more than two percent of the amount redeemed, applied to shares redeemed within a time period the board chooses, which can be no shorter than seven calendar days. The ceiling matters: a fee that is uncapped or above two percent is outside the rule, and so is a window that is shorter than seven days.17 CFR 270.22c-2(a)(1)(i)

An exchange-traded fund relies on Rule 6c-11 rather than an individual exemptive order. Which disclosure must it make on its website?

• a.Each business day, before regular trading opens, the portfolio holdings that will form the basis of its next net asset value calculation✓
• b.Its portfolio holdings only to authorized participants, who must keep them confidential
• c.Its complete portfolio holdings, updated once per quarter with a sixty-day lag, because daily holdings are disclosed only to authorized participants
• d.A monthly list of its ten largest positions, published within five business days of month end, together with a quarterly list of all other holdings

The ETF rule conditions relief on daily transparency. Every business day, before the primary listing exchange opens, the fund must post on a public, free website the holdings that will go into the next NAV calculation, along with the NAV, market price and premium or discount information for the prior day. Quarterly lagged disclosure applies to other fund reports, and limiting holdings to authorized participants is the model older, non-transparent structures used.17 CFR 270.6c-11(c)(1)

A registered investment adviser, subject to Regulation S-P, signs a new individual client on March 3 and opens an account for that client. As a general rule, when must the initial privacy notice be given?

• a.Within thirty days after March 3
• b.Only before the adviser first decides to share the client's information with a nonaffiliated company
• c.With the first quarterly account statement after March 3
• d.No later than March 3, when the customer relationship is established✓

An individual who becomes a customer must receive a clear and conspicuous initial privacy notice not later than when the customer relationship is established. That is a rule for customers. A consumer who is not a customer need only receive the notice before the firm discloses nonpublic personal information to a nonaffiliated third party, which is the timing the last wrong answer borrows.17 CFR 248.4(a)

Under Regulation S-P as amended, a covered institution learns that an unauthorized person likely gained access to sensitive customer information, and no substantial-harm exception applies. How quickly must it notify the affected individuals?

• a.As soon as practicable, but not later than 30 days after becoming aware of the incident✓
• b.Within 72 hours after becoming aware of the incident
• c.Within 10 business days after the incident, with a 60-day extension available for any reason
• d.Within 90 days after the close of the quarter in which the incident occurred

The incident response rule requires the institution to give affected individuals a clear and conspicuous notice as soon as practicable and no later than 30 days after becoming aware that unauthorized access or use occurred or is reasonably likely to have occurred. Only the United States Attorney General can authorize a delay, and then only for national security or public safety reasons, so a firm cannot extend the period on its own.17 CFR 248.30(a)(4)(iii)

A client of an investment adviser receives the firm's initial privacy notice and opt-out notice but has not responded. The adviser wants to give the client's nonpublic personal information to a nonaffiliated marketing company, and no exception applies. What must happen before the adviser may do so?

• a.The marketing company must register as an investment adviser representative
• b.The adviser must give the client a reasonable opportunity to opt out, and the client must not have opted out✓
• c.The client must sign an affirmative written consent to the disclosure before any nonaffiliated third party may receive the information
• d.Nothing further, because the notices alone authorize the disclosure

Regulation S-P is an opt-out regime for ordinary sharing with nonaffiliated third parties. The firm may disclose only after giving the initial notice and the opt-out notice, allowing a reasonable time to opt out, and confirming that the consumer has not done so. Written consent is not required, but notices without a waiting period are not enough either.17 CFR 248.10(a)(1)

A mutual fund's name includes the words "Municipal Income." Under the fund names rule, what policy must the fund adopt to use a name suggesting income exempt from federal income tax?

• a.Under normal circumstances, at least 80% of the value of its assets must be invested in investments whose income is exempt from federal tax✓
• b.Under normal circumstances, at least 65% of its assets must be invested in tax-exempt municipal securities issued within the fund's home state
• c.At least 51% of its net income must come from municipal securities in each quarter, and at least 80% of that income must be earned within one state
• d.At least 80% of its shareholders must be residents of the state of the issuers whose bonds it holds

The names rule requires a fund whose name suggests a focus on a type of investment, including tax-exempt income, to adopt a policy of investing at least 80% of the value of its assets in line with that focus under normal circumstances. The test is measured on assets or distributed income, never on who the shareholders are, and the percentage is not lower than 80.17 CFR 270.35d-1(a)

A fund subject to the names rule has adopted an 80% investment policy tied to its name and now wants to change that policy without making it a fundamental policy. What does the rule require?

• a.Approval by a majority of the outstanding voting shares before the change
• b.Written consent from each shareholder who purchased shares in the past year
• c.A filing with the Commission that must be reviewed and cleared before the change
• d.At least 60 days' prior notice to shareholders of the change in the policy✓

A fund that does not treat its 80% policy as fundamental, which would require a shareholder vote to change, must give shareholders at least 60 days' prior notice before changing it, and the notice must meet the rule's content requirements. A vote is the route for a fundamental policy, not the notice alternative.17 CFR 270.35d-1(a)(2)(ii)

A registered open-end mutual fund has $90 million in total assets and no liabilities. It wants to borrow from a bank. Applying the 300% asset coverage requirement of the Investment Company Act, what is the largest amount it may borrow, counting the loan proceeds as assets?

• a.$30 million
• b.$45 million✓
• c.$60 million
• d.$90 million

Asset coverage is total assets, less liabilities not represented by senior securities, divided by the borrowings, and it must be at least 300% immediately after the borrowing. With a loan of B, assets become 90 plus B, and (90 + B) / B must be at least 3, so B can be at most 45. Dividing the original $90 million by three gives $30 million, which ignores that the loan proceeds are themselves assets.Investment Company Act of 1940 Sec. 18(f)(1) (15 U.S.C. 80a-18(f)(1))

A registered open-end fund has borrowed from a bank, and a market decline pushes its asset coverage below 300%. What does the Investment Company Act require?

• a.The fund must reduce its borrowings within three days, not counting Sundays and holidays, to restore the required coverage✓
• b.The fund must repay the entire loan on the same business day on which coverage fell
• c.The fund must reduce its borrowings within thirty calendar days to restore the required coverage and may not borrow again until the next quarter
• d.The fund may leave the borrowings in place until the next quarterly valuation date, provided it notifies its board of directors in writing

Section 18(f) allows an open-end company to borrow only if asset coverage is at least 300% immediately after the borrowing. If coverage later falls below that level, the company has three days, excluding Sundays and holidays, to reduce borrowings enough to restore it. The statute provides neither a thirty-day grace period nor a requirement to retire the whole loan.Investment Company Act of 1940 Sec. 18(f)(1) (15 U.S.C. 80a-18(f)(1))

Before an investment adviser's access person may buy securities in an initial public offering or a limited offering, what does Rule 204A-1 require the firm's code of ethics to provide?

• a.The access person may buy freely if the position stays below five percent of the offering
• b.The access person must report the purchase on the next quarterly transaction report and need not seek approval
• c.The access person must wait thirty days after the offering before buying
• d.The access person must first obtain the adviser's approval✓

The code of ethics must require access persons to get the adviser's approval before directly or indirectly acquiring beneficial ownership in any security in an IPO or limited offering. After-the-fact quarterly reporting is a separate duty and does not replace the pre-clearance, and the rule sets no percentage safe harbor.17 CFR 275.204A-1(c)

A broker-dealer approves a customer's account for penny stock transactions and sends the customer the written agreement to the transaction. Under Rule 15g-9, how long must the broker-dealer wait before effecting the customer's first penny stock purchase?

• a.At least two business days after sending the agreement✓
• b.At least five business days after the account opens
• c.At least one business day after receiving the signed agreement
• d.No waiting period, if the customer has traded penny stocks before at another firm

Rule 15g-9 bars the firm from selling a penny stock to, or buying one for, a customer less than two business days after it sends the written agreement to the transaction, and requires the suitability determination and the customer's written agreement to be in hand. The waiting period is measured from the date the firm sends the document, not from when the customer returns it.17 CFR 240.15g-9(a)

Under SEC Rule 17a-4, for how long must a broker-dealer preserve account cards or records relating to the terms and conditions of a customer's account?

• a.At least three years after the account is opened
• b.At least six years after the account is closed✓
• c.For the life of the enterprise
• d.At least three years after the account is closed, the first two in an easily accessible place

Account cards and records on the terms of opening and maintaining an account must be kept at least six years after the closing of the account. The three-year, two-years-accessible schedule applies to many other required records, while only a narrow set, such as the firm's own organizational documents, is kept for the life of the enterprise.17 CFR 240.17a-4(c)