NASAA Series 63 — All Questions

On Monday a registered broker-dealer hires a salesperson and files her state application the same morning. On Tuesday she takes a customer's order while her application is still within its 30-day period. Which statement is accurate?

• a.Only the salesperson has violated the Act, because the firm's own registration covers the orders its employees take
• b.Neither has violated the Act, because her application was already on file with the Administrator before she took the order
• c.Neither has violated the Act, because a new hire may take orders under a principal's supervision for up to 30 days
• d.Both the firm and the salesperson have violated the Act, because she was not yet registered when she took the order✓

It is unlawful to act as an agent unless registered, and it is unlawful for a broker-dealer to employ an agent who is not registered. Filing alone does not make the registration effective, and the Act contains no supervised trial period for new hires.Uniform Securities Act (1956, as amended by NASAA) §201(a) and (b)

Under the Act's limited registration for Canadian broker-dealers with no U.S. office, which client may such a firm serve in the state?

• a.A Canadian-born resident of the state who buys Canadian stocks in an ordinary taxable margin account at the firm
• b.A U.S. citizen who opened a taxable account with the firm online after relocating to the state from another state
• c.A person from Canada who is temporarily resident in the state and had a relationship with the firm before arriving✓
• d.A Canadian visitor staying in the state for under 183 days who had no prior account at the Canadian firm

The limited registration covers temporary residents with a pre-existing relationship with the firm, and residents whose trades are in a Canadian self-directed tax-advantaged retirement plan. A new U.S. customer, an ordinary taxable account, or a first-time account opened by a visitor falls outside it.Uniform Securities Act (1956, as amended by NASAA) §201-A(a)

Mark sells a monthly newsletter by subscription with general market commentary. He never tailors any of it to a subscriber's finances. For purposes of the Act, Mark is:

• a.Excluded only if he has fewer than six subscribers in the state during any period of twelve consecutive months
• b.An investment adviser, unless he is also a licensed accountant or attorney whose advice is incidental to that practice
• c.An investment adviser, because he receives compensation for giving opinions about the value of securities
• d.Excluded from the definition, because the newsletter does not advise on each subscriber's own situation✓

A publisher of a bona fide newsletter that does not render advice on the specific investment situation of each client is excluded. Compensation alone does not make someone an adviser. The accountant and lawyer exclusion is a separate one, and the five-client test belongs to out-of-state advisers.Uniform Securities Act (1956, as amended by NASAA) §401(f)

At a state-registered investment adviser, a senior principal makes no recommendations and manages no accounts herself, but she supervises the employees who do. Is she an investment adviser representative?

• a.No, because she personally neither advises clients nor manages any client's account or portfolio
• b.No, because supervisory principals are covered by the investment adviser firm's own state registration
• c.Yes, but only if she supervises more than five advisory employees at the firm at any one time
• d.Yes, because supervising employees who advise clients, manage accounts or solicit clients is within the definition✓

The definition of investment adviser representative includes a person who supervises employees performing advisory, account-management or solicitation functions. Not giving advice herself is therefore irrelevant, firm registration does not substitute for hers, and there is no five-employee threshold.Uniform Securities Act (1956, as amended by NASAA) §401(g)

An Administrator requires a written examination for investment adviser representative applicants but wants to excuse holders of a recognized financial-planning designation. May the Administrator do so?

• a.Yes, but only through a court order that the Administrator obtains on a petition to the court
• b.Yes, but only for designation holders who also have at least five years of advisory experience
• c.Yes, by rule or order, if the exam is found unnecessary to protect advisory clients✓
• d.No, the written examination is a statutory requirement imposed on every applicant for registration

The Administrator may require an exam by rule and may waive it for a person or class of persons when it is not needed for the protection of advisory clients. The Act does not itself mandate the exam, requires no court order for a waiver, and sets no five-year experience condition.Uniform Securities Act (1956, as amended by NASAA) §204(b)(6)

An agent whose registration takes effect on October 20 never files a renewal. On what date does the registration lapse?

• a.On December 31 of the following year, after one full calendar year as a registrant
• b.On December 31 of the same year in which the registration became effective✓
• c.On October 19 two years later, the term of an agent's first registration
• d.On October 19 of the following year, one year after the effective date

Every registration expires on December 31 unless renewed, regardless of the date it became effective. It does not run for a year from the effective date, it does not extend through the next calendar year, and there is no longer first-term period.Uniform Securities Act (1956, as amended by NASAA) §201(e)

From her office in State A, an agent mails a sales letter describing a private placement to residents of State B. She is not registered in State B. Where is the offer made, for purposes of the Act?

• a.In neither state until an offeree signs and returns a subscription agreement accepting the offer
• b.Only in State A, where the letter originated, because she was never physically present in State B
• c.In State B as well as State A, because an offer directed into a state and received there is made in that state✓
• d.Only in State B, where the offerees live, because the recipient decides in which state an offer is made

An offer is made in a state when it originates there or is directed there and received, whether or not either party is present. The letter therefore reaches both states. Acceptance matters only to when an offer to buy is accepted, not to whether an offer to sell has been made.Uniform Securities Act (1956, as amended by NASAA) §414(a), (c)

A regular, paid-circulation magazine is printed in State D. Over the past twelve months, 70% of its copies were distributed outside State D. A securities advertisement in it is read by State D residents. Has an offer been made in State D?

• a.Yes, because the exclusion applies only when at least 90% of the circulation is outside the publisher's state
• b.No, because more than two-thirds of its circulation was outside the state during the past twelve months✓
• c.No, but only if the advertisement itself states that the securities are not registered in State D
• d.Yes, because the magazine is published in State D, where the advertisement was printed and first circulated

A publication of general, regular and paid circulation does not make an offer in the state if it is published elsewhere, or if it is published in the state but more than two-thirds of its circulation was outside the state during the past twelve months. There is no 90% test and no disclaimer requirement.Uniform Securities Act (1956, as amended by NASAA) §414(e)

No registration statement has been filed in this state for a new, non-exempt bond issue. A registered agent telephones a client and describes the bonds, but takes no order. How should the call be classified under the Act?

• a.A lawful offer, provided no order is taken and no payment is received before the registration becomes effective
• b.A lawful solicitation of interest, because the registration requirement reaches completed sales and a call is not a sale
• c.An unlawful offer, because offers are barred as well as sales until the security is registered, exempt or federal covered✓
• d.An unlawful offer only if the client later buys, because the violation arises at the time the sale is made

Section 301 makes it unlawful to offer or sell a non-exempt, unregistered security, so the call itself is a violation when no registration is on file. Whether an order is taken is irrelevant, and the violation does not wait for a later purchase. A narrow exception allows offers (not sales) only once registration statements are on file under both the federal and state acts.Uniform Securities Act (1956, as amended by NASAA) §301

Registration statements for an issue have been filed under both the Securities Act of 1933 and this state's act, but neither is yet effective. No stop order or proceeding is pending. What may a broker-dealer do in this state?

• a.Make offers to prospective customers, but no sales, until both registrations become effective✓
• b.Make offers and sales, provided the customer receives the preliminary prospectus before committing
• c.Make neither offers nor sales until both the federal and state registration statements are effective
• d.Accept orders from customers, provided delivery and payment are deferred until after the effective date

When filings are on file under both acts and no stop order or public proceeding is pending, offers (but not sales) are exempt during the waiting period. Taking an order creates a contract of sale even if settlement is later, and a preliminary prospectus does not authorize sales. The Act does not forbid all offers while the registrations are pending.Uniform Securities Act (1956, as amended by NASAA) §402(b)(12)

An issuer has filed a federal registration statement and has actively conducted business operations in the United States for 30 consecutive calendar months. Can its offering be registered in this state by filing?

• a.No, because registration by filing requires at least 36 consecutive calendar months of active U.S. operations before the federal filing✓
• b.No, because registration by filing is limited to issuers that have been public for at least 60 consecutive calendar months
• c.Yes, because 24 consecutive months of operations are enough when a class of the issuer's equity is registered under the Exchange Act
• d.Yes, because the operating-history requirement applies only to issuers organized under the laws of a foreign country

The issuer must have actively engaged in U.S. business for at least 36 consecutive calendar months before the federal filing, so 30 months falls short. The requirement is not relaxed by Exchange Act registration, applies to domestic and foreign issuers alike, and is 36 months, not 60.Uniform Securities Act (1956, as amended by NASAA) §302(a)(1)(B)

A qualifying issuer plans to offer its common stock to the public at $4.50 per share and meets every other condition for registration by filing. What is the result?

• a.The stock can be registered by filing, because the minimum price is $2 per share for an issuer with a $4,000,000 net worth
• b.The stock cannot be registered by filing, because an equity security's public offering price may not be below $5 per share✓
• c.The stock can be registered by filing, because the price test applies only to issuers that have no class listed on an exchange
• d.The stock can be registered by filing, provided the underwriters agree to take down the shares for their own principal account

For an equity security, registration by filing requires an offering price of at least $5 per share, so $4.50 fails even though the other conditions are met. The price floor does not depend on exchange listing or net worth, and a firm-commitment underwriting is a separate condition that does not cure it.Uniform Securities Act (1956, as amended by NASAA) §302(a)(1)(J)

Over the three months before an offering, a class of Exchange Act-registered equity had at least four market makers on each of 20 days, and fewer on the remaining days. Does it satisfy the market-maker condition for registration by filing?

• a.No, because at least four market makers must have existed for a period of at least 30 days in the three months before the offering✓
• b.No, because registration by filing requires at least 10 market makers for at least 30 days during the six months before the offering
• c.Yes, because the condition is met whenever at least two market makers have made a market in the class during the prior year
• d.Yes, because four market makers on each of 20 days exceeds the minimum of 15 trading days that the condition requires

The condition is at least 4 market makers for a period of at least 30 days during the 3 months preceding the offering. Twenty days is short of that, and the other figures (15 days, two market makers over a year, 10 makers over six months) are not the rule.Uniform Securities Act (1956, as amended by NASAA) §302(a)(1)(F)

An offering to the public is priced at an aggregate $40 million. The underwriters' combined commissions and discounts will total $4.4 million. Assuming every other condition is met, what follows for registration by filing?

• a.It is unavailable, because $4.4 million exceeds the 10% cap, which here would be $4 million✓
• b.It is available, because the cap is measured on the issuer's net proceeds, not the public price
• c.It is unavailable, because registration by filing permits no underwriter compensation at all on the offering
• d.It is available, because the cap is 12% of the aggregate public offering price, or $4.8 million here

Underwriters' aggregate commissions and discounts may not exceed 10% of the aggregate public offering price. Ten percent of $40 million is $4 million, so $4.4 million (11%) exceeds it. The cap is not 12%, is not measured on net proceeds, and does not bar underwriter compensation entirely.Uniform Securities Act (1956, as amended by NASAA) §302(a)(1)(H)

An issuer's only class of Exchange Act-registered equity is held of record by 420 persons. All other conditions for registration by filing are satisfied. Why can the offering not be registered by filing?

• a.Registration by filing requires the registered class to be held of record by at least 1,000 persons
• b.Registration by filing requires 300 or more record holders plus 400,000 units held by the public
• c.Registration by filing requires the registered class to be held of record by 500 or more persons✓
• d.Registration by filing requires at least 750 record holders, 100 of whom must be institutions

Registration by filing requires an Exchange Act-registered class held of record by 500 or more persons, so 420 is too few. The 400,000-unit public float is a separate condition, and there is no 1,000-holder or institutional-holder test.Uniform Securities Act (1956, as amended by NASAA) §302(a)(1)(C)

An open-end investment company wants to register additional shares by filing. What must be true about its earlier registration experience?

• a.It must have qualified its securities under §303 or §304 (or this paragraph) within the preceding 24 months✓
• b.It must have had a stop order lifted within the previous 24 months, showing that it regained compliance
• c.It must have been registered with the SEC for at least 12 months and had a prior fiscal year with net income
• d.It must have registered under §304 at least once during the previous 36 months and paid a late registration fee

An open-end company or unit investment trust may register by filing if, within the preceding 24 months, it previously qualified its securities under §303, §304 or this paragraph, and it complies with the material terms of those registrations. The 36-month figure belongs to ordinary issuers, and neither net income nor a lifted stop order is part of the test.Uniform Securities Act (1956, as amended by NASAA) §302(a)(2)

An issuer files a registration statement by coordination with the Administrator on April 1, and its federal registration statement becomes effective on April 8. The price information has been on file for more than two business days. Does the state registration become effective with the federal one?

• a.Yes, because the state statement becomes effective with the federal one regardless of how long it has been on file
• b.Yes, because only the price statement, and not the registration statement itself, must be on file for any minimum time
• c.No, because the statement must have been on file at least ten days, and only seven have passed✓
• d.No, because a registration statement must be on file thirty days before it can become effective with the federal one

Automatic effectiveness by coordination requires, among other things, that the registration statement have been on file at least ten days; April 1 to April 8 is only seven. If the federal statement becomes effective first, the state one becomes effective as soon as all conditions are satisfied. Thirty days applies to registrations of broker-dealers, not coordination.Uniform Securities Act (1956, as amended by NASAA) §303(c)

An issuer registering by coordination has had its registration statement on file for three weeks. The maximum and minimum proposed offering prices and the maximum underwriting discounts were filed with the Administrator yesterday. The federal registration becomes effective today. What is the state status?

• a.Not yet effective, since the price statement must have been on file for ten days before the federal registration becomes effective
• b.Effective today, since a registration statement that has been on file for ten days or more becomes effective with the federal statement
• c.Not yet effective, since the price statement must have been on file two full business days unless the Administrator shortens that period✓
• d.Effective today, since the price statement is required only when the Administrator specifically asks the registrant for it

A registration by coordination becomes effective automatically only if, among other conditions, the statement of maximum and minimum offering prices and maximum discounts has been on file two full business days (or a shorter period the Administrator allows). One day is not enough, but the requirement is two business days, not ten days.Uniform Securities Act (1956, as amended by NASAA) §303(c)(3)

A registrant using coordination must give the Administrator an undertaking about future federal prospectus amendments. What must the undertaking promise?

• a.To forward them promptly, and no later than the first business day after they are sent to or filed with the SEC✓
• b.To forward them in a quarterly package together with the issuer's periodic progress-of-offering report
• c.To forward only the amendments that delay the effective date, within five business days of their filing
• d.To forward each amendment to the Administrator within ten days after the SEC declares that amendment effective

The undertaking covers all future amendments to the federal prospectus other than an amendment that merely delays the effective date, and requires forwarding them promptly and no later than the first business day after they are sent to the SEC. Delay amendments are excluded rather than required, and a ten-day or quarterly schedule is not the rule.Uniform Securities Act (1956, as amended by NASAA) §303(b)(4)

A registrant using coordination fails to notify the Administrator of the price amendment and does not file the post-effective amendment. The Administrator promptly notifies it by telephone. What action may the Administrator take?

• a.Enter a stop order without notice or hearing, void if the registrant later proves compliance✓
• b.Cancel the registration permanently, without any means for the registrant to show compliance later
• c.Fine the registrant for each day of delay but leave the registration in effect until it is given a hearing
• d.Enter a stop order only after 15 days' notice and a hearing, because stop orders always require a prior hearing

For failure to give the price-amendment notice and file the post-effective amendment, the Administrator may enter a stop order without notice or hearing, provided he promptly notifies the registrant. It is void as of entry if the registrant proves compliance. The usual notice-and-hearing rule governs other stop orders, and nothing in the section provides daily fines or a permanent bar.Uniform Securities Act (1956, as amended by NASAA) §303(c)

An issuer is filing a registration statement by qualification on September 30. Which balance sheet satisfies the Act's timing requirement?

• a.One dated June 15, which is within four months before the filing date✓
• b.One dated December 31 of last year, since only annual balance sheets are required
• c.One dated March 31, which falls within the six months preceding the filing
• d.One dated February 28, because a fiscal year-end balance sheet always suffices

The balance sheet must be dated within four months before the filing date. For a September 30 filing, a balance sheet dated no earlier than May 30 qualifies, so June 15 does. The other dates are more than four months old, and the statute does not accept a year-end or six-month statement.Uniform Securities Act (1956, as amended by NASAA) §304(b)(16)

An issuer registering by qualification has been in business for 11 years. For how many fiscal years preceding the balance sheet date must it supply profit and loss statements and an analysis of surplus?

• a.Five fiscal years, to match the five-year disclosure required for officers and directors
• b.Ten fiscal years, since the issuer has more than a decade of operating history behind it
• c.Three fiscal years, plus any stub period between the last year-end and the balance sheet date✓
• d.Two fiscal years, because an audit is required only for the two most recent years

Section 304 requires profit and loss statements and analysis of surplus for each of the three fiscal years before the balance sheet date, plus any later interim period (or the issuer's whole life if shorter than three years). The five-year figure applies to director and officer occupations, not financial statements.Uniform Securities Act (1956, as amended by NASAA) §304(b)(16)

When does a registration statement filed by qualification become effective?

• a.Automatically on the thirtieth day after filing, if no stop order or proceeding is pending
• b.After it has been on file ten days and the price statement two full business days
• c.At the moment the issuer's federal registration statement becomes effective with the SEC
• d.Only when the Administrator enters an order declaring it effective after review✓

Qualification is the full-review route: the registration becomes effective only on the Administrator's order. The automatic 30-day period belongs to broker-dealer and agent registration, effectiveness with the federal statement belongs to coordination, and the ten-day and two-business-day periods are coordination conditions.Uniform Securities Act (1956, as amended by NASAA) §304(c)

A registration statement became effective on March 1 for an offering that was completed by May. Absent other facts, how long is the statement effective?

• a.One year from its effective date, or longer while a non-exempt distribution continues✓
• b.Until the federal registration statement is withdrawn, with no fixed state time limit
• c.Two years from its effective date, whether or not the distribution has ended yet
• d.Ninety days from its effective date, after which a new registration is required

Every registration statement is effective for one year from its effective date, or longer while the security is still being distributed in a non-exempt transaction. Ninety days is the seasoning period in the manual exemption, and two years is the look-back in the open-end fund rule. Nothing ties the state registration's life to the federal statement.Uniform Securities Act (1956, as amended by NASAA) §305(i)

Six months after its registration statement became effective, an issuer asks to withdraw it, though securities of the same class are outstanding. What does the Act provide?

• a.It may be withdrawn at any time on written request, since the issuer controls its own filing with the Administrator
• b.It may be withdrawn after 30 days from the effective date, if the Administrator is given prior written notice
• c.It may be withdrawn once the 90th day after the effective date has passed and all fees are paid
• d.It may not be withdrawn for one year from the effective date if securities of that class are outstanding✓

A registration statement may not be withdrawn for one year from its effective date if any securities of the same class are outstanding. Afterward it can be withdrawn only in the Administrator's discretion. Neither the issuer's wishes nor a 30-day or 90-day waiting period changes that.Uniform Securities Act (1956, as amended by NASAA) §305(i)

While a registration statement is effective, the Administrator wants periodic updates on the progress of the offering. What is the most frequent reporting the Act allows him to require?

• a.Reports required no more often than annually, until the offering has ended
• b.Reports required no more often than quarterly, to keep the registration current✓
• c.Reports required whenever the Administrator requests them in writing, with no stated limit
• d.Reports required no more often than monthly, with an annual audited summary

The Administrator may by rule or order require the registrant to file reports, but not more often than quarterly, to keep the registration current and show the offering's progress. A monthly schedule would be more frequent than permitted, while annual reporting and unlimited requests are not what the section says.Uniform Securities Act (1956, as amended by NASAA) §305(j)

As a condition of registration by qualification, the Administrator may require escrow of securities. Which securities may be placed in escrow?

• a.Securities issued to any officer or director within the past 12 months, regardless of the consideration paid
• b.All securities of the same class that were sold to members of the public within the previous five years
• c.Securities sold to institutional buyers in a private placement during the past ten years, regardless of price
• d.Securities issued to a promoter within three years for consideration substantially different from the public price✓

The Administrator may require escrow of securities issued within the past three years (or to be issued) to a promoter for consideration substantially different from the public offering price, or to anyone for non-cash consideration. Public purchasers' shares and shares sold to institutions are not subject to the escrow power.Uniform Securities Act (1956, as amended by NASAA) §305(g)

After a registration statement is effective, the issuer sells additional registered securities at the same price and discounts without first amending. By what deadline must it file the amendment and pay the late fee and filing fee for the amendment to relate back to the date of that sale?

• a.Within ninety days of the sale's closing date
• b.Within six months after the date of the sale✓
• c.Within one year after the sale occurred, in full
• d.Within thirty days following the date of that sale

An amendment increasing the amount of securities registered relates back to the sale date if it is filed, and the additional filing fee and late registration fee are paid, within six months of that sale. Thirty days, ninety days and one year are not the statutory period.Uniform Securities Act (1956, as amended by NASAA) §305(k)

The Administrator wants to issue a final stop order revoking a registration. The issuer has not been told of any concern. May the Administrator proceed?

• a.No, a stop order may be entered only after prior notice, an opportunity for a hearing, and written findings✓
• b.Yes, because a stop order may be issued on a finding of public interest alone, with the hearing offered afterward
• c.Yes, provided the Administrator notifies the SEC and the issuer's state of domicile within ten days afterward
• d.No, because only a court may enter an order revoking the effectiveness of a registration statement, not the Administrator

A stop order, other than the summary postponement or suspension allowed by the first sentence of §306(b), may be entered only after prior notice, an opportunity for hearing, and written findings of fact and conclusions of law. Revocation is an administrative power, and post-hoc notice is not enough.Uniform Securities Act (1956, as amended by NASAA) §306(c)

The Administrator summarily suspends a registration on March 1. The issuer receives notice on March 3 and mails a written hearing request the same day, received by the Administrator on March 5. By what date must the matter be set down for hearing?

• a.March 20, which is fifteen days after the written request was received✓
• b.March 12, which is seven days after the written request was received
• c.March 31, which is thirty days after the order was entered and notice was sent
• d.March 18, which is fifteen days after the Administrator entered the order

The notice of a summary order must say that, within fifteen days after receipt of a written request, the matter will be set down for hearing. Receipt on March 5 plus fifteen days gives March 20. The clock runs from the request, not from entry of the order, and the period is fifteen days, not seven or thirty.Uniform Securities Act (1956, as amended by NASAA) §306(b)

A registration statement became effective on a date when the Administrator already knew of a particular misstatement in it. By when must he institute a stop order proceeding based on that known fact?

• a.Within thirty days after the registration statement became effective✓
• b.Within ninety days after the date on which the registration became effective
• c.Within one year after the registration statement became effective
• d.At any time while the registration statement remains in effect

The Administrator may not institute a stop order proceeding against an effective registration on the basis of a fact or transaction known to him when it became effective unless he does so within the next thirty days. The one-year period applies to proceedings based on another jurisdiction's order. It is not open-ended.Uniform Securities Act (1956, as amended by NASAA) §306(a)

A registrant fails to pay the proper filing fee for a registration statement. What stop order action is available to the Administrator on that ground alone?

• a.A denial order together with a civil penalty for each day the fee is unpaid
• b.Only a denial order, to be vacated once the deficiency is corrected✓
• c.A suspension order lasting up to one year, whether or not the fee is paid
• d.A revocation order that cannot be vacated once it is entered

When the ground is failure to pay the proper filing fee, the Administrator may enter only a denial order and must vacate it when the deficiency is corrected. A permanent revocation or fixed-term suspension would go beyond what the section allows, and it provides no daily penalty.Uniform Securities Act (1956, as amended by NASAA) §306(a)(2)(I)

The Administrator finds that an offering would pay unreasonable amounts of underwriters' discounts and promoters' profits. Is this a ground for a stop order?

• a.Yes, unreasonable compensation, promoters' profits or options is an enumerated ground, if in the public interest✓
• b.No, the Act regulates disclosure only, so the Administrator cannot review the fairness of an offering's terms
• c.Yes, but only if the underwriters' compensation exceeds 10% of the aggregate public offering price
• d.No, unreasonable compensation can be addressed only by an injunction that the Administrator obtains from a court

Section 306(a)(2)(F) lists unreasonable underwriters' and sellers' discounts, commissions or other compensation, promoters' profits or participation, or unreasonable options as a stop-order ground, if the order is in the public interest. There is no fixed 10% trigger; that figure is a registration-by-filing condition. Administrative stop orders do not need a court.Uniform Securities Act (1956, as amended by NASAA) §306(a)(2)(F)

An effective registration statement covers a security that became the subject of another state's stop order eleven months ago. Within what time limit may the Administrator institute a proceeding against the registration based on that order?

• a.Within thirty days of the other state's order, so he has already lost the right to act
• b.Within one year from the date of the other order, so he has about one month remaining✓
• c.Within three years of the other state's order, so he has about two years remaining
• d.Within one year after its own effective date, whatever the date of the other order

A proceeding against an effective registration based on another stop order or injunction may not be instituted more than one year from the date of that order, so eleven months leaves about one month. The thirty-day limit applies to facts known when the statement became effective, and the one-year clock runs from the other order, not from effectiveness.Uniform Securities Act (1956, as amended by NASAA) §306(a)(2)(C)

A Rule 506 offering is a covered security. The issuer makes its first sale in this state on March 3. The Administrator requires the SEC Form D notice filing. By what date must it be made?

• a.March 18, fifteen days after the first sale in the state✓
• b.March 10, seven days after the first sale of the security in the state
• c.March 2, the day before the first sale takes place in the state
• d.April 2, thirty days after the first sale of the security in the state

For a Rule 506 covered security, the Administrator may require a Form D notice, with a consent to service of process, no later than fifteen days after the first sale in the state. March 3 plus fifteen days is March 18. It is a post-sale notice filing, not a pre-sale registration, and the period is neither seven nor thirty days.Uniform Securities Act (1956, as amended by NASAA) §307(b)

A corporation issues a promissory note maturing in 8 months, in a $100,000 denomination, rated in the second-highest category by a nationally recognized rating organization. Is the note exempt from registration?

• a.No, because only a note rated in the very highest category qualifies for the commercial paper exemption
• b.Yes, but only if the note is sold solely to institutional buyers in units of at least $250,000
• c.No, because exempt commercial paper must mature within 90 days of issuance, which this note does not do
• d.Yes, since it matures within 9 months, is at least $50,000 in denomination, and has a top-three rating✓

The exemption covers notes and similar paper payable within 9 months of issuance, in denominations of at least $50,000, rated in one of the 3 highest categories. This note meets all three tests. The 90-day figure and a top-rating-only rule are not in the Act, and it does not limit sales to institutions.Uniform Securities Act (1956, as amended by NASAA) §402(a)(10)

A company adopts a new employee stock purchase plan and wants to rely on the exemption for investment contracts issued in connection with employee benefit plans. What must it do?

• a.Register the plan's securities by qualification at least ten days before it begins
• b.Notify the Administrator in writing within thirty days after the plan has begun
• c.Notify the Administrator in writing thirty days before the plan begins✓
• d.Nothing, because the exemption for employee plans carries no notice requirement

Employee plan investment contracts are exempt if the Administrator is notified in writing thirty days before the inception of the plan. A registration filing is not needed, and notice after the plan starts would be late, though the Act allows 60 days for plans already in effect when the Act took effect.Uniform Securities Act (1956, as amended by NASAA) §402(a)(11)

During one twelve-month period an issuer directs offers to nine individuals and to three banks in the state, with no commissions paid. The sellers reasonably believe the individuals are buying for investment. Does the limited-offering exemption apply?

• a.Yes, because the number of offerees is unlimited whenever no commission is paid to anyone for soliciting
• b.Yes, since only the nine individuals count; institutional buyers are excluded from the ten-person limit✓
• c.No, because all twelve offerees count toward the ten-person limit, so the limit has been exceeded
• d.No, because the exemption requires a notice filing with the Administrator before any offer is made

The exemption permits offers to not more than ten persons in the state in twelve consecutive months, not counting the institutional buyers listed in the separate institutional exemption. Nine individuals qualify, assuming investment intent and no soliciting commissions. The unlimited-offerees and pre-filing theories are wrong.Uniform Securities Act (1956, as amended by NASAA) §402(b)(9)

May the Administrator revoke the exemption for securities issued by the United States government?

• a.Yes, the Administrator may revoke any exemption in §402 by order after notice and a hearing
• b.No, only certain listed exemptions may be revoked, and government securities are not among them✓
• c.No, because every exemption in the Act is permanent and cannot be reviewed by the Administrator
• d.Yes, but only by a summary order, and only if the order is also reported to the SEC

Section 402(c) lets the Administrator deny or revoke only the exemptions it lists, which include the exchange-listed, nonprofit and employee-plan securities and the transaction exemptions, but not government securities. Revocation otherwise needs notice, hearing and findings, and the idea that every exemption is permanent is mistaken.Uniform Securities Act (1956, as amended by NASAA) §402(c)

A broker-dealer sells unregistered securities and claims the transaction was exempt. In the administrator's proceeding, who bears the burden of proving the exemption?

• a.The Administrator, who must prove that no exemption applies before taking any action
• b.Neither side, since exemptions are presumed to apply once the seller has raised them
• c.The broker-dealer, because the person claiming an exemption must prove it applies✓
• d.The customer who bought the securities, who must show that the exemption failed

In any proceeding under the Act the burden of proving an exemption or an exception from a definition is on the person claiming it. The regulator need not disprove every possible exemption, and the customer has no burden. A bare claim does not create a presumption.Uniform Securities Act (1956, as amended by NASAA) §402(d)

An agent sells U.S. Treasury notes, an exempt security, and lies to a customer about the notes' maturity date to close the sale. How does the Act treat the lie?

• a.It is not a violation, because exempt securities fall outside every provision of the Act, including §101
• b.It is a violation only if the customer proves reliance on the statement and out-of-pocket damages
• c.It violates §101, because an exemption from registration is not an exemption from the antifraud provision✓
• d.It is not a violation, because §101 applies only to securities sold in unregistered offerings

The exemptions in §402 excuse a security or transaction from registration, not from the antifraud rule in §101, which applies to any offer or sale. The Act does not require proof of reliance for regulatory action, and §101 is not limited to unregistered offerings.Uniform Securities Act (1956, as amended by NASAA) §101; §402

A customer tells her agent: "Buy 500 shares of XYZ for me this week, whenever you judge the price is best." The customer has signed no discretionary authorization. How should the agent's handling be viewed?

• a.Acceptable, but only after the agent's supervisor has approved the arrangement in writing the same day
• b.Acceptable, because the discretion covers only the time and price at which the customer's own order is executed✓
• c.A violation, because discretion over price requires written authority even where time is left to the customer
• d.A violation, because any discretion over an account requires written authority signed before the first order

Written discretionary authority is required unless the discretionary power relates solely to the time and/or price for executing orders. Here the customer chose the security and quantity, so the agent exercises only timing and price discretion. A supervisor's approval is not the test.NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents 1.g

Last week a customer mentioned to her agent that she liked ABC Corp. Today, while she is traveling and unreachable, the agent buys 200 shares of ABC in her account. The stock rises that afternoon. How is the purchase classified?

• a.A prohibited practice, because the trade was executed without the customer's authorization, whatever the later gain✓
• b.A prohibited practice only if the customer files a written complaint within 30 days after the trade date
• c.A permitted practice, because a trade that proves profitable to the customer is treated as ratified by the result
• d.A permitted practice, because the customer had already expressed interest in the stock and its price has since risen

Executing a transaction for a customer without authorization is on the list of dishonest or unethical practices. Expressed interest is not authority, and a profit does not retroactively cure the violation. Nothing makes it depend on a customer complaint.NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents 1.f

A broker-dealer opens a margin account for a new customer and executes the first purchase on margin. What does the policy require regarding the margin agreement?

• a.A written margin agreement is needed only when the customer's debit balance first exceeds $2,000 in the account
• b.A properly executed written margin agreement must be secured from the customer promptly after the initial transaction✓
• c.A written margin agreement must be filed with the Administrator within 30 days after the account is opened
• d.A written margin agreement is needed only if the customer asks for one, since oral approval otherwise suffices

Executing transactions in a margin account without securing a properly executed written margin agreement promptly after the initial transaction is a listed practice. The requirement is not triggered by a dollar threshold or by a customer's request, and it is a firm record, not an Administrator filing.NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents 1.h

A broker-dealer pledges a customer's fully paid securities as collateral for its own bank loan. The firm has no lien on the securities and the customer never signed anything about pledging them. How should this be viewed?

• a.A prohibited practice only if the pledge is for an amount greater than the customer's account equity
• b.A prohibited practice, since hypothecation without a lien requires the customer's written consent✓
• c.A permitted practice, since a custodian of a customer's securities may pledge them to finance its own business
• d.A permitted practice, provided the firm sends the customer an oral notice after the loan closes

A broker-dealer may not hypothecate a customer's securities without a lien on them unless it obtains the customer's properly executed written consent promptly after the initial transaction (subject to SEC rules). Oral notice does not substitute, and the violation does not depend on how large the pledge is.NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents 1.j

A broker-dealer holds customers' fully paid securities in safekeeping and mixes them with its own inventory in a single account. What is the status of this practice?

• a.It is acceptable, because the firm's books show which customer owns each position in the combined account at all times
• b.It is a violation only if the firm is later unable to deliver the securities to a customer on request
• c.It is acceptable, provided each customer has received a written notice that the securities are commingled
• d.It is a dishonest or unethical practice, because free securities and securities in safekeeping must be segregated✓

Failing to segregate customers' free securities or securities held in safekeeping is a listed practice. Bookkeeping, a notice to customers, or the lack of an actual loss does not cure commingling, because the violation is the failure to segregate, not a resulting loss.NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents 1.i

To win an account, an agent promises a prospect in writing, "If you lose money on any trade I recommend, I will make up the difference from my own funds." How should the promise be viewed?

• a.It is prohibited only if the guarantee is relied on and the customer then actually sustains a loss
• b.It is permitted, because the agent is promising to pay the loss personally and the firm has no exposure
• c.It is prohibited, because guaranteeing a customer against loss in any account or transaction is a listed practice✓
• d.It is permitted, provided the guarantee is in writing and is signed by the agent's supervising principal

Guaranteeing a customer against loss is a listed practice, and an agent is bound by it through the cross-reference in the agents' section. A personal promise, a principal's signature, or the absence of a loss changes nothing, because the guarantee itself is the violation.NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents 1.q

An agent borrows $5,000 from a long-time customer, signing a promissory note that bears interest at the prevailing bank rate. How does the policy treat the loan?

• a.It is permitted, provided the agent discloses the loan in writing to the supervising principal within five days
• b.It is prohibited only if the customer's account is discretionary or the loan exceeds 10% of the account
• c.It is permitted, because the written note and market-rate interest make it an arm's-length commercial transaction
• d.It is a prohibited practice, because an agent may not lend or borrow money or securities from a customer✓

Lending or borrowing money or securities from a customer is a listed practice for agents, and the policy lists no exception for notes or market interest. Disclosure to a supervisor does not legitimize it, and the ban does not depend on discretion or on the loan's size.NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents 2.a

A customer who will be abroad for two months hands her agent a signed stock power and asks him to keep it in his desk "just for convenience." What is the agent's proper course?

• a.Accept it, but only if the broker-dealer's principal is told and keeps a copy of the stock power on file
• b.Decline, because acting as custodian for a customer's executed stock power is itself a prohibited practice✓
• c.Accept it, provided he gives the customer a signed receipt and locks the document in the firm's vault until she returns
• d.Accept it, because the customer, not the agent, initiated the arrangement and it plainly benefits her while she is abroad

Acting as a custodian for a customer's money, securities or an executed stock power is a listed agent practice. The customer's initiative, a receipt, or a vault does not turn it into an acceptable arrangement.NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents 2.a

An agent sells a customer shares in a friend's private company. The sale does not pass through his broker-dealer, which has no record of it and was never asked about it. How should it be classified?

• a.A permitted practice, since the agent received no commission from the broker-dealer on the transaction in question
• b.A permitted practice, if the agent notifies the broker-dealer in writing within 30 days after the sale occurred
• c.A prohibited practice only if the customer is a retail investor whose annual income is under $200,000 per year
• d.A prohibited practice, unless the broker-dealer authorized the transaction in writing before it was executed✓

Effecting transactions not recorded on the regular books or records of the broker-dealer the agent represents is prohibited unless the firm authorized it in writing before execution. After-the-fact notice and the lack of a commission do not qualify, and customer income is not a factor.NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents 2.b