NASAA Series 63 — All Questions

Lee applies for registration as an agent in a state where Lee's earlier registration lapsed two years ago. A consent to service of process was filed with the Administrator then. Must Lee file another consent now?

• a.Yes, because a consent stays valid for only one year after the registration it accompanied expires.
• b.No, but Lee must first file a notice that the earlier consent remains valid before the application takes effect.
• c.No, a person who filed a consent in connection with a previous registration or notice filing need not refile.✓
• d.Yes, because the earlier consent ended when the registration lapsed, a new one accompanies every initial application.

Section 202(a) requires an application to be accompanied by a consent to service of process under Section 414(g). That subsection says a person who has filed such a consent in connection with a previous registration or notice filing need not file another. The consent is irrevocable and appoints the Administrator to receive service, so it does not lapse with the registration. No separate notice is required.Uniform Securities Act §414(g); §202(a)

A registered broker-dealer moves its main office telephone line to a new number, so the number on its Form BD is no longer accurate. Under the SEC's rules, what must the firm do?

• a.Mail the correction to the SEC regional office within thirty days, because CRD handles only new applications.
• b.Report it at the next FINRA examination, because the rule requires no separate filing for minor contact details.
• c.Wait until it becomes materially inaccurate, because the rule requires an amendment only for material changes.
• d.File an amendment on Form BD promptly through the Central Registration Depository, because the rule covers any inaccuracy.✓

Rule 15b3-1(a) requires a broker or dealer to promptly file an amendment on Form BD with the Central Registration Depository, operated by FINRA, whenever information in its application is or becomes inaccurate for any reason, and paragraph (b) treats the filing as a report to the Commission. The federal rule has no materiality threshold, no thirty-day period, and no waiting for an examination, and the CRD is the channel for amendments as well as new applications.SEC Rule 15b3-1(a) (17 CFR 240.15b3-1(a))

A corporate broker-dealer is registered in a state. Its vice president, who is also a director, sells securities to customers every day. The firm's registration was effective on January 10. What must the vice president do before selling in the state?

• a.Nothing, because the firm's registration automatically registers an officer or director who is an agent.✓
• b.File a separate agent application, because every individual who sells securities must file one regardless of rank.
• c.File a separate application only if the vice president receives commissions in addition to a salary at the firm.
• d.File a separate application, because a director may be registered as an agent only after the firm's first renewal.

The last sentence of Section 202(a) provides that registration of a broker-dealer automatically constitutes registration of any agent who is a partner, officer or director, or who has a similar status. The information about such people is already in the firm's application, so the Act does not require it twice. Pay structure and renewal timing are not conditions.Uniform Securities Act §202(a)

A state-registered investment adviser already delivers a Form ADV Part 2A brochure that complies with federal law. The Administrator requires advisers to furnish certain information to clients. May the brochure satisfy the state requirement?

• a.Yes, a brochure that complies with federal law automatically satisfies every state client-disclosure requirement.
• b.No, a brochure may be used only by advisers that are also federal covered advisers notified in this state.
• c.No, the Act requires client information in a form specific to the state and forbids substituting the federal brochure.
• d.Yes, to the extent the Administrator so determines, federally compliant information may satisfy it in whole or in part.✓

Section 203(b) lets the Administrator require advisers to furnish information to clients as necessary or appropriate in the public interest, and says that, to the extent he determines in his discretion, information that would comply with the Investment Advisers Act and its rules may be used in whole or part satisfaction. The use is therefore neither automatic nor forbidden. Federal covered adviser status is not required.Uniform Securities Act §203(b); §202(a)(6)

A broker-dealer's application stated that no officer had ever been enjoined. Three weeks after the application became effective, the Administrator learns that its president was enjoined from securities conduct a year earlier. The statement was false when made. What basis does the Act give for action against the registration?

• a.A ground exists in the public interest, because the application was materially false or misleading when made.✓
• b.None, because the false statement concerned an officer rather than the firm, and the firm is judged on its own conduct.
• c.A ground exists only if the firm fails to file a correcting amendment within ninety days of the effective date.
• d.None, because the Administrator may act on an injunction only if it is issued after the registration takes effect.

Section 204(a)(2)(A) makes an application that was incomplete in any material respect, or contained a false or misleading statement of material fact as of its effective date, a ground for an order, if the order is in the public interest. The Official Comment adds that a partner's, officer's or director's disqualification can support action against the firm. The false statement existed from the start, and the ninety-day figure in Section 204 concerns something else.Uniform Securities Act §204(a)(2)(A)

Dalton & Co. is a broker-dealer whose business is exclusively intrastate, and it uses no facility of a national securities exchange. Which statement about its registration is correct?

• a.It must register with the SEC, but it needs state registration only once it opens an office across a state line.
• b.It is exempt from SEC registration and from state registration, since purely local business falls outside both statutes.
• c.It must register with the SEC, and that registration takes the place of any state registration it would otherwise need.
• d.It need not register with the SEC under Section 15(a)(1), but it must still register as a broker-dealer in its home state.✓

Section 15(a)(1) of the Securities Exchange Act excepts a broker-dealer whose business is exclusively intrastate and who uses no exchange facility from SEC registration. That exception does not touch state law, and Section 201(a) of the Uniform Securities Act still makes it unlawful to transact business in the state as a broker-dealer unless registered. Federal registration never replaces the state's, and the state's reach does not depend on an interstate office.Securities Exchange Act §15(a)(1); Uniform Securities Act §201(a)

The SEC has issued an order granting a new firm's registration as a broker-dealer. The firm has not joined a registered securities association and does not trade solely on an exchange of which it is a member. What is the status of the order?

• a.It is not effective until the firm joins a registered securities association, unless exempted from membership.✓
• b.It takes effect when issued but restricts the firm to trades through other registered broker-dealers until it joins one.
• c.It takes effect when issued, and the firm then has ninety days after that to join a registered securities association.
• d.It is not effective until the state also registers the firm, which can happen only after the firm has joined.

Section 15(b)(1) provides that the order granting registration is not effective until the broker-dealer has become a member of a registered securities association, or of a national securities exchange if it effects transactions solely there, unless the SEC has exempted the firm from membership. The statute sets no grace period and no routing restriction. State registration is a separate requirement and is not a condition for the SEC order to take effect.Securities Exchange Act §15(b)(1)

A state administrator proposes that every broker-dealer registered in the state hold net capital 25% above the SEC's minimum and file a monthly financial report the SEC does not require. May the state apply the rule to a firm registered with the SEC?

• a.No, except that the state may impose the higher capital standard on any firm that holds customer funds or securities.
• b.Yes, the power to register broker-dealers lets an administrator set higher capital standards to protect local investors.
• c.No, a state may not add capital or financial reporting requirements to those under the Securities Exchange Act.✓
• d.Yes, if the state applies the same higher capital standard to resident firms and to firms based in other states.

Section 15(i)(1) bars a state from establishing capital, custody, margin, financial responsibility, recordkeeping, bonding, or financial or operational reporting requirements for broker-dealers that differ from or add to the federal ones. Section 202(e) of the Uniform Securities Act is expressly subject to the limits of Section 15. Equal treatment of local and out-of-state firms does not cure the conflict, and holding customer property does not create an exception.Securities Exchange Act §15(i)(1); Uniform Securities Act §202(e)

Rafael is registered with FINRA and in Washington. His firm is registered in Oregon, but Rafael is not. An Oregon customer who has been his client since opening an account on June 1 places an order through him on June 20. All other conditions for the federal limit on state law are met. May Oregon prohibit Rafael from effecting the order?

• a.Yes, because the account had been open only 19 days, short of the 30 days the exception requires before the transaction.✓
• b.No, because Rafael had been assigned to the customer for more than 14 days and holds both FINRA and Washington registrations.
• c.Yes, because Rafael would have had to be registered in Oregon for 30 days before the order for the exception to apply.
• d.No, because the firm is registered in Oregon, which is all the federal limit requires to protect a transaction.

The exception in Section 15(i)(4)(A)(i) requires that the customer maintained an account with the firm for 30 days before the day of the transaction. June 1 to June 20 is 19 days, so the order is not a described transaction and Oregon may require Rafael to be registered. The 14-day assignment and the firm's Oregon registration are separate conditions that do not make up for the short account history. Nothing requires 30 days of prior registration in the second state.Securities Exchange Act §15(i)(3)-(4)

A customer has held an account at Meridian Securities for 90 days. On April 1 her representative, who is registered with FINRA and in her home state, files an application to register in the state where she now lives. That state takes no action. Through what date may the representative effect her transactions under the federal limit on state law?

• a.The protection continues until the state acts, because the filing starts a period with no fixed end.
• b.May 1, which is thirty days after the filing date, the same period that applies to the account history.
• c.May 31, which is 60 days after the application was filed, unless the state denies it or stays it for cause sooner.✓
• d.May 16, which is forty-five days after filing, the period the SEC has to act on a firm's application.

Section 15(i)(4)(A)(ii) protects transactions for a customer whose account has been open 30 days, from the date the representative files an application with the state until the earlier of 60 days after filing or the date the state denies the application or stays it for cause. April 1 plus 60 days is May 31. The 30-day and 45-day periods belong to other provisions, and the statute does set a fixed end.Securities Exchange Act §15(i)(4)(A)(ii)

On March 5, 2026, a representative effects a trade for a customer. On Thursday, March 12, the representative learns that the customer has lived in another state for more than 30 consecutive days. By what date must the representative file an application there so that later trades stay protected under the federal limit on state law?

• a.March 22, 2026, which is ten calendar days after the date of discovery.
• b.March 19, 2026, which is ten business days after the date of the trade.
• c.April 11, 2026, which is thirty calendar days after the date of discovery.
• d.March 26, 2026, which is ten business days after the date of discovery.✓

Section 15(i)(4)(B)(ii) requires the application not later than 10 business days after the later of the transaction date or the date of discovery of the customer's presence or move. The later date is March 12, and ten business days from it end on March 26. The earlier trade date, calendar days and a 30-day period each produce a different, wrong deadline.Securities Exchange Act §15(i)(4)(B)(ii)

A firm files its application for broker-dealer registration with the SEC on January 20, 2026, and has not consented to a longer period. By what date must the SEC either grant registration or institute proceedings to determine whether to deny it?

• a.February 19, 2026, which is 30 days after filing.
• b.March 6, 2026, which is 45 days after filing.✓
• c.March 21, 2026, which is 60 days after filing.
• d.May 20, 2026, which is 120 days after the filing.

Section 15(b)(1) requires the SEC, within 45 days of the filing date or a longer period to which the applicant consents, to grant registration or institute proceedings. January 20 plus 45 days is March 6. The 120-day figure is the time allowed for concluding proceedings once they have begun, so it is not the deadline to act on the application.Securities Exchange Act §15(b)(1)

Whitfield Securities is registered with the SEC and is a FINRA member. It staffs a new office in Idaho with FINRA-registered representatives who will sell to Idaho residents. Which registrations does Idaho require?

• a.Whitfield and each representative must register in Idaho, since SEC registration and FINRA membership are no substitute.✓
• b.Only Whitfield must register in Idaho, and the firm's registration then covers each representative who works in the office.
• c.Neither must register in Idaho, because FINRA registration is accepted as the equivalent of state registration.
• d.Only the representatives must register in Idaho, since the firm's SEC registration already covers it in every state.

Section 201(a) makes it unlawful to transact business in the state as a broker-dealer or agent unless registered under the Act, and Section 201(b) bars a broker-dealer from employing an unregistered agent. SEC registration and FINRA membership are federal and self-regulatory requirements, and the federal limits on state law do not displace state registration of the firm or its agents. A firm's registration covers only agents who are partners, officers or directors.Uniform Securities Act §201(a)-(b)

A registered investment adviser with custody of client funds posts the bond its Administrator requires. A staff member steals a client's deposit, an act unrelated to any sale of securities or investment advice. May the client sue on the bond?

• a.Only if the Administrator, by rule or order, required the bond to cover claims not arising under the Act.✓
• b.Yes, because every bond must cover any person who loses money through the dishonesty of a registrant or its staff.
• c.No, because a bond covers only Section 410 claims, and the Act forbids extending it to other claims.
• d.No, because a bond protects the Administrator's enforcement fund rather than private claimants of a registrant.

Section 202(f) requires every bond to permit suit by any person with a cause of action under Section 410 and, if the Administrator so requires by rule or order, by any person with a cause of action not arising under the Act. Embezzlement is not a Section 410 claim, so the client's access turns on whether the Administrator extended the bond. The Act does not forbid that extension, and a bond exists for private claimants.Uniform Securities Act §202(f) and Official Comment

A customer buys securities on January 10, 2023, and discovers the facts that make the sale a Section 410 violation on June 15, 2023. The seller's required bond bars suit beyond the Section 410(f) limits. What is the latest date the customer may sue on the bond?

• a.January 10, 2025, which is two years after the sale, because the shorter period always runs from the sale.
• b.June 15, 2025, which is the second anniversary of the discovery and comes before the third anniversary of the sale.✓
• c.January 10, 2026, which is three years after the sale, because only the date of the sale starts the period.
• d.June 15, 2026, which is three years after the discovery, because the period runs from the day the customer learned the facts.

Section 202(f) requires every bond to bar suit outside the limits of Section 410(f), and those limits are three years after the contract of sale or two years after discovery of the facts, whichever first occurs. Two years after June 15, 2023 is June 15, 2025, which falls before January 10, 2026. The other dates apply the wrong period or start it from the wrong event.Uniform Securities Act §202(f) and §410(f)

Crestline Advisors is a state-registered adviser whose principal office is in Ohio, and it complies with Ohio's recordkeeping rules. It is also registered in Utah, where it has eight clients. Utah requires a client-complaint log that Ohio does not. May Utah enforce the requirement against Crestline?

• a.No, but only if Ohio's recordkeeping rules are at least as strict as Utah's in every category of required record.
• b.Yes, because each state where an adviser is registered may set its own recordkeeping rules for clients it serves there.
• c.Yes, but only if the added records concern clients who reside in Utah rather than the adviser's other offices.
• d.No, a state may not require additional books and records of an adviser registered at its principal office and complying there.✓

Section 222(b) of the Advisers Act bars a state from enforcing a law that would require additional books or records of an adviser registered in the state of its principal office and place of business and in compliance with that state's requirements. The limit does not depend on where the clients live or on a comparison of the two states' rules.Investment Advisers Act §222(b)

An adviser is registered in Ohio, its principal-office state, and meets Ohio's minimum net capital rule of $10,000 with $12,000. It is also registered in Utah, whose minimum is $20,000. May Utah require the adviser to raise its net capital to that level?

• a.Yes, because the adviser's capital is below Utah's minimum, and the home state's rule yields to the stricter one.
• b.No, but only if the adviser posts a bond with Utah in an amount equal to the shortfall in its required capital.
• c.Yes, because the adviser is registered in Utah and a registrant must meet that state's own financial standard.
• d.No, a state may not require higher net capital than the principal-office state does of a compliant adviser.✓

Section 222(c) prohibits a state from requiring an adviser to maintain higher minimum net capital, or to post any bond in addition to what the principal-office state requires, when the adviser is registered there and in compliance with its capital and bonding requirements. Utah's own minimum yields, and no substitute bond restores the authority.Investment Advisers Act §222(c)

Eastgate Advisors is an SEC-registered federal covered adviser with a notice filing in this state made up of copies of its SEC filings. It finds a correction that the SEC requires only in the annual updating amendment. When must it correct the filing in this state?

• a.At the next December 31 renewal of the notice filing, when the state reviews the adviser's file.
• b.Promptly, because a state requires prompt correction of any material inaccuracy in a document it holds.
• c.When the SEC requires the amendment to be filed, which here is the annual updating amendment.✓
• d.Within thirty days, the time a state allows any filer to correct an inaccurate document on file.

Section 203(d) requires a registrant to file a correcting amendment promptly, but for a federal covered adviser the amendment is due when it is required to be filed with the SEC. The adviser therefore follows the federal schedule. The Act sets no thirty-day period and does not tie the correction to the annual renewal.Uniform Securities Act §203(d)

Dana is an investment adviser representative of a federal covered adviser. She works from the firm's branch office in this state and is registered here. She leaves the firm. Who must promptly notify the Administrator that her employment has ended?

• a.The federal covered adviser, because an employer must report every representative who ends employment with it.
• b.Dana and the firm together, each filing a separate notice so that the termination is reported twice.
• c.No one, because a federal covered adviser's representatives are handled entirely through the SEC and not the state.
• d.Dana herself, because the Act places the duty on the representative when the employer is a federal covered adviser.✓

Section 201(d) requires the investment adviser to give prompt notice when a representative begins or ends employment, but when the employer is a federal covered adviser the representative must give the notice. The representative is registered with the state, so the SEC route does not cover it, and the Act does not call for a second notice from the firm.Uniform Securities Act §201(d)

Harlan Advisors, a federal covered adviser, makes its first notice filing in this state on September 12, 2025, and pays the fee. If it does not renew, when does the notice filing expire?

• a.December 31, 2025, because every registration or notice filing expires then unless renewed.✓
• b.December 31, 2026, the end of the first full calendar year after the filing was made.
• c.September 12, 2026, one year after the date of the filing, the anniversary used for the adviser's fee.
• d.September 30, 2026, the end of the month in which the first filing was made and the fee was paid.

Section 201(e) states that every registration or notice filing expires on December 31 unless renewed, so the date does not depend on when the filing was made. A September filing therefore lapses at the end of the same year. The anniversary of the filing date and the end of the following year are not the expiration dates in the Act.Uniform Securities Act §201(e)

Which of the following offices of a member firm must be designated as an office of supervisory jurisdiction (OSJ)?

• a.A three-person office at which the firm gives final approval to new customer accounts, though it supervises no other office.✓
• b.A processing center that reconciles clearing statements and has no sales activity or public identification as an office.
• c.An office of convenience where a representative meets customers by appointment and forwards all paperwork to the branch.
• d.A branch where forty representatives solicit retail customers but every new account is sent elsewhere for approval.

Rule 3110(f)(1) defines an OSJ by function, and final approval of new accounts on behalf of the member is one of the listed functions, so the office qualifies whatever its size or whether it supervises others. Heavy retail activity, back-office processing and an occasional meeting place are not on the list.FINRA Rule 3110(f)(1)

A member firm's branch office supervises two non-branch locations. How often must the firm inspect that branch office?

• a.At least annually, but only when the branch also performs a function that makes it an OSJ.
• b.On a regular periodic schedule the firm sets, as for non-branch locations, with no fixed minimum.
• c.At least every three years, the cycle for any branch office that is not designated an OSJ.
• d.At least annually, on a calendar-year basis, because the branch supervises non-branch locations.✓

Rule 3110(c)(1)(A) requires an inspection at least annually, on a calendar-year basis, of every OSJ and of any branch office that supervises one or more non-branch locations. The three-year cycle is for branches that supervise no non-branch location, and the periodic schedule is for non-branch locations themselves. OSJ status is not required for the annual cycle.FINRA Rule 3110(c)(1)(A)

A firm decides to inspect a high-volume, non-supervisory branch office every year instead of every three years. What must the firm's written supervisory and inspection procedures set forth?

• a.The names of the principals who will conduct the inspections, rotated so that none repeats a location.
• b.An application to FINRA approving the shortened cycle, filed before the first inspection takes place.
• c.The shorter cycle, the factors behind it, and how it will still meet the three-year requirements.✓
• d.Only the date of each inspection, since a cycle shorter than the minimum needs no explanation.

Rule 3110(c)(1)(B) says the procedures must set forth the non-supervisory branch examination cycle, an explanation of the factors used to set its frequency, and how the member will comply with the paragraph (c)(2) requirements if it inspects more often than every three years. FINRA approval and inspector rotation are not part of the rule.FINRA Rule 3110(c)(1)(B)

A member firm's written report of a branch inspection must include testing and verification of the firm's procedures in which of these areas, where applicable to the location?

• a.The performance of each representative at the location measured against the sales targets the firm had set.
• b.The suitability of each recommendation the location's representatives made to retail customers during the period reviewed.
• c.The accuracy of the firm's quarterly net capital computation as it was prepared by the location's own staff.
• d.Transmittals of funds from customer accounts to third-party accounts or to outside entities such as banks.✓

Rule 3110(c)(2)(A) lists the areas an inspection report must cover: safeguarding of customer funds and securities, books and records, supervision of supervisory personnel, transmittals of funds or securities, and changes of customer account information. Suitability, net capital and sales results are supervised elsewhere and are not on that list.FINRA Rule 3110(c)(2)(A)

Hale Securities, a four-person firm, has the manager of its only branch inspect that branch because no one else is available. What must the firm do?

• a.Nothing further, because small firms may let the location's own supervisor conduct that location's inspection.
• b.Document in the inspection report the factors showing independence is not possible and how it otherwise complies.✓
• c.Place the explanation in the written supervisory procedures only, since an inspection report records findings.
• d.Hire an outside inspector for the next inspection and obtain FINRA's approval of the arrangement before then.

Rule 3110(c)(3)(B) requires that the person inspecting a location not be assigned to it or supervised by anyone assigned to it. Under (c)(3)(C), if that is not possible because of the firm's size or business model, the firm must document in the inspection report the factors behind its determination and how the inspection otherwise complies. There is no small-firm waiver and no approval step.FINRA Rule 3110(c)(3)

A firm files an application for registration for a new representative on September 3. The representative was previously registered with another firm. By what date must the firm review the representative's most recent Form U5, or show FINRA it made reasonable efforts to do so?

• a.December 2, which is 90 days after filing.
• b.October 18, which is 45 days after filing.
• c.October 3, which is 30 days after the filing date.
• d.November 2, which is 60 days after the filing.✓

Rule 3110(e) requires the member to review the applicant's most recent Form U5 within 60 days of the filing date of the application, or demonstrate reasonable efforts to do so. September 3 plus 60 days is November 2. The 30-day figure applies to verifying the Form U4, and the other periods are not part of the rule.FINRA Rule 3110(e)

Lena's new firm files her initial Form U4 and relies on her signed attestation that the form is accurate. Does that satisfy the firm's obligations under Rule 3110(e)?

• a.Yes, if the firm has also reviewed the prior employer's Form U5 within the time the rule allows.
• b.No, the firm needs procedures to verify the form within 30 calendar days, including a public-records search.✓
• c.Yes, because the signed attestation of the representative is the verification that the rule is meant to supply.
• d.No, because the firm must instead have FINRA confirm the form's accuracy before the representative can start.

Rule 3110(e) requires written procedures reasonably designed to verify the accuracy and completeness of an initial or transfer Form U4 no later than 30 calendar days after filing, including a search of reasonably available public records by the member or a third-party provider. The applicant's own statement is not verification, FINRA does not confirm the form, and the Form U5 review is a separate duty.FINRA Rule 3110(e)

Where must a member firm keep a copy of its written supervisory procedures, or the relevant portions of them?

• a.At the main office alone, where the chief compliance officer controls a single copy.
• b.In each OSJ and each location where supervisory activities are conducted.✓
• c.At every branch office and at the home of each representative who works remotely.
• d.With the clearing firm, which holds the copy for use during examinations by FINRA.

Rule 3110(b)(7) requires a copy of the written supervisory procedures, or the relevant portions, to be kept in each OSJ and at each location where supervisory activities are conducted for the member. Keeping one copy at headquarters is not enough, the rule does not extend to every representative's home, and the clearing firm's holding a copy does not satisfy it.FINRA Rule 3110(b)(7)

A principal reviews outgoing representative emails by opening each one in the firm's system, which logs that it was opened. The firm keeps nothing else. Is this adequate evidence of the review required by Rule 3110(b)(4)?

• a.No, opening a message is not review, so the record must show the reviewer, the item, the date and any action.✓
• b.Yes, if the principal also signs a quarterly statement confirming that the messages were reviewed.
• c.Yes, because the system's log showing that a principal opened each message is evidence of review.
• d.No, because correspondence review must be done by a person who is not a registered principal.

Rule 3110(b)(4) requires review of correspondence by a registered principal, evidenced in writing. Supplementary Material .07 says the evidence must identify the reviewer, the item reviewed, the date of review and the action taken on significant regulatory issues, and that merely opening a communication is not sufficient review. The reviewer must be a registered principal, so the last claim is wrong.FINRA Rule 3110(b)(4) and Supplementary Material .07

A principal at a member firm asks an unregistered clerk to screen incoming correspondence for customer complaints and forward items to the principal. May the principal delegate this function?

• a.Yes, if the clerk holds a Series 63 license, which qualifies the clerk to screen correspondence for the firm.
• b.Yes, and responsibility for the review passes to the clerk once the principal has handed the task over.
• c.No, review of correspondence must be performed personally by a registered principal, with no part delegated to others.
• d.Yes, certain review functions may go to unregistered staff, but the principal remains responsible for the result.✓

Supplementary Material .08 lets a supervisor or principal delegate certain correspondence and internal communication review functions to persons who need not be registered. The principal stays ultimately responsible and must take reasonable action to confirm that delegated work is done properly. Responsibility does not shift, and a Series 63 license is not a condition.FINRA Rule 3110, Supplementary Material .08

The owner-president of a three-person firm is its top executive and also supervises his own trading because no other person is qualified. What must the firm do to meet Rule 3110?

• a.Hire an outside principal within thirty days and file a notice of the change in supervision with FINRA.
• b.Nothing, because a firm's most senior executive is exempt from the firm's own supervisory system.
• c.Request relief from FINRA, which must grant it before the president may supervise himself.
• d.Document why separate supervision is not possible and how the arrangement otherwise complies.✓

Rule 3110(b)(6)(C) requires procedures that bar supervisors from supervising their own activities. Where the firm's size or the person's position makes that impossible, the firm must document the factors it used and how the arrangement otherwise complies with paragraph (a). Supplementary Material .10 names the firm's senior executive as a typical case. No exemption, deadline or approval is involved.FINRA Rule 3110(b)(6)(C) and Supplementary Material .10

A member firm plans to hold its annual compliance meeting for registered persons as an on-demand webcast. What must the firm ensure at a minimum?

• a.A principal signs an attendance sheet for each session that is held at the firm's main office location.
• b.Each registered person passes a quiz on the content, and the firm files the scores with FINRA each year.
• c.Each registered person attends the whole meeting and can ask questions and get timely answers.✓
• d.Each registered person attends in person at a central or regional location once every three years.

Supplementary Material .04 says a firm need not hold in-person meetings. If it uses another method, such as an on-demand webcast, it must ensure that each registered person attends the entire meeting and can ask questions and get timely answers, with technology to track the time spent. A quiz, a filing with FINRA or a sign-in sheet is not required.FINRA Rule 3110(a)(7); Supplementary Material .04

Rob works alone from his home, his primary residence, and the location otherwise meets the conditions for the residence exclusion. Which fact would make the home a branch office?

• a.He sends all firm email through the member's own electronic system, which supervisors can review.
• b.He meets customers at the home to review their accounts, so the residence exclusion no longer applies.✓
• c.He is assigned to a designated branch, which appears on his business cards and stationery.
• d.He enters every order through the designated branch or a system that is reviewable there.

The residence exclusion in Rule 3110(f)(2)(A)(ii) requires that the location not be held out as an office and that the associated person not meet customers there. Meeting customers at home therefore makes it a branch office. Using the firm's email system, being assigned to a designated branch and entering orders through that branch are all conditions of the exclusion, not reasons to lose it.FINRA Rule 3110(f)(2)(A)(ii)

A representative conducts securities business from a vacation home on 34 business days in a calendar year. On 6 of those days he spent at least four hours at his designated branch during its normal hours. The other conditions for the exclusion are met. Is the vacation home a branch office?

• a.Yes, because he used the location on 34 business days, which is more than the 30-day limit.
• b.Yes, because a location other than a primary residence is a branch if used for any securities business.
• c.No, because the six partial days do not count, leaving 28 business days, which is fewer than 30.✓
• d.No, because a vacation home is excluded from the branch definition at any level of use.

Rule 3110(f)(2)(A)(iii) excludes a non-residence location used for securities business for fewer than 30 business days in a calendar year if the residence conditions are met. Under (f)(2)(C), a business day does not count if the person spent at least four hours at the designated branch during its normal hours. Thirty-four less six is 28, so the exclusion applies.FINRA Rule 3110(f)(2)(A)(iii) and (C)

Hartley & Weiss is a registered broker-dealer with a limited partner who only supplies capital and has no securities training. May the Administrator deny the firm's registration for lack of qualification because of that partner?

• a.No, because the Administrator must find a willful violation before a registration can be denied for any reason.
• b.No, an order for lack of qualification may rest only on the broker-dealer itself, if an individual, or on its agents.✓
• c.Yes, because a partner's lack of qualification is attributed to the firm whenever the public interest is served.
• d.Yes, every partner of a broker-dealer must show the training, experience and knowledge the Administrator requires.

Section 204(b)(1) limits an order under the lack-of-qualification ground to the broker-dealer itself, when it is an individual, or an agent of the broker-dealer. A limited partner who only supplies capital is neither, so his training cannot support an order against the firm, and the comment notes that such persons need not be qualified. Attributing a partner's shortcoming to the firm is not what the section allows. Willfulness is an element of a different ground; lack of qualification requires no willful violation.Uniform Securities Act §204(b)(1)

A state-registered investment adviser employs a bookkeeper who never gives advice or deals with clients and who has no securities training. May the Administrator deny the adviser's registration because of the bookkeeper's lack of qualification?

• a.No, such an order may rest only on the adviser itself, if an individual, or on its adviser representatives.✓
• b.Yes, the adviser is answerable for the qualifications of every employee who handles its client records, funds or fees.
• c.No, because the Administrator may test qualifications for broker-dealers but not for investment advisers or their staff.
• d.Yes, if the Administrator concludes that the bookkeeper's lack of training puts client assets at risk.

Under Section 204(b)(2), an order against an investment adviser for lack of qualification may rest only on the adviser, if an individual, or on another person who represents it in doing the acts that make it an adviser, an investment adviser representative. A bookkeeper who gives no advice is not one, so the ground is unavailable. Responsibility for employees is a supervision question under a different ground, not a qualification one. The Administrator may examine investment adviser applicants, so the last view is also wrong.Uniform Securities Act §204(b)(2)

Priya applied to be an agent of a registered broker-dealer that will supervise her. In judging whether she is qualified, what must the Administrator consider?

• a.Only whether the firm's principal has passed the examination, since the firm answers for her conduct.
• b.That she need not have the same qualifications as the broker-dealer that will supervise her.✓
• c.That the firm's supervision replaces any need for her own training or knowledge of securities.
• d.That she must show the same training and experience as the broker-dealer, since she acts for it.

Section 204(b)(4) directs the Administrator to consider that an agent who will work under the supervision of a registered broker-dealer need not have the same qualifications as the broker-dealer. Requiring identical qualifications ignores that rule. Supervision lowers the bar but does not remove it, so she must still be qualified by training, experience or knowledge. Testing only the principal's examination status is not what the section says, since the agent is the applicant being judged.Uniform Securities Act §204(b)(4)

Under Section 15(b)(4)(E) of the Securities Exchange Act, what protects a supervisor from being deemed to have failed reasonably to supervise a person who commits a violation?

• a.Registration of the supervisor as a principal and an annual attestation of compliance to the SEC.
• b.Proof that the supervisor did not know of the particular violation, even if the firm had no procedures in place.
• c.Procedures and a system for applying them, and reasonable performance of the supervisor's duties under them.✓
• d.A showing that the firm's procedures were filed with the SEC and approved before the violation occurred.

The Section 15(b)(4)(E) safe harbor has two parts: the firm established procedures and a system for applying them that would reasonably be expected to prevent and detect violations, and the supervisor reasonably discharged his duties under them without reasonable cause to believe they were not being followed. Ignorance of a particular violation is not enough without the system. The SEC does not approve procedures in advance, and principal registration and an attestation are not elements of the defense.Securities Exchange Act §15(b)(4)(E)

Dena, a branch supervisor, learns that the firm's review procedures for representatives are routinely being skipped at her office and takes no action. A representative then commits a violation. Does the supervision safe harbor in the Securities Exchange Act protect her?

• a.No, because the safe harbor protects only a chief compliance officer, not a branch supervisor.
• b.Yes, because she took no part in the violation and received no benefit from the representative's conduct.
• c.Yes, because the firm has written procedures and a system for applying them, which is all the safe harbor needs.
• d.No, because she had reasonable cause to believe the procedures and system were not being complied with.✓

The safe harbor requires both procedures with a system for applying them and that the supervisor reasonably discharged her duties under them without reasonable cause to believe they were not being followed. Dena knew they were being skipped, so the second part fails. Having procedures on paper is not enough. Her lack of participation or benefit is irrelevant, because the test is about supervision, and the defense is not limited to a particular title.Securities Exchange Act §15(b)(4)(E)

Kestrel Securities, a broker-dealer applicant, will also advise customers for special compensation, and the Administrator finds it not qualified as an investment adviser. What may the Administrator do?

• a.Require it to register as a federal covered adviser before it may give advice to customers in the state.
• b.Condition the firm's broker-dealer registration on its not transacting business in this state as an investment adviser.✓
• c.Refuse the broker-dealer registration outright, since lacking qualification as an adviser disqualifies the firm.
• d.Treat its broker-dealer experience as enough to qualify it, since dealer experience carries over to advisory work.

Section 204(b)(5) lets the Administrator, on finding that an applicant for broker-dealer registration is not qualified as an investment adviser, condition the registration on the firm not transacting business in the state as an investment adviser. Outright refusal goes beyond that. The same section says an adviser is not necessarily qualified solely by experience as a broker-dealer or agent. Federal covered adviser status depends on assets under management, not on a state's finding.Uniform Securities Act §204(b)(5)

A FINRA member expects a change in ownership of 30% of its equity to close on October 15. By what date, at the latest, must it file its application for approval under Rule 1017?

• a.September 30, which is just 15 days before the change takes effect.
• b.September 15, which is 30 days before the change takes effect.✓
• c.August 16, which is 60 days before the change takes effect.
• d.October 15, because filing may be made as late as the closing day.

Rule 1017(c)(1) requires a member to file an application for approval of a change in ownership or control at least 30 days before the change. Counting back 30 days from October 15 gives September 15. The member may effect the change before FINRA finishes, but FINRA may then impose interim restrictions. Fifteen days or the closing date is too late, and 60 days is longer than the rule requires.FINRA Rule 1017(c)(1)

Roth owns 22% of the equity of a FINRA member and buys another 4% from a retiring partner. Must the member file an application for approval under Rule 1017?

• a.Yes, but only if Roth also intends to change the member's business operations afterward.
• b.No, because Roth's purchase is only 4%, and the rule counts only a transfer of 25% or more.
• c.No, because an application is needed only when control of the board changes hands.
• d.Yes, because Roth would then directly own 26% of the equity, which exceeds the 25% threshold.✓

Rule 1017(a)(4) requires an application for a change in equity ownership or partnership capital that results in one person or entity directly or indirectly owning or controlling 25% or more. Roth would reach 26% (22% plus 4%), so the rule applies even though the purchase itself is small. The test looks at the resulting holding, not the size of the single transfer, and it does not depend on board control or any change in business.FINRA Rule 1017(a)(4)

A member wants one principal to serve as the on-site principal for two of its offices of supervisory jurisdiction (OSJs). What must the firm do?

• a.Obtain FINRA's approval of the arrangement before the principal is assigned to the second OSJ office.
• b.Weigh factors such as capacity, proximity and producing status, and document them in its written procedures.✓
• c.Designate a separate principal at each OSJ, because one principal may be assigned to supervise only one location.
• d.Nothing special, because the on-site principal rule lets one principal cover any number of OSJs.

Supplementary Material .03 to Rule 3110 states a general presumption against assigning one on-site principal to more than one OSJ. If the member decides it is necessary, it must consider factors such as qualifications, capacity and time, whether the principal is a producing representative, proximity, and the nature of each location, and must document those factors in its written supervisory and inspection procedures. FINRA does not pre-approve the arrangement, and the presumption is not an outright ban.FINRA Rule 3110, Supplementary Material .03

Gil, a registered representative, works from a tax-preparation office that the firm does not hold out as a branch. He effected 26 securities transactions from it this calendar year, and no other exclusion applies. Is it a branch office?

• a.No, because the exclusion turns on the location's primary use, not on the number of transactions.
• b.No, because the limit applies to 25 customers rather than 25 transactions, and he served fewer.
• c.Yes, but only if the location is also held out to the public as a place for securities business.
• d.Yes, because 26 transactions is more than the 25 the exclusion allows for a calendar year.✓

Rule 3110(f)(2)(A)(v) excludes from the branch office definition a location used primarily for non-securities activities from which the associated person effects no more than 25 securities transactions in a calendar year, provided retail communications give the supervising location's address and phone number. Gil effected 26, so the location falls outside the exclusion and is a branch. The exclusion has a numeric cap, counts transactions, and its outcome does not depend on being held out as an office.FINRA Rule 3110(f)(2)(A)(v)

The SEC grants registration to a broker-dealer to be formed, on the application of the firm that will be its predecessor. What must happen for the registration to survive past the forty-fifth day after it becomes effective?

• a.The successor must file a new application, which the SEC must grant before the registration lapses.
• b.The successor must join a registered securities association within forty-five days of the effective date.
• c.The predecessor must withdraw its own registration, which transfers the successor's registration.
• d.The successor must adopt the application for registration as its own, under SEC rules, before the forty-fifth day.✓

Under Section 15(b)(2), a registration granted to a broker-dealer to be formed terminates on the forty-fifth day after its effective date unless, before then, the successor adopts the application for registration as its own in accordance with SEC rules. A new application is not the mechanism, and the predecessor's withdrawal does not carry the registration over. Membership in a registered securities association is a separate registration condition and does not extend this registration.Securities Exchange Act §15(b)(2)

The Administrator denies a broker-dealer's application solely because the firm did not pay the proper filing fee. The firm then pays the deficiency. What is the result?

• a.The Administrator must vacate the denial order, because a fee default supports only a denial order.✓
• b.The denial stands for one year, after which the firm may file a new application without a penalty.
• c.The Administrator may instead suspend the registration, since a fee default is a ground for suspension.
• d.The Administrator must revoke any registration already granted, since payment after denial is not timely.

Section 204(a)(2)(K) makes failure to pay the proper filing fee a ground for a denial order only, and requires the Administrator to vacate the order once the deficiency is corrected. There is no waiting year. Suspension and revocation are not available on this ground, and the firm that pays cures the problem rather than forfeiting an existing registration.Uniform Securities Act §204(a)(2)(K)

A registered broker-dealer is solvent, but one of its partners has become insolvent. May the Administrator suspend the firm's registration on the ground of insolvency?

• a.No, an insolvency order against a broker-dealer needs a finding that the broker-dealer itself is insolvent.✓
• b.No, because insolvency is a ground only against an agent and not against a firm that is solvent.
• c.Yes, but only if the partner's liabilities exceed his assets by more than the firm's net capital.
• d.Yes, a partner's insolvency is attributed to the firm and supports an order when the public interest requires.

Section 204(a)(2)(H) allows an order against a broker-dealer for insolvency only on a finding of insolvency as to the broker-dealer itself, and the comment says it may not rest on the insolvency of a partner, officer or director. Attribution from a partner is therefore not allowed, and no net capital comparison applies. Insolvency can be used against a firm when the firm is insolvent, so it is not limited to agents.Uniform Securities Act §204(a)(2)(H)

The Administrator finds grounds and a public interest to act against a broker-dealer but wants to stop one risky line of activity while leaving the rest of the business intact. Which order does Section 204 permit?

• a.Nothing, because the Administrator must either act against the entire registration or take no action at all.
• b.An order restricting or limiting the registrant as to any function or activity of the business requiring registration.✓
• c.Only an order of denial, suspension or revocation, since a lesser sanction needs the firm's written consent.
• d.A cease-and-desist order, which is the only sanction Section 204 provides short of revoking the registration.

Section 204(a) authorizes the Administrator, on the required findings, to deny, suspend or revoke a registration, to bar or censure a registrant, or to restrict or limit a registrant as to any function or activity of the business for which registration is required. The firm's consent is not required, a cease-and-desist order is not the sanction the section names, and the Administrator is not forced into an all-or-nothing choice.Uniform Securities Act §204(a)

Which of the following would give the Administrator a ground to deny a broker-dealer's application under Section 204(a)(2)(F)?

• a.A hearing eight years ago in which another state's administrator found the firm negligently violated the Exchange Act.
• b.A hearing twelve years ago in which a state administrator found the firm willfully violated the Exchange Act.
• c.A hearing eight years ago in which another state's administrator found the firm willfully violated the Exchange Act.✓
• d.An investigation opened eight years ago by another state's administrator that closed without any finding.

Section 204(a)(2)(F) covers an adjudication or determination, after notice and opportunity for hearing and within the past 10 years, by another state's securities or commodities administrator or a court that the person willfully violated the federal securities acts or a state's securities law. Eight years is within the period and a willful finding fits. Twelve years is outside it, negligence is not willfulness, and an investigation without any finding is not an adjudication.Uniform Securities Act §204(a)(2)(F)

A broker-dealer registered in this state keeps its books and records at a home office in another state. Examiners from this state's Administrator want to review them. Under Section 203(e), is the review permitted?

• a.Yes, but only after the Administrator obtains the consent of the securities administrator of the other state.
• b.Yes, the Administrator's representatives may examine the required records within or without this state.✓
• c.No, records kept in another state may be examined only by that state's own securities administrator.
• d.No, the Administrator may reach records located outside the state only through a subpoena under Section 407.

Section 203(e) makes the required records subject to reasonable periodic, special or other examinations by the Administrator's representatives, within or without the state, as deemed necessary in the public interest or for investor protection. This visitorial power is distinct from the investigatory and subpoena power in Section 407, so a subpoena is not a prerequisite, and no other state's consent is needed.Uniform Securities Act §203(e)