NASAA Series 63 — All Questions

Six weeks after filing a full Form U5 for a former agent, a firm learns that a customer complained about the agent in writing before he left, alleging forgery. What must the firm do?

• a.Ask the former agent to report the complaint on his own, because only the individual may amend after termination.
• b.File a new Form U4 for the former agent, because disclosure after termination goes on that form.
• c.Do nothing, because the firm's duty ended when the original Form U5 was filed on time.
• d.Amend Section 7 of the Form U5 within 30 days after learning of it, since the filing is now incomplete.✓

FINRA By-Laws Article V, Section 3(b) requires a member that learns of facts making its termination notice inaccurate or incomplete to amend the notice within 30 days after learning of them, and the Section 7 disclosure answers on the Form U5 are among those that must be corrected. The duty does not end with the first filing, the amendment is the firm's to file rather than the former agent's, and a Form U4 is the application a new firm files, not the vehicle for a former firm's disclosure.FINRA By-Laws, Article V, Section 3(b) (amend the termination notice within 30 days after learning of facts); Form U5, Section 7

A candidate takes the Series 63 and answers 42 of the 60 scored questions correctly, plus 4 of the 5 pretest questions. What is the result?

• a.The candidate fails, because only the scored questions count and at least 43 of them must be correct.✓
• b.The candidate fails, because every one of the 65 questions must be answered correctly to pass.
• c.The candidate passes, because the pretest questions are counted whenever the candidate answers them correctly.
• d.The candidate passes, because 46 of the 65 questions answered correctly is above the required minimum.

The Series 63 has 65 questions, of which 60 are scored and 5 are pretest items that do not count, and a candidate must answer at least 43 of the scored questions correctly. Forty-two scored answers fall one short, and the four pretest answers do not make up the gap. The total of 46 is irrelevant because the pretest items are not scored, and there is no requirement of perfection.NASAA Series 63 Exam Content Outline; testing parameters

A candidate fails the Series 63 for the third time on August 1. What is the earliest date for the fourth attempt?

• a.August 31, 30 days after the third failure, as the second wait was also 30 days.
• b.September 1, 30 days after the third failure, as for the first two retakes.
• c.February 1, six calendar months after the third failure, as the rule counts months.
• d.January 28, since the wait after a third failure is 180 days, not 30.✓

The waiting periods are 30 days after the first failure, 30 days after the second, and 180 days after the third and each later failure. Counting 180 days from August 1 gives January 28 of the next year. The 30-day periods apply only to the second and third attempts, and the longer wait is stated in days, not calendar months.NASAA Series 63 Exam Content Outline; retest waiting periods

A broker-dealer files a Form U4 to schedule a new hire for the Series 63, and FINRA registers him for the exam. What limits when he must take it?

• a.He must take it within the 120-day window FINRA opens once he is registered for the exam.✓
• b.He must take it within 30 days, because that is the period in which a hire may act without a license.
• c.He must take it within one year, because the Act requires renewal of an enrollment each calendar year.
• d.He may take it whenever he wishes, because the enrollment never expires once FINRA has registered him.

Once a candidate is registered for the exam, FINRA opens a 120-day testing window in which the candidate must schedule and take the examination. The enrollment does not stay open indefinitely, and the 30-day and calendar-year periods belong to other rules and have no connection to the testing window.NASAA Series 63 Exam Content Outline; testing window

After passing the Series 63, a new hire tells his manager he is now free to take orders from customers in State K, where his firm is registered. State K has not yet registered him as an agent. Is he correct?

• a.Yes, because the Series 63 is the only requirement that a state may impose on an agent applicant.
• b.No, because passing the exam does not by itself give him the right to do business in the state.✓
• c.Yes, because the firm's registration in State K covers any employee who has passed the required exam.
• d.No, because the exam result expires unless the candidate acts on it within thirty days of passing.

Passing the Series 63 satisfies the examination requirement only. It does not in itself give the right to do securities business in a state, and the applicant must still be registered there. The firm's registration does not extend to individuals who are not themselves registered as agents, a state may impose requirements beyond the exam, and the exam outline sets no thirty-day expiry on a passing result.NASAA Series 63 Exam Content Outline; testing parameters

A candidate fails the Series 63 and asks the test center what she got wrong. What information will she receive?

• a.Her results on each question she missed, so she can compare them with the study materials before retesting.
• b.Her overall score only, since the exam sponsors give no section-level information to a candidate who fails.
• c.Her score within each section, but not her score on individual questions or the text of any question.✓
• d.A copy of the questions she missed, because candidates who fail are entitled to review those items afterward.

A candidate who fails is told her scores within each section of the exam, but is not told her score on specific questions, and the text of questions is not disclosed because the questions are copyrighted material of NASAA. An overall score alone understates what she is given, and item-level feedback or copies of the questions are not provided.NASAA Series 63 Exam Content Outline; score reporting

On January 30, 2028, a broker-dealer submits the completed registration application for one of its agents. Nothing is pending against her, and the Administrator does nothing further. On what date does the registration take effect?

• a.At noon on March 1, 2028, the thirtieth day if February is counted as having only 28 days.
• b.At the moment of filing on January 30, 2028, because no denial order is in effect.
• c.At noon on February 29, 2028, the thirtieth day after filing in a leap year.✓
• d.At noon on February 28, 2028, because the day of filing is counted as day one of the thirty.

Under Section 202(a), a registration becomes effective at noon of the thirtieth day after the application is filed, unless an earlier date is set or an order is entered. Counting thirty days from January 30 gives January 31 as day one, so the thirtieth day is February 29, because 2028 is a leap year. Counting February as 28 days overshoots to March 1, counting the filing day as day one stops a day short on February 28, and effectiveness is not immediate merely because no denial order exists.Uniform Securities Act §202(a)

A broker-dealer's agent files an application on May 12. By order, the Administrator defers the effective date until noon of the thirtieth day after the filing of an amendment, and the agent files that amendment on May 20. When does the registration become effective?

• a.At noon on June 11, the thirtieth day after the original application was filed on May 12.
• b.At noon on May 20, because an amendment filed after a deferral order takes effect at once.
• c.At noon on June 21, the thirty-second day after the amendment, allowing time for the order.
• d.At noon on June 19, the thirtieth day after the amendment was filed on May 20.✓

Under Section 202(a) the Administrator may defer the effective date by order until noon of the thirtieth day after the filing of any amendment. May has 31 days, so 30 days after May 20 is June 19. June 11 would be the date without a deferral. No extra days are added, and the amendment restarts the period rather than making registration effective at once.Uniform Securities Act §202(a)

On October 5 an agent applies to withdraw his registration. On October 25 the Administrator institutes a proceeding to revoke it. Does the withdrawal take effect on November 4, 30 days after the application?

• a.No, because a proceeding was instituted within 30 days, so withdrawal takes effect as and when the Administrator orders.✓
• b.Yes, because the 30-day period runs from the date of the application, and a later proceeding cannot delay it.
• c.Yes, because a proceeding blocks the withdrawal only if it was begun before the application was filed.
• d.No, because the agent must wait for a full year after applying before withdrawal can ever take effect.

Withdrawal becomes effective 30 days after receipt of the application unless a proceeding to revoke or suspend is pending when it is filed or is instituted within 30 days afterward. The proceeding began 20 days after filing, so withdrawal becomes effective at the time and on the conditions the Administrator determines by order. A proceeding begun in the 30-day window does stop the automatic date, and the one-year period relates to proceedings after a withdrawal has become effective.Uniform Securities Act §204(e)

A registered agent has been declared mentally incompetent, and a court has appointed a conservator for her. May the Administrator cancel her registration, and on what basis?

• a.Yes, but only after the Administrator finds that the agent willfully violated the Act or one of its rules.
• b.No, because cancellation is available only if the agent has died or has been convicted of a felony.
• c.Yes, because adjudication of incompetence or control by a conservator is a basis for cancelling a registration.✓
• d.No, because only the agent's employer, and not the Administrator, may end an agent's registration.

Section 204(d) allows the Administrator to cancel a registration or application by order when the registrant is no longer in existence, has ceased doing business, is subject to an adjudication of mental incompetence or the control of a conservator or guardian, or cannot be located after reasonable search. No willful violation needs to be found. Death and felony convictions are not the only grounds, and the power belongs to the Administrator.Uniform Securities Act §204(d)

An agent's registration expires on December 31 and his firm files the renewal on January 10. On January 4 he accepted a customer's order. How is the January 4 order treated?

• a.It was unregistered activity only if the customer lives outside the state where the agent works.
• b.It was unregistered activity, because the registration expired on December 31 and had not been renewed.✓
• c.It was properly transacted, because an agent may continue acting while the firm's renewal is being prepared.
• d.It was properly transacted, because renewal filed within ten days of expiration relates back to December 31.

Every registration expires December 31 unless renewed, and it is unlawful to transact business as an agent unless registered. The agent was not registered between expiration and renewal, so the January 4 order was unregistered activity. The Act provides no relation-back and no grace period for renewal filings, and the customer's residence does not matter.Uniform Securities Act §201(a), (e)

An agent registered only in State A takes an unsolicited telephone call at her desk in State A from an existing customer who lives in State B and is calling from home. The customer asks to buy a stock, and she accepts the order on the call. Is State B's registration requirement involved?

• a.Yes, but only if the agent ever returns the call or sends a confirmation across the state line to the customer.
• b.No, because an unsolicited call places the transaction under the law of the state where the agent works.
• c.No, because State B's Act applies only to offers to sell that the agent initiates by calling someone in State B.
• d.Yes, because the customer's offer to buy was made in State B and accepted there, so State B's Act applies.✓

Section 414 applies the registration requirement when an offer to buy is made and accepted in the state. The customer's offer originates in State B, and the agent's acceptance is communicated to him while he is in State B, so State B's Act applies. The Act has no exemption for unsolicited orders, it covers offers to buy as well as offers to sell, and the acceptance is made on the call itself, not by a later callback.Uniform Securities Act §414(a), (c), (d)

A customer who lives in State B is travelling in State C. He telephones his agent, who works in State A, offers to buy shares, and the agent accepts on that call. A written confirmation then arrives at his home in State B. Does the confirmation make State B's Act apply on the basis of acceptance?

• a.Yes, because the Act measures acceptance by the customer's state of residence and not by his location.
• b.No, because a written confirmation can never be an acceptance, only an oral statement can be one.
• c.No, because acceptance had already been communicated to the customer outside State B, so it is not accepted in State B.✓
• d.Yes, because acceptance occurs where the written confirmation is received, and he lives in State B.

An offer is accepted in a state only if the acceptance is communicated to the offeror in that state and has not previously been communicated to the offeror, orally or in writing, outside the state. The agent's oral acceptance reached the customer in State C, so the later confirmation in State B does not create acceptance there. Residence is not the test, and a written communication can be an acceptance when it is the first one.Uniform Securities Act §414(d)

An agent is registered in States A and B. Her employer, a broker-dealer, is registered in State A but not in State B. She sells shares to a resident of State B. Is her State B registration sufficient?

• a.No, because an agent may be registered in only one state at a time under the Uniform Securities Act.
• b.Yes, because an agent who holds a registration in a state may sell there for any broker-dealer she chooses.
• c.No, because an agent's registration is ineffective when she is not associated with a broker-dealer registered there.✓
• d.Yes, because the employer's registration in State A is enough for all states in which she is registered.

Section 201(b) provides that an agent's registration is not effective during any period when she is not associated with a particular broker-dealer registered under the Act. The employer is not registered in State B, so the State B registration gives her no authority and the sale is unregistered activity there. An agent may hold registrations in several states, but each depends on the firm's own registration in that state.Uniform Securities Act §201(b)

From State A, an agent mails an offer to a prospect in State B. The prospect is away for three weeks, so the letter sits in his State B mailbox until he returns. When is the offer made in State B?

• a.Only when the prospect returns and reads it, because an offer cannot be made to someone who has not seen it.
• b.Not in State B at all, because a mailed offer is made only in the state where the sender mails it.
• c.Only when he responds, because an offer is made in the state where the response originates.
• d.When it is received at the place to which it is directed in State B, whether or not the prospect is there.✓

An offer is made in a state, whether or not either party is then present there, when it originates in the state or is directed to the state and received at the place to which it is directed or at any post office in the state. Delivery to his mailbox suffices, so his absence and his later reading do not matter. The offer is made in both states, so the sender's state is not the only one.Uniform Securities Act §414(c)

An agent registered only in State A works from a home office in State B and telephones prospects who all live in State A. Does State B require her to register?

• a.Yes, because the offers originate from State B, so State B's Act applies even though the prospects live elsewhere.✓
• b.No, because State B's Act protects only investors who live in State B and receive offers there.
• c.No, because an agent's home office is not a place of business unless customers visit it in person.
• d.Yes, but only if she telephones at least one prospect who happens to live in State B at the time.

An offer is made in a state when it originates from that state, whether or not either party is then present there. Her calls originate in State B, so State B's Act applies and she must be registered there. The protection of local residents is not the limit, the Act looks at where the offer originates and not at customer visits, and a State B prospect is not needed.Uniform Securities Act §414(c)(1)

A registered representative opens a margin account at another member firm on Monday. Her compliance officer gives written approval on Friday of the same week. Did she comply with Rule 3210?

• a.Yes, because written approval received within the same week satisfies the rule's consent requirement.
• b.Yes, because the rule requires only that the employer be notified of an account after it has been opened.
• c.No, because the rule bars any associated person from holding an account at another member firm.
• d.No, because the rule requires the employer member's prior written consent before the account is opened.✓

Rule 3210(a) prohibits an associated person from opening or establishing an account at another member or financial institution, in which securities transactions can be effected and she has a beneficial interest, without the prior written consent of her employer member. Approval given after the account was opened is not prior consent. The rule requires consent and not mere notice, and it does not forbid such accounts altogether.FINRA Rule 3210(a)

A representative's employer gives written consent for him to open an account at another member. When he opens the account, he does not tell the other firm that he works for a member. Which statement is correct?

• a.He violated the rule, but only if the account later shows trading in the securities of his own employer.
• b.He complied, because the employer's written consent is the only step the rule requires of him.
• c.He violated it, because he must tell the executing firm in writing of his association first.✓
• d.He complied, because the executing firm's duties arise only when his employer asks for statements.

Under Rule 3210(b), an associated person must, before opening the account, notify the executing member or other financial institution in writing of his association with the employer member. Employer consent under paragraph (a) is a separate requirement. The executing firm's duty to send duplicates under paragraph (c) depends on that notice, and the notice requirement does not depend on what is traded.FINRA Rule 3210(b)

A representative joins a member firm on January 20 and already holds an account at another member that he opened years earlier. What is the latest date for him to obtain his new employer's written consent and notify the other firm?

• a.January 30, which is ten calendar days after he becomes associated with the employer member.
• b.No deadline applies, because the account was opened before he became associated with the employer.
• c.March 21, which is sixty calendar days after he becomes associated with the employer member.
• d.February 19, which is 30 calendar days after becoming associated with the employer member.✓

Supplementary Material .01 covers an account opened before the association. Within 30 calendar days of becoming associated, the person must obtain the employer's written consent to maintain the account and notify the other firm in writing. Thirty days after January 20 is February 19. Ten and sixty days are not in the rule, and the pre-existing account does not escape the requirement.FINRA Rule 3210.01

A representative's spouse opens an account at another member firm using the spouse's own earnings. The representative contributes nothing and has no trading authority. How does Rule 3210 treat the account?

• a.The rule does not apply, because a spouse is a separate person and the associated person has no interest in the account.
• b.The rule applies only if the account is at her own employer, because the rule governs accounts held by spouses at the member.
• c.She is presumed to have a beneficial interest, but can rebut it by showing her employer no economic benefit and no control over it.✓
• d.The presumption cannot be rebutted, because every spouse's account is conclusively treated as the representative's own.

Supplementary Material .02 presumes that the associated person has a beneficial interest in an account held by her spouse. For a spouse or a qualifying child, the presumption need not apply if she demonstrates to her employer's reasonable satisfaction that she derives no economic benefit from and exercises no control over the account. The presumption exists, so the rule is not simply inapplicable, but it is rebuttable and not conclusive.FINRA Rule 3210.02(a)

A representative's 27-year-old son lives in his own apartment, supports himself, and holds a brokerage account at another member firm. The representative has no authority over it. Is she presumed to have a beneficial interest in the son's account?

• a.No, because he does not live in her household or depend on her financially, and she has no control over the account.✓
• b.No, because the presumption applies only to accounts held by the associated person's spouse and by no one else.
• c.Yes, because any related individual's account is presumed to belong to the associated person under the rule.
• d.Yes, because a child's account is always presumed to be the parent's, whatever the child's age or living arrangement.

A child's account is presumed to be the associated person's only if the child resides in the same household or is financially dependent on the associated person, or if she controls the account under the other paragraphs. The son satisfies none of these, so there is no presumption. Age alone is not the test, relatives in general are covered only where she has control, and the presumption extends beyond spouses.FINRA Rule 3210.02(b)

A representative holds trading authority over her widowed mother's account at another member firm, and her mother pays for her own living costs. Under Rule 3210, what is the representative's position?

• a.She is presumed to have an interest only if she also contributes materially to her mother's financial support.
• b.She is presumed to have a beneficial interest, because the account belongs to a related individual whose account she controls.✓
• c.She has no presumed interest, because her mother is financially independent and does not live in her household.
• d.She has no presumed interest, because only a spouse or a child counts as a related person under the rule.

Supplementary Material .02(c) presumes a beneficial interest in an account held by any other related individual over whose account the associated person has control. Her trading authority is control, so the support and household tests that apply to children are not needed. Related persons are not limited to spouses and children, and material financial support is the separate test in paragraph (d) for individuals who are not related.FINRA Rule 3210.02(c)

A representative opens an account at a mutual fund company that can hold only shares of open-end investment companies registered under the Investment Company Act. Does he need his employer's consent under Rule 3210?

• a.Yes, because mutual fund companies are not members and so are covered as other financial institutions.
• b.Yes, because every account at a financial institution other than his own employer needs written consent.
• c.No, because the rule applies only to accounts that are held at a bank or at an insurance company.
• d.No, because accounts limited to redeemable shares of registered investment companies are excluded from the rule.✓

Supplementary Material .03 excludes transactions in, and accounts limited to, redeemable securities of registered investment companies, along with unit investment trusts, municipal fund securities, Section 529 plans and variable contracts. This account holds only that kind of security. Non-member institutions can be covered by the rule, which is why the exclusion matters, and the rule is not confined to banks and insurers.FINRA Rule 3210.03

A representative asks his employer's consent to open an account at a non-member investment adviser that can effect securities transactions. What should the employer member consider in deciding on consent?

• a.Whether it can obtain, on written request, duplicate confirmations and statements directly from that institution.✓
• b.Whether the account will be used for margin, because margin accounts alone need the employer's consent.
• c.Nothing, because the rule applies only to accounts at other FINRA member firms and not to advisers.
• d.Whether the adviser is registered with the SEC, because only SEC-registered advisers can hold accounts.

Rule 3210 reaches accounts at any other financial institution, which includes investment advisers, banks, insurance companies and non-member broker-dealers. For a non-member institution, Supplementary Material .04 directs the employer to consider how far it can obtain duplicate confirmations and statements directly from that institution when deciding whether to consent. The rule is not limited to members, and it does not distinguish between margin and cash accounts.FINRA Rule 3210.04, .05

A member firm pays an unlicensed consultant a share of the commissions on accounts he solicits and persuades to trade through the firm. The consultant is not registered as a broker-dealer. What is the problem under Rule 2040?

• a.The payments are prohibited only if the consultant is a U.S. resident, since foreign consultants are exempt.
• b.The payments are allowed provided that the firm discloses the consultant's fee to each customer in writing.
• c.The payments are barred if his activities and the payments require him to register as a broker-dealer.✓
• d.There is no problem, because the member pays out of its own revenue and not from the customer's account.

Rule 2040(a)(1) bars payment of commissions, fees or other compensation to a person who is not registered as a broker-dealer but who, by reason of receiving such payments and the related activities, is required to be registered. Transaction-based pay for soliciting accounts is a classic indicator. Paying from the firm's own revenue does not change this, customer disclosure is not a cure, and the foreign finder exception has specific conditions rather than a blanket exemption.FINRA Rule 2040(a)(1)

A representative is retiring. The proposed agreement with his member firm would pay him continuing commissions on his customers' accounts, and would let him keep servicing those accounts and call on the customers. Does the arrangement satisfy Rule 2040(b)?

• a.Yes, because he may service the accounts if he is retiring, so long as the firm remains responsible for them.
• b.No, because continuing commissions may never be paid to someone who has stopped being a registered representative.
• c.Yes, because commissions to a retiring representative are not limited by the rule if the contract is in writing.
• d.No, because the contract must prohibit the retiree from soliciting new business, opening accounts, or servicing the accounts.✓

Rule 2040(b) allows continuing commissions to a retiring registered representative only under a bona fide contract, made in good faith while he was registered, that among other things prohibits soliciting new business, opening new accounts, or servicing the accounts that generate the payments. This contract permits servicing, so it fails. Payments after retirement are permitted when those conditions are met, so a flat bar is wrong, and a written contract is necessary but not enough.FINRA Rule 2040(b)(1)(A)

After a representative retires under a compliant 2040(b) contract, some of his former customers add new money to their accounts at the firm. May the firm keep paying him continuing commissions on those accounts?

• a.Yes, because the commissions continue regardless of whether customer funds or securities are added during the period.✓
• b.No, because new deposits would make him a solicitor of new business, which ends the permitted payments.
• c.No, because the rule permits continuing commissions for twelve months and then only on closed accounts.
• d.Yes, but only on the original balances, and the firm must keep whatever commissions the new deposits earn.

Rule 2040(b)(1) lets the member pay continuing commissions derived from accounts held for continuing customers of the retiring representative regardless of whether customer funds or securities are added during the period of retirement. Customers adding money on their own does not turn the retiree into a solicitor, the commissions need not be limited to original balances, and the rule contains no twelve-month limit.FINRA Rule 2040(b)(1)

A retiring representative under a compliant 2040(b) contract dies. The contract names no beneficiary. To whom may the member pay the continuing commissions?

• a.To his former firm's other registered representatives, who take over the accounts after his death.
• b.To his estate, because the rule allows the estate to receive them when no beneficiary is designated.✓
• c.To no one, because the payments end automatically on the representative's death under the rule.
• d.To his surviving spouse, because the rule gives a spouse priority over any estate or other beneficiary.

Rule 2040(b)(2) provides that on the death of the retiring representative, the beneficiary designated in the written contract may be the beneficiary of the member's agreement, or the representative's estate if no beneficiary is designated. The payments do not end at death, they are not redirected to other representatives, and the rule gives no preference to a spouse.FINRA Rule 2040(b)(2)

A representative leaves a member firm and goes to work for another broker-dealer, but he describes himself as retired from the first firm. May the first firm pay him continuing commissions as a retiring representative?

• a.Yes, because the rule requires only that he stop being registered with the member that pays him.
• b.Yes, because leaving the firm is enough, and the new employer is irrelevant to the first firm's payments.
• c.No, because the paying member would have to obtain approval from his new employer before it could pay.
• d.No, because a retiring representative must leave the securities industry, and he has not done so.✓

Rule 2040(b)(2) defines a retiring registered representative as an individual who retires from the member, including as a result of total disability, and leaves the securities industry. Moving to another broker-dealer is not leaving the industry. Mere departure from the paying firm is not retirement, and no approval from a new employer is called for.FINRA Rule 2040(b)(2)

A member firm pays a finder in Brazil for referring customers. All the finder's other conditions are met, but one referred customer is a U.S. citizen living in Brazil. Is the payment for that customer permitted under the foreign finder provision?

• a.No, because customers must be foreign nationals, not U.S. citizens, or foreign entities domiciled abroad.✓
• b.Yes, because a customer who acknowledges the finder's fee in writing is eligible whatever his citizenship.
• c.No, because the finder provision applies only to customers who are foreign entities and not to individuals.
• d.Yes, because the customer lives abroad, and residence outside the United States is the only test.

The foreign finder provision in Rule 2040(c) requires that the customers be foreign nationals (not U.S. citizens) or foreign entities domiciled abroad. A U.S. citizen resident abroad does not qualify, whatever his written acknowledgment. Individuals who are foreign nationals are eligible, so the rule is not limited to entities, and residence alone does not decide it.FINRA Rule 2040(c)(3)

A member pays a nonregistered foreign finder under Rule 2040(c). The firm has the finder's agreement on file and has obtained each customer's written acknowledgment. What else must appear on each transaction's confirmation?

• a.An indication that a referral or finder's fee is being paid pursuant to an agreement.✓
• b.Nothing further, because the customer's written acknowledgment replaces any confirmation disclosure.
• c.The amount of the finder's fee, shown in dollars and as a percentage of the customer's order.
• d.The finder's name and address, together with the finder's registration number in his home country.

Rule 2040(c)(7) requires the confirmation of each transaction to indicate that a referral or finder's fee is being paid pursuant to an agreement. The rule does not require the dollar amount, the finder's identification or a foreign registration number on the confirmation. The written acknowledgment is a separate condition in paragraph (c)(5), so it does not replace the confirmation notation.FINRA Rule 2040(c)(7)

A member wants to pay an unregistered person and is unsure whether the person must register as a broker-dealer. Which source would reasonably support the member's determination?

• a.A statement from the payee's home regulator that the payee is in good standing in that country.
• b.An opinion from the member's chief sales officer, based on past practice with similar payees.
• c.A legal opinion from independent, reputable U.S. licensed counsel knowledgeable in the area.✓
• d.The unregistered person's own written assurance that his activity requires no registration.

Supplementary Material .01 says a member can support its determination by reasonably relying on published SEC releases, no-action letters or interpretations that fit its facts, by seeking a no-action letter from the staff, or by obtaining a legal opinion from independent, reputable U.S. licensed counsel. The payee's own assurance, an internal sales view and a foreign good-standing statement are not among these, and none is independent support on the U.S. registration question.FINRA Rule 2040.01

An individual works from his own office, sells securities from several unrelated issuers for commissions, and answers to no firm's direction or control. Is he an agent?

• a.Yes, because any individual who sells securities for commissions is an agent, whoever supplies the securities.
• b.Yes, because an individual cannot register as a broker-dealer unless he has first registered as an agent.
• c.No, he is himself a broker-dealer, because an agent is an individual who acts under the control of a broker-dealer or issuer.✓
• d.No, because a person with his own office is an issuer's employee and is outside the registration provisions.

The Act defines an agent as an individual other than a broker-dealer who represents a broker-dealer or issuer, and the comment explains that the distinction depends on common-law agency factors, principally whether the individual acts subject to the control of the principal. An individual in the business of effecting transactions for others, answering to no one, is a broker-dealer and must register as one. Being paid commissions does not make someone an agent, and the registration provisions apply to him in any case.Uniform Securities Act §401(b), (c); Official Comment

A retired professional buys and sells securities in his own account several times a month, keeps no inventory for customers, and never trades for anyone else. Must he register as a broker-dealer?

• a.No, because he is an ordinary investor, not a person in the business of effecting securities transactions.✓
• b.Yes, because anyone who trades at least once each month must register as a dealer under the Act.
• c.Yes, because trading for one's own account several times a month amounts to dealing in securities.
• d.No, because the Act covers only persons who effect transactions for the accounts of other people.

The Act's broker-dealer definition covers a person engaged in the business of effecting transactions for others or for his own account, and the comment distinguishes a person in that business from an ordinary investor who buys and sells with some frequency. Frequency alone does not create a dealer. The definition does extend to dealing for one's own account when it is a business, so the last answer is wrong, and the Act sets no monthly trade count.Uniform Securities Act §401(c)

A salesperson of an in-state registered broker-dealer sells only to banks and insurance companies. She says the institutional exemption means that she need not register as an agent. Is she correct?

• a.Yes, because the Act treats an individual who sells only to institutional buyers as a representative of the buyer.
• b.Yes, because the institutional exemption that applies to her firm automatically applies to every person it employs.
• c.No, because she must register unless the securities she sells to the institutions are exempt securities.
• d.No, because the exclusions cover only issuers' representatives, and a broker-dealer's own salesperson is still an agent.✓

The exclusions in Section 401(b) apply to individuals who represent an issuer in particular transactions, and the narrow broker-dealer exclusion is separate. An individual who represents a broker-dealer in effecting sales is an agent whatever the customers, and the broker-dealer's own exemptions do not extend to its in-state salespeople. The nature of the securities is also not the test.Uniform Securities Act §401(b); §201(a)

An unregistered employee of a corporation sells newly issued shares of the corporation to the public for a commission. The shares are not in a category that the Act excludes. Who has violated the Act?

• a.Both, the employee for acting without registration and the issuer for employing an unlicensed agent.✓
• b.Only the issuer, because an employee acting under the issuer's control has no separate liability.
• c.Neither, because an issuer's own employees are excluded from registration when selling its securities.
• d.Only the employee, because the issuer is excluded from the Act's registration provisions.

Section 201(a) makes it unlawful to transact business as an agent unless registered, and Section 201(b) makes it unlawful for a broker-dealer or issuer to employ an agent who is not registered. The sales for commission are outside the exclusion in Section 401(b), so the employee is an agent. Both the individual and the employing issuer violate the Act, and the issuer does not escape through its status as an issuer.Uniform Securities Act §201(a), (b)

An agent applicant left a felony conviction from twelve years ago off his application. The Administrator learns of it after the registration took effect. Which statement is correct?

• a.The Administrator may act only if the applicant had been notified in advance that the omission was material.
• b.The Administrator may act, but only because the conviction is a felony, regardless of its age.
• c.The Administrator may do nothing, because convictions more than ten years old need never be disclosed.
• d.The Administrator may act on the incomplete or misleading application, even though the conviction is too old to be a ground itself.✓

The conviction ground in Section 204(a)(2) reaches back ten years, so a twelve-year-old conviction is not a ground in itself. But the Act separately makes it a ground that an application was incomplete in any material respect or contained a materially false or misleading statement as of its effective date, and omitting a felony may be material. The ten-year limit does not excuse the omission, and advance notice is not a condition.Uniform Securities Act §204(a)(2)(A) and (C) (incomplete application; ten-year conviction look-back)

An agent of a registered broker-dealer is insolvent, because her liabilities exceed her assets. The broker-dealer itself is solvent. May the Administrator act against her registration, and against the firm's registration on this ground?

• a.Against neither, because insolvency is a ground only for denying an applicant, not for acting on a registrant.
• b.Against both, because the firm answers for the financial condition of every agent it employs.
• c.Against the firm only, because a broker-dealer is responsible for its agents under the supervision provision.
• d.Against her registration yes, but not against the firm's, because the firm must itself be found insolvent.✓

Section 204(a)(2)(H) makes insolvency a ground for acting against an applicant or registrant, but the Administrator may not enter an order against a broker-dealer or investment adviser under that clause without a finding of insolvency as to the firm itself. The agent's own insolvency is a ground against her. The firm is not automatically liable for it, and the ground applies to registrants as well as applicants.Uniform Securities Act §204(a)(2)(H)

Four years ago a Canadian provincial securities regulator suspended an agent applicant's right to act as an agent in that province. Does this support action by the Administrator, and why?

• a.No, because only actions of United States regulators and United States courts can be grounds under the Act.
• b.No, because the look-back period for foreign regulatory actions is one year, and it has already passed.
• c.Yes, but only if the suspension was based on a felony conviction in the foreign jurisdiction involved.
• d.Yes, because a foreign regulator's suspension of the right to act as an agent within the past five years is a ground.✓

Section 204(a)(2)(H.1) makes it a ground that within the past five years the person has been the subject of an action of a securities regulator of a foreign jurisdiction denying, revoking or suspending the right to act as a broker-dealer, agent or investment adviser. Four years is within five. Foreign actions are covered, the look-back is not one year, and no underlying conviction is required.Uniform Securities Act §204(a)(2)(H.1)

The Administrator finds that an agent applicant has some history that raises concerns, but concludes that denial is not warranted. Which action does the Act allow, provided that the order is in the public interest?

• a.Barring the agent's employer from hiring anyone else until the applicant's history has been resolved.
• b.Restricting or limiting the registrant as to a function or activity of the business requiring registration.✓
• c.Registering the agent with a probationary period of one year, ending automatically without a hearing.
• d.Granting the registration only if the applicant first posts a surety bond equal to his entire net worth.

Section 204(a) authorizes the Administrator, on a finding that the order is in the public interest and that a ground exists, 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. The Act contains no automatic probation, and bonds are a separate matter under Section 202(f). An order barring the employer from hiring is not among the listed orders, and any order requires notice and an opportunity for hearing.Uniform Securities Act §204(a)

A broker-dealer agent is currently registered with Firm A. She wants to maintain that registration and also register with Firm B, which is not owned or controlled by a common parent. How is this reported on Form U4?

• a.She answers yes in Section 6, which covers firms under common ownership or control with the filing firm.
• b.She answers no, because dual registration with unaffiliated firms must be reported only on Form U5.
• c.She makes no report, because registration with more than one firm is allowed and needs no mention.
• d.She answers yes in Section 3 for a firm not affiliated with the filer, and lists Firm B in Section 12.✓

Section 3 of the Form U4 covers registration with unaffiliated firms, which is dual registration. An applicant who will maintain registration with an unaffiliated broker-dealer answers yes and lists the firm in Section 12. Section 6 is for firms under common ownership or control, a Form U5 reports termination rather than new registration, and some jurisdictions prohibit dual registration with unaffiliated firms altogether.Form U4 (Rev. 05/2009), Section 3

A new hire has never been registered. His first firm files his initial Form U4, and he also hopes to register with an unaffiliated second firm at the same time. How must he answer the Section 3 dual registration questions?

• a.No, because a dual registration may start only after an initial registration has been established.✓
• b.He leaves Section 3 blank, because it is completed only by firms and not by individuals.
• c.Yes, because an initial application must list every firm with which he will be registered at any time.
• d.Yes, because the questions are designed to disclose all firms with which he intends to register.

The instructions to Section 3 say that an individual should answer yes only if currently registered and seeking registration with a firm not affiliated with the current employing firm, and that on an initial application the individual must answer no, because a dual registration may be initiated only after an initial registration has been established. The questions are not a general list of intentions, and they are answered on the form.Form U4 (Rev. 05/2009), Section 3

A representative is registered with a broker-dealer and its separate investment adviser affiliate. The broker-dealer files an amended Form U4. What must the other firm do before the filing is completed?

• a.Complete Section 15F, in which an appropriate signatory of the other firm concurs with the filing.✓
• b.Nothing, because only the filing firm is responsible for a Form U4 amendment for the individual.
• c.Obtain the representative's signature in Section 15D, which is the only acknowledgment the form requires.
• d.File its own separate Form U4 amendment in place of the broker-dealer's filing, so that two forms exist.

Section 15F must be completed to concur with a Form U4 filing made by another firm on behalf of an individual who is also registered with that other firm, and the signatory swears or affirms that the filing has been reviewed. The other firm therefore has a role, and a second separate form is not used. Section 15D is the individual's acknowledgment, which does not substitute for the other firm's concurrence.Form U4 (Rev. 05/2009), Section 15F

An applicant for IAR registration passed the Series 65 eighteen months before filing her application. She holds no professional designation and has never been registered. Does she satisfy the examination requirement?

• a.No, because a Series 65 result counts only if it was earned within twelve months of the application date.
• b.Yes, because she passed the Series 65 within two years of the date of her application.✓
• c.Yes, because a Series 65 result stays valid for an applicant for as long as she holds a clean record.
• d.No, because an applicant who has never been registered must also pass the Series 66 to qualify.

Section 1(a) of the model rule requires an applicant to have passed the Series 65 within two years of the date of application. Eighteen months is within that period. The period is two years rather than twelve months, the Series 66 is an alternative route and not an add-on, and a Series 65 result does not remain valid indefinitely.NASAA Model Rule, Examination Requirements for IARs, §1(a)

A candidate passed the Series 65 thirty months ago and has never been registered as an IAR. He holds no designation. What does the model rule require before he can be registered?

• a.He must pass only the Series 66, which is a supplementary examination for stale Series 65 results.
• b.Nothing more, because a clean disciplinary history extends his Series 65 for up to five years.
• c.Nothing more, because a Series 65 result is valid for as long as he remains under the age of seventy.
• d.He must test again, because the Series 65 was passed over two years before he applied.✓

Section 1 ties the Series 65 to the two years before the application, and none of the exceptions apply: he has no waiver designation, was never registered as an IAR in a state, and did not participate in a program that extends the Series 65. His thirty-month-old result no longer counts. No age rule or disciplinary-history rule extends it, and the Series 66 is a different route that needs the Series 7 and the SIE as well.NASAA Model Rule, Examination Requirements for IARs, §1(a)

An applicant passed the SIE three years ago. Fourteen months ago she passed both the Series 66 and the Series 7. She has no designation and was never registered as an IAR. Does she meet the model rule's examination requirement?

• a.Yes, but only if her sponsoring adviser also certifies her work experience in writing.
• b.No, because the Series 66 route works only for an applicant who has held a Series 7 registration.
• c.Yes, because the Series 66 and Series 7 are within two years and the SIE is within four.✓
• d.No, because the SIE must also have been passed within two years of the application.

Under Section 1(b), the Series 66 and Series 7 must both be passed within two years of the application date, and the SIE within four years. The SIE was passed three years ago, which is inside four. The two-year limit does not apply to the SIE, a prior Series 7 registration is not required, and the model rule asks for no work-experience certification.NASAA Model Rule, Examination Requirements for IARs, §1(b)

A candidate passed the Series 66 nine months ago, holds no designation, and has never taken the Series 7 or the SIE. May he be registered as an IAR on that basis?

• a.No, because the Series 66 can be used only by someone who is already registered as a broker-dealer agent.
• b.Yes, because the Series 66 is a complete examination for IAR registration without anything else.
• c.No, because the Series 66 route also calls for the Series 7 and the SIE, unless he takes the Series 65.✓
• d.Yes, because the Series 7 and the SIE apply only to applicants seeking broker-dealer agent registration.

The Series 66 satisfies the model rule only when combined with the Series 7 within two years and the SIE within four years. Absent both, the candidate would need the Series 65 instead. The Series 66 alone is not enough, the Series 7 and SIE are part of the IAR route rather than only an agent requirement, and prior agent registration is not a condition.NASAA Model Rule, Examination Requirements for IARs, §1(b)

An applicant has not taken any qualifying examination in years, but she holds the CFA charter, which is current and in good standing at the time of her application. How does the model rule treat her?

• a.The requirement is waived, since a current CFA charter is one of the listed designations.✓
• b.The requirement is waived only if she also completes an adviser-sponsored training program.
• c.She must pass the Series 65, because only the CFP designation can replace the examination.
• d.She must pass the Series 66, because the CFA designation waives only the SIE portion.

Section 2 waives the Section 1 requirement for an applicant who holds, current and in good standing at the time of filing, the CFP, ChFC, CFA, PFS or CIMA designation. The CFA is on that list, and the waiver is not limited to the CFP or to part of the examinations. The model rule contains no training-program condition.NASAA Model Rule, Examination Requirements for IARs, §2

An applicant is a licensed CPA with many years of experience, but he does not hold the Personal Financial Specialist credential. He has passed no qualifying examination. Is the examination requirement waived?

• a.Yes, because the CPA license is recognized as the equivalent of the Series 65 examination.
• b.Yes, because accountants are exempt from the examination if they have ten years of experience.
• c.No, because the CPA license is not among the listed designations, and only the PFS credential is.✓
• d.No, because a waiver is available only to applicants who have been employed by a registered adviser.

The list of waiver designations in Section 2 includes the PFS awarded by the AICPA but not the CPA license itself. Experience does not substitute for the designation, and an applicant need not be employed by an adviser to qualify for a waiver. Without a listed designation or another exception, he would have to pass the required examination.NASAA Model Rule, Examination Requirements for IARs, §2

An individual was registered as an IAR in one state until twenty months ago, when she left the industry. She now applies in another state and has taken no examination since. Must she retake the examinations?

• a.Yes, because the exception applies to an applicant who left the industry less than twelve months ago.
• b.No, because any person who has ever passed the Series 65 is exempt from retesting for life.
• c.Yes, because only a registration in the same state as the new application counts toward the exception.
• d.No, because she was registered as an IAR in some state within the two years before the filing.✓

Section 3 relieves an individual who was registered as an IAR in any state within two years of the application date from retaking the Section 1 examinations. Twenty months qualifies, and the prior registration need not have been in the state where she now applies. The period is two years and not twelve months, and a Series 65 pass does not carry a lifetime exemption.NASAA Model Rule, Examination Requirements for IARs, §3