FINRA Uniform Securities Agent State Law 2 — Questions and Answers
Question 1: Under the Uniform Securities Act, which of the following transactions is considered a 'non-issuer transaction'?
- A corporation selling its own newly issued shares to the public
- An investor selling previously purchased stock through a broker-dealer (Correct answer)
- A company offering convertible bonds directly to institutional investors
- An underwriter distributing shares on behalf of the issuer in an IPO
Correct answer: An investor selling previously purchased stock through a broker-dealer
A non-issuer transaction involves the sale of securities by someone other than the issuer, such as an investor reselling shares in the secondary market.
Question 2: A state securities administrator may deny registration of a broker-dealer if the firm's principals:
- Have never previously registered in any state
- Have been convicted of a securities-related felony within the past 10 years (Correct answer)
- Operate in more than five states simultaneously
- Employ registered agents who are also registered investment advisers
Correct answer: Have been convicted of a securities-related felony within the past 10 years
The USA allows the administrator to deny registration if key personnel have been convicted of securities-related felonies within the past 10 years.
Question 3: Which of the following is TRUE regarding the registration of securities under the Uniform Securities Act by coordination?
- It applies only to securities registered under the Securities Act of 1933 by notification
- It becomes effective simultaneously with the federal registration under the Securities Act of 1933 (Correct answer)
- It requires a separate state review process independent of the federal filing
- It is available only for securities exempt from federal registration
Correct answer: It becomes effective simultaneously with the federal registration under the Securities Act of 1933
Registration by coordination allows the state registration to become effective at the same time as the federal Securities Act of 1933 registration.
Question 4: An agent who receives a customer order to buy a security but instead purchases the security for the agent's own account and sells it to the customer at a higher price has committed:
- Front-running
- Trading ahead
- Interpositioning (Correct answer)
- Scalping
Correct answer: Interpositioning
Interpositioning occurs when a broker-dealer or agent places themselves between the customer and the best available market price, profiting at the customer's expense.
Question 5: Under the USA, a 'federal covered adviser' is exempt from state registration requirements but must:
- Register with each state where it has clients
- File a notice filing and pay fees in states where it has clients above a threshold (Correct answer)
- Obtain a limited state license for investment advisory activities only
- Pass a state-administered exam in each jurisdiction where it operates
Correct answer: File a notice filing and pay fees in states where it has clients above a threshold
Federal covered advisers are exempt from state registration but must submit notice filings and pay applicable fees in states where they have clients.
Question 6: Which of the following actions would constitute 'churning' in a customer's account?
- Recommending municipal bonds to a retiree in a low tax bracket
- Executing excessive trades primarily to generate commissions for the agent (Correct answer)
- Failing to diversify a client's portfolio across asset classes
- Recommending speculative stocks to a conservative investor
Correct answer: Executing excessive trades primarily to generate commissions for the agent
Churning is the practice of executing excessive transactions in a customer's account to generate commissions, without regard for the customer's investment objectives.
Question 7: Under the Uniform Securities Act, an investment adviser is required to maintain its books and records for a minimum of:
- 2 years
- 3 years
- 5 years (Correct answer)
- 7 years
Correct answer: 5 years
The USA requires investment advisers to maintain their books and records for a minimum of 5 years.
FINRA Uniform Securities Agent State Law 2
Under the Uniform Securities Act, which of the following transactions is considered a 'non-issuer transaction'?