FINRA Uniform Securities Agent State Law 3 — Questions and Answers
Question 1: Under the Uniform Securities Act, which of the following securities is typically exempt from registration requirements?
- Common stock of a small startup company sold to retail investors
- Municipal bonds issued by a city government (Correct answer)
- Convertible debentures issued by a private corporation
- Limited partnership interests sold through a broker-dealer
Correct answer: Municipal bonds issued by a city government
Municipal bonds issued by governmental entities are exempt from state registration requirements under the USA.
Question 2: A broker-dealer registered in State A wishes to conduct business with clients in State B without registering there. Under the USA, this is permissible only if the broker-dealer:
- Has fewer than 10 clients in State B during a 12-month period
- Deals exclusively with institutional investors in State B
- Is registered with FINRA and has no office in State B
- Has no more than 5 non-institutional clients in State B in any 12-month period (Correct answer)
Correct answer: Has no more than 5 non-institutional clients in State B in any 12-month period
The de minimis exemption allows a broker-dealer with no office in a state to conduct business with up to 5 non-institutional clients in that state within a 12-month period without registering.
Question 3: Which statement about an investment adviser's fiduciary duty is CORRECT under the Uniform Securities Act?
- The duty only applies when the adviser is managing a discretionary account
- The adviser must always place the client's interests above its own (Correct answer)
- The duty can be waived if the client signs a written acknowledgment
- The duty applies only to institutional clients, not retail investors
Correct answer: The adviser must always place the client's interests above its own
Investment advisers owe a fiduciary duty to all clients, which requires placing the client's interests above the adviser's own interests at all times.
Question 4: An agent who is registered in State X moves to State Y and begins working for a different broker-dealer. Under the USA, the agent must:
- Only update the CRD system within 30 days of the change
- Register in State Y before conducting securities business there (Correct answer)
- Notify State X's administrator only if the agent had clients there
- Continue using the State X registration for up to 90 days
Correct answer: Register in State Y before conducting securities business there
Registration is state-specific and employer-specific, so an agent must register in the new state and under the new broker-dealer before conducting business.
Question 5: Under the USA, which of the following would be considered a 'fraudulent' practice in connection with the offer or sale of securities?
- Recommending a security that later declines in value
- Omitting a material fact that would likely influence a buyer's decision (Correct answer)
- Charging a commission that is higher than the industry average
- Selling a security without first obtaining a suitability questionnaire
Correct answer: Omitting a material fact that would likely influence a buyer's decision
Omitting a material fact in connection with the offer or sale of securities constitutes fraud under the Uniform Securities Act.
Question 6: A client instructs her agent to sell all securities in her account immediately regardless of price. The agent executes the trades but the prices obtained are unfavorable. Under the USA, the agent:
- Is liable for the losses because the agent should have used better judgment
- Has no liability because the client gave specific discretionary authority (Correct answer)
- Must document the instruction but can still be disciplined for following it
- Violated suitability rules by executing without evaluating the prices
Correct answer: Has no liability because the client gave specific discretionary authority
When a client provides specific, unsolicited instructions to execute trades, the agent who follows those instructions is generally not liable for resulting losses.
Question 7: Under the Uniform Securities Act, a securities registration by qualification becomes effective:
- Simultaneously with the corresponding federal registration
- At noon on the 20th day after the filing, unless the administrator takes action
- When the administrator issues an order declaring it effective (Correct answer)
- Automatically after a 10-day waiting period with no administrator action
Correct answer: When the administrator issues an order declaring it effective
Registration by qualification becomes effective when the administrator issues an order granting effectiveness, giving the state maximum control over the process.
FINRA Uniform Securities Agent State Law 3
Under the Uniform Securities Act, which of the following securities is typically exempt from registration requirements?