2024 Realistic Verified Series63 exam dumps Q&As - Series63 Free Update
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NEW QUESTION # 40
MoeMoney Investment Advisers uses the services of two broker-dealers exclusively when it executes trades for its clients' accounts. The larger of the two broker-dealers provides MoeMoney with research from its analyst department in return for the business and also serves as the custodian for some of MoeMoney's clients' accounts. The smaller of the two broker-dealers picks up the utility bill for MoeMoney. MoeMoney is careful to disclose this form of "soft dollar" compensation to its clients.
Is it in violation of any securities laws?
- A. Yes. Although investment advisers are permitted to receive some forms of soft dollar compensation from broker-dealers with which it has a relationship, such as research or custodial services, other forms of soft dollar compensation, including the payment of overhead expenses,are prohibited.
- B. Yes. Investment advisers are required to use more than two broker-dealers when executing trades on its clients' accounts.
- C. Yes. Investment advisers are prohibited from receiving any soft dollar compensation whatsoever.
- D. No. Investment advisers are entitled to receive soft dollar compensation from broker-dealers with which it has a relationship as long as they disclose this to their clients.
Answer: A
Explanation:
Explanation
Yes. MoeMoney is in violation of securities laws in accepting payment of its utility bills for directing business to the smaller broker-dealer because this form of soft dollar compensation is prohibited. Some forms of soft dollar compensation are permitted, such as the research and custodial services MoeMoney receives from the larger broker-dealer, but the payment of any office overhead expense is not. Allowed soft dollar compensation is deemed to benefit both the investment adviser and its clients; soft dollars that seem to benefit only the adviser are not allowed.
NEW QUESTION # 41
Rich Quick is a broker-dealer registered in the state of Massachusetts. He occasionally trades on abnormalities he observes in bond yield spreads for his own account, short selling a bond that appears to be overpriced based on its yield and buying a bond that is identical in almost every respect except for the price, which is less than that of the other bond. He has been able to earn arbitrage profits 95% of the time when he does this. Rich Quick
- A. is in violation of securities laws. Arbitrage is a prohibited activity.
- B. is trading on insider information, which is a violation of securities laws.
- C. engaged in a fraudulent activity.
- D. is skilled if he is able to earn profits 95% of the time using this strategy.
Answer: D
Explanation:
Explanation
If Rich Quick is able to earn profits 95% of the time by trading on abnormalities he observes in bond yield spreads, he is skilled. There is nothing illegal in what he is doing. Arbitrageurs attempt to earn profits when they observe what they believe to be mispriced securities, and this is an accepted activity. Rich is not using insider information; bond yields are publicly available information.
NEW QUESTION # 42
In which of the following instances is it permissible for an investment adviser to borrow money from a
client?
- A. The investment adviser may borrow money from a client if the client is a close friend of the majority
owner of the investment advisory firm. - B. The investment adviser may borrow money from a client if the client is a bank.
- C. It is never permissible for an investment adviser to borrow money from a client.
- D. The investment adviser may borrow money in either of the scenarios described in B or C.
Answer: B
Explanation:
It is only permissible for an investment adviser to borrow money from a client if that client is
in the business of loaning money, as would be the case if the client is a bank, but not if the client is merely
a close friend of the majority owner of the investment advisory firm.
NEW QUESTION # 43
An arrangement wherein a terminally ill person sells a second party his life insurance policy at a discount
from its face value, giving the buyer the right to the policy's face value when the seller dies is called a:
- A. viatical settlement.
- B. deceased option.
- C. life straddle.
- D. death warrant.
Answer: A
Explanation:
A viatical settlement is an arrangement under which a terminally ill person sells a second
party his life insurance policy at a discount from its face value. When the terminally ill person dies, the
buyer of the policy receives its face value. Some states consider viatical settlements to be securities, and
they have come under the scrutiny of the NASAA since there is a significant potential for fraud in the
writing of these contracts.
NEW QUESTION # 44
Mr. Bigwig, CEO of HiGrowth Corporation, meets with the president of BigFee Investment Bankers and
arranges for BigFee to underwrite an Initial Public Offering (IPO) for the firm. When the IPO comes to
market, GetErDone Broker-Dealers is part of the selling group, which handles the sale of the stock to the
public. In this scenario, which party is the issuer?
- A. GetErDone Broker-Dealers
- B. BigFee Investment Bankers
- C. Mr. Bigwig
- D. HiGrowth Corporation
Answer: D
Explanation:
HiGrowth Corporation is the issuer in this instance. Its stock will be sold, and HiGrowth will
receive the proceeds from the sale-less BigFee's underwriting spread. Mr. Bigwig is merely HiGrowth's
representative in this instance.
NEW QUESTION # 45
Which of the following actions is the Administrator of a state empowered to take?
- A. require restitution for the victims of a scam
- B. impose civil penalties in cases of fraud
- C. gather evidence
- D. The Administrator of a state has the authority to take all of the above actions.
Answer: C
Explanation:
Explanation
The Administrator of a state can gather evidence, but it cannot impose any civil penalties, including the requirement of restitution to victims. These actions can only be performed by a court of law.
NEW QUESTION # 46
As an agent, which of the following statements about the Securities Investor Protection Corporation (SIPC)
can you legitimately make to your client?
- A. "The SIPC is a government agency that was created by an Act of Congress to protect investors against
losses in the stock and bond market." - B. "The SIPC is a government agency created by an Act of Congress to combat fraud."
- C. "The SIPC was established to restore funds to investors when the brokerage firm they have been using
is bankrupt or in financial distress." - D. The SIPC is the FDIC of the stock and bond markets."
Answer: C
Explanation:
The statement that you can legitimately make about the SIPC to your client is that it was
established to restore funds to investors when the brokerage firm they have been using is bankrupt or in
financial distress. The SIPC does not insure investors against losses in the stock and bond markets like
the FDIC does bank deposits, and it does not combat fraud.
NEW QUESTION # 47
It has come to the attention of the Administrator of the state that Samuel Shyster provided false information on his application to become a registered investment adviser with the state. Prior to revoking Samuel's license, the Administrator will provide Samuel with which of the following?
I. prior notice
II. an opportunity to fill out a new registration statement
III. an opportunity for a hearing
IV. a written statement regarding the facts and the legal consequences
- A. I, II, III, and IV
- B. I, II, and III
- C. I, II, and IV
- D. I, III, and IV
Answer: D
Explanation:
Explanation
Prior to revoking Samuel's license, the Administrator will provide Samuel with prior notice (I), an opportunity for a hearing (III), and a written statement regarding the facts and the legal consequences (IV).
NEW QUESTION # 48
Cal Turner calls his client and recommends that the client sell his shares in the Alpha High Quality Bond
Fund and use the proceeds to buy shares in the Omega High Quality Bond Fund. Cal has done nothing
unethical if his recommendation is based on the fact that
- A. It would always be unethical for Cal to recommend that a client sell shares in one fund in order to buy
shares of another fund that has the same investment objective. - B. the Alpha Fund has been performing poorly relative to other funds in the same category.
- C. the Omega Fund has a front-end load.
- D. the Alpha Fund has a back-end load.
Answer: B
Explanation:
Cal has done nothing unethical if his recommendation that a client sell his shares in the
Alpha Fund and buy shares of the Omega Fund is due to the fact that the Alpha Fund has been
performing poorly relative to other funds in the same category. While past performance is no guarantee of
future performance, a client may not want to hang on to a fund that isn't returning as much as its
competition.
NEW QUESTION # 49
Which of the following would not be found in a tombstone advertisement?
- A. the name of the issuer
- B. the names of the underwriters
- C. the price at which the security will be offered
- D. the interest rate and time to maturity of a bond issue
Answer: C
Explanation:
Explanation
The price at which the security will be offered will not be found in a tombstone advertisement. A tombstone advertisement is not an offer to sell the security and, in any case, it is unlikely that the final offer price will have even been decided on at this point.
NEW QUESTION # 50
When selling shares in a closed-end investment company, an agent must inform the client of any
I. commissions
II. underwriting fees
III. miscellaneous offering expenses
- A. I, II and III
- B. I and III only
- C. I and II only
- D. I only
Answer: A
Explanation:
When selling shares in a closed-end investment company, an agent must inform the client of
any commissions, underwriting fees, or miscellaneous other offering expenses involved.
NEW QUESTION # 51
Mr. Bigwig, CEO of HiGrowth Corporation, meets with the president of BigFee Investment Bankers and arranges for BigFee to underwrite an Initial Public Offering (IPO) for the firm.
When the IPO comes to market, GetErDone Broker-Dealers is part of the selling group, which handles the sale of the stock to the public. In this scenario, which party is the issuer?
- A. GetErDone Broker-Dealers
- B. BigFee Investment Bankers
- C. Mr. Bigwig
- D. HiGrowth Corporation
Answer: D
Explanation:
Explanation
HiGrowth Corporation is the issuer in this instance. Its stock will be sold, and HiGrowth will receive the proceeds from the sale-less BigFee's underwriting spread. Mr. Bigwig is merely HiGrowth's representative in this instance.
NEW QUESTION # 52
After passing the necessary exams, you must submit which of the following to the state Administrator
when applying for registration as an agent?
- A. Form ADV
- B. a recent photograph of yourself
- C. U-4
- D. proof that you meet the state's minimum net capital requirement
Answer: C
Explanation:
When applying for registration as an agent, you will need to submit a U-4. No photograph is
necessary. Form ADV is used to register as an investment adviser, and only broker-dealers and
investment advisers must meet the state's minimum net capital requirement.
NEW QUESTION # 53
Which of the following compensation arrangements between an investment adviser and an individual client with a net worth of $600,000 would be disallowed?
- A. All of the above are legitimate compensation arrangements between and investment adviser and an individual client with a net worth of $600,000.
- B. The investment adviser will receive 0.1% of the gross capital gains earned on the portfolio each quarter.
- C. The investment adviser will receive 0.1% of the total value of the client's assets under management as of the end of each month.
- D. The client agrees to pay the investment adviser an hourly fee of $60.00.
Answer: B
Explanation:
Explanation
A compensation arrangement between an investment adviser and an individual client with a net worth of
$600,000 that stipulates the adviser will receive 0.1% of the gross capital gains earned on the portfolio would be disallowed. An investment adviser of an individual client cannot be compensated with a share of the capital gains earned on the portfolio unless that client has a net worth of at least $1.5 million or has at least $750,000 invested through that investment adviser.
NEW QUESTION # 54
Which of the following is an example of a non-issuer transaction?
- A. Jose purchases a 10-year bond issued by Progress Energy when it has 6 years remaining to maturity.
- B. IBM sells a new issue of bonds to an insurance company.
- C. NewCorp, which has been a privately held company, is engaging in an initial public offering (IPO) of its
stock. - D. Google offers more shares of its stock for sale to the public.
Answer: A
Explanation:
When Jose buys a 10-year bond that has 6 years remaining to maturity, it is a non-issuer
transaction since he is buying it in the secondary market from another investor, and Progress Energy
does not benefit from the transaction. If a firm receives money when its securities are sold, it is considered
an issuer transaction; otherwise it is a non-issuer transaction. When Progress Energy originally issued the
bond, it had ten years to maturity, and Progress Energy received the proceeds from the bond issue; that
was an issuer transaction. When Jose buys the bond, another investor is receiving the proceeds. When
IBM sells new bonds, regardless of whether it is to the general public or to an institutional investor, IBM
receives the proceeds from the transaction, so it is an issuer transaction. Similarly, when a firm that is
already publicly held, like Google, sells more shares, the firm receives money from the sale, just as when
a firm that is going public for the first time, like NewCorp, receives the proceeds generated through the
IPO. Those are examples of issuer transactions.
NEW QUESTION # 55
An investment adviser may not
- A. also be registered as a broker-dealer in the state.
- B. take a position-either long or short-in securities in which any of its clients have a position.
- C. accept any kind of soft dollar compensation for using certain broker-dealers to execute trades on their
clients' accounts. - D. recommend a stock to a client that the adviser itself holds without disclosing to the client that the
adviser owns the stock.
Answer: D
Explanation:
An investment adviser may not recommend a stock to the client that the adviser holds
without disclosing to the client that it owns the stock. They are permitted to also be registered as a
broker-dealer in the state and to accept certain types of soft dollars as compensation from brokers. And
they can have positions in securities that their clients have positions in-just as long as this is disclosed.
NEW QUESTION # 56
Registered agent Ina Scent has had her license suspended by the state Administrator prior to an
administrative hearing on the order. Which of the following statements is true regarding Ina's situation?
- A. Ina can sue the Administrator because she was not afforded a hearing before the suspension took
place. - B. Ina can immediately file an appeal of the suspension in a court of law.
- C. Ina can make a written request that a hearing on the issue be scheduled within fifteen business days of
her request and may not continue working with clients unless the Administrator vacates the order until
final determination. - D. Ina can make a written request that a hearing on the issue be scheduled within ten business days of
her request and may continue working with clients while waiting for her day in court.
Answer: C
Explanation:
When Ina receives notice of her license suspension, she can make a written request that a
hearing on the issue be scheduled within fifteen business days of her request. She cannot continue
working with clients unless the Administrator vacates the order until final determination because her
license is still suspended pending final determination. If, after the hearing, the order still stands, Ina can
file an appeal of the suspension with a court of law if she does so within 60 days.
NEW QUESTION # 57
Which of the following would fall under the definition of "agent," as defined by the Uniform Securities Act (USA)?
- A. TrustUs Bank has a subsidiary operation that sells mutual funds to the public.
- B. Joe works as an administrative assistant for broker-dealer GetErDone, doing data entry, filing client forms that contain confidential information, and directing calls to registered representatives of the firm.
- C. Freedom broker-dealers executes the purchase and sale of securities for its customers.
- D. None of the above would fall under the definition of "agent," as defined by the Uniform Securities Act (USA.)
Answer: D
Explanation:
Explanation
None of the selections describe an "agent," as defined by the Uniform Securities Act (USA.) Joe is not executing trades for clients of the broker-dealer, and clerical assistants are not classified as agents.
Agents must be individuals, so a firm like Freedom broker-dealers would not be considered an agent. A bank is not an individual, and banks are even excluded from the definition of a broker-dealer.
NEW QUESTION # 58
Which of the following documents must a broker-dealer deliver on or prior to the confirmation due date to
a client who is purchasing a security?
- A. a hypothecation agreement
- B. a margin agreement if the purchase is being made on margin
- C. a preliminary prospectus
- D. a final prospectus
Answer: D
Explanation:
A broker-dealer must deliver a final prospectus to a client who is purchasing a security either
on or prior to the confirmation due date. The margin agreement need not be signed until after the initial
transaction takes place. The hypothecation agreement is part of the margin agreement. As an alternative,
a preliminary prospectus can be provided, but it must be accompanied by additional information that is
contained in the final prospectus, but is missing from the preliminary prospectus. Therefore, Choice C, as
written, is not correct.
NEW QUESTION # 59
Which of the following scenarios describes activities that are disallowed under the NASAA Model Rules?
I. Broker-dealer Anon observes that a client placed a stop loss order to sell her 1,500 shares of Amazon.com stock for $131 when the stock was selling for $134. Anon sold the stock for $133 when it started to fall during the day and credited the client's account with $131 per share when stock dropped further to $129 a share.
II. Penny is an agent with Broker-dealer Anon. She recently recommended that a client buy a stock that Penny thought would do well. As it turned out, Penny was wrong, and she offers to refund the commission that the client paid her.
III. Broker-dealer Anon is part of the selling group of a hot new IPO. As such, the firm purchases 50% of the shares for its own portfolio and sells the remainder to the public.
- A. I and III only
- B. I and II only
- C. I, II, and III
- D. I only
Answer: C
Explanation:
Explanation
Selections I, II, and III are all disallowed under the NASAA Model Rules. In Selection I, Broker-dealer Anon has made an unauthorized transaction and has also stolen from his client. The stop order indicated that the client's Amazon.com order should be effected only if the stock dropped to $131 a share or less. Anon jumped the gun and sold it for $133, but only gave the client the specified price of $131 a share. In the scenario described in Selection II, Penny's intentions might have been good, but an agent is not allowed to refund commissions. Anon is also in violation in Selection III's scenario. A member of the selling group is expected to make "bona fide" public offerings of the securities allotted him. To purchase some of the securities for itself is prohibited.
NEW QUESTION # 60
The state official who has regulatory authority over the securities industry within the state is known as the
- A. secretary of state.
- B. attorney-general.
- C. investor-protection officer.
- D. administrator.
Answer: D
Explanation:
Explanation
The state official who has regulatory authority over the securities industry within the state is the administrator.
NEW QUESTION # 61
Erin is a registered agent who works for SecureMoney Brokers-dealers. One of her clients, Mrs. McTurk,
is a recently-widowed woman who relies on Erin for advice about her investment portfolio. Mrs. McTurk
reminds Erin of her own grandmother, and she is happy to provide guidance within the sphere of her own
knowledge. Based on these facts, which of the following statements is true?
- A. SecureMoney Broker-dealers must register as an investment adviser since one of its employees is
providing investment advice. - B. Erin must register as an investment adviser since she is providing investment advice.
- C. Neither SecureMoney Broker-dealers nor Erin must register as an investment adviser based on the
facts provided. - D. SecureMoney Broker-dealers must register as an investment adviser since one of its employees is
providing investment advice, and Erin must register as an investment adviser representative as the firm's
employee.
Answer: C
Explanation:
Neither SecureMoney Broker-dealers nor Erin must register as an investment adviser based
on the facts provided since neither the broker-dealer nor Erin is receiving any compensation for the advice
Erin is giving Mrs. McTurk. In this instance, the advice provided is considered incidental to the
broker-dealer business.
NEW QUESTION # 62
Sam Shyster had his day in court-and lost. His license to do business as an investment adviser in the
state has been revoked. What legitimate options does Sam have available to him now?
- A. Sam has 60 days to file an appeal of the decision in a court of law.
- B. Sam can register with the SEC as an investment adviser, which will exempt him from state registration
requirements. - C. Sam has 45 days in which to file an appeal with the attorney general.
- D. Sam can move to another state and apply for registration as an investment adviser there.
Answer: A
Explanation:
Sam has the legitimate option of filing an appeal of the decision in a court of law within 60
days. He will not be able to register as an investment adviser with the SEC or with another state. His
application will be denied when it is discovered that Sam has had his license revoked by one state.
NEW QUESTION # 63
Which of the following statements about agents is (are) false?
- A. An agent must demonstrate a specific minimum level of financial stability for his registration application to be accepted.
- B. When an agent has a change of address, both he and his broker-dealer affiliate must inform the Administrator.
- C. All of the above are false statements.
- D. If an agent files for bankruptcy, the Administrator may elect to terminate that agent's registration if the Administrator believes it is "in the public interest" to do so.
Answer: A
Explanation:
Explanation
The statement that an agent must demonstrate a specific minimum level of financial stability for his registration application to be accepted is false. The Administrator may require an agent to post a bond, but there are no specific minimum financial requisites that must be met. The Administrator also has the right to terminate an agent's registration if the agent becomes bankrupt. Both the agent and his broker-dealer affiliate are required to inform the Administrator whenever there is a change in the agent's personal information, such as a name change or a change of address.
NEW QUESTION # 64
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