Series 63 Binder PDF

NASD Series 63
Uniform Securities Agent State Law

Examination Review
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Table of Contents
Chapter 1: Definitions ...................................................................... 13
Person Defined ...................................................................................13
Broker-Dealers ..................................................................................13
Definition of a Broker-Dealer ............................................................ 13
Broker-Dealers EXEMPTED from registration ..................................14
Broker/Dealer Capacity .......................................................................14
Registration of Broker-Dealers ...........................................................15
Agents .................................................................................................15
Definition of an Agent ........................................................................15
Agents Exempted ................................................................................18
Chapter 2: Investment Advisor and Other Definitions .................19
Investment Advisers ......................................................................... 19
Definition of an Investment Adviser .................................................. 19
Investment Advisor Registration .........................................................19
Exclusions to the IA Definition .......................................................... 19
Exemptions to the IA Definition ........................................................ 20
Federal vs. State Registered Investment Advisers ............................. 20
Registration Information for Broker-Dealers and Advisers ........ 20
Registration Rule ................................................................................ 21
Registration Application Information ................................................ 21
Other Registration Requirements ....................................................... 22
Registration Standards for Broker-Dealers and Investment Advisers 22
Other Investment Adviser Stuff ...................................................... 23
Investment Advisory Contracts .......................................................... 23
Custody of Customer Funds and/or Securities ................................... 23
Customer Disclosures ......................................................................... 24
Consent to Service of Process ............................................................ 24
Investment Adviser Representative ................................................ 24
Definition of an Investment Adviser Representative ..........................24
Registration Requirements for Investment Adviser Representatives . 25
Registration Standards for Agents and Investment Adviser Reps ..... 25
Ongoing Requirements .................................................................... 25
Books and Financial Records ............................................................. 25
Customer Reports ............................................................................... 25
Financial Reports ............................................................................... 26
No Inaccurate Information ................................................................. 26
Inspections .......................................................................................... 26
Chapter 3: Definition and Examples ...................................29
Definition of a Security .........................................................29
Definitions of a Sale, Offer to Sell & Offer to Purchase.......29
Exclusions from the Definition ............................................29
Other Definitions ...................................................................30
Types of Securities ................................................................30
Corporate Securities ................................................................30
Government Issues ..................................................................30
Options Clearing Corporation Issues ......................................31
Investment Company Issues ...................................................31
Tax Sheltered Issues ...............................................................31
Other Issues Considered to be Securities ................................31
Issuer and Issuer Related Definitions .................................32
Definition of a Non-Issuer ....................................................32
Federally Covered Securities ...............................................32
Some examples of these include; ............................................33
Chapter 4: Registration of Securities ..................................35
Registration of Securities .....................................................35
Types of Securities Registration ..........................................35
Registration by Filing (Also known as Notification) ..............35
Registration by Coordination ..................................................36
Registration by Qualification ..................................................37
General Rules Regarding Securities Registrations .................38
Denial, Suspension and Revocation of Registration ..........38
Chapter 5: Exempt Securities and Transactions ...............41
Exempt Securities .................................................................41
Exempt Transactions ............................................................41
Revocation of an Exemption ................................................42
Chapter 6: Federal Covered Securities ...............................45
Overview ................................................................................45
Chapter 7: Sales and Purchases ..........................................49
Background ...........................................................................49
Failure to State Important Facts .........................................50
Use of Non-Public Information ............................................50
Suitability Issues ...................................................................51
Disclosure of Material Information .....................................51
Other Prohibited Acts ..........................................................51
Communicating with Clients ...............................................53
Advertising and Sales Literature .............................................53
Deny, Revoke or Suspend Registration ...............................53
NASD Series 63
Cancellations and Withdrawals ...........................................53
Chapter 8: Powers of Administrator, Liabilities and Penal-
ties ...........................................................................................57
Powers of the Administrator ................................................57
Criminal Liabilities and Penalties .......................................57
Civil Liabilities under the Act ..............................................57
If the Investor Still Owns the Security ....................................58
If the Investor No Longer Owns the Security .........................58
Transactions Where Civil Liability Applies ...........................58
Offer of Rescission ................................................................59
Scope of the Act and Jurisdiction ........................................59
Scope of the Act ......................................................................59
Jurisdiction of the Administrator ............................................59
Jurisdiction over Offers Made in the Media ...........................60
Situations to think about .........................................................60
Important Terms ...................................................................63

CBT Instructions ...................................................................67
NASD Series 63
Introduction to
SuccessTrak® Series 63
Welcome to SuccessTrak®. The goal of all our programs is to make your study
experience effective, efficient, enjoyable and most of all, successful.
The Series 63 exam is made up of (4) major sections, known as the Uniform
Securities Agent State Law Examination (USA).
In addition, as part of the SuccessTrak® Series 63 program, a Series 63 Com-

puter Disk is included with this workbook. Our materials are concise and get right
to the point without adding any unnecessary material. Our primary goal is for you
to pass the Series 63 exam in a timely and efficient manner.
Major Sections of the Series 63 Exam

Percent of Number
Section Subject
Exam Questions
1 Registration of Persons 30% 18

2 Securities 25% 15
3 Business Practices 35% 21
4 Administrative Provisions 10% 6
and Other Remedies
Our Commitment
Our goal and primary mission is to provide you with the best quality, concise and
accurate information in the industry. By following our recommended strategy you
will pass the NASD Series 63 exam!
Series 63 Exam
The NASD requires a minimum passing score of 70% in order to be eligible for
NASD registration as an Agent. This exam is required if registered representa-
tives solicit business in other states than the one registered in. Some states
require this qualification in order to be NASD securities licensed. The exam’s pur-
pose is to test your knowledge of the Uniform Securities Act, referred to as USA
as well as the Act. This score is based on the overall exam, not each individual
Page 5 NASD Series 63

subject section. There are a total of 65 multiple choice questions with 60 ques-
tions that count with a time limit of 75 minutes.
The Series 63 Exam is administered at Prometric computerized testing centers.
When your broker-dealer registers you to take the exam you will receive an
admission ticket which is good for a period of 120 days. Your broker-dealer will
also advise you of the location of the nearest Proctor® testing center.
Prometric Examination Center

Upon arrival at the test center you will sign in and a thumb print will be taken. Be
prepared to show a picture ID as well as another form of ID. Only calculators
capable of basic math functions such as addition, subtraction, multiplication and
division are permitted. You will be provided with pencils and four or five sheets of
scratch paper which must be returned upon completion of the exam.
After completing all the questions, assuming you do not run out of time, you will be
asked if you have completed the exam. Upon affirmation of this the exam is
graded automatically in seconds. Shortly thereafter, your score along with a
breakdown of each of the four sections will appear on your screen.
Upon completion of the exam you will be asked to complete an examination cen-
ter survey. You will also receive a hard copy of your test results which will be avail-
able for you upon leaving. A copy of your test results will be sent to the NASD and
they will forward the results to your sponsoring broker-dealer.
Study Time
It is recommended that you spend approximately 16 - 20 hours reading the mate-
rials and working out the practice questions on the computer CD. This is an aver-
age so some students may require less while others may require more.
Recommended Study Method

The best way to approach your studies with the Series 63 is to review each of the
Sections independently, chapter by chapter. Upon completion of each chapter
complete the chapter review questions with at least a score of 80% or better
before moving on to the next chapter. Upon completing each section you should
review the “Section Questions” on the computer CD Rom attached to the inside of
the back cover. The questions in each of the computer CD Rom’s sections relate
to each of the four sections of this workbook. (CD Rom exam review installation
instructions can be found in Appendix B)
There’s an extensive Glossary located in Appendix A of this workbook. When-
ever you are “stumped” or need to verify a definition you should immediately turn
to the glossary for help. The workbook should be used in conjunction with the CD
Rom.
NASD Series 63 Page 6

Upon completion of all four sections in this workbook and completion of the four
sections of review questions on the computer CD Rom, you should then complete
the two 65 final question exams also located on the computer CD Rom. The goal
is to attain scores of at least 80% or preferably 90% to be ready to take the NASD
Series 63 Exam.
Plan on spending 75 minutes on each of the two final exams, just like the actual
exam. Rationale and explanations are available for all section review questions as
well as for final exams.
Test Taking Techniques

Reading comprehension is an important part of being successful with all NASD
exams. It is imperative that you develop and/or improve appropriate test taking
techniques including the following:
Understanding what they are asking
It is important that you read each question at least three times prior to choos-
ing your answer. It is important that you do not jump to conclusions. It is not
unusual that a question starts with what appears to be a specific set of facts
but changes midstream to other facts. If you jump to a conclusion without
adequate review you may choose the “false answer” fitting those beginning
facts.
Look out for clauses or qualifiers such as if, all, not, none and except. They
are often used in NASD questions. Obviously, the use of these clauses would
require a different answer than if the question was asked without them.
Let’s take a look at an example:

Question 1
“Persons”, as defined under the USA, include which of the following,
EXCEPT?
I. Individuals
II. Corporations
III. Minors
IV. Estates
A. I and II
B. III only
C. II, III and IV
D. III and IV
Under the Uniform Securities Act (USA) all are defined as a “person”, except
a minor.

Don’t panic even though you may see questions that initially look unfamiliar. In a
number of questions you are going to have to interpret a set of facts and come to
a conclusion in the form of a test answer. At the same time you may be asked, in
these type of questions, combination subjects such as the following example;
Question 2
When the economy experiences an upward trend due to inflation what is the
general effect on interest rates?
A. Rates go up
B. Rates go down
C. Rates stay the same
D. Rates won’t vary with inflation
This question is asking you the result of an increase in inflation, not what inflation
is. The correct response is A, interest rates go up with inflation. This of course will
cause the Federal Reserve Board to take action sooner or later and they will
increase rates even further which ultimately will cause the values of debt instru-
ments to decrease. See what we mean? Just look at all the results that can be the
subject of test questions regarding the subject of inflation.
Eliminate Roman Numeral Type Question Choices

These types of questions are quite popular on NASD exams. However, if analyzed
properly they can work in your favor. Always attempt to eliminate one or more of
the available choices. If successful you may be able to narrow down your options
to the correct answer or minimally down to 50% of the choices. (There are any-
where between 30% - 45% of these type questions on the exam)
Question 3
Administrators can require minimum Net Capital and Net Worth for which of
the following?
I. Issuers
II. Investment Advisors
III. Broker-Dealers
IV. Agents
A. I and IV
B. II, III and IV
C. II and III
D. I, II, III and IV
If you were able to eliminate choice IV. agents, C would be the only possible
choice as IV is present in choices A, B and D.

Make sure you understand the intent of the question
Very often in NASD exams, including the Series 63, questions have so much
information that you lose track of what is being asked. Not only that, the irrelevant
facts in the question may cause you to make an incorrect choice because of not
following and understanding what is being asked. Look for clues in the body of the
question and be prepared to disregard irrelevant facts and issues.
Use Time Management

You will find that 75 minutes is plenty of time to complete the Series 63 exam.
However, at the same time, when taking practice questions watch your timing. If
you encounter a question containing an issue which you do not immediately rec-
ognize, looks difficult, or requires a lot of mathematical computations mark it for
review and complete it after completing all the other questions. This will help pre-
vent losing track of time and then panicking and rushing through the end of the
exam questions.
Final Thoughts on Test Taking Techniques

• Pace yourself
• Read all of the materials in this workbook
• Read the questions over and over until you understand what they are asking
of you prior to making a choice
• Don’t read the questions too fast. It is important you don’t formulate an
answer too quickly.
• Avoid changing answers. If you do, you are really second guessing yourself
and will probably be wrong 85% of the time.
• Making careless errors is generally caused by having preconceived notions
when reading a test question. Read what is written, not what you expect to
see. Don’t add your own thoughts to a question.
• Practice all furnished test questions with the goal of scoring between 80 –
90% prior to taking the exam
• Understand concepts – don’t memorize questions, but memorize all defini-
tions
• Don’t whine about questions or the exam
• Practice, practice, practice test questions
• Pay close attention to those sections market “Test Clue”. There is an excel-
lent chance you will be tested on that exact point.

Section 1: Registration of Persons
18 Questions – 30%
This section contains information about the registration of persons
which includes broker-dealers, agents, investment advisers and more.
Also included are ongoing requirements such as books, records and
financial reporting.

Definitions
Chapter 1: Definitions
1.1 PERSON DEFINED
Throughout the USA the term “person” is referred to. It is important to understand
what “person” refers to and all of its uses.
Persons can be defined as follows;
• Individuals (just like you)
• Corporations
• Partnerships
• Business trusts
• Estates
• Joint venture or joint stock company
• Governments
• Political subdivisions of Governments
• Associations
1.2 BROKER-DEALERS
1.2.1 Definition of a Broker-Dealer
It is most important that you know and understand the definition of a broker-dealer
as all broker-dealers must register in every state it conducts business in unless an
exemption exists. So, let’s take a look at the definition of a broker/dealer;
• A broker-dealer is a “person” who engages in the business of effecting secu-
rities transactions for the account of others or for their own account (known
as proprietary trading)
1.2.1.1 Exclusions from the Definition of Broker-Dealer

The term broker-dealer does not apply to the following definitions and there-
fore they do not have to register as a broker-dealer under the USA;
• Agent: Individuals who represent a broker-dealer when performing securi-
ties transactions. An agent is basically a sales representative or registered
representative of the broker-dealer. Remember - an Agent cannot be a
broker-dealer

Definitions
• Banks, savings and loans and trust companies (They are separately
regulated under Federal and State banking laws)
• Issuers and “agents” of issuers
• Persons” who have no place of business in the state and;
- Only transact business with other broker-dealers, institutional buyers, issu-
ers or financial institutions
- Is licensed in the state where the person maintains a place of business
and only makes offers to existing customers who are not a resident of that
state. (This allows doing business with a client who is on vacation in
another state)
- The firm has no place of business in a State where an existing customer is
vacationing and contacts the customer in that State.
Test Clue: Make sure you understand which broker-dealers are EXCLUDED
from registration and those that are EXEMPT from registration. There is a dif-
ference between those two words. Anything that is excluded may required
the person or persons claiming the exclusion to prove as to why the exclusion
should apply. However, anything that is exempt is done so by operation of
law and no proof is required on behalf of those claiming the exemption.
Exam Example: Suppose the Peace of Mind brokerage firm located in down-
town Aurora, Illinois makes regular calls to mutual fund money managers in
Minneapolis, Minnesota offering to sell securities to them. However, Peace of
Mind does NOT have an office in Minneapolis. It needs to be pointed out that
the Peace of Mind brokerage firm does NOT deal with any retail investors in
Minneapolis.
Under the USA, Peace of Mind is not considered a broker-dealer in Minneap-

olis, Minnesota, because of the following reasons;
• It has no place of business in Minnesota, AND

• It deals only with institutional investors in Minnesota
1.2.2 Broker-Dealers EXEMPTED from registration
Broker-dealers that have no place of business in a State with 5 or fewer clients in
that State in a 12 month period of time.

Definitions
1.2.3 Broker/Dealer Capacity

Broker/Dealer Acting in an Agency Capacity
When a brokerage firm effects trades for the accounts of others they are acting in
an agency capacity and charge a commission.
Broker/Dealer Acting in a Principal Capacity

When a brokerage firm effects trades for its own account and brings the security
into its own inventory it is at risk and acts as a principal/dealer, not an agent.
When it sells the security to a customer it will mark up the price of the security
instead of charging a commission. A broker-dealer acting as a principal assumes
more risk than if acting as an agent.
1.2.4 Registration of Broker-Dealers

• The USA states that it is unlawful for any person to transact business in the
State as a broker-dealer or agent unless that person is registered in the
State.
• Broker-dealers are prohibited from employing an agent unless the agent is
registered. If an agent (must be an individual) is no longer employed by that
firm, the registration ceases.
• If a broker-dealer loses its registration voluntarily or otherwise, its agents are
no longer registered with that firm. Until they become associated with another
brokerage firm the agents cannot act as an agent and transact business with
customers.
• If an agent moves from one broker-dealer to another, the agent, the prior
employer and the new employer must promptly notify the Administrator of the
change.
• Agents must register with the State Administrator through a broker-dealer,
not directly.
• Most states prohibit agents from registering with multiple broker-dealers. In
most instances an agent will only be allowed to register with one broker-
dealer at a time. (No dual registration)
1.3 AGENTS
1.3.1 Definition of an Agent
Know this definition as it is quite important. If a person is defined as an agent,
state registration is required under the Act.
• An agent, known as a sales representative and a registered representative, is
any individual who represents a broker-dealer or an issuer in effecting secu-
rities transactions.

Definitions
• There is no requirement that an agent earns a commission under the USA.

Agents may be compensated with a salary or with commissions.
• Employees of brokerage firms who only perform clerical or managerial
functions and do not effect trades are excluded from the definition of an
agent and thus are not required to be registered. As an example, a partner
of the brokerage firm who has no sales function and who does not effect
trades is not required to register in the state as an agent.
1.3.1.1 Exclusions from the Definition of Agent

Test Clue: Basically, exclusions only apply to individuals who represent
issuers of exempt securities and exempt transactions but do NOT apply to
individuals who represent broker-dealers.
Individuals who represent issuers in trading the following exempt securities

would be excluded from the definition of agent:
• Foreign Government
• Municipal Government
• Canadian Government
• Bank and Savings Institutions
• Trust Companies
• U.S. Government
• Commercial paper with a maximum maturity of 270 days or less
• Securities in conjunction with savings, pension, profit sharing plans and
employee stock option plans.
• Individuals who represent issuers in exempt transactions are also exempt
from the definition of agent. Generally speaking, exempt transactions do
not usually involve the public.
- Transactions between the issuer and the underwriter
- Transactions with financial or institutional investors such as banks, trust
companies, savings institutions and pension plans.
- Transactions effecting employees, officers, partners and directors of the
issuer when no compensation is paid to the individual for their solicitation
- Private placements (not a public offering of securities)
- Sales to qualified purchasers

Definitions
1.3.2 Agents Exempted

• Agents who act for excluded or exempt broker-dealers are also exempt from
registration.
• In two situations agents of broker-dealers may engage in securities transac-
tions in a state BEFORE their registration is effective. This is known as the de
minimis rule for agents. They are;
- If an agent’s application for registration is pending in a state, the agent
may engage in transactions for up to 60 days with an existing customer who
has moved into the state (unless the state earlier denies the agent’s applica-
tion).
- The agent may engage in transactions with an existing customer who is in
the state temporarily (less than 30 days).
This assumes the following conditions are met before the above rule
applies;
• The agent must not be ineligible to register in the state

• The agent’s broker-dealer must be registered in the state
• The agent must be registered with a national securities association such as
the NASD
• The agent must be registered in at least one other state
1.3.2.1 Example of the De Minimis Rule Exemption
Trish K is a registered representative (agent) of the Peace of Mind brokerage
firm. One of Trish’s best clients, by the name of Paco, has been with Trish for
nearly 10 years. But Paco is moving from Illinois, where Trish and Peace of
Mind are located, to Florida. Paco would like Trish to continue handling his
account, even though Peace of Mind has another office in Florida. If Paco
moves and Trish applies to register as an agent in Florida, does she have to
wait until her registration is effective before continuing to service Paco’s
account?
No, because of the de minimis rule for agents, Trish may engage in transac-
tions for Paco, even though he now lives in Florida, for up to 60 days assum-
ing the four conditions stated in 1.3.2 are met. However, if the Adminstrator of
Florida denies Trish’s application within that 60-day period, she must immedi-
ately stop acting as an agent in that state.

Definitions
1.3.3 Agents for Issuers Not Exempted

• Individuals who represent issuers in effecting securities transactions are usu-
ally agents as well as long as the security or transaction is NOT exempt.
Example 1: Issuer Agent
Peggy Sue represents the Futuristic Company as president of the company.

In an effort to help raise capital through a stock offering, Peggy Sue sells
Futuristic shares of stock to several of her golfing buddies. By doing this,
Peggy Sue is representing Futuristic in effecting securiteis transactions and
would be considered to be an agent of Futuristic and therefore subject to
all applicable rules and regulations and must therefore register with the state
Administrator.
Example 2: Not an Agent
Assume Futurstic Company allows its employees to buy company stock and
an employee by the name of John, a Human Resources manager, arranges
those transactions. On the surface it appears that he should be considered
to be effecting securities transactions for Futuristic and should have to regis-
ter.
BUT, if John does not solicit transactions and arranges them only when initi-
ated by an employee, he is NOT an agent because of the exceptions listed
on the prior page in Section 1.3.1.1.
End of Chapter One

Investment Advisor and Other Definitions
Chapter 2: Investment Advisor and Other

Definitions
2.1 INVESTMENT ADVISERS
2.1.1 Definition of an Investment Adviser

Under the USA, an investment advisor is defined as any person who receives com-
pensation, whether directly or indirectly, for advising others as to the value of
securities, or their purchase or sale, whether through the issuance of analysis,
reports or otherwise.
2.1.2 Investment Advisor Registration

Investment advisers must register in states when as a person, for compensation;
• Provides advice, analysis or reports concerning securities

• Provides investment advisory services to others in a financial planning practice
• Provides these services in the regular course of their business
• Must NOT employ any device, scheme or artifice to defraud
• Engage in any dishonest or unethical practices as defined by the administrator.
2.1.3 Exclusions to the IA Definition

Exclusions from the definition of Investment Advisor (If excluded none of the follow-
ing would have to register as an investment adviser)
• Banks, savings institutions or trust companies

• Professionals whose investment advice is an incidental portion of their busi-
ness practice
- Lawyers
- Accountants
- Teachers
- Engineers
Test Clue: You will get a question right on this point. Most of the time th e
exam will substitute one of the above with another occupation such as an
“economist” instead of an “engineer”.

• Broker-dealers whose advice is incidental to their normal business practice

and who receive no special compensation for this advice.
• Publishers of bona-fide newspapers with a national circulation, news maga-
zines, business or financial periodicals and owners and employees of cable,
radio or television networks who do not render advice about specific invest-
ment situations or individual clients.
• Federal Covered Advisors who are registered directly with the SEC
• Any other person so designated by the State Administrator.
• Advisors having NO place of business in the state, and
- Their only clients are other investment advisers, broker-dealers, banks,
trust companies, financial institutions, insurance companies, investment
companies, employee benefit plans and government agencies.
• Giving advice solely to employee benefit plans with at least $1,000,000 in
assets.
• Those who register as Investor Adviser Representatives.
• Individuals who solely perform clerical or ministerial duties.
2.1.4 Exemptions to the IA Definition

Exemptions from the definition of Investor Adviser Registration and therefore
exempted from being licensed as an investment adviser.:
The Act exempts the following investment advisers from licensing and registration
requirements as long as Advisers have no place of business in the State and
whose only clients in the State consist solely of the following:
• Doing business only with other investment advisers

• Broker-dealers
• Federal covered advisers
• Banks, savings and loans, trust companies
• Insurance companies
• Investment companies under the Investment Company Act of 1940
• Government agencies
• Employee benefit plans
• Under the De Minimus rule, advisers who have no place of business in the
state and communicate with no more than 5 clients in a 12 month time
period.

• Anyone designated by the Administrator

2.1.5 Federal vs. State Registered Investment Advisers
Under the National Securities Act of 1996 different registration requirements were
established for investment advisers. Those advisors who must register with the
SEC as a Federal Advisor would not be required to register under this Act with the
states.
A federally registered advisor is defined as;
• Advisors with assets over $25,000,000 under management must register with
the SEC, a federal agency.
• Advisers with assets under $25,000,000 must register at the state level.
• Federal covered advisers must still file notice in the state or states they’re
working in and pay any required fees.
• Investment advisers advising registered investment companies
2.2 REGISTRATION INFORMATION FOR BROKER-DEALERS AND

ADVISERS
2.2.1 Registration Rule

It is unlawful under the USA for any person to conduct business as an investment
advisor if not excluded or exempted until they register with the SEC if federal reg-
istration is required or register with the states if state registration is required.
2.2.2 Registration Application Information

State Administrators require the following information on registration applications;
• Form of business such as a corporation, partnership or sole proprietorship.

• Location of the business
• Proposed method of doing business
• Business history
• Qualifications of the applicant, partners and/or officers
• Fingerprints of partners, directors or officers of broker-dealers, investment
advisers and investment adviser representatives
• Applicant’s financial history and current condition
• For investment advisers only, any information required to be furnished to any
client or prospective client
• Listing of any injunctions or administrative orders against applicant

• Disclosure of any convictions relating to misdemeanors in the securities busi-

ness and any type of felony
2.2.3 Other Registration Requirements

• The State Administrator can require an applicant for initial registration to pub-
lish an announcement of the application in one or more newspapers published
in the State.
• Federal covered advisers must file notice in the State by filing with the State
the same documents as have been filed with the SEC
• Initial filing fees must be filed for the registration of;
- Investment advisers
- Broker-dealers
- Agents
- Investment Adviser Representatives
• Annual renewal fees must be paid on time
Test Clue: Registration is effective 30 days from the filing date. If there are any
required amendments then registration would be effective 30 days from the
amendment filing date.
• Renewal periods vary from state to state. However, for exam purposes renew-
als are from calendar year to calendar year. So, registrations must be renewed
by December 31st of each year
• For agents or investment adviser representatives that are registered with the
SEC through the NASD (Central Registration Depository – CRD) state informa-
tion requirements would be satisfied.
2.2.4 Registration Standards for Broker-Dealers and Investment Advisers

For the most part registration standards are almost the same for both broker-deal-
ers and investment advisers.
Unless noted otherwise, the following standards apply to both;
• The State Administrator can require the maintaining of a Minimum Dollar

Amount of Net Capital. The purpose of this is to protect investors from possi-
ble business failure of a broker-dealer and/or investment adviser.
• Surety Bond Coverage (amounts set by State Administrators) are used to
ensure performance by broker/dealers and investment advisers under current
securities laws. Broker-dealers and investment advisers who have net capital

in excess of the minimum requirement may not be required to have a surety

bond. Also, if investment advisers do NOT take custody of customer funds
and/or securities there may NOT be a surety bond requirement.
• State Administrators can require higher bond requirements for those
investment advisers who do take custody of client’s funds and/or securities
and those investment advisers who have discretionary authority over a cli-
ent’s account.
Test Clue: The former Surety Bond law required a minimum of $10,000 cov-
erage. However, today the State Administrators can require any amount they
deem reasonable. And once again, in lieu of a surety bond a cash deposit
used as net capital could be required.
• The passing of a qualification examination. However, just passing the

exam is NOT by itself authority to transact business. Applicants may not
transact business until all required items are filed and the registration is
granted by the administrator.
• Financial reports as required by the State Administrator need to be filed.
2.3 OTHER INVESTMENT ADVISER STUFF
2.3.1 Investment Advisory Contracts

Investment advisors are prohibited from entering into, renewing or extending an
advisory contract unless the contract is in writing. The provisions of the contract
must state that the investment adviser:
• Cannot assign the contract without the consent of the customer

• Cannot be compensated on the basis of capital gains or capital appreciation
of funds in the account unless the fee is based on the total value of all assets
being managed
• If the investment adviser is a partnership, the customer shall be notified within
a reasonable time of any changes in the members of the partnership.
2.3.2 Custody of Customer Funds and/or Securities

If an advisor takes custody of customer funds or securities the advisor must;
• Keep them segregated and held in safekeeping.

• A written notice must be given to the customer of the location of the securities
and/or funds in custody.
• Provide customers at least quarterly a statement of account from the adviser.

• Notify the administrator if they have or will take custody of a customer’s funds
or securities. The administrator has the authority to sanction or disallow an
advisor from maintaining such custody.
Test Clue: It is prohibited for an investment advisor to have or take custody

of customer funds and/or securities if;
• The Administrator prohibits this by rule; or
• If there is no rule, the adviser fails to notify the Administrator that he has, or
will be taking custody of client funds and/or securities
2.3.3 Customer Disclosures
If an investment adviser wants to, or actually does act as a principal for its own
account, or act as a broker for both a client and another person when effecting
securities transactions, the adviser must;
• Have the client’s consent

• Disclose to all customers what capacity the adviser or brokerage firm is act-
ing in. In other words, is the brokerage firm/investor adviser acting as a bro-
ker or as a dealer? In fact, the NASD has a similar rule.
2.3.4 Consent to Service of Process

Broker-dealers, agents, investment advisers and investment adviser representa-
tives obtain or renew their registration by filing an application and a consent of
service to process with the Administrator.
This form giving consent to service of process appoints the State Administrator to
be the “attorney” for the registrant. In other words, if someone is making the regis-
trant part of a lawsuit the opposing party need only serve the State Administrator
with the notice of a law suit and it is the same as serving the adviser.
This consent is not required for renewal applications.
2.4 INVESTMENT ADVISER REPRESENTATIVE
2.4.1 Definition of an Investment Adviser Representative

An Investment Adviser Representative includes any partner, officer, director, or
other individual associated with an investment adviser who;
• Makes recommendations or renders advice regarding securities

• Manages accounts or portfolios of clients

• Determines which recommendations or advice regarding securities should be

given
• Solicits, offers or negotiates the sale of investment advisory services
• Supervises employees who perform any of the functions listed above
• Note: An employee of an investment adviser whose job is only clerical or
ministerial is NOT included in this definition.
2.4.2 Registration Requirements for Investment Adviser Representatives

To get an effective registration, persons registering as an Investment Adviser
Representative must be employed by an investment adviser.
• Representatives of federally covered advisers must be registered in the state

• Representatives of state covered advisers must be registered in the state
• An investment adviser representative terminating employment must promptly
notify the State Administrator
• When an adviser representative begins or terminates employment with a
state registered adviser, the investment adviser must promptly notify the
Administrator.
• Investment advisers cannot employ persons who have been suspended or
barred in the industry.
2.4.3 Registration Standards for Agents and Investment Adviser Represen-

tatives
• Requirement of passing a written examination (Series 63 for agents and
Series 65 for Investment Advisers)
• Investment adviser representatives must be employed through an investment
adviser
• Typically, agents and investment adviser representatives cannot be required
to post a surety bond or net capital. HOWEVER, if they take custody of cli-
ent’s funds and/or securities a surety bond and net capital requirement can
be required by the State Administrator.
2.5 ONGOING REQUIREMENTS
2.5.1 Books and Financial Records

Records relating to accounting, financial statements, trade tickets, customer
account files, correspondence and any other records must be kept on file for a
minimum time period of three years. However, if broker-dealers are required to

maintain records by the SEC and/or NASD for a different number of years those
rules take precedence over state rules.
2.5.2 Customer Reports

State Administrators may require that investment advisers provide certain infor-
mation to clients. This usually takes the form of an “Investment Advisory Bro-
chure”. This brochure may satisfy all or part of the reporting requirements required
by the State Administrators.
This is required by the Investment Advisers Act of 1940 and any compliance to
this Act satisfies any state requirements. The Brochure must be given to the pro-
spective customers at least 48 hours prior to entering into any investment advi-
sory contract.
2.5.3 Financial Reports

Broker-dealers and investment advisors must file financial reports to the State
Administrators as required. However if they are registered with the SEC then any
reports filed under the Federal Acts will satisfy the state requirements.
2.5.4 Inaccurate Information

If any reports are filed that contain any material incomplete or inaccurate informa-
tion, then a correcting amendment must be filed promptly. If the corrected infor-
mation is for an initial application the registration won’t become effective until 30
days after receipt of the amended registration.
2.5.5 Inspections
All required records of registered broker-dealers and investment advisers are sub-
ject to periodic or special examination by representatives of State Administrators.
State reviews can and are often coordinated with representatives of the SEC and
NASD.
2.5.6 Broker Dealer Acting as an Investment Adviser

A person is permitted to act as both a broker-dealer and an investment adviser
without dual registration. However, Administrators may, in certain instances, stop
a broker-dealer from transacting business as an investment adviser if they feel the
person is not qualified.
End of Chapter Two
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Complete Registration of Persons

Section 2: Securities
This section covers the definition of a security, sale, offer to sell, and
issuer along with examples of what is and what is not a security, includ-
ing Federal securities. The different types of registrations are reviewed
along with any applicable exemptions.

Definition and Examples
Chapter 3: Definition and Examples
3.1 DEFINITION OF A SECURITY

The basic definition of a security is an investment in a common enterprise for
profit, with management performed by another (third) party.
If an offering meets the above definition it is a security under the Act and therefore
would have to be registered in the state offered unless it is specifically exempt or
excluded.
3.2 DEFINITIONS OF A SALE, AN OFFER TO SELL AND OFFER TO

PURCHASE
Sale: A contract to sell or dispose of a security or an interest in a security for
value.
Offer to Sell: Any attempt or offer to dispose of a security, or a solicitation of an
offer to buy a security or an interest in a security for value.
Offer to Purchase: An attempt or offer to obtain a security or a solicitation of an
offer to sell a security or an interest in a security for value.
The following would also constitute a sale or offer to sell a security;
• Any security given as a bonus in conjunction with the purchase of a secu-
rity
• A gift of an assessable security (issuer can assess (charge) the owner for
additional funds)
• Sale or offer of a right, warrant or convertible security
3.2.1 Exclusions from the Definition
• Stock dividends paid to shareholders
• Security interest created as a result of a loan
• Gift of a nonassessable security
• Corporate reorganization caused by a merger, consolidation or sale of corpo-
rate assets

3.3 OTHER DEFINITIONS

Guaranteed: A guaranteed security is one in which the payment of principal,
interest and/or dividends is guaranteed by a third party.
Administrator: The USA is administered in each state by the State Administrator.
State: A state is defined as any state, territory or possession of the United States,
District of Columbia and Puerto Rico.
Arbitrage: A transaction that results in a profit by buying one security, as an
example, on the NYSE and selling it immediately on the Pacific Exchange for a
profit.
3 . 4 TY P E S O F S E C U R I T I E S
3.4.1 Corporate Securities

• Common stock, preferred stock, warrants and rights (Transferable shares)
• Debt instruments such as bonds, debentures and notes
• Treasury stock
• American Depository Receipts (ADRs)
• Equipment Trust Certificates (secured bond collateralized with some form of
equipment)
• Collateral Trust Certificates (secured bond collateralized with other securities
such as stock)
• Real Estate Investment Trust Certificates (secured bond collateralized with
real estate and/or mortgages)
• Collateralized Mortgage Obligations (CMO) (collateralized with mortgages
such as GNMAs and FNMAs)‘
• Voting Trust Certificates (Special corporate securities used in corporate
proxy fights)
3.4.2 Government Issues

• U.S. Government obligations such as T-bills, T-notes and T-bonds.
• U.S. Agency bonds such as GNMAs and FNMAs which are known as pass-
through mortgage bonds
• Obligations of States and Political Subdivisions like General Obligation (GO)
and Revenue Bonds.
• Foreign Government Bonds

3.4.3 Options Clearing Corporation Issues

• Call and put options which are option contracts with underlying securities
such as equities, debt instruments and market indexes.
3.4.4 Investment Company Issues

• Open-end fund shares, known as mutual funds. Shares are redeemable
through the mutual fund company, not in the markets
• Closed-end fund shares, commonly referred to as publicly traded shares.
Therefore, they don’t get redeemed through the company but are negotiable
and trade in the stock markets.
• Unit Investment Trusts, known as UITs. They are similar to mutual funds but
are not managed and would be redeemed.
• Variable annuities are annuities in which the underlying securities are
invested in the stock market. Choices of subaccounts similar to mutual fund
investments are chosen by investors.
• Investment Contracts known as front-end and spread-load contractual plans.
3.4.5 Tax Sheltered Issues

• Limited Partnerships such as real estate, oil and gas drilling programs, cattle
breeding and equipment leasing programs
• A subscription agreement is filled out by the investor and sent to the General
Partner with a check. Investors are not accepted until the General Partner
approves and signs the subscription agreement
• The accepted subscription agreement constitutes a certificate of interest in
the partnership and is a security
Test Clue: If the investor manages the partnership instead of the general
partner, the operation would be considered a business and therefore NOT a
security.
3.4.6 Other Issues Considered to be Securities

• Whiskey warehouse receipts
• Commodity options contracts
• Merchandise marketing schemes such as multilevel distribution programs

3.4.6.1 Issues Specifically Excluded form the Definition of Securities

(State registration as a security is not required)
• Insurance policies
• Insurance endowment policies
• Commodities futures contracts (remember, commodities option contract is
considered a security because it is an option contract)
• Interest in contributory or non-contributory retirement plans such as pen-
sion plans, Keogh (HR-10) plans, and IRAs. While these are NOT consid-
ered securities, the investment vehicles within them are securities.
3.5 ISSUER AND ISSUER RELATED DEFINITIONS
Issuer: An issuer is any person who issues or proposes to issue a security.

Corporation: An example would be PTS Inc. issuing a new bond issue. PTS is
the issuer and the new bond would be the issue.
Trust: Where there is no board of directors the issuer is defined as the person
performing the function of a manager or depositor under the Trust agreement.
Equipment Trust: The issuer is the person to whom the equipment is to be
leased or conditionally leased to – which is generally the corporation.
Issuer Transaction: The sale of securities is done for the benefit of the issuer as
the issuer receives the proceeds from the transactions. This is an example of the
Primary Market where a new issue stock is distributed by the issuer. Therefore,
the transaction is known as a primary transaction.
Another example of an issuer transaction is the redemption of mutual fund shares

back to the mutual fund company. Payment is made from the issuer (mutual fund)
to the shareholder.
3.6 DEFINITION OF A NON-ISSUER

• Person not defined as an issuer
• In a non-issuer transaction the proceeds from the sale of the securities go to
someone other than the issuer such as in the Secondary Stock Markets. Here
buyers and sellers are buying and selling between each other and the original
issuer company does not receive any of the proceeds as it did in the primary
market. This is also known as a Secondary Transaction.

3.7 FEDERALLY COVERED SECURITIES

Those securities identified as “federally covered securities” are securities but do
NOT have to register in individual states where sold but do have to register with
the Securities and Exchange Commission.
3.7.1 Some examples of Federally Covered Securities include;
• Stocks listed on the exchanges or NASDAQ
• Investment Company Issues registered under the Investment Company Act
of 1940
• Securities of an issuer that are equal to or greater in seniority than a listed
security
• Securities offered or sold to qualified purchasers (as defined by the SEC)
which is intended to emcompass sophisticated investors
• Certain exempt securities, including government securities and some private
placements. However, municipal securiteis are not covered securiteis with
respect to ofers and sales within the issuer’s state
3.7.1.1 With Federally Covered Securities, States May NOT
• Require registration or subject the offering to state review

• Regulate any offering document prepared by or on behalf of the issuer
3.7.1.2 With Federally Covered Securities, States May
• Require the issuer to file a notice, sales reports, and/or consent to service
of process. This, however, does not include the NYSE, AMEX or Nasdaq
NNM securities.
• Require the payment of a registration fee despite the fact that the state
may not require registration. This, however, soes not include the NYSE,
AMEX or Nasdaq NNM securities
• Investigate and bring enforcement actions regarding fraud, deceit, or
unlawful conduct by a broker-dealer in connection with the sale of covered
securities.
End of Chapter Three


Registration of Securities
Chapter 4: Registration of Securities
4.1 REGISTRATION OF SECURITIES

The Act states that it is unlawful for any person to offer or sell any security
in a State unless the;
• Security is registered in the States it is being sold in; or
• Security is a federal covered security (registered under Federal Law); or
• Security or transaction is exempt from registration
Filing fees must accompany all registrations. If the fee is not paid in full the
registration will be stopped or denied. The State Administrators can also require
filing of any advertising or sales literature to be used in conjunction with the offer-
ing of the new security.
Registration is effective for a period of one year. During this time period the
State Administrator can require filing of quarterly status reports on the progress of
the new offering.
The registration application may only be made by the issuer or any person
representing the issuer such as a broker-dealer selling shares or an officer of a
company selling shares in a registered secondary offering.
If the registration statement is incomplete or inaccurate, an amendment must
be filed prior to the registration becoming effective.
4 . 2 TY P E S O F S E C U R I T I E S R E G I S T R A T I O N
All securities that are classified as non-exempt (which means they are NOT
exempt from registration) are required to be registered. The USA provides for the
registration of securities by three methods.
They are as follows;
• Registration by Filing (Also known as Filing by Notification)
• Registration by Coordination
• Registration by Qualification
4.2.1 Registration by Filing (Also known as Notification)

• This method can only be used by seasoned companies. This means that
there must already be substantial trading activity and marketplace informa-
tion available. This is a less rigorous registration method.
• The issuer has been in business for at least 3 years.

• A registration statement was filed under the Securities Act of 1933.

• Company has timely filed all required reports with the SEC during the past 36
months.
• The issuer must have a total net worth of $4,000,000 or a net pre tax income
of $2,000,000 for 2 of the previous 3 years.
• Must have at least 4 registered market makers making a market in the
issuer’s equity securities for 30 days out of the preceding 3 months.
• Underwriter commissions may not exceed 10% of the offering price of the
security, and the minimum offering price is $5 per share.
• Issuer cannot have defaulted in any payment of principal, interest, divi-
dends or lease payments for the fiscal year preceding the registration filing.
• The offering price of a new equity security must be $5 or more.
4.2.1.1 Open-end investment company, known as mutual funds or Unit
Investment Trusts to register by Filing must;
• Have a prior securities registration in the state within the previous 24
months.
• Remain in compliance with all material terms of such prior registrations.
• Have no material change in the terms of the issuer’s securities, method of
selling securities, fund’s investment objectives or practices and the terms of
sale of its securities.
4.2.1.2 Required Information for this Type of Registration
• Filing a statement of eligibility for this type of filing.
• Provide the name, address and form of business of the issuer.
• Provide a description of the security being registered.
• Provide a copy of a current prospectus on file for the security.
Note: Registrations will be effective at the same time as the federal regis-
tration provided that no stop order is in effect, the required information and
documents have been on file for at least 5 days, and the registration fee was
paid.
If the federal registration became effective at an earlier time, the state regis-
tration becomes effective when all required conditions are met.
Registration by filing for mutual funds and unit investment trusts are effe-
tive on the day the required information is filed with the Administrator.

4.2.2 Registration by Coordination

Under this registration method the issuer can coordinate State registration with
an SEC registration being made under the Securities Act of 1933. Filing the SEC
information with the State will satisfy state registration requirements. This is a
more stringent rigorous method than Registration by Filing and can be used by
any company filing a registration statement with the SEC.
To register by Coordination, the issuer must file, in addition to the con-
sent to service of process, the following with the State;
• 3 copies of the current prospectus on file with the SEC
• A copy of the Articles of Incorporation and By-Laws of the corporate issuer
• A copy of any underwriter’s agreement
• Copy of any indenture relating to the issuer
• A specimen of the security to be issued
• Any other information or documents requested by the State Administrator
If no stop order is in effect, the State registration becomes effective when the Fed-
eral registration is effective.
State Administrators require that an application be on file for a minimum of 10
business days before becoming effective. However, State Administrators can
designate a shorter time period for the effective date. Many states have a 2 busi-
ness day prior to the effective date minimum in effect.
4.2.3 Registration by Qualification

A registration by qualification is the most difficult method of registering and can
be used by any security in any state.
4.2.3.1 The required information to be filed is as follows;
• General information such as the issuer’s name, address, type of organiza-
tion, location, description of property and equipment and statement of com-
petitive industry conditions.
• Information on all officers and directors of the issuer, including earnings for
each director for the past and current year.
• Terms of the offering.
• Information on all shareholders of 10% or more of the issuer’s securities.
• Amounts paid to promoters and non-issuers in the past 3 years and pro-
posed future payments. State Administrators can require stock given to pro-
moters be held in escrow for up to 3 years after registration is effective to
stop a promoter from immediately cashing out at a profit.

• Current financial records to include an income statement, balance sheet

and description of the issuer’s capitalization and long-term debt.
• How sales proceeds will be used.
• A copy of any prospectus, advertisement and sales literature related to the
offering.
• Description of any outstanding stock options.
• All contracts made within the past two years and disclosure of any litigation.
• Issuer’s Article of Incorporation and any trust indenture related to the secu-
rities offering.
• Legal opinion and accountant’s opinion.
• Any additional information required by the State Administrator.
Test Clue: Registration becomes effective on a date determined by the
Administrator. Normally this is 30 days after the date of filing, assuming
there were no misstatements or omissions of material facts found.
4.2.4 General Rules Regarding Securities Registrations

• All purchasers must receive the prospectus at or before the time an offer is
made in writing or a written confirmation of a sale is sent.
• Filing fees must be paid
• Any unusual fees paid to promoters may be required to be deposited into an
escrow account for up to 3 years
• Registration is effective for 1 year from its effective date
• Administrator may require the filing of quarterly reports by the issuer to dis-
close the progress of the offering
4.3 DENIAL, SUSPENSION AND REVOCATION OF REGISTRATION

The Administrator has the power to issue a stop order denying effectiveness to
registration, suspending registration or revoking registration of an issue if it is in
the public’s best interest to do so and/or;
• The registration statement is incomplete or contains false or misleading infor-

mation concerning a material fact.
• The Act has been willfully violated by any person involved in the offering.
• The security is already subject to a stop order or injunction by another state
or Federal court.

• The issuer’s enterprise is illegal or tends to be fraudulent or deemed unfair or

inequitable to the purchaser.
• Underwriter’s compensation in the offering is unreasonable.
• The issuer is ineligible for the registration method applied for or doesn’t meet
the requirements.
• Proper filing fees have not been paid.
Note: An Administrator may not institute a stop order proceding against an

effective registration statement on the basis of facts that were known to the
Administrator when the registration statement became effective unless the
proceedings are instituted within 30 days.
Test Clue: If the Administrator issues a stop order the issuer must be given
an opportunity for a hearing. The issuer must request a hearing within 15
days. If no hearing is requested then the order remains in effect.
End of Chapter Four


Exempt Securities and Transactions
Chapter 5: Exempt Securities and

Transactions
5.1 EXEMPT SECURITIES

Securities that are exempt are exempted from both state registration requirements
as well as advertising filing requirements. Even though a security may be exempt
from registration requirements it is still subject to the Antifraud Provisions of the
USA.
The USA specifies the following as exempt securities;
• Securities issued by the U.S. Government, any municipality or agency of the
U.S. Government
• Canadian and other foreign governments
• Issues of banks, savings and loans, trust companies and federal credit
unions
• Insurance company issues (does not include variable contracts)
• Securities issued by Railroads and Common Carrier regulated by the Inter-
state Commerce Commission
• Public utility securities issued by the Public Utility Holding Act of 1935
• Any security listed on any exchange and the NASDAQ NMS system (This is
known as the “Blue Chip Exemption”)
• Issues of non-profit or charitable organizations and professional trade associ-
ations and cooperatives
• Promissory notes that will mature in 270 days (9 months) or less that are
rated in one of the 3 highest rating categories (i.e. AAA) and issued in
amounts of at least $50,000.
• Investment contracts issued in conjunction with employee stock purchase,
profit sharing, pension or other employee benefit plans.
5 . 2 E X E M P T TR A N S A C T I O N S
Exempt transactions are generally trades that do not involve the public. If a per-
son offers a security in an exempt transaction then the issue does not have to be
registered in that State.
The exempt transactions under State law are;
• Isolated non-issuer transactions: These are trades for the benefit of some-
one other than the issuer. Typically these transactions are limited to no more

than 5 trades within a 12 month period and the broker-dealer cannot be a

resident of the state the trades are executed in.
• Certain non-issuer distributions: This is normal secondary market trading
of securities that have already been registered with the SEC. This exemption
is not available for initial public offerings (IPO) as the issue must be in exist-
ence for at least 180 days.
• Non-issuer transactions in outstanding securities of companies regis-
tered under the Investment Company Act of 1940: This is the normal sec-
ondary market trading of investment company securities that have already
been registered with the SEC.
• Unsolicited Transactions: Trades which are effected through a broker-
dealer pursuant to unsolicited orders to buy or sell.
• Fiduciary Transactions: Transactions made by executors, administrators,
sheriffs, marshals, trustees in bankruptcies, guardians and conservators.
• Transactions between issuers and underwriters: Exempt because the
public is not involved.
• Transactions with financial or institutional investors: Trades with banks,
insurance companies, trusts, investment companies, pension funds and other
institutions.
• Private Placements: An offer made to no more than 10 persons in a 12
month period. Note that the Federal Regulation D private placement limits
sales to 35 regular investors and to an unlimited number of accredited (more
knowledgeable and/or wealthier) investors.
• Offers or sales to existing shareholders where no commissions are paid
• Sale of pre-organization subscriptions: Exempt if no commissions are
paid for soliciting potential subscribers and the number of subscribers are lim-
ited to 10 persons.
5.3 REVOCATION OF AN EXEMPTION

A State Administrator can deny or revoke the exemption for any security or
transaction as long as prior notice is given to all interested parties, an opportunity
for a hearing is provided and written findings and laws are provided.
The Administrator may summarily deny or revoke any exemptions pending final
determination of any proceeding.
If a summary order is entered, the Administrator must;
• Notify all interested parties with the reason for entering the order
• Provide that a hearing be set within 15 days of receipt of a written request

• If no hearing is requested or ordered the summary order will remain in effect
Test Clue: The burden of proving the existence of an exemption for any
proceeding under the USA rests upon the person claiming the exemp-
tion.
End of Chapter Five


Federal Covered Securities
Chapter 6: Federal Covered Securities
6.1 OVERVIEW
Issues of federally traded securities are covered under federal rules that preempt
states from regulating their public offerings, proxy solicitations and periodic disclo-
sures. The USA defines federally covered securities as any of the following;
• Securities listed on the New York Stock Exchange as well as other stock
exchanges and the NASDAQ NMS (National Market System).
• Investment company shares issued by a registered investment company
under the Investment Company Act of 1940.
• Securities that are offered or sold to qualified purchasers, which are defined
by the SEC as being sophisticated investors.
• Certain exempt securities and private placements.
Test Clue: The Administrator cannot require registration of federally covered

issues in the State.
However, the Administrator can require, for the initial offering of securities
in a State by an issuer;
• A notice filing in the State
• Filing with the State documents filed with the SEC along with a consent to
service of process
• Payment of filing fees in the State
End of Chapter Six
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Complete Securities Section

Federal Covered Securities

Section 3: Business Practices
Business practices covers all fraudulent and dishonest business prac-
tices including illegal trade practices, compensation, handling of cli-
ent securities, communications and more.

Sales and Purchases
Chapter 7: Sales and Purchases
7.1 BACKGROUND
According to the Uniform Securities Act (USA), which is the state act, it is unlawful
for any “person”, in conjunction with any offer, sale or purchase of any security,
directly or indirectly to do any of the following;
• Employ any device, scheme or artifice to defraud
• Make any untrue statement of a material fact or omit to state a material fact
necessary to make a statement not misleading
• Engage in an act, practice or course of business which operates or would
operate as a fraud or deceit upon any person
• Effect a transaction for a customer as a broker or a broker-dealer without
obtaining the consent of the client. This amounts to unauthorized trading.
• Engaging in any dishonest or unethical practice as the State Administrator
may define by rule.
• Engage in a pattern of unreasonable and unjustifiable delays in the delivery
of securities purchased by any customer.
As the language in this Act is written very broadly it is clearly understood that any
conceivable action taken by a person can be considered to be fraud. In fact, the
wording is close to the SEC “catch all” fraud rule.
Under the USA, it is unlawful for any person who receives compensation, directly
or indirectly, for advising as to the value of securities or their purchase, or sale
including the use of analyses or reports to do any of the following;
• Engage in any act, business or practice which operates as a fraud or deceit
on any person such as representing that an agent’s or broker-dealer’s license
means approval of the person’s activities and capabilities.
• Make false or misleading statements with respect to the sale or purchase of a
security such as:
- Implying the SEC approved the security
- Implying the SEC approved you as an agent
- Implying the security is safe because it’s regulated by securities industry
regulations
- Indicating that a security will be listed on an exchange or the NASDAQ
without knowing the information to be true

Sales and Purchases
- Promising to perform free services which are not really free or there is a
catch attached
- Promising to perform services with no real intention to do so
- Providing inaccurate market quotations
- Misrepresenting or overstating a client’s account
- Making exaggerated claims
- Inaccurate statements as to the amount of commission or mark-ups being
charged in a securities transaction
- Spreading rumors or false statements with the intent of effecting a securi-
ties transaction
- Incorrect statements of an issuer’s past earnings or future earning’s projec-
tions
- Executing a transaction without authorization to do so.
7.2 FAILURE TO STATE IMPORTANT FACTS
Just as important as making false or misleading statements, the USA also makes
it illegal and a violation for omissions (leaving out) of material facts such as;
• Failure to bring customers’ written complaints to your supervisor at the bro-
kerage firm for resolution
• Deliberately being selective in the information being provided to your client
• Not disclosing to the client who prepared the research provided by your bro-
kerage firm
• Not notifying a client that a transaction will result with larger than normal com-
missions or transactions costs
• Failure to disclose that the broker-dealer is controlled by an issuer of any
security being offered to customers.
7.3 USE OF NON-PUBLIC INFORMATION

Non-public or insider information is defined as any information that has not been
disseminated to the general public. Non-public information is further defined as
that information which has an effect on the value of a security, up or down.
It is a violation of the USA to do any of the following;
• Effect any transactions which are based on the use of material inside infor-
mation

Sales and Purchases
• Pass on or transmit non-public information to anyone who might use it for

trading purposes
• Make recommendations to clients to either buy or sell securities which are
based on material inside information
• Inducing customers to trade based on hearsay or rumor because the truth of
the information is not known.
Test Clue: If you are in receipt of any inside information, no matter what the
source, you should notify your immediate NASD registered principal.
7.4 SUITABILITY ISSUES
Prior to making security recommendations to clients the registered representative
must ensure that the elements of the securities recommended are suitable for
those particular clients. Key suitability questions must be asked of the clients in
reference to investment objectives, risk tolerance, investment experience,
finances and more.
The USA addresses violations of suitability rules and these violations are as
follows;
• Failure to inquire into a client’s financial situation, investment needs and
investment objectives.
• Engaging in transactions solely for the purpose of generating commissions
(churning).
• Recommending securities without regard to the customer’s financial situation
or objectives.
• Failure to disclose important facts concerning the risks of any recommended
investments.
• Recommending securities without having a reasonable basis for the recom-
mendations. Even discretionary trades must be suitable.
• Performing trades excessive in size in relation to the customer’s resources.
7.5 DISCLOSURE OF MATERIAL INFORMATION

The USA specifically makes it unlawful to withhold material information from a cli-
ent. A material fact is defined as one that would be essential in making an
informed investment decision. Agents must not be selective in what investment
information is given to customer. All material information must be communicated,
not just the “good stuff”. After all, it takes an “informed client” to make appropriate
investment decisions.

Sales and Purchases
7.6 OTHER PROHIBITED ACTS

In addition to all the fraudulent acts previously mentioned, here are some more
prohibited practices;
• Guaranteeing a client’s account against losses or guaranteeing a profit
• Borrowing money from a client
• Commingling customer funds with agent funds or funds of a broker-dealer
• Exercising discretion in a customer’s account without written authority
• Deliberately failing to follow instructions from a client (e.g. client chooses a
growth fund and you purchase an income fund instead)
• Sharing in the profits or losses of a client’s account unless a joint account is
opened with permission of the brokerage firm
• Accepting orders for a client from a third party without obtaining a written third
party trading authorization from the customer
• Effecting private transactions with clients without the authority or permission
of the agent’s broker-dealer. This is known in the NASD world as “selling
away”
• Soliciting orders for non-exempt unregistered securities.
• Charging unreasonable and inequitable fees for services performed.
• Splitting the agent’s commissions with any person not also registered as an
agent for the same broker-dealer or for a broker-dealer under direct or indi-
rect common control.
• Establishing or maintaining an account containing fictitious information in
order to execute transactions which would otherwise be prohibited.
• Participating in manipulative market activities such as;
- Giving fictitious quotes
- Effecting “wash trades” (buying and selling securities to give the appear-
ance of trading activities)
- Effecting “matched orders” (trades that cancel each other but give the
appearance of trading activity)
- “Painting the Tape” (participating in securities transactions with the inten-
tion of giving the appearance of trading activity)
- Disclosing information about a customer account to someone other than
the customer, unless such disclosure is authorized by the client.

Sales and Purchases
• Not providing a prospectus required by the Securities Act of 1933. The pro-
spectus must be given to a client prior to or at the time of solicitation.
Test Clue: You are NOT permitted to mark up, highlight or underline a pro-
spectus in any way to help point out important items to your clients. Making
any marks on a prospectus is considered an amendment to the prospectus
and is an SEC violation.
7.7 COMMUNICATING WITH CLIENTS
7.7.1 Advertising and Sales Literature

The State Administrator may require advertising and sales literature to be filed
with the State unless the security or transaction is exempt, or a federally covered
security.
Cannot use any advertising or sales presentations in such a fashion as to be
deceptive or misleading such as distributing any nonfatal data or material.
Included as advertising and sales literature are the following examples;
• Circulars
• Pamphlets
• Form letters
• Seminars
7 . 8 D E N Y, R E V O K E O R S U S P E N D R E G I S T R A T I O N
Registration may be denied, suspended, or revoked if the Administrator finds that
it is in the public interest and that the person who is the subject of the order;
• Has filed a registration application that was materially incomplete, false or
misleading.
• The registrant has willfully violated the Act’s provisions.
• Has not paid the required fees.
• The registrant is subject to a State Administrator’s order denying, suspending
or revoking the registration.
• The State Administrator deems the applicant unqualified based on the level of
experience, training, or securities knowledge.
Test Clue: A State Administrator cannot use this point, by itself, to disqual-
ify any new applicant as new persons are probably unqualified at this point.
So, this requirement would be coupled with another requirement prior to
any disqualification.

Sales and Purchases
• The registrant is deemed to be insolvent which is defined as the inability to

meet obligations as they come due.
• A court action has permanently or temporarily prohibited the registrant from
engaging in the securities business.
• Has engaged in unethical or dishonest business practices.
• The registrant has been convicted (not just arrested)of a misdemeanor
involving securities or has been convicted of any felony within the past ten
(10) years.
• Has failed to properly supervise employees. This provision applies to broker-
dealers and investment advisers but does NOT apply to agents.
• Been suspended or had its registration revoked by any State or the SEC
within the past 10 years.
Test Clue: The State Administrator is permitted to summarily postpone or

suspend registration, pending a final determination. The applicant must be
promptly notified and the applicant has 15 days from requesting a hearing
on the action. If the applicant does not request a hearing within the 15
days, the order will stand until the State Administrator decides that it should
be changed.
7.9 CANCELLATIONS AND WITHDRAWALS
• Broker-dealers, investment advisers and agents can withdraw from registra-
tion voluntarily by submitting an application. The withdrawal becomes effec-
tive 30 days after the filing date.
• If a broker-dealer or investment adviser loses its registration, all agents (reg-
istered representatives) and investment adviser representatives of that bro-
ker-dealer or investment advisers also will lose their registrations until they
register and reinstate with another broker-dealer or investment adviser.
• If legal proceedings are commenced within one year, registration cannot be
withdrawn. This is done so that the State Administrator can maintain jurisdic-
tion over those involved in a legal action.
• Registration can be canceled if the State Administrator cannot locate any reg-
istered persons, find that a registered person has been declared incompetent
or no longer in business.
End of Chapter Seven

Complete Business Practices

Section 4 - Administrative Provisions
and Other Remedies
6 Questions – 10%
Administrative provisions and other remedies review the operating
procedures for the administrator including investigations, issuing
subpoenas and orders, jurisdiction, administrative actions, penalties,
liabilities and other provisions.

Powers of the Administrator, Liabilities and Penalties
Chapter 8: Powers of the Administrator,

Liabilities and Penalties
8.1 POWERS OF THE ADMINISTRATOR

• Conduct investigations
• Issue subpoenas for persons and records (if not obeyed can be held in con-
tempt of court)
• Can publish information about violations
• Can compel testimony that incriminates. However, individual can rely on their
5th Amendment right (Federal Law) against self-incrimination
• Can issue an injunction or restraining order to cease and desist activities
without conducting a hearing. Upon granting of an injunction or restraining
order, a receiver or conservator may be appointed for either the defendant or
the defendant’s assets.
• Any person in disagreement with the final order of an Administrator may
obtain a review in the appropriate court. Written petitions must be submitted
within 60 days of the entry of the order.
• If a violation took place in another State and proves a violation then this State
can also take action.
• The Administrator is empowered to deny, suspend or revoke any registration
or registration statement if it is deemed to be in the public’s best interest and
there is just cause in accordance with the Uniform Securities Act (USA).
8.2 CRIMINAL LIABILITIES AND PENALTIES

Criminal liabilities exist if a person is found to have willfully violated any order
or provision of the USA. A willful violation is classified as a felony under the Act.
• Maximum penalty for each violation is a $5,000 fine and/or 3 years in prison.
• The statute of limitations for these actions is five years from the date of the
alleged violation. (Note: The amount of years can vary from state to state)
• Restitution to the investor may also be required
8.3 CIVIL LIABILITIES UNDER THE ACT

If the violation was not willful or intentional it is considered to be a Civil Viola-
tion, not a criminal violation. With civil liability the transaction is considered null
and void. The main intent behind civil liabilities is that the customers get their

investment dollars back. (Note: There is no such thing as civil penalties, only
criminal penalties)
8.3.1 If the Investor Still Owns the Security

If the investor still owns the investment purchased the customer is entitled
to recover the following;
• Original purchase price of the security, plus
• Costs and reasonable attorney fees, plus
• Interest on the money invested, computed from the purchase date, at the
legal interest rate (most states use 6%), minus any income already received
8.3.2 If the Investor No Longer Owns the Security

If the customer purchased the security in question but no longer owns it the cus-
tomer is still entitled to recovery as listed above. Mathematically, the customer
can recover the difference between the original price paid and the price at which
the security was disposed of, plus interest paid at the legal rate, plus attorney’s
fees, minus any income received from the security.
If an investor purchased a security that was sold in violation of the Act, the inves-
tor is entitled to retain the profitable investments and still seek recovery as men-
tioned above for the unprofitable investments.
8.3.3 Transactions Where Civil Liability Applies

Civil liabilities apply for the following violations;
• Failing to register as an agent or broker-dealer

• Selling unregistered securities in non-exempt transactions
• Transactions that willfully manipulating the market
• Failing to give a customer a prospectus where required
• Failing to file sales literature and advertising as required
• Misrepresenting the status of an agent’s or a security’s registration
• Making unintentional false statements or omitting material facts
Note: Any civil suits must be brought no later than 3 years after the contract of
sale was executed. Such law suits cannot be brought later than 2 years after the
discovery of the facts constituting the violation.

8.4 OFFER OF RESCISSION
If a person realizes that they have effected an illegal securities transaction, they
may, with a Letter of Rescission, offer to;
• Provide a written explanation of the liability and advise the purchaser of his/
her right of rescission.
• If the violation was caused by the omission of material information, any infor-
mation necessary to correct the error must be furnished.
• An offer to repurchase the security for cash in the manner previously dis-
cussed.
• A statement that the offer must be accepted within 30 days.
• No law suits are permitted by the investor if the right of rescission is not exer-
cised by the client within 30 days of the written notice.
8.5 SCOPE OF THE ACT AND JURISDICTION
8.5.1 Scope of the Act

The State Administrator is empowered by the USA to amend or rescind any rule
that is deemed necessary to carry out the provisions of the Act. The only portion
of the Act that the Administrator cannot change is the defined exempt securities
such as U.S. Governments, Municipals etc.
8.5.2 Jurisdiction of the Administrator

The USA gives the administrator jurisdiction over any offer to buy or sell (in
writing or verbally) or any acceptance of the offer, when;
• Either the agent or the client reside in the State
• The transaction was effected in the State
• The offer is directed from the State
• The offer is directed into the State
• An offer is accepted in the State
8.5.2.1 Interstate Rules and Problems

There is reciprocity for the enforcement of subpoenas, but only if the activities
for which the information is sought by another administrator would constitute
a violation under this Act had the activities occurred in this State.
If an out of state person refuses to produce documents or testify in this state,
as an example, a court in this state can request an order to compel compli-
ance from a court of another state able to assert jurisdiction over that person.

Test Clue: When analyzing jurisdiction questions, the State that has original
jurisdiction is the State that the “bad deed” was done in. Then all the other
involved States get jurisdiction.
8.5.3 Jurisdiction over Offers Made in the Media

An offer made in a newspaper with a general regular and paid circulation is not
considered to be made in the State if:
• The newspaper is not published in the State; or
• If the newspaper is published in the State but has more than 2/3 of its circula-
tion outside the State, during the last 12 months.
Test Clue: Any offer to buy or sell securities made through television or radio
that is broadcast in the State is not considered to be made in this State if the
communication originates outside the State.
• But, the broadcast is considered as having originated in this state if either the
broadcast studio or the originating source of transmission is located in this
state.
8.5.4 Situations to think about

• If an offer originates in Wisconsin and is directed into Illinois, the offer is con-
sidered to be made in both states.
• A person in Illinois makes an offer to buy as a result of an advertisement she
sees in a paper published in Indiana) or seen/heard in a radio or television
program originating in Indiana). If the seller in Indiana accepts the offer in Illi-
nois the Administrator in Illinois would have original jurisdiction.
• If a selling broker-dealer located in Illinois delivers a security into Florida, or
the buyer in Florida sends a check in payment from within Florida, the Florida
USA statute applies when delivery of the stock constitutes the seller’s accep-
tance of the buyer’s offer to buy.
8.5.4.1 Test Question Example:

An agent registered in Illinois sells a security registered only in Wisconsin to a
resident of Iowa. The sale takes place in Kentucky. Primary jurisdiction for
any violations of the USA is that of the Administrator of the State of;
A. Wisconsin
B. Illinois
C. Iowa
D. Kentucky

8.5.4.2 The Answer

(D) The USA empowers an Administrator to take action against a person who
violated the Act, if any activity that materially contributes to the violation
occurs in his state. Here the jurisdiction is the state where the dastardly deed
takes place... the state where the sale is made.
End of Chapter Eight
End of the Series 63 Content Review!

Complete Administrative Provisions
Then complete the following on the CD:

1. Chapter Exams
2. Final Exams
3. “Timed State Exam”
Good luck!
You will pass the Series 63!


NASD Series 63 Important Terms
Acting in a principal capacity: when a broker-dealer makes trades for its own
account, thus bringing the security into its own inventory.
Acting in an agency capacity: when a brokerage firm makes trades for the
accounts of others and charges a commission.
Agent: individual who represents a broker-dealer when performing securities
transactions; basically a sales representative or registered representative of the
broker-dealer.
Arbitrage: a transaction that results in a profit or attempt to profit by exploring
price differences of identical or similar investments on different markets or in dif-
ferent forms.
Broker-dealer: a person who engages in the business of making securities trans-
actions for the accounts of others or for its own account, known as propriety trad-
ing.
Call and put options: option contracts with underlying securities such as equi-
ties, debt instruments and market indexes.
Closed-end fund shares: commonly referred to as publicly traded shares; they
are not redeemed through the company but are negotiable and trade in the stock
markets.
Collateral trust certificate: secured bonds backed up (collateralized) with some
form of equipment or other securities.
Collateralized mortgage obligations (CMOs): securities are backed up (collat-
eralized) with mortgages such as Ginnie Maes and FNMAs.
Debt instruments: the corporation is borrowing money, not selling part of the
company by issuing stock; debt instruments include bonds, debentures and notes.
Equipment trust certificate: secured bond collateralized with some form of
equipment.
Federally covered adviser (federally registered adviser): investment adviser
that manages $25 million or more of assets or investment adviser to registered
investment companies.
Federally covered securities: securities which are NOT required to register in
the individual states where sold; however, they must be registered with the Secu-
rities and Exchange Commission (SEC).
Fiduciary transactions: transactions made by executors, administrators, sher-
iffs, marshals, trustees in bankruptcies, guardians and conservators.

Guaranteed security: a security in which the payment of principal, interest and/or

dividends is guaranteed by a third party.
Investment Adviser: must register with states when providing for compensation,
(1) investment advisory services to others as part of a financial planning practice,
(2) advice, analysis or reports concerning securities or (3) these services in the
regular course of their business.
Investment adviser representative: includes any partner, officer, director or
other individual associated with an investment adviser who (1) makes recommen-
dations or renders advice regarding securities; (2) manages accounts or portfolios
of clients; (3) offers, solicits or negotiates the sale of investment advisory services;
(4) determines which recommendations or advice regarding securities should be
given or (5) supervises employees who perform any of the functions listed above.
Investment adviser contracts: must state the following three provisions: (1)
investment adviser cannot assign the contract without the consent of the client; (2)
investment adviser cannot be compensated on the basis of capital gains or capital
appreciation of funds in the account unless the fee is based on the total value of
all assets being managed and (3) if the investment adviser is a partnership, the
client shall be notified within a reasonable time of any changes in the members of
the partnership.
Isolated non-issuer transactions: trades for the benefit of someone other than
the issuer; typically these transactions are limited to five (5) trades within a 12-
month period and the broker-dealer cannot be a resident of the state in which the
trades are done.
Issuer: any person who issues or proposes to issue a security.
Issuer transaction: the sale of securities is done for the benefit of the issuer.
Matched orders: trades that cancel each other but give the appearance of trading
activity.
Non-issuer: any person not defined as an issuer.
Non-issuer distribution: normal secondary market trading of securities that have
already been registered with the SEC; exemption is not available for initial public
offerings (IPOs) as the issue must be in existence for at least 180 days.
Non-public or insider information: any information that has not been dissemi-
nated to the general public; information which has an effect on the up or down
value of a security.
Offer to purchase: an attempt to offer to obtain a security; a solicitation of an
offer to sell a security or an interest in a security for value.
Offer to sell: any attempt or offer to dispose of a security; a solicitation of an offer
to buy a security or an interest in a security for value.

Open-end fund shares (mutual funds): shares are redeemable through the
mutual fund company, not in the markets.
Painting the tape: participating in securities transactions with the intention of giv-
ing the appearance of trading activity (illegal).
Person: includes corporations, associations, business trusts, partnerships,
estates, political subdivisions of governments, joint ventures or joint stock compa-
nies, individuals and governments.
Primary market: a new issue comes to market by the issuer and is known as a
primary transaction.
Real estate investment trust (REIT) certificates: bonds that are secured
(backed up) with real estate and/or mortgages as collateral.
Registration by Coordination: under this registration method the issuer can
coordinate state registration with an SEC registration being made under the Secu-
rities Act of 1933; filing the SEC information with the state will satisfy state regis-
tration requirements; this is a more stringent, rigorous method than Registration
by Filing and can be used by any company filing a registration statement with the
SEC.
Registration by Filing (Filing or Notification): this method can only be used by
seasoned companies; there is substantial trading activity and marketplace infor-
mation.
Registration by Qualification: the most difficult method of registering and can be
used by any security in any state.
Sale: a contract to sell or dispose of a security or an interest in a security for
value.
Security: any legal instrument that indicates ownership or debt in a business,
including negotiable and nonnegotiable instruments or contracts representing
money or other property.
Selling away: effecting private transactions with clients without the authority or
permission of the agent’s broker-dealer.
State: any state, territory or possession of the United States, the District of Colum-
bia and Puerto Rico.
State administrator: official in each state designated to administer, enforce and
otherwise carry out the provisions of the state’s securities act. They examine the
books and records of an issuer as often as necessary to guard against fraudulent
practices.
Treasury stock: common stock of a company that is being held by the company.
When a company buys its own stock back this is called treasury stock.

Unit investment trusts (UITs): similar to mutual funds but are not managed.
Unsolicited transactions: trades made through a broker-dealer pursuant to
unsolicited orders to buy or sell.
USA: Uniform Securities Act (State Law)
U.S. agency bonds: (e.g. Government National Mortgage Association (GNMA)
and Federal National Mortgage Association (FNMA); known as pass-through
mortgage bonds.
Variable annuities: annuities that are invested in the stock market; choices of
types of mutual fund investments are chosen by the investors.
Voting trust certificates: special corporate securities used in corporate proxy
fights.‘

Professional Training
Services, Inc.
Series 6 & 63
TesTaker
Program
SECTION EXAMS
FINAL EXAMS
TIMED FINAL EXAM

Installing the Program:
After agreeing to the terms of CD Rom use, break the seal of the CD Rom plastic
container and insert the CD into your CD drive.
Note: The Series 63 data set is located on the CD Rom. You MUST keep the
CD Rom in the CD Rom Drive at all times when running this program. Also, you
have 150 days or 5 months to complete each program. The clock starts to run
when you START using the Series 63 exam reviews program.
Follow these steps to install and to use the exam review programs:
1. Double-click on “My Computer.”

2. Double-click on “Control Panel.”
3. Double-click on “Add/Remove Programs.”
4. Click the “Install” button.
5. When the program directs you to insert the floppy disk or CD, click the “Next”
button.
6. When the file “Setup.exe” appears in the command line, click the “Finish”
button.
Once the installation program begins, a box will appear stating that files are being
copied. Please wait until this process is completed. When the necessary files are
copied, a screen will appear advising you to close any open programs. This is a
standard warning. Close any open programs and click the “OK” button.
The next screen will allow you to specify where to install the program files. Unless
you are familiar with specifying destination directories, it may be best to simply
accept the default directory. Either way, to continue the installation by clicking the
button with the picture of the computer.
During the installation process, you may encounter some messages. Sometimes
the installation program will advise you that a file is being copied that is not newer
than the file that already exists on your computer. It will ask if you want to keep the
existing file and suggest that you do so. You should keep the existing file by
clicking the “Yes” button.
In some rare instances, the setup program may need to update your system files,
which will then require a reboot of the computer. If it so requests, it is safe to
accept the update and allow the setup program to restart your computer. Once
your computer has rebooted, you will need to restart the setup program, following
the directions above.

Starting the Program:
The TesTaker program can be started by clicking on the “Start” button, then the
“Programs” menu, then the “TesTaker” menu. A copyright screen will appear. Click
the button labeled “Click Here” to commence the program.
Importing a Data Set:

The first time the program starts, it will determine that no questions have yet been
imported, and will display the following message:
To import questions, click the File menu, then the “Get Questions” menu. The
following dialog box will appear: (This dialog box could say “My Documents”)
Click the down arrow to the right of the text box labeled “Look in” to navigate to
your CD-ROM disk. (Usually Drive D or E with a picture of a CD Rom on the
icon) On that disk, one or more files will appear that end in the “.set” extension.
Click on a set file to select it, and then click the “Open” button to import the
questions. Once the import process is completed, a message box will appear
showing the total number of questions imported.

The various tests and other menus will then be activated and you are ready to
begin using the program.
From time to time you may purchase additional data sets. You can load other data
sets by following the same process listed above.
Taking Tests:
You can take exams by clicking on the menu heading for the desired test, then
click the desired test and the first question will appear. You answer the question
by either clicking on the desired answer button or typing the letter A, B, C or D on
your keyboard. When an answer is selected, the button graphic will change to
either “Yes” or “No”. You can then select other choices to find the correct answer,
but only your first response is counted toward your score. If and when the Explain
button appears, it means that an explanation is available for that question and can
be viewed by clicking on the button.
During a test, you are able to skip a question by clicking on the “Skip” button. The
question will then be skipped and will be brought back once you have completed
the other questions. You can skip as many questions as you wish.
Should you desire to exit the program prior to the completion of a test, you can do
so by first clicking the “Exit Test” button. You will be asked to confirm your desire
to exit the test prior to completion. You will then be offered the chance to save the
test so that you will be returned to the same question the next time the program
starts. If you save a test, the next time you start the program you will be given the
opportunity to pick up where you left off.
Uninstalling TesTaker:
Once you have successfully completed your actual licensing exam, you may wish
to remove the TesTaker program from your computer. To do so:
1. Double-click on “My Computer.”

2. Double-click on “Control Panel.”
3. Double-click on “Add/Remove Programs.”
4. In the list of programs installed, click on TesTaker.
5. Click the “Add/Remove” button.
The program will then be uninstalled from your system, releasing valuable hard
drive space.

Special Note: If you purchased more than one program you must follow the
procedure mentioned in the “importing a data set” section once again. Make sure
you are “pointing” to your CD Rom drive, not your C Drive. A warning will appear
indicating that “prior questions will be deleted”. This DOES NOT delete anything
from the CD Rom. It just deletes the current program questions such as the Series
63 from your computer’s memory in order to allow the new program to import the
new questions. You can always go back to the former program by following the
same procedure.

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NASD Series 63

Uniform Securities Agent State Law

© All rights reserved by Professional Training Services Inc.

This publication is designed to provide accurate and

SuccessTrak® is a registered trademark belonging to

Printed in the United States of America.

Professional Training Services, Inc.

October 2001- March 2003

Important Terms ...................................................................63

In addition, as part of the SuccessTrak® Series 63 program, a Series 63 Com-

Major Sections of the Series 63 Exam

1 Registration of Persons 30% 18

Page 5 NASD Series 63

Prometric Examination Center

Recommended Study Method

NASD Series 63 Page 6

Test Taking Techniques

Let’s take a look at an example:

Page 7 NASD Series 63

Eliminate Roman Numeral Type Question Choices

NASD Series 63 Page 8

Use Time Management

Final Thoughts on Test Taking Techniques

Page 9 NASD Series 63

Page 11 NASD Series 63

1.1 PERSON DEFINED

1.2.1.1 Exclusions from the Definition of Broker-Dealer

Page 13 NASD Series 63

Under the USA, Peace of Mind is not considered a broker-dealer in Minneap-

• It has no place of business in Minnesota, AND

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1.2.3 Broker/Dealer Capacity

Broker/Dealer Acting in a Principal Capacity

1.2.4 Registration of Broker-Dealers

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• There is no requirement that an agent earns a commission under the USA.

1.3.1.1 Exclusions from the Definition of Agent

Individuals who represent issuers in trading the following exempt securities

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1.3.2 Agents Exempted

• The agent must not be ineligible to register in the state

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1.3.3 Agents for Issuers Not Exempted

Peggy Sue represents the Futuristic Company as president of the company.

Example 2: Not an Agent

End of Chapter One

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Chapter 2: Investment Advisor and Other

2.1 INVESTMENT ADVISERS

2.1.1 Definition of an Investment Adviser

2.1.2 Investment Advisor Registration

• Provides advice, analysis or reports concerning securities

2.1.3 Exclusions to the IA Definition

• Banks, savings institutions or trust companies

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• Broker-dealers whose advice is incidental to their normal business practice

2.1.4 Exemptions to the IA Definition

• Doing business only with other investment advisers

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• Anyone designated by the Administrator

A federally registered advisor is defined as;

2.2 REGISTRATION INFORMATION FOR BROKER-DEALERS AND

2.2.1 Registration Rule