Series 63 Practice Exam

Updated: July 1, 2016. The Uniform Securities Agent State Law Examination is more commonly referred to as the Series 63 Exam. This test covers state securities regulations under the Uniform Securities Act, and you must pass it in order to qualify as a securities agent. The exam is developed by NASAA and administered by FINRA. Here is our free Series 63 practice exam to help you determine if you are prepared.


Series 63 Exam Questions

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Question 1
Mr. Smith has pressured his client into making frequent trades in order to generate more commissions. What is the name of this prohibited practice?

A
Skimming.
B
Finagling.
C
Churning.
D
Commingling.
Question 1 Explanation: 
Regulators will look at the account's turnover rate for evidence of churning. Frequent trading is not a suitable strategy for most investors.
Question 2
Which of the following is NOT a security?

A
Investment Contract.
B
Fixed Annuity.
C
Bond.
D
Treasury Stock.
Question 2 Explanation: 
The definition of a security is determined by the Uniform Securities Act. Fixed Annuities are considered to be insurance products, not securities.
Question 3
Which of the following are TRUE statements regarding registration for persons in the securities industry?

I.    Registrations expire on December 31st each year, unless they are renewed.

II.   Registration fees are never pro-rated.

III.  There is no fee for renewing your license unless the license has been expired for over 21 days.

IV.  Licenses expire on the anniversary date of the initial registration.

A
I, II
B
II, IV
C
I only
D
IV only
Question 3 Explanation: 
All registrations expire on December 31st and initial registration fees are never pro-rated. All that is necessary for renewal is to pay the required fee.
Question 4
When a principal or agent leaves a firm, which form is the broker-dealer required to file with FINRA?

A
U3
B
U4
C
U5
D
U6
Question 4 Explanation: 
Agents are registered with Form U4 and are terminated with Form U5.
Question 5
A security offering has been registered and the underwriter has entered the cooling off period. Which of the following is permitted during this cooling off period?

A
A tombstone advertisement.
B
Advertising of the security in trade publications.
C
Sales of the security to accredited investors.
D
None of these are permitted.
Question 5 Explanation: 
No sales or advertising are allowed during the cooling off period. A tombstone advertisement is permitted because it is simply a statement of basic facts about the offer.
Question 6
The Uniform Securities Act gives the Administrator authority to take which of the following actions?

I.    Issue Rules.

II.   Issue judicial injunctions.

III.  Issue subpoenas for documents.

IV.  Administer oaths.

A
I, III
B
II, IV
C
I, III, IV
D
I, II, III, IV
Question 6 Explanation: 
Only a court can issue a judicial injunction. However, the Administrator can petition the court for an injunction.
Question 7
An Investment Advisor may NOT run advertising that:

A
Provides client testimonials.
B
Lists all stock picks made in the last 2 years.
C
Shows investment returns over a 12-month period.
D
States that past performance does not guarantee future results.
Question 7 Explanation: 
Client testimonials are never permitted in ads. Stock picks can be listed, as long as all picks are shown over the same time period. Investment returns must be over a period of at least one year.
Question 8
Who of the following would be considered to be a "person" under the Uniform Securities Act?

A
A 3-year old.
B
An 18-year old college student.
C
Someone deceased for less than 1 month.
D
Someone mentally incompetent.
Question 8 Explanation: 
"Persons" do not include anyone under age 18, anyone who is deceased, or anyone who is mentally incompetent.
Question 9
Selling Away is a prohibited practice that consists of:

A
Recommending securities which are not suitable for the client.
B
Making unauthorized transactions in a client's account.
C
Selling securities which are not approved for sale by the firm.
D
Accepting orders from an unauthorized third party.
Question 9 Explanation: 
Brokers may only sell securities that are on their firm’s approved product list. This list specifies the types of securities and investments that the brokerage has decided to offer, and that have gone through the firm's due diligence process.
Question 10
Which of the following security types is NOT exempt from registration requirements?

A
Government securities.
B
Insurance company securities.
C
Commercial paper.
D
All of the above are exempt.
Question 10 Explanation: 
Exempt securities include all of the above as well as financial institution securities, public utility securities, stock exchange listed securities, and not-for-profit securities.
Question 11
The Bank Secrecy Act requires financial institutions to

A
file a currency transaction report (CTR) for each transaction involving greater than $10,000 in cash
B
report wire transfers in excess of $3,000
C
report structured transactions that have been effected in accounts at the financial institution
D
all of the above
Question 11 Explanation: 
The Bank Secrecy Act was passed to monitor a variety of financial transactions, including each of the 3 answers shown in this question.
Question 12
The term 'state' as used in the USA refers to:

I.     The federal District of Columbia

II.    The Commonwealth of Puerto Rico

III.   Any Canadian Province

A
I only
B
II only
C
I and II
D
II and III
Question 12 Explanation: 
'State' includes any state in the United States of America, Washington DC, and the territories and commonwealths which are part of the U.S., including Puerto Rico, Guam, American Samoa, etc.
Question 13
When a broker-dealer charges a mark-up or mark-down in a transaction, it has acted:

A
as an underwriter
B
as a broker or a dealer depending upon the circumstances surrounding the trade
C
in an agency capacity
D
as a dealer
Question 13 Explanation: 
When a stock brokerage firm is selling securities out of their inventory, they are acting in the dealer or principal capacity, and add a retail mark-up to the total cost of the trade. If they act only as a middle-man in a transaction, bringing a buying customer together with a selling customer, charging a commission, that is acting as a broker or in an agency capacity.
Question 14
A bank holding company owns a bank and a broker-dealer. Which of the following entities must register as a broker-dealer under the USA?

A
only the brokerage firm need register as a B-D
B
the bank, the bank holding company and the broker-dealer all need to register as broker-dealers in that all 3 are engaging directly or indirectly in securities transactional business
C
none need to be registered under the Bank exemption from registration found in the USA
D
none of the above is correct
Question 14 Explanation: 
The broker-dealer cannot operate as such without registering as a broker-dealer. The bank holding company is not a broker-dealer.
Question 15
One of your long-time most profitable individual brokerage firm customers has moved from New York to Florida, permanently. Your broker/dealer is not registered in Florida. If you wish to maintain a financial relationship with this client, you have how many days to register in Florida?

A
You may continue to conduct business with that client until Dec. 31st of the year of the move.
B
You may continue to conduct business with that client for 30 days, after which registration is required or you must discontinue the business relationship.
C
You must discontinue any brokerage relationship with the client until the firm has registered in Florida.
D
You may continue the relationship without having to register in Florida so long as your firm is an SEC registered broker/dealer.
Question 15 Explanation: 
The rule is 30 days to register if you wish to retain the client.
Question 16
Under NSMIA, Federal covered securities under New York state securities law include each of the below except:

A
City of Buffalo, NY certificates of participation
B
Miami-Dade County General Obligations
C
the Nuveen tax-free New York municipal bond mutual fund
D
none of these is an exception
Question 16 Explanation: 
Municipal bonds issued within the state of New York are not considered Federal covered securities inside the state of New York. Similarly, Colorado bonds are considered Fed covered securities everywhere BUT inside the state of Colorado.
Question 17
Which of the below is a Federal Covered security?

I.     pre-emptive rights of IBM corporation

II.    IBM warrants expiring in less than 5 years

III.   IBM collateral trust certificates

IV.   IBM common stock

A
All of the above
B
IV only
C
I and II
D
III and IV
Question 17 Explanation: 
Fed covered includes all securities issued by a NYSE-listed corporation. Since IBM is NYSE listed, all of these choices are considered Fed-covered.
Question 18
Under which of the following circumstances is an investment adviser which has been granted discretionary power by a client also considered to have custody as that term is interpreted under the USA?

A
when the IA makes all purchase decisions on behalf of the client
B
when the IA makes all sales decisions on behalf of the client
C
when the IA makes all decisions regarding implementation of investment strategies on behalf of the client
D
none of the above
Question 18 Explanation: 
Custody is not discretion. Discretion is not custody. Being given discretionary power by a client does not in any way imply that the firm has custody and control of customer cash and securities.
Question 19
Certain Fed-covered securities require Notice Filing with Administrators of states in which those securities are going to be sold, including:

A
NYSE-listed securities
B
NASDAQ-listed securities
C
securities being sold under Reg. D Rule 506
D
all of these require at a minimum, a notice filing
Question 19 Explanation: 
There are only two Fed-covered securities which require ‘Notice Filing:’ Securities being offered under Regulation D Rule 506, and Investment Company securities.
Question 20
Under the USA, the statute of limitations

I.    runs for 5 years from the date of a criminal offense

II.   runs for no longer than 3 years from the date of a civil violation

III.  may result in up to 5 years in prison for criminal or civil misdeeds

A
II and III
B
I and III
C
I and II
D
All of the above
Question 20 Explanation: 
Statute of limitations for criminal offenses is 5 years. Statute of limitations for civil infractions is no greater than 3 years. Whereas criminal guilt can result in prison, civil liability results in monetary awards...not jail time.
Question 21
Under the most recent amendments to the regulations governing IA registration,

A
state-covered IAs are those with AUM not greater than $25,000,000
B
state-covered IAs are those with AUM not greater than $100,000,000
C
federal-covered IAs are those with AUM $30,000,000 and above
D
federal-covered IAs are those with AUM above $100,000,000
Question 21 Explanation: 
A fed covered adviser is one with $110 million in assets under management (AUM). A state covered adviser is one with $100 million AUM or less. Between 100 and 110, an IA has the right to choose with which regulator to be registered, state or federal.
Question 22
Under the NASAA Statement of Policy regarding unethical and prohibited practices of broker-dealers, agents, investment advisers and investment adviser representatives, solicitation of a transaction in unregistered non-exempt securities:

A
is only permissible with written consent of the client as well as approval of a principal of the IA or BD
B
is not prohibited if the securities are properly registered in the state in which the issuer first issued them
C
is permissible only when the securities are Fed-covered securities
D
is an unethical and prohibited act
Question 22 Explanation: 
Solicitation of a transaction in unregistered non-exempt securities is clearly defined in the USA as an unethical act.
Question 23
The private placement exemption available to issuers under the USA places conditions on the distribution which include:

I.    those soliciting investors may not be compensated for sales of the securities unless the buyer qualifies as an institutional investor.

II.   the securities may be offered to no more than 35 individual non-institutional investors.

III.  institutional and non-institutional buyers must be buying for investment purposes.

A
I only
B
II only
C
II and III
D
I and III
Question 23 Explanation: 
The private placement rule under the USA does not place a limit of 35 non-accredited investors upon the issuer — that number is found in the federal laws, not the state laws. Also, though it’s true that under the USA, non-institutional investors (individuals) must be buying the private placement for investment purposes (long term purposes), institutional investors are under no such limitation.
Question 24
The USA includes all of the following in the category of exempted securities with the exception of:

A
bonds issued by the City of London, Ontario, Canada
B
bonds issued by the City of London, England
C
bonds issued by the City of Manhattan, Kansas
D
bonds issued by the Borough of Manhattan, New York City, NY
Question 24 Explanation: 
Though bonds issued by England would be exempt securities under the USA, bonds issued by cities or any other political sub-division within England are not. Therefore, bonds issued by London, England are not exempt. Bonds issued by any Canadian province, city or any other political subdivision are considered exempt under the USA. All municipal bonds issued within the United States are exempt securities.
Question 25
When is a gift of securities deemed a sale?

A
when the gift is irrevocable
B
a gift is never considered a sale since nothing of value of being given in exchange for the securities
C
when the securities are assessable
D
when the securities are non-assessable
Question 25 Explanation: 
The USA defines a sale as including ‘a gift of assessable stock.’ Assessable refers to the fact that the issuing corporation can require its stockholders to contribute more capital to the corporation, upon demand, at some point in the future, if the corporation so decides.
Question 26
An IAR may borrow money from all of the following with the exception of:

A
a client which is a mortgage broker
B
a client which is a bank officer
C
a pension fund with a minimum of $ 1,000,000 in assets
D
IARs may not borrow from any of the above
Question 26 Explanation: 
Mortgage brokers do not lend money — mortgage lenders do: bank officers do not lend money — banks do: pension funds are not in the business of lending money. An IAR may not borrow from any of these 3 choices.
Question 27
The best way to handle a conflict of interest situation is:

A
to not pursue making the sale
B
to avoid conflicts of interest
C
to make full disclosure of the conflict to the client
D
to get managerial approval to make the sale
Question 27 Explanation: 
Conflicts of interest are a fact of life in the financial business. They are unavoidable. But when they do come up, it is your duty to make full disclosure to the client so that the client can evaluate the recommended security and then make an informed investment decision.
Question 28
Under what circumstances may an agent split a commission with another agent?

A
when the agents are immediate family members
B
when the agents are employed by the same brokerage firm
C
when the customer agrees to it
D
when it is cleared in advance by regulatory authorities
Question 28 Explanation: 
Commission splitting is only permitted between 2 agents employed by the same broker-dealer.
Question 29
None of the following are excluded from the definition of person under the USA except:

I.     a decedent

II.    a non-emancipated minor

III.   the conservator for a person declared mentally incompetent

A
all of the above
B
II and III
C
I and II
D
None of the above
Question 29 Explanation: 
Your first step in this question is to decipher what it is asking: ‘none of these are excluded….except’ contains three negative words. What this question is asking you to find are the answers which are not defined as ‘persons’ under the USA. Dead people are not persons, and minors are not persons. The conservator is an adult who is given authority to act on behalf of an incompetent individual, therefore the conservator is most definitely a person…..the incompetent is not a person.
Question 30
When a customer of a broker-dealer believe that securities were sold to him in violation of one or more laws and/or regulations, the broker-dealer may offer rescission as a remedy. Which of the below statements regarding rescission are true?

A
the customer has 30 days in which to accept the offer of rescission, and if rejected will lose the right to pursue further legal action.
B
the customer has the right to punitive damages as part of the offer of rescission.
C
the customer may demand interest be paid on the invested capital while also keeping any dividends or interest received while an owner of the securities which are the subject of the rescission.
D
all of the above are true.
Question 30 Explanation: 
Rescission is the act of making the client ‘whole,’ literally giving him/her back his original investment, with state-approved interest rate. The client cannot keep the dividends or interest received on the investment if he/she accepts the rescission offer, and they only have 30 days to decide.
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Related Exams and Resources

Series 63 Exam

There are 60 questions and candidates have 1 hour and 15 minutes to complete the exam. A score of 72% is required to pass. The exam is challenging, so make sure you work through our Series 63 sample questions along with plenty of additional Series 63 practice questions.