20 State Securities Law (Series 63) Practice Questions & Answers

1. 1. A broker-dealer agent has serviced a customer's account for eight years; the customer is also her next-door neighbor. The customer offers to lend the agent $10,000 at a market rate of interest, documented by a signed promissory note. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, this arrangement is:

   • A.Prohibited, because an agent may not borrow money from a customer✓ Answer
   • B.Permitted, provided the broker-dealer approves the loan in writing beforehand
   • C.Permitted, because the lender is a personal acquaintance and the loan is unrelated to securities
   • D.Permitted, because the loan is in writing and bears a market rate of interest

   The NASAA Statement of Policy flatly prohibits an agent from lending money or securities to, or borrowing money or securities from, a customer. Unlike FINRA Rule 3240, the NASAA text contains no immediate-family or lending-institution exception, so neither written documentation, a market interest rate, nor firm approval cures the violation.

   Source: NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents (as amended 4/7/2025), Part 2 (agent prohibitions — lending/borrowing and custody)Report a problem with this question

2. 2. A customer telephones his agent and says: "Buy 500 shares of XYZ for my account sometime today, whenever you think the price looks best." There is no signed trading authorization on file. Under the Uniform Securities Act and NASAA policy, the agent:

   • A.Must obtain written discretionary authority from the customer before entering the order
   • B.May enter the order, but written discretionary authority must be obtained promptly after execution
   • C.May enter the order only if a designated principal approves it in writing before execution
   • D.May execute the order, because discretion as to time and/or price only does not require prior written authorization✓ Answer

   Exercising discretionary power in a customer's account without prior written authorization is an unethical practice, but the rule carves out a single exception: discretion as to the time and/or price of execution only. Here the customer specified the security, the amount and the side (buy 500 XYZ), leaving the agent only timing and price, so the order is not a discretionary order requiring written authority; the "promptly after" standard applies to margin agreements, not to discretion.

   Source: NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents — exercise of discretionary power without prior written authority (time and/or price exception)Report a problem with this question

3. 3. An agent and a long-time customer want to arrange for the agent to share in both the profits and the losses of the customer's account. Under the Uniform Securities Act and NASAA policy, such sharing is permissible only if:

   • A.The agent obtains written authorization from both the customer and the broker-dealer✓ Answer
   • B.The agent obtains written authorization from the customer only
   • C.The broker-dealer approves in writing and the agent's share is proportionate to his capital contribution
   • D.The agent's share is proportionate to his financial contribution to the account, whether or not anyone authorizes it

   The NASAA policy prohibits an agent from sharing directly or indirectly in the profits or losses of a customer's account unless the agent has written authorization from the customer AND from the broker-dealer. Note that the state-law text imposes no requirement that the sharing be proportionate to the agent's capital contribution — that proportionality condition comes from the FINRA rule and should not be imported into a Uniform Securities Act answer.

   Source: NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents — Part 2, sharing in profits or losses in a customer accountReport a problem with this question

4. 4. A qualified individual at a broker-dealer reasonably believes that an 82-year-old client is being financially exploited by a caregiver, and the firm delays a large disbursement the client requested. Under the NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation, the firm may hold the disbursement for a maximum of:

   • A.15 business days, extendable by 10 additional business days (25 in total) at the request of Adult Protective Services or the state securities regulator✓ Answer
   • B.15 calendar days, with no extension available
   • C.25 calendar days, extendable only by court order
   • D.10 business days, extendable by 10 additional business days (20 in total)

   The Model Act lets a firm delay a disbursement from an eligible adult's account for up to 15 business days when a qualified individual reasonably believes exploitation has occurred or been attempted; that hold may be extended by 10 more business days at the request of Adult Protective Services or the state securities regulator, for 25 business days total. The firm must also promptly notify Adult Protective Services and the state securities regulator, notify the parties authorized to transact on the account (unless they are suspected of the exploitation), and conduct an internal review.

   Source: NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation (2016), Secs. 3, 5 and 6Report a problem with this question

5. 5. An agent arranges for several of her clients to invest in a private real estate partnership. She receives no compensation, the transactions are never recorded on her broker-dealer's books, and she mentioned the deal to her branch manager in a hallway conversation. Under the Uniform Securities Act and NASAA policy, this conduct is:

   • A.Permitted, because she disclosed the transactions to her branch manager before effecting them
   • B.Permitted, if the partnership interests qualify as exempt securities in the state
   • C.Permitted, because she received no commission or other compensation
   • D.Prohibited, unless the broker-dealer authorized the transactions in writing prior to their execution✓ Answer

   Effecting securities transactions that are not recorded on the regular books and records of the broker-dealer — "selling away" — is an unethical practice unless the broker-dealer authorized the transactions in writing PRIOR to execution. An oral mention to a supervisor is not prior written authorization, and neither the absence of compensation nor the exempt status of the security cures the violation.

   Source: NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents — Part 2, transactions not recorded on the books of the broker-dealer (selling away)Report a problem with this question

6. 6. While soliciting a prospect, an agent says: "Both my firm and this offering are registered with the state, so the Administrator has reviewed the offering and found it sound." Under the Uniform Securities Act, this statement is:

   • A.Unlawful only if the security involved is a federal covered security
   • B.Lawful, if the statement is also made in writing and the sales literature is filed with the Administrator
   • C.Unlawful, because neither registration nor the availability of an exemption implies that the Administrator has passed on the merits or approved anything, and there is no exemption from this prohibition✓ Answer
   • D.Lawful, if the registration was effected by qualification, since the Administrator reviews those filings in detail

   The Act makes it unlawful to represent that the filing of an application or registration statement, the fact that a registration is effective, or the availability of an exemption or exception means the Administrator has found any document true or complete, or has passed on the merits of, approved or recommended any person, security or transaction. This provision applies to every offering — there are no exemptions from it — so the method of registration and the federal covered status of the security are irrelevant.

   Source: Uniform Securities Act (1956) Sec. 405 — Unlawful Representations Concerning Registration or ExemptionReport a problem with this question

7. 7. A state Administrator wants a broker-dealer to file the advertising and sales literature it uses in the state. Under the Uniform Securities Act, which statement is correct?

   • A.Sales literature is never subject to a state filing requirement, because content is governed exclusively by FINRA
   • B.The Administrator may require filing only for offerings registered by qualification
   • C.All sales literature must be filed with the Administrator at least 10 days before first use, without exception
   • D.The Administrator may by rule or order require the filing of prospectuses, circulars, form letters, advertisements or other sales literature, except with respect to a security or transaction exempt under the Act or a federal covered security✓ Answer

   The Act authorizes the Administrator to require, by rule or order, the filing of any prospectus, pamphlet, circular, form letter, advertisement or other sales literature addressed or intended for distribution to prospective investors, but expressly carves out securities or transactions that are exempt under the Act and federal covered securities, over which NSMIA limits state authority to notice filings, fees and antifraud enforcement.

   Source: Uniform Securities Act (1956) Sec. 403 — Filing of Sales Literature; NSMIA notice-filing limitsReport a problem with this question

8. 8. A client asks an agent about a bond the sales material describes as "guaranteed." The agent replies, "Guaranteed means you cannot lose money, and I'll personally guarantee your return." Which statement is accurate?

   • A.Under the Act, "guaranteed" means guaranteed by a third party as to payment of principal, interest or dividends — never as to capital gain — and an agent may never guarantee a customer against loss✓ Answer
   • B."Guaranteed" means the position is insured by SIPC against a decline in market value
   • C."Guaranteed" means the issuer itself guarantees both principal and any capital gain on the security
   • D.An agent may guarantee a customer against loss if the guarantee is in writing and approved by a principal of the firm

   The Act defines "guaranteed" as guaranteed as to payment of principal, interest or dividends by someone other than the issuer, and the definition pointedly omits capital gain, so a guaranteed security can still lose market value. Separately, guaranteeing a customer against loss is an independently prohibited unethical practice regardless of any writing or supervisory approval, and SIPC protects customers against broker-dealer failure, not against market loss.

   Source: Uniform Securities Act (1956) Sec. 401(e) (definition of "guaranteed"); NASAA Statement of Policy on Dishonest or Unethical Business Practices — guaranteeing a customer against lossReport a problem with this question

9. 9. An agent maintains a firm-approved professional profile page describing the broker-dealer's services, and she also participates in live, unscripted question-and-answer chats with investors on a public online forum. With respect to approval, supervision and retention of these communications, which statement is correct?

   • A.Neither is subject to firm approval, supervision or retention, because social media posts are personal communications
   • B.The interactive chats require prior principal approval, while the static profile page need only be retained
   • C.The static profile content is a retail communication requiring principal approval before use, while the interactive real-time content need not be pre-approved but must still be supervised and retained✓ Answer
   • D.Both the static profile and the interactive chats must be approved by a principal before they are posted

   Static content posted by a firm or its personnel is treated as a retail communication and must be approved by a registered principal before first use, whereas interactive real-time electronic forum content is excepted from the pre-approval requirement because it functions like a live discussion. Both remain subject to the content standards, to supervisory review procedures, and to the electronic-communication recordkeeping and retention requirements — the medium does not change the firm's obligations.

   Source: FINRA Rule 2210 (Communications with the Public) as applied to static vs. interactive social media content; FINRA Rule 3110 and SEC Rule 17a-4 (supervision and retention of electronic communications)Report a problem with this question

10. 10. Each of the following individuals represents an issuer in effecting sales of the issuer's securities to the public. Which one is NOT an agent under the Uniform Securities Act?

    • A.A city employee who sells the city's general obligation bonds to investors✓ Answer
    • B.An employee of a nonprofit hospital who sells the hospital's bonds for a commission
    • C.An employee who sells the common stock of an exchange-listed manufacturer for a commission
    • D.An employee of an insurance company who sells the company's variable annuity contracts

    An individual who represents an issuer is excluded from the definition of agent only when effecting transactions in the specific exempt securities listed in the exclusion — government and municipal issues, Canadian and other recognized foreign government issues, bank and trust company issues, qualifying short-term commercial paper, and employee benefit plan investment contracts. Exchange-listed and nonprofit-issuer securities are exempt securities but do not appear in that list, and a variable annuity is not an exempt security at all, so those three individuals are agents and must register.

    Source: Uniform Securities Act (1956) Sec. 401(b)(1)(A), incorporating Sec. 402(a) clauses (1), (2), (3), (10) and (11)Report a problem with this question

11. 11. An agent registered in a state terminates her association with Broker-Dealer A on a Friday and begins working for Broker-Dealer B, also registered in that state, the following Monday. Under the Uniform Securities Act, which statement is correct?

    • A.Only the new broker-dealer is required to notify the Administrator, because it is the party assuming responsibility for her activity
    • B.Her registration is not effective during any period when she is not associated with a registered broker-dealer, and the agent and both broker-dealers must promptly notify the Administrator✓ Answer
    • C.Her registration travels with her automatically, so no notice to the Administrator is required as long as there is no gap in employment
    • D.Because an agent's registration expires December 31, no notice is required until the next annual renewal

    An agent's registration attaches to a particular registered broker-dealer or issuer and is not effective during any period when the agent is not so associated, so there is no free-floating registration and no automatic transfer. When an agent begins or terminates a connection, the agent as well as the broker-dealer or issuer must promptly notify the Administrator — producing the familiar three-party notice when an agent changes firms.

    Source: Uniform Securities Act (1956) Sec. 201(a)–(b) — registration requirement; agent registration not effective when not associated; prompt notice on beginning or terminating a connectionReport a problem with this question

12. 12. A registered broker-dealer employs the following people at its branch office. Which one must be registered as an agent in the state?

    • A.A back-office clerk who files executed trade confirmations and mails account statements
    • B.A sales assistant who, while the registered representative is away, telephones clients and recommends that they buy a mutual fund✓ Answer
    • C.The receptionist, who answers the main line, transfers calls and schedules client appointments
    • D.The broker-dealer itself, because it also effects transactions for its own account

    An agent is an individual, other than a broker-dealer, who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities; clerical and purely ministerial personnel are not agents. The sales assistant crossed the line by soliciting a securities transaction, while the receptionist and the back-office clerk perform only ministerial functions, and the firm itself is a broker-dealer — an entity can never be an agent.

    Source: Uniform Securities Act (1956) Sec. 401(b) — definition of "agent"; exclusion of clerical and ministerial personnelReport a problem with this question

13. 13. A broker-dealer is registered in State A, where its only office is located. One of its long-standing clients, a State A resident, spends a month vacationing in State B and telephones the firm to place a trade. The firm has no office in State B and does no other business there. Under the Uniform Securities Act, the firm:

    • A.Is not a broker-dealer in State B, because it has no place of business there and dealt only with an existing customer who is not a resident of State B✓ Answer
    • B.Is excluded from the definition in State B only if the customer returns home within 30 days
    • C.Must register in State B unless the customer qualifies as an institutional investor
    • D.Must register in State B, because it effected a securities transaction with a person physically located in that state

    The definition of broker-dealer excludes a person who has no place of business in the state and who is licensed in a state where it maintains a place of business, provided it offers and sells in the state only to an existing customer who is not a resident of that state. Both conditions are satisfied here — an existing client and a non-resident — and the Act's text imposes no fixed number of days for the client's stay.

    Source: Uniform Securities Act (1956) Sec. 401(c)(4)(B) — exclusion from the definition of broker-dealerReport a problem with this question

14. 14. A broker-dealer files a complete application for registration with the Administrator on March 1. No denial order is in effect and no proceeding is pending, and the Administrator does not set an earlier effective date. The registration:

    • A.Becomes effective immediately upon filing and expires one year from the date of filing
    • B.Becomes effective at noon of the 30th day after filing and expires December 31 unless renewed✓ Answer
    • C.Becomes effective at noon of the 30th day after filing and remains effective until the firm withdraws
    • D.Becomes effective only when the Administrator enters an order granting it, and expires on the anniversary of that order

    Unless a denial order is in effect or a proceeding is pending, a registration application automatically becomes effective at noon of the 30th day after filing; the Administrator may by rule or order specify an earlier effective date, and may defer effectiveness to noon of the 30th day after any amendment. Registrations of broker-dealers, agents, investment advisers and investment adviser representatives all expire on December 31 unless renewed.

    Source: Uniform Securities Act (1956, as amended by NASAA) Sec. 202 — effectiveness at noon of the 30th day after filing; annual expiration December 31Report a problem with this question

15. 15. An Administrator has evidence that a firm is engaging in conduct that violates the state's securities act and wants to stop it quickly. Acting alone, without going to court, the Administrator may:

    • A.Issue a cease and desist order only after a full hearing and written findings of fact
    • B.Issue a cease and desist order, with or without a prior hearing; only a court may grant an injunction or appoint a receiver✓ Answer
    • C.Issue an injunction and appoint a receiver over the firm's assets
    • D.Hold an uncooperative witness in contempt for refusing to testify

    The Act empowers the Administrator to issue a cease and desist order with or without a prior hearing, but injunctive relief, the appointment of a receiver or conservator, and orders of rescission, restitution or disgorgement can be granted only by a court in an action the Administrator brings. Likewise, a witness who refuses to testify is punished for contempt by the court on the Administrator's application — the Administrator has subpoena power but no contempt power.

    Source: Uniform Securities Act (1956) Secs. 407 (investigations and subpoenas) and 408 (cease and desist orders; injunctions)Report a problem with this question

16. 16. An investor purchased a non-exempt, unregistered security. Before any lawsuit is filed, and while the investor still owns the security, the seller delivers a written offer to repurchase it for the consideration paid plus interest at the statutory rate, less any income received. The investor ignores the offer for 45 days and then sues. The investor:

    • A.May still sue, because a rescission offer can never bar a purchaser's statutory remedy
    • B.May still sue, because a purchaser has 90 days to accept a written rescission offer
    • C.May still sue, because the offer was ineffective for failing to include costs and reasonable attorney's fees
    • D.Has lost the right to sue, because a rescission offer must be accepted within 30 days of its receipt✓ Answer

    A written offer to refund the consideration paid, plus interest at the statutory rate and less any income received, bars a purchaser's civil suit if the purchaser still owns the security and fails to accept the offer within 30 days of receipt (or, if he no longer owns it, fails to reject it in writing within 30 days). Costs and attorney's fees are elements of a court recovery, not required components of the rescission letter, and in any event the separate statute of limitations runs three years from the sale or two years after discovery, whichever occurs first.

    Source: Uniform Securities Act (1956) Sec. 410(g) (offer of rescission; 30 days) and Sec. 410(f) (limitations: 3 years from sale or 2 years after discovery, whichever first)Report a problem with this question

17. 17. Which of the following is an exempt TRANSACTION under the Uniform Securities Act?

    • A.A non-issuer sale executed through a registered broker-dealer pursuant to a customer's unsolicited order to buy✓ Answer
    • B.A sale of portfolio securities by the trustee of a living (inter vivos) trust
    • C.A registered representative's sale of U.S. Treasury bonds to a retail customer
    • D.An offering directed to 25 non-institutional offerees in the state within 12 months, all of whom buy for investment and pay no commission

    A transaction is exempt because of how, or with whom, it is effected — and a non-issuer transaction executed by or through a registered broker-dealer pursuant to an unsolicited order or offer to buy is expressly listed as exempt. Treasury bonds are an exempt SECURITY (exempt because of what it is, not how it is sold); the transaction-by-fiduciary exemption covers executors, administrators, sheriffs, receivers, trustees in bankruptcy, guardians and conservators but not the trustee of a living trust; and the private placement exemption is limited to offers directed to no more than 10 non-institutional persons in 12 months. Note also that no exemption ever excuses anyone from the antifraud provisions, and the burden of proving an exemption falls on the person claiming it.

    Source: Uniform Securities Act (1956) Sec. 402(b)(3) (unsolicited non-issuer transactions); compare Secs. 402(a)(1), 402(b)(6), 402(b)(9) and 402(d)Report a problem with this question

18. 18. An issuer is conducting an initial public offering registered under the Securities Act of 1933 and simultaneously registers the offering in a state by coordination. The state registration statement becomes effective:

    • A.Only when the Administrator enters an order declaring the registration effective
    • B.Automatically 20 days after filing with the Administrator, regardless of when the federal registration becomes effective
    • C.At noon of the 30th day after the registration statement is filed with the Administrator
    • D.Automatically at the moment the federal registration becomes effective, provided no stop order is in effect, the statement has been on file with the Administrator at least 10 days, and the price and underwriting-compensation information has been on file 2 full business days✓ Answer

    Registration by coordination is designed to synchronize state and federal effectiveness: the state registration becomes effective automatically at the same moment the federal registration statement becomes effective, but only if no stop order is in effect and no proceeding is pending, the registration statement has been on file with the Administrator for at least 10 days, and a statement of the maximum and minimum proposed offering prices and the maximum underwriting discounts and commissions has been on file for two full business days. Effectiveness by order of the Administrator is the hallmark of registration by qualification, not coordination.

    Source: Uniform Securities Act (1956) Sec. 303 — Registration by CoordinationReport a problem with this question

19. 19. An agent of a registered broker-dealer prepares comprehensive written financial plans for clients and charges a separate flat fee for each plan; securities recommended in the plan are then executed through the firm for ordinary commissions. Under the Uniform Securities Act, the agent and firm:

    • A.Continue to be excluded, because the individual is a registered agent of a registered broker-dealer
    • B.Can no longer rely on the broker-dealer exclusion, because the separate fee is special compensation and the advisory services are not solely incidental✓ Answer
    • C.Continue to be excluded, so long as the plan recommends only securities the firm is able to sell
    • D.Are excluded because financial planners are expressly excluded from the definition of investment adviser

    The broker-dealer/agent exclusion from the definition of investment adviser has two cumulative conditions: the advisory services must be solely incidental to the conduct of the brokerage business AND no special compensation may be received for them. Charging a separate fee for the plan is special compensation, which destroys the exclusion — and the Act expressly INCLUDES financial planners within the definition of investment adviser rather than excluding them.

    Source: Uniform Securities Act (1956) Sec. 401(f) — definition of "investment adviser"; broker-dealer/agent exclusion conditioned on advice "solely incidental" and no special compensationReport a problem with this question

20. 20. An individual manages client portfolios from an office he maintains in State X. He is employed by an investment adviser that is registered with the SEC as a federal covered adviser and whose principal office is in State Y. He has three clients who reside in State X. Under the Uniform Securities Act, he:

    • A.Must register as an investment adviser representative in State X, because he has a place of business there✓ Answer
    • B.Need not register anywhere, because federal covered advisers and their personnel are preempted from state registration
    • C.Need not register in State X, because he has five or fewer clients there in the past 12 months
    • D.Must register in State X as an investment adviser rather than as an investment adviser representative

    A person associated with a federal covered adviser is an investment adviser representative subject to state registration only if he has a place of business located in that state, and no client-count safe harbor rescues him once that office exists. NSMIA preempts state registration of the ADVISER itself — the federal covered firm makes only a notice filing and pays fees — but it does not preempt state registration of the individual representative, who is always a natural person and never registers as the adviser.

    Source: Uniform Securities Act (1956) Sec. 401(g) — definition of "investment adviser representative"; Sec. 201(c)–(d); Investment Advisers Act Sec. 203A (NSMIA preemption limited to the adviser)Report a problem with this question

Practice questions based on the NASAA content outlines and the Uniform Securities Act. Not affiliated with NASAA or FINRA, and not investment or legal advice. About NASAA exams →