Series 63 Test Breakdown
The Series 63 is administered by the Financial Industry Regulatory Authority (FINRA) and is required by all states under the Uniform Securities Act. FINRA is an agency under the North American Securities Administrators Association (NASAA). A holder of the Series 63 license is qualified to trade securities any place in the United States, and Series 6 and 7 license holders who wish to advise and transact are required to have this license as well. Once a person completes this test, he or she still has limited authority to transact with stock, bonds, and other securities. The Series 63, sometimes called the blue sky test, is shorter than most securities exams because it covers less material; however, the questions could be more complicated and a little tricky. The time limit for the test is one hour and fifteen minutes, with sixty questions and five pretest questions. Most questions test a person's knowledge on state securities rules and regulations, ethical practices and fiduciary obligations, record keeping, soliciting customers, and technical terminology. This multiple-choice test requires a 72% passing score, and the exam is given every day of the week except Sundays. Results of the test are provided immediately to the candidate with his or her overall test score.
A sponsoring firm usually fills out the necessary paperwork for the candidate to take the test along with a Form U4, which must be complete. The Series 63 exam is different than most in that a sponsoring firm is not necessary. A candidate may sign up for the test him- or herself and submit Form U10 instead. Tests are administered at a Prometric testing center in most states close to the candidate's place of residence and are even provided outside the country. Once a person passes the exam, he or she is required to abide by the laws set forth by the state regulation to protect the investing public. Unlike most exams, there is a waiting period to reapply to take the test should a candidate fail the exam. Many sponsoring firms are under pressure to report the number of times a broker fails the Series 63 test. Upon passing the test, a person has two years to become licensed with a state, or the exam is no longer valid. The good news is that, once a person gets licensed (or registered), the exam does not expire. In addition, a criminal background check, credit check, and bonding are usually required to determine the trustworthiness of an applicant before a license is granted.
A background in finance is not required; however, it is important that the person have an interest in the field to provide the best investment guidance. To be prepared for the exam, a candidate should be very knowledgeable with terms, know that an agent is an individual who represents a broker dealer, and understand that an agent is a registered or licensed representative who sells securities to the public. It is also important to know about antifraud rules and the fact that that no security is exempt from filing requirement under the Uniform Securities Act. All the state rules that protect the securities industry were created under the blue sky laws, and a broker should be conscience of divulging insider information to the public. Of course, an agent should be familiar with the prospectus or legal document that summarizes the offering filed with the Securities & Exchange Commission (SEC) as well as the importance of historical performance when providing advice and registering in every state that he or she sells securities in.
The Series 6 license is also required for insurance agents who sell variable products. Anyone who supervises Series 6 license holders must have the license themselves as well as the Series 26.
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Series 63 Practice Questions
1. Which type of transaction is not covered under the anti-fraud provisions of the Uniform Securities Act?
a. A completed sale of a security
b. A contract agreeing to a sale
c. A direct offer to sell a security at a stated price
d. A solicitation of an offer to sell
2. Which information is included in a prospectus, but not in a preliminary prospectus?
a. The offering price of the security and the name of the underwriter
b. The offering price of the security and the date the security is available
c. The name of the underwriter and the date the security is available
d. The date the security is available and a statement that the securities have been reviewed by the state Administrator
3. According to the Uniform Securities Act, what constitutes a fraudulent business practice?
a. A person intentionally acting in an unethical manner
b. A person intentionally acting in a deceptive or misleading manner
c. Investment advice that leads to a loss in a client's account
d. Investment performance being inconsistent with the expectations provided by the investment advisor
4. What occurs when parties engage in matching purchases?
a. A significant increase in outstanding shares
b. An artificial increase in the market value of a security
c. Small shareholders realize capital losses
d. The parties pay a lower commission
5. Under what circumstances may a registered agent represent multiple registered broker-dealers?
a. With written permission from the broker-dealers
b. When the broker-dealers are affiliated with each other
c. With written permission from the SEC
d. With written permission from FINRA
Answers and Explanations
1. D: A solicitation of an offer to sell. The anti-fraud provisions of the Uniform Securities Act (USA) apply to all offers and sales of securities. An offer is an attempt to make a security available to another party and includes completed sales, sales contracts and direct offers where one person is willing to sell (or otherwise dispose of) a security at a given price. The USA provisions also apply to indirect offers (the solicitation of an offer to buy), where the offer is made by a person who is not the owner of the particular security for sale. The USA defines the terms "sale" and "offer" broadly, helping to protect potential investors against the possibility that a transaction would be structured in such a way that might fall outside of a narrower definition of a sale, an offer or a purchase in order to not be subject to anti-fraud provisions.
2. B: The offering price of the security and the date the security is available. The preliminary prospectus contains the same information as the prospectus except for the offering price and the date the security is available. It's referred to as a "red herring" because it contains a notification in the document, in red, that the document is not an attempt to sell the security. During the period following registration of the security with the Securities and Exchange Commission but before the security is initially sold, broker-dealers may send the preliminary prospectus to prospective investors who have indicated an interest in possibly buying the security. A preliminary prospectus provides potential investors with the information necessary to analyze the potential investment in advance of the offering.
3. B: A person intentionally acting in a deceptive or misleading manner. The Uniform Securities Act (USA) prohibits fraudulent business practices. Fraud is the intentional act to deceive or mislead. Under the USA, other business practices are also prohibited, fraudulent or otherwise, to help protect the public from all types of unethical behavior.
4. B: An artificial increase in the market value of a security. Matching purchases, a form of market manipulation, is prohibited by the Uniform Securities Act. Parties engaging in matching purchases are attempting to artificially increase the market value of a security by agreeing to repeatedly buy and sell the same security to increase its trading activity. This artificially high amount of activity has been known to entice investors to purchase shares and artificially increase the market value of the security. Once the market value of the security has increased, the parties engaging in the matching purchases then sell their shares at the artificially high price.
5. B: When the broker-dealers are affiliated with each other. A registered agent may represent multiple registered broker-dealers or issuers if all of those broker-dealers or issuers are affiliated with each other. To be considered an affiliate, each of the broker-dealers or issuers must have a common Controller. If the broker-dealers or issuers are not affiliated in this manner, an agent may still be permitted to represent them if the state Administrator gives authorization for the agent to operate under multiple licenses. Otherwise, an agent may only represent a single broker-dealer or issuer.
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Last Updated: 04/18/2018