Exam Preparation - Introduction

Exam Tips & Tricks

The USA is roughly 180 pages, and it is really not complicated reading. If you have time to plow through the Act, it's probably a good idea to do so. We have included the most recent version of the Uniform Securities Act within Appendix C. The one problem with the Act is that it makes many references to other securities acts (requiring you to read the other acts as well).



Exam Tips and Tricks
Try to take the practice exams at least twice. If you are acing the practice exams, you most likely have a good grasp of the material. If you are not doing well, you probably need to study more!


Common Exam Topics & Questions

  • A common exam question asks what an agent should do if a customer complaint is received. The answer is that an agent should immediately notify his/her compliance department, who should then expressly reply to the customer.

  • You may find a question asking whether the spouse of a client can enter an order or withdraw funds from an account (typically when the client is unavailable or out of town) if it is not a joint account. The spouse of an account holder cannot enter an order or withdraw money if he or she is not listed as a signer on an account.

  • You can expect a question regarding when licenses are due for renewal. In most circumstances, licenses are due for renewal at the end of each calendar year. Anyone attempting to perform a securities transaction or benefiting (i.e. commissioning from) a securities-related transaction must register with the state.

  • Make sure you know the different types of market manipulation, including the following:

Pegging
A practice of an investor buying large amounts of an underlying commodity or security close to the expiry date of a derivative held by the investor. This is done to encourage a favorable move in market price.

An investor writing a put option would practice pegging so that he or she will not be required, due to lowering prices, to purchase the underlying security or commodity from the option holder. The goal is to have the option expire worthless so that the premium initially received by the writer is protected.

Painting the tape
An illegal action by a group of market manipulators buying and/or selling a security among themselves to create artificial trading activity, which, when reported on the ticker tape, lures in unsuspecting investors as they perceive an unusual volume. After causing a movement in the security, the manipulators hope to sell at a profit.

Churning

    1. An unethical practice employed by some brokers to increase their commissions by excessively trading in a client's account. This practice violates the FINRA Fair Practice Rules. It is also referred to as "twisting".

    2. A period of heavy trading with few sustained price trends and little movement in stock market indexes.
  • Watch for "not" questions, such as, "What is NOT defined as a security?" or "What is NOT a person?"


Look Out!
The legal definition of a "person" is going to show up on the test somewhere, so make sure you know it. There are two types of "persons":
  1. A natural person (i.e. a human being)
  2. A legal person (i.e. an entity such as a corporation or a government)

Corporations, partnerships, broker-dealers, investment advisors, etc. are all referred to as "persons", and can violate the Uniform Securities Act. Do not let a tricky question regarding who (or what) is a person fool you on the test.


You are likely to encounter a question that asks about an agent or a broker-dealer that is registered in one state and is being solicited by an individual in another. Remember that:

  • unsolicited orders from another state do not require registration in the states; and

  • orders from an existing client from another state do not require registration in the state the client is visiting, as long as the client is not visiting for more than 30 days.
Make sure you know the following...


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