Module 2: Regulation of Broker-Dealers and Their Agents

• Topic 01

  Regulation of Broker-Dealers

  122 questions
• Topic 02

  Regulation of Agents of Broker-Dealers

  130 questions

A few questions from this unit, with the answer and a full explanation. The complete bank is available when you start practising.

1. What is the "snowbird exemption" as it applies to agent registration under the Uniform Securities Act?

   • A
     A provision that permits agents to operate in a second state for up to 90 days per year without registering
   • B
     An exemption that allows agents to avoid all state registrations if they primarily work remotely
   • C
     A federal rule that prevents states from requiring registration for agents during seasonal periods
   • D
     An exemption that allows a registered agent to serve existing clients who are temporarily visiting another state, without registering in that state
     Correct answer
   Explanation

   The snowbird exemption (also called the transient or non-resident agent exemption) is a narrow exemption that permits a registered agent to contact and transact with their existing home-state clients while those clients are temporarily visiting another state, without the agent needing to register in that other state. The exemption requires that the agent be registered in the client's home state, the client be only temporarily in the other state, the agent not establish an office there, and the agent not solicit new clients.

2. What types of records must a broker-dealer retain for the life of the firm?

   • A
     Only trade confirmations need to be kept for the life of the firm.
   • B
     Customer account documents must be retained for the life of the firm.
   • C
     All records must be kept for the life of the firm; there is no distinction by record type.
   • D
     Foundational documents such as articles of incorporation, partnership agreements, and the original Form BD must be kept for the life of the firm.
     Correct answer
   Explanation

   Under SEC Rule 17a-4, certain foundational corporate and firm records must be kept for the life of the firm: charter documents (articles of incorporation, partnership agreements, articles of association), all Forms BD and amendments, and similar formation documents. These are kept permanently because they define the legal existence and character of the firm. Most operational records have finite retention periods (3 or 6 years).

3. Can a broker-dealer have agents who are registered only in states where the broker-dealer itself is not registered?

   • A
     No, an agent must be associated with a registered broker-dealer, and the broker-dealer must itself be registered in the state where the agent is conducting business.
     Correct answer
   • B
     No, but an exception exists for agents who had prior state registration before joining the broker-dealer.
   • C
     Yes, FINRA membership for the broker-dealer covers agents in all states.
   • D
     Yes, agents may register in any state independently of the broker-dealer's registration.
   Explanation

   Agent registration and broker-dealer registration are linked. An agent must be associated with a broker-dealer that is itself registered in the state where the agent transacts business. An agent cannot be registered in a state where their sponsoring broker-dealer is not registered. If the broker-dealer is not registered in a state, neither the broker-dealer nor its agents can legally transact business there without an applicable exemption.