Uniform Securities Agent State Law Examination
The Series 63 exam tests candidates on state securities regulations based on the Uniform Securities Act (USA). It is required in most states for individuals who want to conduct securities business within that state. The exam covers the registration of persons and securities, business practices, and the powers of the state Administrator. While there are no specific prerequisites, the Series 63 is typically taken alongside the Series 7 or Series 6 to complete state-level registration requirements.
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Content Outline
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Key Concepts
Federal covered securities are securities that are exempt from state registration requirements under the National Securities Markets Improvement Act of 1996 (NSMIA). These include securities listed on the NYSE, NASDAQ, or other national exchanges, as well as securities issued by investment companies registered under the Investment Company Act of 1940. While states cannot require registration of these securities, they can still require notice filings and fees, and they retain full antifraud authority.
State-exempt securities are securities exempted from registration by the Uniform Securities Act itself. These include U.S. government and agency securities, municipal securities, bank and savings institution securities, and securities issued by nonprofit organizations. The key distinction is that federal covered securities derive their exemption from federal law, while state-exempt securities derive theirs from the state's own securities act. Both categories remain subject to state antifraud provisions.
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Under the Uniform Securities Act, an agent is any individual (other than a broker-dealer) who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities. However, several important exclusions exist.
Officers, directors, and partners of an issuer are excluded from the agent definition if they do not receive transaction-based compensation (commissions) and deal only in exempt transactions. Additionally, individuals who represent an issuer in transactions involving exempt securities, or in specified exempt transactions such as those with existing employees, are not considered agents. These exclusions are critical because persons who fall outside the agent definition are not required to register as agents with the state. The key factor is often whether the person receives transaction-based compensation -- if they do, they are almost always considered agents requiring registration.
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The Uniform Securities Act prohibits a wide range of unethical and fraudulent business practices. Agents may not share in customer profits or losses unless they have a financial interest in the joint account AND have received written approval from their employing broker-dealer. This rule prevents agents from having inappropriate financial incentives tied to customer accounts.
Other key prohibited practices include: churning (excessive trading to generate commissions), unauthorized trading (executing transactions without customer consent), borrowing from or lending to clients (unless the client is a lending institution), commingling (mixing customer funds with firm or personal funds), and selling away (conducting securities transactions outside the scope of the agent's employment with the broker-dealer). Agents also may not guarantee a customer against loss or represent that registration implies a certain level of competency.
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Key Concepts
Under the Uniform Securities Act, civil actions for violations must be brought within a specific time frame. The statute of limitations provides that a buyer or seller of securities may bring a civil action within the earlier of 3 years from the date of the sale or 2 years from the date of discovery of the violation, whichever comes first.
This means that even if a violation is discovered 2.5 years after the sale, the investor has only 6 months remaining (until the 3-year deadline) to file suit, not a full 2 years from discovery. Conversely, if the violation is discovered only 1 year after the sale, the investor has 2 years from that discovery date to take action, since the 3-year maximum has not yet been reached. For criminal penalties, the statute of limitations is 5 years from the date of the violation. Criminal violations may result in fines up to $5,000 and/or imprisonment up to 3 years.
Study Tips for the Series 63 Exam
- Focus on Section 2. At 40% of the exam, "Regulation of Persons" is the largest section. Know the definitions, exclusions, and registration requirements for broker-dealers, agents, investment advisers, and IARs inside and out.
- Master the definitions and exclusions. The exam heavily tests who is and is not considered a broker-dealer, agent, or investment adviser. Pay special attention to the exclusions -- knowing who does NOT need to register is just as important as knowing who does.
- Learn the Administrator's powers. Understand what the state Administrator can and cannot do. The Administrator can deny, suspend, or revoke registrations, issue cease and desist orders, and subpoena witnesses -- but cannot issue injunctions or impose jail time (those require court action).
- Know the statute of limitations cold. The 3-years-from-sale or 2-years-from-discovery rule is a frequently tested concept. Practice applying it to different scenarios to ensure you can calculate the deadline correctly.
- Understand exempt vs non-exempt. Know the difference between exempt securities, exempt transactions, and federal covered securities. Remember that antifraud provisions always apply regardless of exemptions.
- Watch your time. With 65 questions in 75 minutes, you have just over 1 minute per question. The exam is shorter than most FINRA exams but the pace is brisk. Do not overthink any single question.
Practice Questions
Test your knowledge with these Series 63-style questions. Click an answer to check if you are correct.
1. Under the Uniform Securities Act, which of the following is considered a federal covered security?
Correct: B. Securities listed on national exchanges such as the NYSE or NASDAQ are federal covered securities under NSMIA. Municipal bonds and bank CDs are exempt securities under state law but are not federal covered securities. Securities on regional exchanges are not automatically federal covered.
2. An officer of an issuer sells the company's securities to the public and receives a commission on each sale. Under the USA, this person is:
Correct: B. While officers and directors of an issuer may be excluded from the agent definition, this exclusion does not apply when they receive transaction-based compensation (commissions). Since this officer receives commissions, they are considered an agent and must register with the state.
3. A securities agent wants to share in the profits and losses of a customer's account. Under the USA, this is permitted if:
Correct: C. Agents may share in the profits and losses of a customer's account only if the agent has a financial interest (owns a stake) in the joint account AND has obtained prior written approval from the employing broker-dealer. Customer consent alone or agent experience are not sufficient.
4. The state securities Administrator has the authority to do all of the following EXCEPT:
Correct: C. Only a court of competent jurisdiction can issue an injunction. The Administrator can issue cease and desist orders, deny/suspend/revoke registrations, subpoena witnesses and documents, and investigate violations, but injunctions and jail sentences require court action.
5. An investor purchased securities through a fraudulent transaction. The investor discovers the fraud 18 months after the purchase. How long does the investor have to file a civil suit?
Correct: D. Under the USA, the statute of limitations for civil actions is the earlier of 2 years from discovery or 3 years from the date of the sale. Since the fraud was discovered 18 months after the sale, the investor has 2 years from discovery (up to month 42) but the absolute maximum is 3 years from the sale (month 36). So the investor effectively has until month 36 -- which is 18 months from the date of discovery.
Related Exams
These exams are commonly taken alongside or as alternatives to the Series 63.
Securities Industry Essentials
The foundational exam covering securities industry basics. Required before taking the Series 7 but not specifically required for the Series 63.
General Securities Representative
Most commonly taken alongside the Series 63. The Series 7 provides federal-level qualification while the Series 63 provides state-level registration.
Uniform Investment Adviser Law
An alternative state-level exam for those who want to act as investment adviser representatives rather than broker-dealer agents.
Uniform Combined State Law
Combines the content of the Series 63 and Series 65 into one exam. An efficient alternative if you need both state agent and investment adviser representative registration.