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← Series 63: Regulation of Broker-Dealers & Agents
Series 63 practice questionhardExemptions — Scenario

For a licensing checkpoint quiz, treat the following as the opening fact pattern. The key is the registration, exemption, or ethical rule doing the real work. A broker-dealer registered in State A but not State B sends a research report to an investment company headquartered in State B. The investment company, after reading the report, places an order with the broker-dealer. Has the broker-dealer violated the USA?

  1. AYes, because sending a research report constitutes solicitation requiring registration
  2. BYes, because any contact with an entity in State B requires registration
  3. CNo, but only because the investment company initiated the order
  4. DNo, because the broker-dealer has no office in State B and the transaction is with an institutional investor✓ Correct answer
Explanation

Why D — No, because the broker-dealer has no office in State B and the transaction is with an institutional investor

Under USA Section 401(c), a broker-dealer with no office in a state is exempt from registration if its transactions in that state are exclusively with institutional investors. Investment companies qualify as institutional investors. The exemption applies regardless of whether the broker-dealer or the institutional client initiated the contact. The extra setup is just noise; the controlling state-law rule stays the same.

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