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Series 63 Uniform Securities Agent State Law Exam - Blogs Sample Questions

 Manipulating market prices through unnecessary trading among agents is a violation. This is called:





Correct Answer:
matched purchases
**question**: manipulating market prices through unnecessary trading among agents is a violation. this is called:

**matched purchases**. manipulating market prices through unnecessary trading among agents is an ethical violation. in this kind of manipulation, agents and/or broker-dealers agree to buy and sell securities to each other at pre-arranged or similar prices. this artificial activity is designed to give the impression that there is a more active market for a security than there really is. the intent behind this is often to drive up the price of the security, making it appear more in demand or valuable than it truly is. this deceptive practice is known as making matched purchases.

it's important to differentiate matched purchases from legitimate trading practices. for instance, **front-running** involves a broker executing orders on a security for its own benefit before executing orders previously submitted by its customers, which can affect the price of the security to the detriment of the customer. **churning** refers to excessive trading by a broker in a client's account mainly to generate commissions. **arbitrage**, on the other hand, is a legally accepted strategy where a trader simultaneously buys and sells the same security in different markets to take advantage of differing prices for the same asset.

in the case of matched purchases, the collaborative nature of the trading creates a false sense of market activity, misleading investors about the true supply and demand for the security involved. this can lead investors to make poor decisions based on distorted market information. hence, matched purchases are considered a serious ethical and legal breach in many jurisdictions and are often subject to strict penalties and regulatory actions to protect market integrity and investor interests.

There is an exception to the performance fee provisions for investment advisory contracts for contracts with any person with $750,000 under the adviser’s management or a net worth of at least:





Correct Answer:
$2 million


the question pertains to the regulatory exceptions for investment advisory contracts concerning the charge of performance fees. performance fees are fees that an investment advisor may charge based on the profits generated by the assets they manage, rather than charging a flat fee or a fee based solely on the amount of assets under management. the rule generally prohibits the charging of such fees unless certain conditions are met, primarily to protect less experienced or less affluent clients from potentially risky fee structures that depend on the fluctuating value of investments.

one such condition for the exception from the typical prohibition on performance fees is based on the net worth of the client. according to the question, if a person has a net worth of at least $2 million, they are exempt from the provisions that would normally restrict performance-based fees in investment advisory contracts. this net worth threshold is set with the assumption that individuals with higher net worth are more financially sophisticated and capable of understanding and bearing the risks associated with performance-based fee structures.

in addition to the net worth criterion, there are other circumstances under which performance fees may be charged. for example, contracts with registered investment companies are also exempt from these restrictions. registered investment companies, such as mutual funds, are subject to extensive regulatory oversight and provide another layer of investor protection, which justifies the exemption from the prohibition on performance fees.

the question also mentions options with differing net worth thresholds ($1 million, $1.5 million, $2 million, and $2.5 million). however, the correct response, based on the explanation provided, is the $2 million threshold. this level is recognized by regulatory standards as sufficient to categorize an investor as sufficiently sophisticated to understand and agree to a performance-based fee arrangement, aligning with the goals of investor protection and market integrity.


Additional Blogs for FINRA - Financial Industry Regulatory Authority dfgdfgdfg

In your journey to get Series 63 Uniform Securities Agent State Law Exam certified it is important for you to have all information related to your exam. So we have pulled together a list of additional blogs that may be of interest to you because that are all related to the Financial Industry Regulatory Authority.

Exam Edge Blogs for FINRA - Financial Industry Regulatory Authority