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NASAA · Series 66

Series 66 practice questions with answers

15 free practice questions for the Uniform Combined State Law Exam (Series 66), spread across the exam's topics. Try each one, then open the answer to see why every option is right or wrong.

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  1. Question 1 · Economic Factors and Business Information

    In the U.S., the official start and end dates of recessions are determined by:

    • AFINRA, using data reported by its member firms
    • BThe Federal Reserve Board
    • CThe SEC
    • DThe National Bureau of Economic Research (NBER)
    Show answer and explanation

    Answer: D) The National Bureau of Economic Research (NBER)

    • AIncorrect. That isn't its role.
    • BIncorrect. The Fed doesn't date recessions.
    • CIncorrect. That isn't its role.
    • DCorrect. It looks at broad measures of activity.

  2. Question 2 · Investment Vehicle Characteristics

    An investment adviser representative tells a client that if a certain corporate bond's issuer defaults, bondholders will have no claim on any specific pledged asset and will be repaid as general creditors only after secured creditors. Which type of bond is being described?

    • AMortgage bond
    • BDebenture
    • CEquipment trust certificate
    • DCollateral trust bond
    Show answer and explanation

    Answer: B) Debenture

    A debenture is an unsecured bond backed only by the issuer's general credit, so its holders are general creditors with no claim on pledged assets. Mortgage bonds, equipment trust certificates and collateral trust bonds are all secured by specific collateral.

    • AIncorrect. A mortgage bond is secured by a lien on the issuer's real property, so holders do have a claim on specific pledged assets.
    • BCorrect. A debenture is an unsecured obligation backed only by the issuer's general credit. No specific collateral is pledged, so holders rank behind secured creditors in a default.
    • CIncorrect. Equipment trust certificates are secured by specific equipment, such as rail cars or aircraft. A trustee holds title to that equipment until the debt is repaid.
    • DIncorrect. A collateral trust bond is secured by securities (stocks or bonds) that the issuer deposits with a trustee as collateral.

  3. Question 3 · Investment Vehicle Characteristics

    If a covered call is exercised, the writer must:

    • AReturn the premium
    • BBuy more shares
    • CDeliver the shares
    • DPay a dividend
    Show answer and explanation

    Answer: C) Deliver the shares

    • AIncorrect. The premium is kept.
    • BIncorrect. That's a put writer's duty.
    • CCorrect. The writer keeps the premium.
    • DIncorrect. That isn't required.

  4. Question 4 · Investment Vehicle Characteristics

    Buying a put on stock you own is used to:

    • ALimit losses
    • BEarn premium income
    • CIncrease the upside cap
    • DAvoid owning the stock
    Show answer and explanation

    Answer: A) Limit losses

    • ACorrect. The put sets a floor price.
    • BIncorrect. Buying a put costs premium.
    • CIncorrect. Upside stays open.
    • DIncorrect. You still own it.

  5. Question 5 · Client/Customer Investment Recommendations and Strategies

    Studying price charts and trading volume to time trades is:

    • ATechnical analysis
    • BFundamental analysis
    • CCredit analysis of bonds
    • DTax-loss harvesting
    Show answer and explanation

    Answer: A) Technical analysis

    • ACorrect. It focuses on market data.
    • BIncorrect. That studies financials.
    • CIncorrect. That studies debt repayment.
    • DIncorrect. That's a tax strategy.

  6. Question 6 · Client/Customer Investment Recommendations and Strategies

    Holding a variable annuity inside an IRA is often questioned because:

    • AReturns are fixed
    • BIt's illegal
    • CFees are too low
    • DDouble deferral
    Show answer and explanation

    Answer: D) Double deferral

    • AIncorrect. Returns vary.
    • BIncorrect. It's allowed.
    • CIncorrect. Fees are often higher.
    • DCorrect. The IRA already defers taxes.

  7. Question 7 · Client/Customer Investment Recommendations and Strategies

    A retiree wants income that may grow over time to offset inflation. A suitable holding to consider is:

    • AA growth stock that pays no dividend
    • BA fixed immediate annuity with no inflation rider
    • COnly long-term fixed-rate bonds
    • DStocks with a history of rising dividends
    Show answer and explanation

    Answer: D) Stocks with a history of rising dividends

    • AIncorrect. It provides no income.
    • BIncorrect. Payments stay flat.
    • CIncorrect. Payments don't grow.
    • DCorrect. Dividends can grow over time.

  8. Question 8 · Client/Customer Investment Recommendations and Strategies

    A self-employed consultant with no employees wants to save heavily for retirement using both employee and employer contributions. A suitable plan is:

    • AA solo 401(k)
    • BA 457 plan for government workers
    • CA 403(b) for nonprofits
    • DA Coverdell ESA
    Show answer and explanation

    Answer: A) A solo 401(k)

    • ACorrect. It allows both types of contributions.
    • BIncorrect. It isn't available.
    • CIncorrect. It isn't available.
    • DIncorrect. That's for education.

  9. Question 9 · Laws, Regulations, and Guidelines, including Prohibition on Unethical Business Practices

    Under the Uniform Securities Act, how long does an investment adviser's state registration generally stay effective?

    • AUntil the Administrator suspends or revokes it, with no periodic renewal needed
    • BFor one full year from the date the registration first became effective
    • CUntil December 31 of that year, when it expires unless it is renewed
    • DFor two years, ending on the anniversary of the firm's original Form ADV filing
    Show answer and explanation

    Answer: C) Until December 31 of that year, when it expires unless it is renewed

    Under the Uniform Securities Act, state investment adviser registrations run on a calendar-year basis and expire on December 31 unless renewed, which is normally done through the annual renewal program.

    • AIncorrect. Registrations do not continue forever. They must be renewed every year, or they lapse at year-end.
    • BIncorrect. The term follows the calendar year, not the anniversary of the effective date. A registration that takes effect mid-year still expires on December 31.
    • CCorrect. Investment adviser registrations and notice filings expire on December 31 unless renewed. Renewal fees, collected through the CRD/IARD renewal program, keep the registration effective for the next calendar year.
    • DIncorrect. State registration runs on an annual, calendar-year cycle. It is not a two-year term tied to the Form ADV filing date.

  10. Question 10 · Laws, Regulations, and Guidelines, including Prohibition on Unethical Business Practices

    An SEC adviser need not deliver its brochure to clients paying for only impersonal advice under:

    • A$50,000 a year
    • B$500 a year
    • C$5 a year
    • DAny amount at all
    Show answer and explanation

    Answer: B) $500 a year

    • AIncorrect. The threshold is $500.
    • BCorrect. This is a delivery exception.
    • CIncorrect. The threshold is $500.
    • DIncorrect. The threshold is $500.

  11. Question 11 · Laws, Regulations, and Guidelines, including Prohibition on Unethical Business Practices

    An investment adviser that is also a registered broker-dealer wants to execute agency cross transactions for its advisory clients under the SEC's agency cross transaction rule. Which practice would make such a transaction impermissible under the rule?

    • AThe adviser recommended the trade both to the advisory client selling and to the party buying
    • BThe adviser receives commissions from both the advisory client and the party on the other side
    • CThe client's written consent was given once, in advance, instead of separately for each trade
    • DThe written confirmation for the trade is sent to the client at or before completion of the transaction
    Show answer and explanation

    Answer: A) The adviser recommended the trade both to the advisory client selling and to the party buying

    Rule 206(3)-2 permits agency cross transactions with prospective written consent, trade confirmations, annual statements, and notice that consent can be revoked. It does not permit them if the adviser or an affiliate recommended the trade to both buyer and seller.

    • ACorrect. The rule does not allow the transaction if the adviser, or a person controlling, controlled by, or under common control with it, recommended the trade to both the seller and the purchaser.
    • BIncorrect. Acting as broker for both sides is what defines an agency cross. Payment from the other side is allowed, but the confirmation must disclose its source and amount (or offer to provide it).
    • CIncorrect. The rule calls for written consent that authorizes agency cross transactions in advance, after full written disclosure. The client can revoke that consent at any time by written notice. Separate consent for each trade is not required.
    • DIncorrect. A confirmation sent at or before completion meets the rule's timing. The adviser must also send at least an annual statement showing the total number of agency cross transactions and the remuneration received.

  12. Question 12 · Laws, Regulations, and Guidelines, including Prohibition on Unethical Business Practices

    An adviser managing only private funds with less than $150 million in U.S. assets may operate as:

    • AA broker-dealer
    • BA fully SEC-registered adviser
    • CAn unregulated entity
    • DAn exempt reporting adviser
    Show answer and explanation

    Answer: D) An exempt reporting adviser

    • AIncorrect. It's an adviser.
    • BIncorrect. It may rely on the exemption.
    • CIncorrect. It files reports.
    • DCorrect. It files reports but needn't register with the SEC.

  13. Question 13 · Laws, Regulations, and Guidelines, including Prohibition on Unethical Business Practices

    An IAR wants to borrow money from an advisory client who isn't in the lending business. Under NASAA rules, this is:

    • AAllowed if the client is wealthy
    • BAllowed for any amount if repaid
    • CGenerally prohibited
    • DRequired to build trust
    Show answer and explanation

    Answer: C) Generally prohibited

    • AIncorrect. It's still prohibited.
    • BIncorrect. It's generally prohibited.
    • CCorrect. Exceptions include lending institutions.
    • DIncorrect. It isn't required.

  14. Question 14 · Laws, Regulations, and Guidelines, including Prohibition on Unethical Business Practices

    A broker-dealer gives a firm quote for a security. When another party tries to trade at that price, the broker-dealer refuses. Under NASAA's broker-dealer unethical practices rule, this conduct is known as:

    • AMarket making
    • BBest execution
    • CBacking away
    • DFree riding
    Show answer and explanation

    Answer: C) Backing away

    A dealer that refuses to trade at its own firm quote is backing away, which is an unethical practice. Firms must be prepared to trade at the prices and conditions they state.

    • AIncorrect. A market maker holds itself out as ready to buy and sell a security continuously at its quoted prices. Refusing to honor a firm quote is the opposite of what a market maker is expected to do.
    • BIncorrect. Best execution is a firm's duty to seek the most favorable terms reasonably available for a customer's order. Refusing to trade at its own firm quote harms the counterparty and has nothing to do with that duty.
    • CCorrect. Backing away means failing to honor a firm quotation. NASAA's rule, like FINRA Rule 5220, treats offering to buy or sell at a stated price without being prepared to trade at that price as unethical.
    • DIncorrect. Free riding means buying securities in a cash account and selling them before paying for them. Under Regulation T, this freezes the account for 90 days. It concerns a customer's payment, not a dealer's quotes.

  15. Question 15 · Laws, Regulations, and Guidelines, including Prohibition on Unethical Business Practices

    A registered agent sells a client 500 outstanding shares of a small company in a nonissuer secondary-market trade. The shares are not registered in the client's state, but the issuer is listed in a securities manual the Administrator recognizes, and the listing includes the names of its officers and directors, a balance sheet, and a profit and loss statement. Under the Uniform Securities Act, how is this sale best described?

    • AAn exempt transaction, so the shares need not be registered for this trade
    • BAn exempt security, so the shares are permanently exempt from state registration
    • CA federal covered security, so only a notice filing with the Administrator is needed
    • DA sale that requires registration by qualification before the trade can occur
    Show answer and explanation

    Answer: A) An exempt transaction, so the shares need not be registered for this trade

    The manual exemption makes nonissuer secondary trades in securities of issuers listed in a recognized securities manual exempt transactions. It exempts the trade, not the security.

    • ACorrect. The manual exemption is a transaction exemption. It covers nonissuer (secondary) trades in securities of issuers whose information appears in a recognized securities manual.
    • BIncorrect. The manual listing exempts only the nonissuer transaction. It doesn't turn the shares into an exempt security, so an issuer offering of the same class would still need registration or another exemption.
    • CIncorrect. Being listed in a securities manual doesn't make a security federal covered. Federal covered status comes from federal law, for example for exchange-listed securities or investment company shares.
    • DIncorrect. Because the trade qualifies for the manual exemption, the shares don't need to be registered for this sale.

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