Uniform Securities Agent State Law (Series 63) Practice Exam

In a dual capacity, how may a firm act?

1. As a broker only

2. As a dealer only

3. As both broker and dealer in the same transaction

4. As both broker and dealer, but not in the same transaction

The correct answer is: As both broker and dealer, but not in the same transaction

In the context of the Uniform Securities Agent State Law (Series 63), a firm operating in a dual capacity can act as both a broker and a dealer. However, it is important to clarify that it can perform these roles in separate transactions, not simultaneously in the same transaction. This means that the firm may represent a client in one transaction as a broker, executing trades on their behalf, while in another transaction, the firm can trade for its own account as a dealer. This distinction is crucial because it points to the regulatory responsibilities and obligations that accompany each role. As a broker, the firm must act in the best interest of its clients and disclose pertinent information, while as a dealer, it may have different obligations concerning market-making and inventory. The other options misinterpret the nature of dual capacity. Acting solely as a broker or solely as a dealer would not meet the criteria for dual capacity. Therefore, the correct understanding is that a firm can function in both roles, but must maintain clear boundaries by not performing them simultaneously within the same transaction.