S65 Chapter 2 - State Registration of Securities

Which of the following issuers is most likely to use registration by qualification in order to register its securities?

A local company whose shares will be sold within the state Registration by qualification is used for smaller issuers that are only selling securities to residents of one state (i.e., an intrastate offering). State or local governments (i.e., municipalities) are exempt from registration. Exchange-traded issuers and registered investment companies both issue federal covered securities, which are also exempt from registration at the state level.

Registration by coordination would most likely be used by which one of the following issuers?

An initial public offering Under normal circumstances, the method of registration most often used by the new issuers of securities is registration by coordination. Mutual funds are federal covered securities. All listed securities, such as Nasdaq securities, are also federal covered and, therefore, exempt from registration with the states. Intrastate offerings are commonly registered by qualification.

Under the Uniform Securities Act of 1956, certain transactions may be completed without the filing of a registration statements with the Administrator. Which of the following transactions DOES NOT require a registration statement?

An offering of non-convertible debt being made to three different individual investors every six months. - Under the Uniform Securities Act, private placements are exempt from registration if the securities are offered to no more than 10 non-institutional investors in a 12 month period. - Non-convertible bonds being offered to three investors every six months ultimately adds up to six investors over a 12-month period and is an exempt offering. - Under the private placement provision of the Uniform Securities Act, the term "offered" (not "sold") is used. - An offering to investors in a local business association (e.g., a Rotary club) would not be exempt because it's likely that the offering was made to more than 10 investors (i.e., the entire club), even if only eight investors purchased the securities. - Using a classified ad would be a public, rather than a private, offering of securities. - A corporation offering bonds through an intermediary (e.g., a broker-dealer) for a fee is non-exempt, since renumeration (e.g., commissions or referral fees) is not permitted for the private placement exemption.

According to the USA, which of the following securities are exempt from registration?

Bonds issued by a government-regulated common carrier Exempt securities include those that are issued by a U.S. federal, state, or local government, a railroad, a common carrier, a public utility, or a holding company that's subject to specified regulations. Investment companies, including UITs, are federal covered securities and are exempt from registration under state law. Insurance companies may also issue securities that are exempt from registration, but the exemption is not available to their subsidiaries. Securities issued by U.S. banks are also exempt; however, the securities issued by foreign banks are subject to registration under the USA.

Which of the following aspects of an investment are not considered guaranteed according to the Uniform Securities Act?

Capital gains Under the Uniform Securities Act, guarantees can apply to the payment of principal, dividends, and interest. This is because issuers disclose these payments to investors in advance. For example, if an issuer has declared a dividend, it has guaranteed that it will be paid in the future. On the other hand, issuers don't make public statements about future gains; therefore gains are not guaranteed under the Act.

Which of the following products are defined as securities according to the Uniform Securities Act? ADRs REITs Endowment Policies Interests in oil and gas drilling programs

I, II, and IV only ADRs, REITs (real estate investment trusts), and interests in oil and gas drilling programs (or other investment programs that involve the extraction of mineral resources) are all securities according to the Uniform Securities Act (USA). Endowment policies and traditional insurance policies are not defined as securities.

According to the Uniform Securities Act of 1956, under which of the following circumstances is a registration statement NOT required to be filed for a promissory note?

It's payable in cash no more than nine months after its issuance. Promissory notes (e.g., commercial paper) are loans, just like bonds. These debt securities are exempt if they have nine months or less to maturity, they're issued in minimum denominations of $50,000, and they're rated in one of the three highest rating categories from a nationally recognized statistical rating organizations (NRSRO). Notice that $50,000 is the minimum denomination, not the maximum denomination. Any of the three highest ratings is sufficient; it doesn't need to necessarily be the highest. To be exempt from registration, there's no requirement for promissory notes to be secured. In fact, most are unsecured.

Registration by coordination is used in conjunction with which of the following Acts?

The Securities Act of 1933. An issuer that uses registration by coordination must also register the same offering with the SEC under the Securities Act of 1933.

Under the Uniform Securities Act, which of the following sales would be considered a nonissuer transaction?

The sale of an outstanding security on the New York Stock Exchange A nonissuer transaction is a purchase or sale of a security whereby the issuer does not benefit, directly or indirectly. A trade between two investors for IBM stock on the New York Stock Exchange (a secondary market trade) would be an example of a nonissuer transaction.

According to the provisions of the Uniform Securities Act of 1956, advertisements that promote certain securities must be filed with the Administrator. According to the Act, promotional material for which of the following securities must be filed?

Unregistered corporate bonds Advertisements and promotional material for registered securities are filed with the Administrator. However, advertising for exempt securities and exempt transactions are not required to be filed. Railroad trust certificates, mutual fund shares, and listed securities are all exempt under the Uniform Securities Act. Since corporate bonds are typically required to be registered with the states, ads for those securities must be filed with the Administrator.

Registration by coordination would most likely be used to register what type of offering?

an initial public offering Under normal circumstances, the method of registration most often used by the new issuers of securities is registration by coordination. Mutual funds are federal covered securities. All listed securities, such as Nasdaq securities, are also federal covered and, therefore, exempt from registration with the states. Intrastate offerings are commonly registered by qualification.

An agent is soliciting investors for a private placement. Under the Uniform Securities Act, this is an exempt transaction as long as the agent doesn't offer the securities to more than:

10 retail investors during a 12-month period - Under the Uniform Securities Act, private placements are exempt transactions as long as the offering is made to no more than 10 retail investors during a 12-month period. - There's no limit on the number of institutional investors. - Regulation D is the private placement under federal law and the term non-accredited is used in Regulation D, but not in the Uniform Securities Act. - Depending on the exact provision of Regulation D that the issuer is using, the offering is typically limited to a maximum of 35 non-accredited investors and an unlimited number of accredited investors.

Sales of viatical investments can be made only to suitable investors. Which TWO of the following investors are considered suitable? An accredited investor under Regulation D Anyone with a minimum net worth of $150,000 and gross income last year of at least $100,000, or a minimum net worth of $250,000 Anyone who is in the highest marginal tax bracket and is in need of liquidity Anyone who has been specifically approved by the state Administrator

I and II A viatical investment involves the purchase of an interest in an insurance policy covering the life of an individual. The purchase may be for a whole or fractional interest in the policy. Since it is unknown when the insured will die and the funds invested are not readily accessible on demand, NASAA has established specific suitability requirements for viatical investments, which are stated in choices (I) and (II). Viatical investors must either be accredited investors according to Regulation D or must meet one of the following financial standards. Minimum net worth of at least $150,000 (not including their residence) and an annual income of $100,000, or Minimum net worth of at least $250,000 (not including their residence)

An issuer is planning to sell a federal covered security in State A. The Administrator of State A may ask the issuer to do all of the following, EXCEPT:

Provide additional information that was not required by the SEC The National Securities Markets Improvement Act (NSMIA) places limits on states' power to regulate federal covered securities. Generally, states may not require an issuer of a federal covered security to furnish more information than is required by the SEC. However, state Administrators may require certain issuers to Notice File, which includes filing a Consent to Service of Process as well as any documents that have been filed with the SEC. The Administrator may also require the issuers of certain federal covered securities to pay filing fees. Securities that are listed on a national exchange (e.g., the NYSE or Nasdaq) are exempt from Notice Filing. Despite this, states retain the right to investigate all issuers that sell securities within their states and reserve the right to bring enforcement actions against any violators.

What information may an issuer change by amending its registration statement after it receives an effective date?

The number of shares Under the Uniform Securities Act, an issuer may amend its registration statement to increase the number of shares being sold after the statement has been declared effective by the Administrator. The issuer does not need to file a new registration statement for this purpose. The issuer may not amend its statement to change the public offering price of the securities, or the underwriters' compensation or commission schedule.

Which of the following choices would NOT meet the definition of an exempt transaction?

Transactions between an issuer and retail investors Any transactions by trustees involved in a bankruptcy--sheriffs, marshals, guardians, and other fiduciaries are considered exempt transactions. Unsolicited nonissuer transactions whether with retail or institutional investors and transactions executed by a bona fide pledgee are also considered exempt transactions. However, transactions between issuers and retail investors are not exempt from registration. A transaction between an issuer and underwriter would be an exempt transaction.