Series 65 Unit 4

Although certain common stocks, known as federal covered securities, are exempt from state registration, the Administrator has the power to request from the issuer all of the following EXCEPT A) a contact person located within the state for purposes of legal service B) copies of the registration statement filed with the SEC C) a consent to service of process D) a copy of the issuer's articles of incorporation

A.

It would not be a prohibited practice under the Uniform Securities Act for an agent to tell a client that A) registration of securities implies tacit approval of the Administrator B) registered nonexempt securities may properly be sold in the state C) the fact that she passed her licensing exams is ample proof of her qualifications D) my commissions are structured so I make money only if the client makes money

B.

Under the Securities Act of 1933, a registration statement for a security generally becomes effective how many days after it is filed? A) 10 B) 20 C) 31 D) 30

B.

Under the Uniform Securities Act, when an IAR acting in the capacity of trustee of a family trust executes a transaction on behalf of the trust, it is A) an exempt security B) a nonexempt transaction C) a violation of the trustee's fiduciary responsibility D) an exempt transaction

B. Among the list of exempt transactions are those made by fiduciaries, including trustees in bankruptcy, but not other trustees. Therefore, this is a nonexempt transaction. The fact that this is an IAR who is the trustee has no bearing on the question.

Under the Securities Act of 1933, which of the following does not meet the definition of prospectus? A) An advertisement in a newspaper describing the benefits of a certain mutual fund B) A publicity release that describes a security C) A telephone call from ​an agent of a broker​-dealer​ to a client advising the purchase of a security D) A newsletter from a brokerage firm announcing the availability of a security

C.

Under the Uniform Securities Act, a registration statement for a security must be signed by A) the issuer's chief executive officer and the underwriter B) a majority of the issuer's board of directors and the underwriter C) the issuer's chief executive officer, chief financial officer, and a majority of the issuer's board of directors D) a majority of the issuer's board of directors only

C.

Which of the following statements regarding the USA are TRUE? State securities Administrators may deny, by rule or order, an exemption to an exempt transaction under the USA, if the security involved is not covered by federal exemption. State securities Administrators may not deny, by rule or order, an exemption to an exempt transaction under the USA, if the security involved is not covered by federal exemption. State securities Administrators may deny, by rule or order, an exemption to a federal covered security. State securities Administrators may not deny, by rule or order, an exemption to a federal covered security. A) III and IV B) II and IV C) II and III D) I and IV

D.

Under the Uniform Securities Act, a nonexempt transaction may take place in the state only if A) the security is registered, exempt, or federal covered B) it is between institutions C) it is offered privately to no more than 10 individuals in any 12 month period D) the security is sold in an exempt transaction

A.

Which of the following are exempt from registration under the Uniform Securities Act? Preferred stock issued by ZXZ Corporation, whose common stock is traded on the New York Stock Exchange Common stock issued by a national bank Equipment trust certificates issued by a railroad company regulated by a state or federal agency A debenture traded in the over-the-counter market issued by a corporation whose common stock trades on the NYSE A) I, II, III, and IV B) II, III, and IV C) I only D) II and III

A.

A transactional exemption would be available under the Uniform Securities Act when an agent for a broker-dealer A) sells a large block of an unregistered nonexempt security to an insurance company that is not authorized to do business in this state B) sells a large block of an unregistered nonexempt security to an individual who meets the definition of an accredited investor C) sells a retail client $10,000 of U.S. Treasury bonds D) receives an unsolicited order from a client to purchase heating oil contracts

A. The sale of a security to an institution, such as an insurance company, is considered an exempt transaction. The fact that the company is not authorized to do business in the state only means that its securities would not be exempt, but that does not change the fact that this is a sale to an institution and is, therefore, exempt. The term accredited investor is meaningless here, only institutions qualify for exempt treatment, not rich people. The T-bonds are an exempt security, but the sale to a retail client is not an exempt transaction. Heating oil contracts are a commodity, not a security.

Under the Uniform Securities Act, which of the following statements are TRUE? It is unlawful for anyone to conduct business as a broker-dealer in a state unless also registered as an agent. A registration statement may be filed by an issuer itself, a broker-dealer, or any other person on whose behalf the offering is to be made. Registration of an agent is not effective when the agent is not associated with a broker-dealer registered under the act. Registrations are automatically renewed one year after approval, provided no violations occurred during the year. A) II and III B) I and IV C) II and IV D) I and III

A. It is unlawful for anyone to conduct business as a broker-dealer in a state unless properly registered as such; an agent is not a broker-dealer. A registration statement can be filed by an issuer itself or any other person on whose behalf the offering is to be made, or by a broker-dealer. Registration of an agent is not effective when the agent is not associated with a broker-dealer registered under the act. Registrations expire on December 31 unless renewed, regardless of violations.

The Uniform Securities Act grants exemptions to the securities of a number of issuers. If you were the Administrator, which of the following securities would NOT be eligible for an exemption in your state? A) Debt securities issued by the ABC Savings and Loan Association, organized under the laws of a neighboring state, but not authorized to do business in your state B) Common stock issued by the XYZ Trust Company, organized under the laws of a neighboring state, but not authorized to do business in this state C) Bonds issued by the Province of Alberta D) Equipment trust certificates issued by a regulated common carrier

A. Any issue from a state or Canadian province is always exempt. Equipment trust certificates issued by any regulated common carrier are always exempt. Banks, savings institutions, and trust company securities are also exempt as long as they are organized under the laws of the United States or any state. However, securities issued by a savings and loan or building and loan are only exempt if the issuer is authorized to do business in this state.

Which of the following transactions is NOT exempt from registration? A) A sale of an exempt security to an individual customer as a result of an agent's solicitation B) Transactions with banks, savings and loan associations, and other financial institutions C) Transactions between an issuer and underwriter or between underwriters D) A bona fide pledge of securities

A. Solicited trades with individuals are not exempt transactions, even when the security being traded is exempt. Transactions between issuers and underwriters or between underwriters are exempt from registration and advertising filing requirements. A bona fide pledge of securities is not a transaction and this question is looking for a nonexempt transaction. Transactions with banks, savings and loan associations, and other financial institutions are exempt from registration and advertising filing requirements.

Which of the following is NOT an issuer under the USA? A) A broker-dealer trading securities as an agent for the account of others B) A company whose shares trade on the New York Stock Exchange C) A new company that offers shares to the public in an IPO D) A corporation that proposes to issue securities but has not done so as of yet

A. A broker-dealer that trades securities as an agent for its clients is not acting in the capacity of an issuer. If the broker-dealer were offering its own shares to the public through underwriting, it would then be an issuer. A corporation that proposes to issue securities but has not as yet done so is, for purposes of the act, an issuer. A company offering its shares to the public in an IPO is an issuer. A company whose shares trade on the NYSE is an issuer whose shares are now trading in the secondary market.

A transactional exemption would be offered when a sale is made by A) a custodian for a minor appointed under the Uniform Transfer to Minors Act B) a court-appointed guardian for a minor C) a broker-dealer D) an investment adviser

B. Among the list of exempt transactions are sales made by fiduciaries, such as court-appointed guardians. Because there is no legal paperwork required, the custodian for a minor under UTMA (or UGMA) is not considered a fiduciary for purposes of this rule.

Which of the following are included in the definition of federal covered security? ABC common stock, domiciled in Delaware, listed on the NYSE, and sold to a resident of Delaware ABC common stock, domiciled in Delaware, listed on the NYSE, and sold to a resident of Maryland City of Portland, Maine, GO bond sold to a resident of Augusta, Maine City of Portland, Maine, GO bond sold to a resident of Augusta, Georgia A) I, II, III, and IV B) I, II, and IV C) I and II D) II, III, and IV

B. Any security listed on the NYSE, regardless of the corporation's or the customer's state of domicile, is a federal covered security. Municipal bonds, exempt securities under the Securities Act of 1933, are also federal covered securities with one significant exception: if the issuer is a political entity in this state and it is sold to a resident of this state, it is not considered a federal covered security in this state.

Which of the following entities are considered to be exempt issuers under the Uniform Securities Act? State of Michigan City of Calgary, Alberta City of Birmingham, UK Kapco Leveraged Partners, an unregistered hedge fund whose adviser is registered with the SEC A) I, II, III, and IV B) I and II C) I, II, and IV D) I, II, and III

B. Any state or Canadian province, or political subdivision thereof, is considered an exempt issuer. Foreign national governments with which the United States has diplomatic relations, but not their political subdivisions, are considered exempt issuers. SEC-registered investment companies are exempt issuers, but unregistered hedge funds are not, regardless of with whom their advisers are registered.

In which of the following instances would an investment adviser representative be exempt from the antifraud rules of the Uniform Securities Act? A) Because the IAR understands how nervous a particular client is, he never admits a loss in the account to that client. B) The IAR makes a presentation at a seminar where the only topic discussed is fixed annuities. C) The IAR is also an agent of a broker-dealer and, in that capacity, makes a recommendation to a nonadvisory client. D) In an effort to avoid possible conflicts of interest, the IAR only does personal trades through an account set up with a fictitious name.

B. Because fixed annuities are not securities, a presentation dealing solely with that topic is not covered under the antifraud statutes of the USA.

oan owns and operates a jewelry store, and she has contracted to purchase 5,000 Swiss watches, paying the watch manufacturer in Swiss francs 3 months from the date of contract. To protect (hedge) her currency risk, she purchases call options on Swiss francs. Which of the following statements best describes her transaction in the Swiss franc calls in light of the USA? A) She has not engaged in a securities transaction because she purchased the options to hedge a business risk. B) She has engaged in a securities transaction because options on foreign currencies are considered to be securities under the USA. C) She has not engaged in a securities transaction because options on foreign currencies are not considered to be securities under the USA. D) She has engaged in a prohibited transaction because American investors are generally prohibited from trading in foreign currencies under the USA.

B. Options, regardless of the underlying asset, are considered securities under the USA. Therefore, Joan engaged in a securities transaction by purchasing call options on the Swiss franc. While there is no prohibition against American investors trading in foreign currency options or futures under the USA, acquiring the currency itself, rather than the option, would not have involved a securities transaction; currency is not a security.

Which of the following would fall under the USA's definition of exempt transaction? A) A real estate partnership sells interests to the public with no commission charge B) An issuer sells a new issue to a broker-dealer C) An agent accepts an order from a client after having sent a research report dealing with that security D) An investment adviser purchases securities from the issuer

B. Transactions between issuers and broker-dealers (but not investment advisers) are exempt transactions. As long as the sale is to the public, regardless of commissions charged (or not charged), the transaction is nonexempt. Don't be lured into thinking that accepting an order from a client is unsolicited. That's not true in this case because it is as the result of the research report.

Under the Securities Act of 1933, the definition of prospectus includes an offer of a security made orally a tombstone advertisement for a new issue of common stock an offer of a security made in an email communication A) I, II, and III B) III only C) I and III D) II and III

B. A prospectus is a communication made in writing or by radio or television that offers a security for sale. An oral offer would therefore not be a prospectus. Tombstone advertisements are specifically excluded from the definition of prospectus. An email meets the definition of a written communication.

All of the following may be required of a federal covered security EXCEPT paying a filing fee providing a consent to service of process submitting copies of any information filed with the SEC using a state-sanctioned legend on the offering documents A) II and III B) I and II C) IV only D) I, II, and III

C. Federal covered securities may be required to pay a filing fee, provide a consent to service of process, and if requested, submit copies of any and all documentation filed with the SEC. However, requiring a legend or other similar statement is beyond the jurisdiction of the state on a federal covered security.

Which of the following are exempt from state registration? A common stock traded on the OTC Bulletin Board whose bonds are listed on the NYSE An isolated nonissuer transaction A transaction by an administrator of an estate A transaction with no commissions directed by the offeror to no more than 50 persons in the state who buy the security for investment purposes only A) III and IV B) I and II C) II and III D) I and IV

C. Isolated nonissuer transactions and transactions by an ​administrator are included in the list of exempt transactions​. The private placement exemption is limited to a maximum of 10 offers to retail clients. If this were to institutions, (where there is no numerical limitation), commissions would be paid and immediate resale is permitted. If the common stock is federal covered (listed on the NYSE) and, therefore exempt from registration, then a senior security, such as the bond, would also be covered. But, it doesn't work in reverse.

Common stock of KAPCO, Inc., trades on the NYSE. Which of the following securities would not be exempt from registration under the USA? A) Stock rights to acquire KAPCO common stock B) KAPCO noncumulative preferred stock C) Limited partnership interests in a shopping center with KAPCO, Inc., as the general partner D) KAPCO, Inc. subordinated debentures, traded on the "Pink Sheets"

C. When an issuer's stock is listed on the NYSE, any security it issues that is equal to or senior to that stock is a federal covered security and exempt from registration with any state. When that issuer acts as a general partner in a real estate offering, it is not its security that is being sold, so the exemption does not apply.

Which of the following would NOT be considered a nonissuer transaction as defined in the Uniform Securities Act? A) Gates Williams, the largest shareholder in Maxihard Corporation, sells 100,000 shares in a registered secondary transaction. B) In its capacity as a market maker, XYZ Securities sells 200 shares of Gemco common stock to the corporate treasurer of Gemco, buying for the company's investment account. C) Gemco, traded on the Nasdaq Stock Market, sells 5,000 shares of its stock to LMN Securities Co., a registered market maker in Gemco stock. The stock was donated to Gemco by a former officer of the firm. D) Buffy Warren, the largest shareholder in Barkshire Mathaway, purchases an additional 50,000 shares on the NYSE.

C. A nonissuer transaction is one in which the issuer does not receive the proceeds of the sale. When a stockholder sells his shares, he is the one who receives the money, not the issuer. Purchases are never considered issuer transactions because the money is going out, not coming in. When an issuer sells shares, whether in a primary or secondary transaction (as is the case with the donated shares), if it receives the proceeds, it is an issuer transaction.

The USA considers certain transactions to be exempt from the requirements to register and the filing of advertising material. Included in that group are all of the following EXCEPT A) an isolated nonissuer transaction effected through a broker-dealer B) any transaction executed by a bona fide pledgee without any purpose of evading the act C) any offer or sale to a pension or profit-sharing trust as long as the plan has assets of no less than $750,000 D) any transaction by an executor, administrator, sheriff, marshal, or guardian

C. In general, the USA does not consider a transaction with an employee benefit plan to be exempt unless the plan has assets of at least $1 million.

Which of the following statements relating to the general securities registration provisions of Section 305 of the Uniform Securities Act is most accurate? A) The registration statement may be amended to increase the number of shares in the offering, as long as the share price is not raised by more than 10%. B) The registration is valid until the next December 31. C) The registration is valid for 1 year from the effective date. D) The registration is valid for 1 year from the effective date, unless the underwriter or issuer still has some unsold shares.

D.

Under the National Securities Markets Improvement Act of 1996, which of the following describe federal covered securities? A security registered under the USA A security registered under the Investment Company Act of 1940 A security of a company traded on the Nasdaq Stock Market A security issued by the U.S. government A) II and III B) I and II C) II and IV D) II, III, and IV

D. A federal covered security has a federally imposed exemption from state registration, so selecting a choice that includes registering under the USA cannot be correct. The list includes most securities exempt from registration under the federal Securities Act of 1933 (those issued by the U.S. government and state and local governments). In addition, it includes a number of securities registered with the SEC, primarily those traded on the exchanges and Nasdaq, as well as investment companies registered under the Investment Company Act of 1940.

Which of the following transactions are NOT exempt from registration? A) Unsolicited nonissuer transactions B) Isolated nonissuer transactions C) Transactions with pension or profit-sharing trusts D) Transactions with intrastate manufacturing companies

D. A transaction with a corporation that is not a financial institution is neither an exempt transaction nor exempt from the registration rules.

Registration statements for securities A) are effective for at least 2 years from their effective dates, or longer if the securities are still under distribution by the underwriters B) expire on December 31 of each year and must be renewed if further sales are to be continued C) need not be filed with the Administrator if the securities are only sold in one state. D) may be amended after their effective dates as to the amount of securities issued, provided that underwriting fees and the initial offering price have not changed

D. Registration of securities under the USA may be amended after their effective dates as to the amount of securities issued, provided that underwriting fees and initial offering prices have not changed. Securities registration statements remain effective for 1 year from their effective date, and do not expire on December 31 of each year. Registrations of agents, investment advisers, and broker-dealers expire on December 31 and need to be renewed. Registration statements are effective for 1 year from their effective dates (or longer if the securities are still under distribution by the underwriters).

Because, under the USA, many different securities qualify for an exemption from registration, proof of qualification for an exemption is the responsibility of A) any interested investor B) the Administrator C) none, the exemptions are automatic D) the person requesting the exemption

D. The USA provides for exemption from registration in a number of cases. If the exemption is challenged by the Administrator, it is up to the person, usually the issuer, requesting the exemption to prove that it is merited.

All of the following statements regarding the selling of private placements under the USA are true EXCEPT A) that the seller must reasonably believe that all noninstitutional buyers are purchasing for investment purposes only B) that no commission or other remuneration may be paid for soliciting noninstitutional buyers C) that they can be offered without limitation to institutional investors D) that they cannot be offered to more than 35 noninstitutional persons in 12 consecutive months

D. Under state law, a private placement can be offered to no more than 10 noninstitutional investors in 12 consecutive months.

Which of the following activities are prohibited practices under the principles of the Uniform Securities Act? Buying and selling the same stock on the same day on different exchanges Offering shares of an unregistered, nonexempt security to retail customers Offering a Canadian government bond to a resident of a state in which the agent of a broker-dealer is not registered A) I, II, and III B) I only C) II only D) II and III

D. Unless qualifying for an exemption, broker-dealers and agents must be registered in each state where offers or sales occur. Also, every security must be registered unless it is an exempt security. Buying a security on one exchange and selling it on another is an arbitrage activity and not a violation of the USA. Although the Canadian government bond is an exempt security, the agent must be properly licensed in each state in which an offer to sell is being made.

Under the Uniform Securities Act, registration by coordination becomes effective A) in 30 days B) immediately C) in 10 days D) when the registration with the SEC becomes effective

D. The registration by coordination becomes effective at the same time it is released (made effective) by the SEC, provided it was filed with the Administrator, in most states at least 10 days before the SEC effective date.

Ways in which offerings under Rule 506(c) of Regulation D of the Securities Act of 1933 differ from those under Rule 506(b) include each of these EXCEPT A) general solicitation is permitted under Rule 506(c) offerings; no advertising is permitted under Rule 506(b) B) the issuer must take "reasonable steps" to verify that all purchasers are accredited investors in a 506(c) offering, while no such obligation falls upon issuers in a 506(b) offering C) all purchasers of the Rule 506(c) securities must be accredited investors as defined in Rule 501, whereas Rule 506(b) permits a limited number of sophisticated but not accredited investors D) securities issued under Rule 506(c) are federal covered, while those under Rule 506(b) are not

D. Under the NSMIA, any security issued under the federal transaction exemption offered under Rule 506, either (b) or (c), is considered a federal covered security.