Uniform Securities Act: Securities Registration
Under the Uniform Securities Act, the term guaranteed is defined as
"guaranteed as to payment of principal, interest or dividends." It does not apply to capital gains.
Isolated "non-issuer" transactions are exempt
- meaning that the securities involved are not required to be registered in the State. These are transactions that take place in the secondary (trading) market. Also remember that these exemptions only apply to the registration of the securities involved. The agent must be registered (unless that agent qualifies for an exemption or exclusion), regardless of whether the securities involved are exempt or the transaction is exempt.
Misstatements of material fact in a securities registration are violations of the Act for issuers, directors of issuers, and underwriters - are all involved in preparing a securities registration statement and have liability for material omissions under the Act.
Agents are not involved in the filing of registration statements for securities; therefore, they are not responsible for the contents of the registration statement.
"offer" / "Offer to sell"
the unexecuted contract to sell a security for value - that is, the attempt to sell a security. Also included in the definition is a solicitation of an offer to buy the security. An "offer" or "offer to sell" is defined as any attempt to offer to dispose of a security; or a solicitation of an offer to buy a security or an interest in a security; for value.
If a new securities issue is being registered with the Securities and Exchange Commission pursuant to the Securities Act of 1933, the easiest method of State registration is Registration by:
Coordination Under Registration by Coordination, the filing information given to the Securities and Exchange Commission for Federal registration is filed with the State. When the Federal registration becomes effective, the State registration is effective. Note that registration by filing (or notification) cannot be used for new issues. It is only available for issuers that have already registered securities in the State.
the "blue chip" exemption
under Uniform state law, securities of issuers that are listed on stock exchanges, including NASDAQ, are exempt from State registration. To be listed on an exchange, the company must meet rigorous listing and reporting standards - they are "Blue Chip" (the most expensive gambling chip was blue, hence the name) companies. These issues are exempt from State registration, since to require such is seen as legislative overkill (these companies must already be registered with the SEC to be listed on an exchange).
The gift of a security is NOT considered to be a sale,
unless the security is assessable.
Registration statements for securities are effective for 1 year.
If the issuer cancels the sale of the issue, that registration becomes void. If a stop order is entered, the registration ceases to be effective and sale of the issue must stop.
Before an "offer to sell" a security is made in a state, the issue must either be registered in that state, or must be sold under an available exemption. A stock dividend given by an issuer is excluded from the definition of an "offer to sell" a security, since the holder really is receiving "nothing" - after the dividend is received, he or she holds more shares, with each one being worth proportionately less.
Included in the definition of an "offer to sell" is: The gift of an assessable security (which obligates the recipient to make future payments) A security that is "given" in consideration for the purchase of another security, since by tying the "gift" to the purchase of the other security, that person is really buying both, and both must be registered in that State A rights or warrants offering on an underlying security, since the rights give the holder the right to buy the underlying stock from the issuer at a pre-determined price.
Certain transactions are exempt. Generally, these transactions do not involve the public. Some of the more important exempt transactions are listed below:
Isolated transactions with someone other than an issuer (an isolated "non-issuer" transaction) Transactions between issuers and underwriters Transactions with banks, financial institutions, and trusts
Registration by Qualification in a State is the most difficult method and can be used for ANY security
It is typically used for a company's initial public offering where there is no Federal SEC registration, so the State has no other information about the issuer and the issuer must "qualify" to have its securities registered in the State.
Under the Uniform Securities Act, the following are defined as NON-EXEMPT SECURITIES
Preorganization subscription - limited partnership Certificate of deposit for a security - American Depositary Receipt Collateral trust certificate Voting trust certificate (VTC) Corporate stocks
Under the Uniform Securities Act, the following are defined as SECURITIES
Preorganization subscription/certificate - limited partnership Certificate of deposit for a security - American Depositary Receipt Collateral trust certificate Voting trust certificate (VTC) Stocks Stock Options Commodity options contracts Real Estate Condominium investments can be considered to be a security when the condominium is managed by a third party for profit. Commercial Paper Variable Annuities Warehouse Receipts Collateralized Mortgage Obligations Mortgage bonds investment contracts warrant right Unit investment trusts
Registration by qualification is used by issuers for their first time registration in that State when no SEC registration is required (that is, they must "qualify" their issue for registration in the State).
Registration becomes effective when the Administrator so determines (which is normally 30 days after filing, if there are no "problems" with the filing).
To use Registration by Coordination, an issuer must file a registration statement with: the Securities and Exchange Commission the Administrator of that State
Registration by Coordination of a securities issue in a State allows the Federal registration document required under the Securities Act of 1933 (the Prospectus filed with the Securities and Exchange Commission) to be the basis for registering the issue in that State. There is no filing of registration documents with FINRA.
Under the Uniform Securities Act, a registration statement which has been filed for a security: is effective for 1 year remains in effect for as long as the security is actively offered
Registration statements for securities are effective for 1 year. However, they remain in effect for as long as the security is actively offered - so if the offering takes longer, the registration is still good. If a stop order is entered, the registration ceases to be effective and sale of the issue must stop.
The definition of a SALE is a contract to sell a security, or an interest in a security, for value.
Sale is the completed contract to sell, or dispose of a security, for value. The term "sale" includes every contract of sale; disposition of an interest for value: and gifts of assessable securities since the recipient of the gift is responsible for any future assessments.
Which Act can be used to coordinate a securities registration filing under the provisions of the Uniform Securities Act?
Securities Act of 1933 If an issuer is registering securities with the SEC under the Securities Act of 1933, the Uniform Securities Act permits so-called "registration by coordination" where the Federal SEC registration filing is used as the registration document in the State. When the SEC registration becomes effective, the State registration is automatically effective as well (as long as the required State filing fees have been paid).
The Administrator cannot require registration of federal covered securities in the State (unless the issuer fails to comply with State requirements for these issues).
The State can require a notice filing; can require that the documents filed with the SEC for federal registration (or federal exemption) of the issue be filed in the State; and can require that a filing fee be paid to the State the State can require a "notice filing" in the State, along with a consent to service of process.
Unsolicited customer orders are defined as an "exempt transaction" under the Act,
whether the securities involved are exempt or non-exempt.
Federal covered securities are major exchange listed companies and investment company securities that are registered federally with the SEC.
These are no longer required to be separately registered in each State; however the State can still require a notice filing for these offerings.
Under the Uniform Securities Act, the following are defined as EXEMPT SECURITIES
U.S. Government bonds bank issues commercial paper maturing within 9 months rated in one of the 3 highest categories Industrial Loan Association issues Insurance Company issues Federal Credit Union issues Bank and Savings and Loan issues municipal bonds listed stocks bonds of a company listed on NYSE securities of issuers listed on national stock exchanges (such as a New York Stock Exchange listed issuer's common stock and bonds) Also note that the securities of issuers listed on the major exchanges (NYSE, AMEX (NYSE American) and NASDAQ) are now federal covered securities and cannot be required to be registered in the State.
Registration by Filing
a method of registering securities in a State, this is used by "seasoned" companies that have previously registered securities with the SEC. The State allows the latest SEC filed prospectus (for a previous securities offering) to be the principal filing document in the State. Registration becomes effective on the 5th business day after filing (but no earlier than when the SEC registration becomes effective)
Registration by Coordination
a method of registering securities in a State, this is used by a new company that is also registering the securities with the SEC. This is a somewhat more rigorous registration method than Registration by Filing (which can only be used by "seasoned" companies). The State allows the SEC filed prospectus to be the principal filing document in the State. Registration becomes effective when the SEC registration becomes effective.
Registration by Qualification
a method of registering securities in a State, this is used by new companies that have never previously registered securities with the State. This is the most rigorous method of registering securities, since there are no previous filings on which the Administrator can rely. Registration becomes effective when the Administrator so determines.
Assessable security
a security that obligates the holder to contribute more money to the issuer, if the issuer needs the funds. Limited partnership units typically are assessable - if the general partner needs more money to run the partnership, the general partner has the right to assess the limited partners for more funds. Common stock is non-assessable
Applications to register a security in a State cannot be filed by
agents
Under the Uniform Securities Act, the basic definition of a "security" is:
an investment in a common enterprise for profit with management by a third party
The State Administrator is supervised by: A Secretary of State B Governor of the State C NSMIA D NASAA
answer: A) Secretary of State The State Administrator is part of the Secretary of State's office in the majority of States. Also note in some States, the State Administrator is part of the Attorney General's office, or the State Department of Corporations, Commerce, Business Services, or the State Securities Commission, none of which are offered as choices.
A car dealership located in State A has been experiencing a period of slow sales and wants to increase business. The general manager wants to do the following promotion: "Buy a new car from us and we will give you 100 shares of our parent company's stock." Which statement is TRUE about this promotion? A This promotion constitutes an offer to sell securities in the State B This promotion does not constitute an offer to sell securities because no payment is being made for the securities C This promotion does not constitute an offer to sell securities because car dealerships are only subject to State franchise laws, not State securities laws D This promotion is illegal and unethical under State law
answer: A) This promotion constitutes an offer to sell securities in the State In this example, the securities are being given as an inducement to get the customer to buy a car. This is not a gift, since the payment made for the car includes a component for the value of the securities. An offer of securities is being made. The car dealer is viewed as an agent acting for the issuer of these securities, and registration with the State is required (unless an exemption is available).
To deny or revoke a securities registration, the Administrator may issue a: A stop order B cease and desist order C court order D subpoena
answer: A) stop order
Under the Uniform Securities Act, a private placement is an offer where no commissions are paid, made to no more than: A 5 persons in a 12 month period B 10 persons in a 12 month period C 12 persons in a 10 month period D 15 persons in a 10 month period
answer: B) 10 persons in a 12 month period
Which of the following does NOT qualify as an exempt transaction under the Uniform Securities Act? A A sale of common stock to an insurance company B A sale of preferred stock by an executor of an estate C A sale of an outstanding security that is listed on the New York Stock Exchange D An isolated sale of corporate bonds on behalf of an issuer
answer: D) An isolated sale of corporate bonds on behalf of an issuer
Under the Uniform Securities Act, all of the following transactions are exempt EXCEPT the sale of stock: A by a trustee in a bankruptcy proceeding B to an insurance company C by the executor of an estate D in a transaction solicited by a registered agent
answer: D) in a transaction solicited by a registered agent Sales of securities by fiduciaries such as executors of estates, or trustees in a bankruptcy proceeding, are exempt. Sales to financial institutions are also exempt transactions since the general public is not involved. Solicited sales of securities by agents are not exempt transactions. The security must be registered to solicit in the state unless another exemption is available. Please note, however, that unsolicited transactions are exempt from state registration requirements. Also remember that these exemptions only apply to the registration of the securities involved. The agent must be registered (unless that agent qualifies for an exemption or exclusion), regardless of whether the securities involved are exempt or the transaction is exempt.
3% of the Series 66 exam (3 questions)
covers securities registration requirements under the act
Administrators are permitted to enter "stop" orders
denying or revoking registration.
An isolated "issuer" transaction is not exempt.
ex: An isolated sale of corporate bonds on behalf of an issuer In this case, a corporate issuer is selling bonds, which is a security that must be registered under the Act. Also remember that these exemptions only apply to the registration of the securities involved. The agent must be registered (unless that agent qualifies for an exemption or exclusion), regardless of whether the securities involved are exempt or the transaction is exempt.
Under the National Securities Markets Improvement Act of 1996, a "Federal Covered Security" is defined as one that is:
exchange listed or NASDAQ listed, or is a senior security (preferred stock or bonds) of such an issuer; issued by a registered investment company; sold to qualified purchasers (basically a person who owns investments of at least $5,000,000 or investment managers with at least $25,000,000 of investment assets under management); or sold in exempt transactions specified by the Securities Act of 1933, such as Regulation D private placements. Thus, listed securities and investment company securities are only required to be registered with the SEC; they are not required to be registered separately in each State. In addition, securities sold to truly wealthy investors in certain exempt transactions are not required to be registered with the SEC; nor can they be required to be registered in the State.
The major Federal Covered Securities are
exchange listed securities and mutual fund shares.
Commercial Paper is exempt from registration if
if it has a maturity of nine months or less, is issued in amounts of $50,000 or more, and is rated in one of the top 3 ratings categories
An application to register securities may only be filed by
issuer; or a broker-dealer acting for an issuer; or the person on whose behalf the offering is being made (for example, an officer of a company effecting a secondary distribution of a large block of shares that he or she holds can file a registration application).
An agent tells a customer "I cannot sell you that stock, but if you want to buy it, let me know and I can sell it to you." The agent has attempted to induce a(n):
offer to buy (purchase) from the customer
The sale of preferred stock by an executor of an estate is an exempt transaction,
since sales by fiduciaries are exempt. Also remember that these exemptions only apply to the registration of the securities involved. The agent must be registered (unless that agent qualifies for an exemption or exclusion), regardless of whether the securities involved are exempt or the transaction is exempt.
The sale of common stock to an insurance company is an exempt transaction,
since sales to financial institutions are exempt. Also remember that these exemptions only apply to the registration of the securities involved. The agent must be registered (unless that agent qualifies for an exemption or exclusion), regardless of whether the securities involved are exempt or the transaction is exempt.
Registration of a security in a State means
that required papers have been filed and reviewed by the Administrator; and that the appropriate filing fees have been paid to the state. Also note that as a condition of registration, the Administrator can require the filing of advertising, sales literature, prospectuses, form letters or circulars that will be used in connection with the offer of the securities. Registration of a security does NOT mean that the Administrator approves of the issue.
The Uniform Securities Act states that registration of a security is not required if:
the issue is exempt; or the issue is non-exempt but is offered in an exempt transaction; or the issue does not fall under the definition of a security; or the issue is a federal covered security.
"State" is defined under the Act
to be any state, territory, possession of the United States, the District of Columbia, and Puerto Rico.
NOT CONSIDERED TO BE SECURITIES
(physical) commodities futures contracts Individual Retirement Accounts and Keogh Plans Fixed annuity contracts are excluded from the definition of a security, since the insurance company bears the investment risk. mortgages
A private placement under the Uniform Securities Act is defined as an offer to: 10 persons or less in 12 months
A private placement is defined under the Uniform Securities Act as an offer to no more than 10 persons in a year. Private placements are exempt transactions as long as the general public is not solicited and no commissions are paid. Also note that this is a very different from the Federal private placement rule.
A "seasoned security" is one that has "seasoned" in the marketplace.
Basically, it is a security that has completed its IPO and is now exchange listed, with extensive trading activity and marketplace information. Such "seasoned issuers" can use the simplest method of registering securities in the state - Registration by Filing.
Any registration statement for a securities offering includes:
Current balance sheet and income statement; Business description; Use of proceeds of offering; Offering Terms; Legal Opinion; Accountant's Opinion.
Under the Uniform Securities Act, a private placement is an offer to no more than 10 investors in a 12 month period, where no commissions are paid.
Do not confuse this with private placement exemption available under Federal law (Regulation D) which defines a private placement as a sale to no more than 35 "non-accredited" investors and an unlimited number of "accredited" investors. There is no similar wording in State law for private placements.
An issuer that wishes to sell a new issue offering across the United States has decided to register an issue by coordination under the provisions of the Uniform Securities Act. Once registration is effective, this means that the issue will be registered: with both the SEC and in any of the 50 States where registration documents were filed
Registration by coordination is the easiest method of registering securities in a State. The issuer uses the Federal SEC filing as the documentation to register the issue in each State where it will be sold. When registration is effective with the SEC, it is also effective in each State (as long as the proper fees have been paid to the State). Note that federal covered securities are not subject to State registration requirements. These are basically exchange-listed and investment company issues. The State can require notification and payment of a fee for these. This leaves registration by coordination to be used for SEC-registered issues that are too small for exchange listing - basically OTC Pink Open Market issues.
The person who is designated to enforce the provisions of the Uniform Securities Act is known as the: Administrator
The Uniform Securities Act is enforced by the "Administrator" in each state.
If a registration statement is found to be incomplete, there is no requirement for a complete new filing.
The additional information is provided by filing an amendment with the Administrator.
Under the Uniform Securities Act, if a broker-dealer receives an unsolicited customer order to buy a security for a customer, this is an: A exempt transaction, whether the security involved is exempt or non-exempt B exempt transaction only for transactions in exempt securities C exempt transaction only for transactions in non-exempt securities D exempt security
answer: A) exempt transaction, whether the security involved is exempt or non-exempt
TechnoCorp is a small cap technology stock that is quoted in the OTC Pink Open Market. Under the provision of the Uniform Securities Act, the common stock of TechnoCorp is a(n): A federal covered security that is exempt from State registration B exempt security as defined under the Uniform Securities Act C non-exempt security that must be registered in the State D exempt transaction that does not require registration in the State
answer: C) non-exempt security that must be registered in the State The major non-exempt securities under State law are securities that are not listed on an exchange or NASDAQ (since these are given a "blue chip" exemption from State registration). Thus, the securities that are non-exempt are OTC securities of corporations - this would be common and preferred stock of companies quoted in the OTC Pink Open Market, as well as corporate bonds of these companies.
To qualify for the private placement exemption, all of the following are required EXCEPT: A any purchases must be made with investment intent B no more than 10 persons can purchase the issue during a 12 month period C no commissions can be paid for soliciting individuals to purchase the issue D all purchasers must reside in one state
answer: D) all purchasers must reside in one state To qualify for a private placement exemption, no more than 10 persons can purchase the issue within a 12 month period under the Act. All purchases must be made with investment intent; and no commissions can be paid to anyone except for solicitations of financial and institutional investors. There is no requirement that all of the purchasers reside in one state - the limitation is 10 purchasers of the issue per year. The purchasers can reside anywhere within the United States.
Under the provisions of the Uniform Securities Act, NAFTA and GATS, the State Administrator has the power to designate all of the following non-issuer transactions as "exempt" EXCEPT: A trades effected on the Toronto Stock Exchange B trades effected on the American Stock Exchange C trades effected on the Mexico Stock Exchange D trades effected on the London Stock Exchange
answer: D) trades effected on the London Stock Exchange The Uniform Securities Act exempts secondary market trades of securities that occur on registered stock exchanges from State securities registration requirements (however, remember that the IPO of these issues was either registered in the State or a notice filing was made). Under the provisions of NAFTA (North American Free Trade Agreement between the U.S., Canada and Mexico) and GATS (General Agreement on Trade in Services), the Administrator is empowered to exempt trades that occur on stock exchanges in these other 2 countries. Currently, only trades on the Toronto Stock Exchange are exempted. The Administrator has no power to exempt trades that take place on the London stock exchange.
A broker-dealer has a place of business in State A does business exclusively in State A and is registered in the State. The broker-dealer has no office in State B and is contacted by a client in State B who wants to sell some securities that he inherited. State B does not have a de minimis rule for broker-dealers. The client is not interested in opening an account and only wants the broker-dealer to do this transaction and remit the proceeds to the customer. Which statements are TRUE? I In order to effect this transaction, the broker-dealer must be registered in State B II In order to effect this transaction, the broker-dealer is not required to be registered in State B III In order to effect this transaction, the securities involved must be registered in State B IV In order to effect this transaction, the securities involved are not required be registered in State B
answer: I and IV If a broker-dealer with no office in that State, effects an isolated non-recurring trade in that State in a 12 month period, the transaction is exempt, and the security is not required to be registered in that State. This is an "isolated non-issuer transaction." Note that the broker-dealer still must be registered in the State unless the broker-dealer has no office in the State and the broker-dealer qualifies for a "de minimis" exemption in the State. This State does not have a "de minimis" rule for out-of State broker-dealers, therefore the broker-dealer must be registered in State B to do the trade.
OTC issues / "unlisted securities" - stocks included in Pink OTC markets (typically penny stocks)
are subject to State registration requirements in addition to Federal registration with the SEC
Registration of an initial public offering that will take place ONLY within one State
can ONLY be performed by Registration by Qualification.
Regarding registration of securities in a State, the Administrator is empowered to
impound the proceeds of the sale of the securities until a specified dollar amount is sold (this is typical for so-called "all or none" underwritings, where, if the entire issue is not sold, the deal is canceled). The Administrator can require the filing of original copies of confirmed subscription agreements (these are completed by customers who wish to "subscribe" to the new offering of securities); and can require that a disclosure document (prospectus) be provided to customers. The state administrator cannot require that the state receive a portion of the offering proceeds - the filing fee paid to the state is sufficient!
issues SPECIFICALLY EXCLUDED from the definition of a "security"
insurance or endowment policies or contracts fixed annuity contracts ownership interests in credit unions (which are non-profit organizations) commodities futures contracts interests in both contributory and non-contributory retirement plans (pension plans, individual retirement accounts (IRA's) and Keogh ("HR 10") plans. However, the specific investments held within these vehicles are defined as securities)
The Uniform Securities Act requires that any security offered in a State be registered in that State UNLESS
it is exempt from registration in the State; is offered in an exempt transaction in the State; or is a federal covered security (which is any major exchange listed company or any investment company security registered with the SEC).
Under the Uniform Securities Act, a "sale" of a security has occurred if a:
listed option is exercise gift of assessable stock is made A security given to a person as a "gift" with the sale of another security - since the security was "given" with the sale of another security. Therefore, the value of that gift was included as part of the sale price, so the "gift" was actually sold for value.
The term "blue skying" a new issue refers to:
registering the issue in each State where the securities will be offered to customers
Bonds issued by not for profit organizations are an exempt security under Uniform State Law. For example, so-called "church" bonds, used to pay for the construction of new churches or church additions, are an exempt security. Please note, however, that there have been many frauds associated with these offerings, where "good people of faith" have been fleeced. Because of this, the Uniform Securities Act provides that, in order to offer a note, bond or debt of a religious, benevolent, fraternal or social organization, the Administrator:
1. can require the issuer to file a Notice specifying the material terms of the offer in the State and file copies of proposed advertising and sales literature used in connection with the offering 2 can provide that the exemption becomes effective only if the Administrator does not disallow it within a stated time period (typically 10 business days) 3. can disallow the exemption, providing the grounds for denial or suspension 4. can require the issuer to register in the State (used if the Administrator believes that the bond issue is really a "commercial offering" and not a true "charitable" offering) Note that because not for profit issues are exempt securities under Federal law, there would be no Federal registration filing that could be "coordinated" with a State registration. Finally, the role of the Administrator is to ensure that any purchases of new issues in the State receive full and fair disclosure in order to make a proper investment decision. Making a proper filing with the State does not constitute approval of the Administrator.
Any security of an issuer which is listed on a recognized stock exchange such as the New York Stock Exchange is also exempt under the so-called "blue chip" exemption.
Since these companies are also registered with the SEC under the Securities Exchange Act of 1934, secondary market trading of these securities falls under the exemption given to "non-issuer transactions in outstanding securities of companies registered under the 1934 Act." Also remember that these exemptions only apply to the registration of the securities involved. The agent must be registered (unless that agent qualifies for an exemption or exclusion), regardless of whether the securities involved are exempt or the transaction is exempt.
The Administrator will give a specific response before the effective date for issues that are registered by: Qualification only
Under Registration by Filing, registration becomes effective 5 business days after the filing. Under Registration by Coordination, registration becomes effective when the Federal registration becomes effective. Under Registration by Qualification, registration becomes effective on a date set by the Administrator. Review
An issuer has filed a registration statement in a State for a new issue of securities that is effective and sale of the issue has started. The issuer finds that there is great demand for the offering and wishes to increase the number of shares being issued. In order to do this, a(n): amendment must be filed, as long as it is within 6 months of the date of sale along with the payment of an additional filing fee and a late registration fee RemoveExplanation
Under USA, a registration statement for a securities offering may be amended after its effective date to increase the amount of securities to be sold (this would be done if there was greater demand than expected). The offering price and underwriter's compensation cannot be changed. To do this, it must be within 6 months of the original sale date (the effective date) and both a filing fee for the additional securities being offered and a late registration fee must be paid to the State. (Of course, you might wonder why this bit of trivia must be known for the exam, but it must!) The amendment becomes effective when the Administrator so orders.
Under the Uniform Securities Act, an "offer" or "offer to sell" includes
an offer of a security the solicitation of an offer to buy a security an offer of an interest in a security An unsuccessful attempt to dispose of a security for value
Registration by Qualification can be stopped by the Administrator if it is in the public interest and the: A applicant cannot show that the registration is not incomplete in any material respect B applicant can show that the registration is incomplete in any material respect C Administrator cannot show that the registration is not incomplete in any material respect D Administrator can show that the registration is incomplete in any material respect
answer: A) applicant cannot show that the registration is not incomplete in any material respect In a Registration by Qualification or Filing, there is no concurrent SEC registration. The security is only being registered in the State. In such a case, the Administrator can issue a stop order "if it is in the public interest" and the applicant cannot prove that the offering would not be illegal in the State (the burden of proof is on the applicant). On the other hand, Registration by Coordination in a State permits the applicant to coordinate an SEC registration with the registration requirement in each State. Essentially, the State accepts the SEC registration statement as the State filing document. Registration becomes effective in the State when the SEC registration is effective. In such a registration, the State Administrator can only issue a stop order if "it is in the public interest" and the Administrator can prove that the offering would be illegal in the State, is not complete, or required filing fees have not been paid (thus, the burden of proof is on the Administrator).
If the State Administrator determines that a securities offering has been made on unfair terms, he or she may do all of the following EXCEPT: A suspend the registration statement without providing an opportunity for a hearing B suspend the registration statement only if an opportunity for a hearing is provided C notify the issuer of any proposed action D take any actions based on findings of fact and conclusions of law
answer: A) suspend the registration statement without providing an opportunity for a hearing The Administrator is allowed to deny or revoke the registration of a securities offering by order. The order cannot be entered unless appropriate prior notice is given to all interested parties; an opportunity for a hearing is provided; and written findings of fact and conclusions of law are provided.
All of the following are exempt transactions under the Uniform Securities Act EXCEPT non-issuer transactions in stocks listed on the: A American Stock Exchange (NYSE American) B Tokyo Stock Exchange C Pacific Stock Exchange D NASDAQ Stock Market
answer: B) Tokyo Stock Exchange Non-issuer transactions in securities that are U.S. exchange listed or NASDAQ listed are exempt from State registration requirements (because the IPO of that security was either registered in the State already or a notice filing was made in the State). Secondary market trades on the Toronto Stock Exchange are given a similar exemption (NAFTA - The North American Free Trade Agreement between the U.S., Canada and Mexico - permits the State Administrator to exempt transactions on exchanges in these countries). No such exemption is given to secondary market trades occurring on any other foreign stock exchange.
The sale of securities by issuers to financial institutions is a(n): A exempt security B exempt transaction C non-issuer transaction D non-exempt transaction
answer: B) exempt transaction Thus, a sale of securities by issuers to financial institutions is an exempt transaction, meaning that there is no requirement for the securities to be registered in the State.
Registration by Coordination would most likely be used for: a(n) A issue that is being registered in another State B issue that is being registered with the SEC C secondary offering from an established company D primary offering from a new company
answer: B) issue that is being registered with the SEC Registration by Coordination would be used by an issuer that is registering securities with the Securities and Exchange Commission. The State accepts the SEC registration documents as the state registration and "coordinates" the state registration with the SEC registration.
In order for a "church" bond issue to be exempt, the Administrator: A must approve of the issue before it is offered to any resident of that State B must not disallow the exemption within a stated time period after a Notice Filing is made C can require that the issue only be offered to congregants of that church D can require that the issue be registered in the State by Coordination
answer: B) must not disallow the exemption within a stated time period after a Notice Filing is made
Under the Uniform Securities Act, which transaction is allowed for exempt unregistered securities? A Primary offerings B Secondary offerings C Both primary and secondary offerings D Neither primary nor secondary offerings
answer: C) Both primary and secondary offerings In a nutshell, since it is an EXEMPT unregistered security, both primary and secondary offerings are allowed without filing a registration statement in the state. If the security were non-exempt, then to offer that security in the state, registration would be required.
What is a "seasoned security"? A One that is not traded on an exchange, but whose value can be readily determined B One that is suitable for investors that have extensive trading experience C One that has substantial trading activity across a wide diversity of shareholders and publicly available marketplace information D One that has completed the required cooling off period immediately preceding its Initial Public Offering and is now trading over-the-counter.
answer: C) One that has substantial trading activity across a wide diversity of shareholders and publicly available marketplace information
Bonds issued by a church located in Sullivan County, in the State of Indiana, are being offered to congregants of affiliated churches in the State of Illinois. Which statement is TRUE? A The bonds are only exempt securities if the offer is made to church congregants in Illinois and not to the general public B The bonds are only exempt securities when being offered to residents of the State of Illinois C The bonds are only exempt securities in either Indiana or Illinois, as long as a notice filing specifying the material terms of the offer is made in the State D The bonds are non-exempt securities that must be registered in each State where offered
answer: C) The bonds are only exempt securities in either Indiana or Illinois, as long as a notice filing specifying the material terms of the offer is made in the State
Under Uniform State Law, all of the following statements about an Administrative order denying or revoking registration of securities are true EXCEPT: A the burden of proof of showing that a security is exempt is on the person claiming the exemption if the issue is registered by qualification B an order revoking registration usually cannot be made retroactive by the Administrator C a summary order issued by the Administrator is final and cannot be appealed D a person cannot be found in violation of a summary order if he did not know, and in the exercise of reasonable care, could not have known, about the order
answer: C) a summary order issued by the Administrator is final and cannot be appealed An order issued by the Administrator revoking a securities registration, can be appealed to that State's court. These orders cannot be made retroactive (with one minor technical exception involving registration by coordination). If the person who is the subject of the order never receives the order from the Administrator, then that person cannot be found in violation of the order. So if the order is mailed by the Administrator by certified mail, and the post office loses it and it is never delivered, then that person cannot be found in violation. Finally, to get the order reversed, the burden of proof is on the person claiming the exemption, not on the Administrator. (A minor note: If the Administrator wishes to deny or revoke an exemption from State registration to an issue registered by coordination, then the burden of proof shifts to the Administrator - supremacy of Federal law again, since the State accepts the SEC registration as the State filing document.)
All of the following statements are true about unsolicited customer transactions effected through a broker-dealer EXCEPT: A the Administrator may require that the customer acknowledge the transaction with a written statement B the transaction is exempt under State law C no commissions may be paid to the broker effecting the transaction D the transaction is defined as a "non-issuer" transaction
answer: C) no commissions may be paid to the broker effecting the transaction
Registration by Filing would most likely be used for a(n): A issue that is being registered in another State B issue that is being registered with the SEC C secondary offering from an established company D primary offering from a new company
answer: C) secondary offering from an established company Registration by Filing can be used by established companies that have been in continuous operation for the past 3 years, who already have registered securities with the Securities and Exchange Commission. A "secondary" offering by an issuer is defined as an issue from a company that already has registered securities outstanding.
Registration of a security in a State is required if the: A security is exempt B security is offered in an exempt transaction C security has been registered with the Securities and Exchange Commission under the 1933 Act D offering does not fall under the definition of a security
answer: C) security has been registered with the Securities and Exchange Commission under the 1933 Act Whether an issue has been registered with the Securities and Exchange Commission (under the Securities Act of 1933 - Federal law) has no bearing on State registration requirements. For example, if a new stock issue is registered with the SEC and quoted on the OTC Pink Open Market, then it is not a Federal covered security. It still must be registered in the State before it can be sold.
All of the following are defined as either a "sale" or an "offer to sell" common stock of an issuer EXCEPT: A any offer to sell the common stock for value B any solicitation of an offer to buy the common stock for value C the gift of the common stock to an employee of the issuer D the sale of a bond with detachable warrants to buy the common stock of that issuer
answer: C) the gift of the common stock to an employee of the issuer he definition of a "sale" is every contract of sale, contract to sell, or disposition of a security, or interest in a security, for value. The definition of an "offer to sell" is every attempt or offer to dispose of, or solicitation of an offer to buy a security. Thus, Choices A and B fit the definition. In addition, the sale or offer of a security that includes rights or warrants to buy another security is considered to be an offer or sale of the other security (Choice D correct). The gift of a security is NOT considered to be a sale, unless the security is assessable. Common stock is non-assessable, so this is simply a gift, not a sale.
A broker-dealer offers securities in a State which, upon the advice of legal counsel, the broker-dealer believed to be exempt from that State's registration requirement. The Administrator issues a stop order and denies the exemption to the issue. A customer who bought the issue brings suit in a court of law against the broker-dealer. Which statement is TRUE? A The legal opinion offered by legal counsel shields the broker-dealer from any liability to purchasers of the issue B The customer may bring suit against the legal counsel for rendering a defective opinion; but cannot bring suit against the broker-dealer C The court will refer the case to the State Administrator for resolution D The broker-dealer is liable despite the fact that it believed, in good faith, that it was making an offering exempt securities
answer: D) The broker-dealer is liable despite the fact that it believed, in good faith, that it was making an offering exempt securities Just because a legal opinion was obtained does not relieve the broker-dealer from liability. It made an offer of securities that should have been registered in the State. Note that the broker-dealer could take legal action against the lawyers that rendered the defective legal opinion.
A corporation listed on the American Stock Exchange (NYSE American) wishes to distribute a stock dividend to its shareholders. Which statement is TRUE? A The issuer must register the shares in the State by Filing B The issuer must register the shares in the State by Coordination C The issuer must register the shares in the State by Qualification D The transaction is exempt and the shares do not have to be registered in the State
answer: D) The transaction is exempt and the shares do not have to be registered in the State This transaction falls under 2 exemption provisions - and the issuer could rely on either one. Because the company is American Stock Exchange listed (the AMEX has been renamed the NYSE American, but this is unlikely to show on the exam), its shares are exempt from registration in the State (the "blue chip" exemption). Because no commissions or other remuneration are paid when a stock dividend is distributed to shareholders, the issuer could rely on this exemption provision as well.
Under the Uniform Securities Act, if an offer of not-for-profit "church" bonds is to be made in a State: I the Administrator can require that a Notice Filing be made in the State II the Administrator can require that the issue be Registered by Coordination in the State III the Administrator can require the filing of any promotional materials used in connection with the offer and sale of the issue IV the Administrator can disallow the exemption without providing any reason for such a denial
answer: I and III
Which statements are TRUE about the "burden of proof" needed to vacate a stop order entered by the Administrator in a securities registration? I If the issue is being registered by coordination, the burden of proof is on the Administrator to show that registration should not be allowed to proceed II If the issue is being registered by coordination, the burden of proof is on the applicant to show that registration should be allowed to proceed III If the issue is being registered by qualification, the burden of proof is on the Administrator to show that registration should not be allowed to proceed IV If the issue is being registered by qualification, the burden of proof is on the applicant to show that registration should be allowed to proceed
answer: I and IV Registration by Coordination in a State permits the applicant to coordinate an SEC registration with the registration requirement in each State. Essentially, the State accepts the SEC registration statement as the State filing document. Registration becomes effective in the State when the SEC registration is effective. In such a registration, the State Administrator can only issue a stop order if "it is in the public interest" and the Administrator can prove that the offering would be illegal in the State, is not complete, or required filing fees have not been paid (thus, the burden of proof is on the Administrator). On the other hand, in a Registration by Qualification or Filing, there is no concurrent SEC registration. The security is only being registered in the State. In such a case, the Administrator can issue a stop order "if it is in the public interest" and the applicant cannot prove that the offering would not be illegal in the State (the burden of proof is on the applicant).
Which of the following statements are TRUE about unsolicited customer transactions effected through a broker-dealer? I The Administrator may require that the customer acknowledge the transaction with a written statement II The transaction is exempt under State law III No commissions may be paid to the broker effecting the transaction IV The transaction is defined as a "non-issuer" transaction
answer: I, II and IV Unsolicited customer transactions effected through a broker-dealer are exempt under State law. Note that this only means that there is no requirement that the security involved be registered; the broker-dealer effecting the trade must still be registered in the State or must be eligible for an exemption/exclusion if it is not registered in the State. This is a "non-issuer" transaction, since the issuer does not receive the proceeds of the sale. The State may require that the broker-dealer have the customer sign a "non-solicitation" letter proving that the trade was, indeed, unsolicited. There is no restriction on the paying of commissions in unsolicited trades. This restriction only applies to the private placement exemption; and the exemption that is given to sales where no commissions are paid.
Which of the following statements are TRUE regarding private placements under the Uniform Securities Act? I No commissions can be paid for sales to individual investors II No more than 10 prospective investors may be contacted III General advertising is prohibited
answer: I, II, III Private placements under State law differ from the Federal law private placement exemption. Under State law, a private placement is an offer of securities to no more than 10 persons, where no commissions can be paid for sales to individual investors (they can be paid on sales to institutional investors). Advertising is prohibited, since advertising would make this an offer to the general public - not a "private placement." In contrast, under Federal law, a private placement is a sale of securities to no more than 35 "non-accredited" investors. No advertising is permitted; and Federal law is silent about commissions (thus, they can be paid)
A security cannot be offered in a state unless it: I has been registered in the state II is a federal covered security, in which case no registration is required III is an exempt security, in which case no registration is required IV is offered in an exempt transaction, in which case no registration is required
answer: I, II, III, IV To offer a security in a State, if it is non-exempt, it must either be registered or must be offered in an exempt transaction. If the security is exempt, or if it is a federal covered security, there is no requirement for registration and it can be freely offered. Please note that the broker-dealer and agent offering the securities must still be registered unless these persons are excluded from the definitions of "agent" and "broker-dealer."
For the offering of a pre-organization certificate to be exempt under the Uniform Securities Act, which statements are TRUE? I Commissions or other compensation may be received in connection with the offering II Advertisements are permitted III The offering cannot be made to more than 10 investors
answer: II and III Offers of pre-organization certificates are exempt under the Uniform Securities Act if no commissions are paid for soliciting potential subscribers; the number of subscribers is limited to 10 persons; and no payment is made by any subscriber. (This generally parallels the private placement exemption under State law, except that advertising is allowed for pre-organization certificates - but not for private placements.) Note that advertisements for such offerings are permitted because the intent of this law is to enable a new enterprise to obtain the minimum number of subscribers required to form the business under corporate law.
Offers of pre-organization certificates are exempt under the Uniform Securities Act if which of the following are TRUE? I Commissions or other compensation may be received in connection with the offering II Commissions or other compensation may not be received in connection with the offering III Advertisements are permitted IV Advertisements are not permitted
answer: II and III Offers of pre-organization certificates are exempt under the Uniform Securities Act if no commissions are paid for soliciting potential subscribers; the number of subscribers is limited to 10 persons; and no payment is made by any subscriber. (This generally parallels the private placement exemption under State law, except that advertising is allowed for pre-organization certificates -but not for private placements.) Note that advertisements for such offerings are permitted because the intent of this law is to enable a new enterprise to obtain the minimum number of subscribers required to form the business under corporate law.
A NASDAQ listed issuer plans on offering 5,000,000 new shares in an "add on" offering that will be sold by its underwriters in all 50 States. Which statements are TRUE? I The security must be registered in each State II A notice filing and filing fee are required in each State III A prospectus must be filed in each State IV A consent to service of process must be filed in each State
answer: II and IV Because this is an offering of a "federal covered" security (exchange listed or NASDAQ listed), the States cannot require a registration filing. The only registration filing is with the SEC. However, each State will still require a "notice" filing and payment of a filing fee; along with the filing of a consent to service of process.
Under the Uniform Securities Act, an investment adviser with no place of business in a State only does 1 trade in a non-exempt security in the State within a 12 month period. Which statements are TRUE? I The security must be registered in the State II No registration of the security is required because the transaction is exempt III The investment adviser must be registered in the State IV The investment adviser is not required to register in the State because it qualifies for a "de minimis" exemption
answer: II and IV If an investment adviser with no office in that State, effects an isolated non-recurring trade in that State in a 12 month period, the transaction is exempt under the "isolated non-issuer transaction" exemption. This means that the security involved is not required to be registered in the State. Furthermore, because the investment adviser has no office in the State and is only doing 1 transaction in the State in a year, it qualifies for a "de minimis" exemption from State registration (available to investment advisers with 5 or fewer clients in a State in a 12 month period in most States)
An agent tells a customer: "Since I am not registered in your State, I cannot contact you and ask you to buy a security. However, you can call me and ask me to sell it to you, since then I am not soliciting you." Under the Uniform Securities Act: I The agent is soliciting an offer to sell from the customer II The agent is soliciting an offer to buy from the customer III The agent's actions are permitted IV The agent's actions are prohibited
answer: II and IV This one is interesting. If an agent is not registered in a given State, then that agent cannot solicit orders to buy or sell securities in that State. The agent appears to believe that if the transaction is unsolicited, then it is OK to take an order from that customer. However, this exemption only applies to the registration of securities and not to the registration of agents. The agent has attempted to induce an offer to buy (purchase) from the customer. This would be unethical if the agent were not registered in the customer's State.
The Administrator may NOT deny effectiveness to a securities registration if: I the application contains incomplete statements of material fact II an officer of the issuer has previously filed for bankruptcy III the issuer's enterprise is illegal in the State IV the issuer's liabilities exceed assets
answer: II and IV only Regarding a securities registration in the State, the registration application will be denied if it is incomplete in any material respect (Choice I), and will be denied if the issuer's business is illegal in that State (Choice III - e.g., while a Mustang Ranch stock offering is legal in Nevada, that type of enterprise -"sex for hire" - is illegal in every other State). This question asks about which reasons cannot be used by the Administrator to deny effectiveness to a securities registration. If an officer of an issuer has previously filed for bankruptcy (Choice II), this has no bearing on the issuer's securities registration - the Administrator cannot deny registration because of this. Also, there is no statute that requires that Administrator to deny effectiveness to a securities registration if the issuer's liabilities exceed its assets (Choice IV). Thus, this is also not a reason to deny effectiveness to a securities registration. Please note that this situation often occurs in securities offered pursuant to a bankruptcy reorganization. Prior to the securities offering, the issuer's liabilities will exceed its assets. After the offering is completed, more equity and cash is added to the business, so that now the business is solvent again. Also note that insolvency is a reason to deny registration to a broker-dealer, investment adviser or agent - so do not confuse this with an insolvent company's securities registration - which is permitted.
Registration by Filing -
becomes effective 5 business days after the filing is complete To qualify, the issuer must be in business continuously for the past 3 years, and be profitable in 2 of the last 3 years. The issuer cannot have defaulted on any interest payments in the last year and must include copies of the offering materials (Prospectus) in the filing.
