Unit 4: Practice Questions
Corporate debt securities (such as commercial paper) are exempt from registration under the Securities Act of 1933 if their maturities do not exceed how many days? A) 270 days B) 365 days C) 90 days D) 30 days
A) 270 days Corporate debt securities (such as commercial paper) with maturities of 270 days or less are exempt from registration; longer maturities would subject them to the act's registration and disclosure requirements.
Which of the following is NOT an issuer under the USA? A) A corporation that proposes to issue securities but has not done so as of yet B) A broker-dealer trading securities as an agent for the account of others C) A company whose shares trade on the New York Stock Exchange D) A new company that offers shares to the public in an IPO
B) A broker-dealer trading securities as an agent for the account of others 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 client of a broker-dealer calls his agent and submits an order to purchase 1,000 shares of a Chilean silver mining company. As the order ticket is being prepared, the agent notices that this is a nonexempt unregistered stock. The agent should... A) wait for firm approval before processing the order B) continue to process the order because this is an exempt transaction C) inform the client that no orders for this stock may be accepted until it is properly registered in the state D) continue to process the order because this is an exempt security
B) continue to process the order because this is an exempt transaction Because the client initiated the process, this is an unsolicited order. As such, it is included in the USA's definition of exempt transaction. Even when the security is nonexempt, registration is not required when the transaction is exempt. Therefore, this order may be taken as placed.
An issuer properly files Form D in accordance with Rule 503 of Regulation D of the Securities Act of 1933. As such, the securities that are the subject of any transaction are A) required to register with the state(s) in which they are sold B) federal covered securities C) available only to institutional purchasers D) required to register with the SEC
B) federal covered securities Securities sold under Regulation D of the Securities Act of 1933 are private placements and, under the NSMIA, are considered federal covered securities.
Which of the following securities is NOT exempt from the registration provisions of the Securities Act of 1933? A) An equity security issued in only one state solely to residents of that state B) A U.S. government bond C) A new stock being offered in three states D) A high-quality corporate promissory note maturing in 180 days
C) A new stock being offered in three states Government securities, money market instruments (the promissory note is another way of saying commercial paper), and intrastate offerings are exempt from the registration provisions of the 1933 Act. A stock being offered in three states would have to register with the SEC and possibly with those states.
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 cannot be offered to more than 35 noninstitutional persons in 12 consecutive months D) that they can be offered without limitation to institutional investors
C) that they cannot be offered to more than 35 noninstitutional persons in 12 consecutive months Under state law, a private placement can be offered to no more than 10 noninstitutional investors in 12 consecutive months.
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 only 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 and the underwriter
C) the issuer's chief executive officer, chief financial officer, and a majority of the issuer's board of directors The underwriter's signature is not required on a registration statement, but the chief executive officer, the chief financial officer, and a majority of the board of directors must all sign.
Under the Uniform Securities Act, a registration statement of an issuer must contain all of the following information EXCEPT... A) the identity of the officers and directors and the extent of their holdings in the issuer B) the current balance sheet and profit/loss statements C) the names of all the owners of the company's stock D) the business of the issuer
C) the names of all the owners of the company's stock The names of all the owners of the company's stock are not required. The identity and stock holdings of the officers, directors, and holders of more than 10% of the company's voting stock, as well as the principal business of the issuer and current financial information, must be disclosed.
Included in the USA's definition of an exempt transaction would be any transaction by any of the following EXCEPT A) a trustee in bankruptcy B) a marshal C) a guardian D) a trustee of an irrevocable trust
D) a trustee of an irrevocable trust Although the term trustee is found in the list of persons engaged in exempt transaction, the USA limits it to trustees in bankruptcy.
Under the Securities Act of 1933, which of the following does not meet the definition of prospectus? A) A telephone call from an agent of a broker-dealer to a client advising the purchase of a security B) A newsletter from a brokerage firm announcing the availability of a security C) A publicity release that describes a security D) An advertisement in a newspaper describing the benefits of a certain mutual fund
A) A telephone call from an agent of a broker-dealer to a client advising the purchase of a security. Any written communication that offers a security for sale—including newspaper and media communications, such as radio and television offers—is considered a prospectus. This definition excludes individual offers made orally and discussions between an agent and a customer. A publicity release that describes a security, a newsletter from a brokerage firm announcing the availability of a security, and an advertisement in a newspaper describing the benefits of a certain mutual fund may be considered prospectuses. A telephone call from an agent to a client advising the purchase of a security is not considered a prospectus because it involves an individual telephone solicitation between an agent and a client.
Which method of securities registration would most likely be used to register an initial public offering that is intended to be offered for sale in several states? A) Coordination B) Registration by publication C) Qualification D) Notice filing
A) Coordination Because the offering will be made in more than one state, registration with the SEC is required. Coordination is concurrent registration with the SEC and the state for public offerings. Notice filing pertains to certain federal covered securities, primarily by investment companies (mutual funds).
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) Equipment trust certificates issued by a regulated common carrier C) Bonds issued by the Province of Alberta D) 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
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 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 would NOT be considered a nonissuer transaction as defined in the Uniform Securities Act? A) 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. B) Buffy Warren, the largest shareholder in Barkshire Mathaway, purchases an additional 50,000 shares on the NYSE. C) 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. D) Gates Williams, the largest shareholder in Maxihard Corporation, sells 100,000 shares in a registered secondary transaction.
A) 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. 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.
Securities of a nonexempt corporate issuer that are not registered with the SEC may only be registered with the Administrator in which of the following ways? A) Qualification B) Coordination C) Notification D) Condemnation
A) Qualification Securities of a nonexempt corporate issuer that do not have a federal registration must be registered with the Administrator by qualifying with the Administrator. This process is called registration by qualification.
Under the Uniform Securities Act, which of the following statements is NOT true regarding registration of securities? A) Registration statements that comply with the Uniform Securities Act automatically comply with requirements in the Investment Company Act of 1940. B) The Administrator may require the proceeds of the sale of securities be escrowed until sales reach a certain level. C) The Administrator may require periodic sales and other reports to be filed. D) A post-effective amendment must be filed if there are any material changes in the information on file.
A) Registration statements that comply with the Uniform Securities Act automatically comply with requirements in the Investment Company Act of 1940. The Administrator may require certain reports to be filed and the registration statement and other offerings be updated as necessary. A post-effective amendment must be filed if there have been any material changes to information on file. Administrators may require the proceeds of the sale to be escrowed when it would take specific amounts of money to achieve the primary purpose of the offering. Registration of investment companies must comply with the Investment Company Act of 1940, and investment companies are not required to register with the state.
Under the registration provisions of the Uniform Securities Act, it is unlawful for an agent in the state to sell XYZ securities unless... A) XYZ is a federal covered security B) the agent is a nonregistered, nonexempt person C) XYZ is a nonregistered, nonexempt security D) both the agent and XYZ are nonexempt and nonregistered
A) XYZ is a federal covered security If XYZ is a federal covered security, it is not required to register with the state. Nonexempt securities and nonexempt persons must be registered to be sold (securities) or to do business (persons).
Under the Uniform Securities Act, bonds issued by which of the following are nonexempt securities? A) Canadian city of Montreal B) ABC, Inc. of Canada, a distributor of beverages in the United States and other countries C) Canadian province of Ontario D) Canadian national government
B) ABC, Inc. of Canada, a distributor of beverages in the United States and other countries Government bonds issued by nations with which the U.S. maintains diplomatic relations, such as Canada, are exempt securities under the USA. In addition, securities issued by Canadian political subdivisions are also exempt from registration. For example, the province of Ontario and the city of Montreal are Canadian political subdivisions and therefore exempt. No exemption from the USA is available for corporate securities issued in countries with which the U.S. has diplomatic relations.
Long Range Planning (LRP) is a covered investment adviser doing business in all 50 states. Fred Fergus is an IAR with LRP and splits his time between an office in State A and State D. Fred has retail clients as follows: 16 clients in State A 12 clients in State B 6 clients in State C 4 clients in State D Fred would have to register as an IAR in... A) States A, B, and C B) States A and D C) States A and C D) States B and C
B) States A and D In the Investment Advisers Act of 1940, it states that "no law of any State requiring the registration, licensing, or qualification as an investment adviser or supervised person of an investment adviser shall apply to any person that is registered under section 203 as an investment adviser, or that is a supervised person of such person, except that a State may license, register, or otherwise qualify any investment adviser representative who has a place of business located within that State." Therefore, when employed by a covered adviser, the only time that state registration is required is when the individual functioning as an IAR has a place of business in the state. Had this been an IAR with a state-registered adviser, registration in all of the states would have been required (the de minimis would not cover State D because there is a place of business there).
An agent is registered in State X but not in State Y. The agent sells a resident of State X a new State Y municipal revenue bond. If the bond is not registered for sale in State X, which of the following statements is TRUE? A) The sale was illegal because municipal revenue bonds are not exempt securities. B) The sale was legal because the bond is not required to be registered for sale in State X. C) The sale was illegal because the bond is not registered for sale in State X. D) The sale was legal because the sale took place in State X to a resident of that state.
B) The sale was legal because the bond is not required to be registered for sale in State X. Any municipal bond is considered an exempt security under the Uniform Securities Act. Therefore, the sale of an exempt unregistered security by a properly registered agent is perfectly legal. If you selected the choice that the sale was legal because it took place in State X to a resident of that state, you are missing the point. The question is focused on the security, not the agent. In addition, that choice implies that the sale of any unregistered security, exempt or nonexempt, made by a properly registered agent is legal and that is not so in the case of those which are obligated to register.
Securities traded in which of the following marketplaces would be excluded from the definition of federal covered securities? A) NYSE American LLC (formerly known as the American Stock Exchange [AMEX]) B) Toronto Stock Exchange C) Nasdaq Stock Market D) New York Stock Exchange
B) Toronto Stock Exchange Federal covered securities include those on exchanges registered with the SEC, such as the NYSE, the NYSE American LLC (formerly known as the American Stock Exchange [AMEX]), and the Nasdaq Stock Market, as well as investment companies registered under the Investment Company Act of 1940.
An agent puts together a recommendation for a customer but is unable to attend the meeting. Another agent from the firm meets with the customer and presents the recommendation, but omits some material facts. According to the Uniform Securities Act, this is A) permitted if the recommendation pertains to an exempt security B) a fraudulent act C) permitted if the second agent receives no compensation for presenting the recommendation D) permitted if the second agent was unaware of the omission
B) a fraudulent act The agent making a recommendation to a customer is responsible for presenting all the material facts. Material facts must be presented to a customer, regardless of the type of security sold or whether a commission is to be earned or not. Remember, a material fact is one that is critical to the investment decision making of a client.
Under the USA, the definition of "issuer" includes... A) a specialist on the floor of an exchange B) a person proposing to issue a security C) a market maker for publicly traded securities D) an officer or director of a company traded at the NYSE
B) a person proposing to issue a security An issuer is any person who issues or proposes to issue any security for sale to the public. Stock exchange specialists, company directors, and market makers do not issue securities and therefore are not issuers.
Under the USA, each of the following materials may be distributed if an issuing company has applied for registration but is not yet cleared for sale EXCEPT A) a preliminary prospectus B) an application with a request for a down payment C) a red herring D) tombstone advertising
B) an application with a request for a down payment Prior to clearance, a red herring or preliminary prospectus (a disclosure document) may be distributed in response to those customers who express interest in the offering. While rarely used before the effective date, a tombstone advertisement may be published while the issue is in registration. The red herring is only used to solicit indications of interest; no orders or funds may be accepted before the effective date.
Under which of the following circumstances will a private placement fail to qualify for exemption from registration under the USA? A) A bank holding company purchases the offering for trading purposes rather than investment purposes. B) The offer is directed to only 5 individuals during any 12-month period. C) A modest commission is paid to the agents who sell the offering to noninstitutional clients. D) The seller reasonably believes that individual purchasers are buying for investment purposes rather than immediate resale.
C) A modest commission is paid to the agents who sell the offering to noninstitutional clients. A private placement will lose its exemption if those who sell the offering are paid commissions on sales to noninstitutional clients. For a private placement to be exempt, the offer cannot be directed to more than 10 persons during a 12-month period. In the case of noninstitutional buyers, the seller must reasonably believe (nice to have it in writing, but not required) they are purchasing the offering for investment purposes only. Institutional purchasers do not have to purchase the offering for investment purposes.
Under the provisions of the Uniform Securities Act, which of the following transactions may be made legally with unregistered, nonexempt securities? A) A rights offering B) A sale in a discretionary account C) A private placement D) A public offering
C) A private placement The USA states that unregistered, nonexempt securities may legally be sold in exempt transactions. Private placement transactions may legally include the sale of unregistered, nonexempt securities because they are defined as exempt transactions under the Uniform Securities Act. A transaction qualifies as private placement when the offer is directed to 10 or fewer noninstitutional persons during a 12-month period and no commission is paid on sales to noninstitutional buyers.
Which of the following is NOT classed as a security under the Uniform Securities Act? A) Options on stocks B) Stocks C) Heating oil futures D) Bonds issued by a foreign country
C) Heating oil futures Commodity futures on items such as gold, silver, wheat, heating oil, and pork bellies are not securities. Options on stocks, and stocks and bonds are securities.
All of the following describe exempt transactions EXCEPT A) ABC Securities, a registered broker-dealer functioning as an underwriter, purchases securities from XYZ Corporation B) First National Bank sells its entire publicly traded bond portfolio to Amalgamated National Bank C) Joe Smith, an employee in the consumer lending department of Amalgamated National Bank, buys securities from ABC Securities, a broker-dealer registered in the state D) Amalgamated National Bank sells its publicly traded bond portfolio to ABC Insurance Company
C) Joe Smith, an employee in the consumer lending department of Amalgamated National Bank, buys securities from ABC Securities, a broker-dealer registered in the state The purchase of securities from a broker-dealer by an employee of a bank is a nonexempt transaction because it is a sale of a security by a broker-dealer to a member of the public. Transactions between broker-dealers and issuers, transactions between banks, and between banks and insurance companies are exempt because they occur between financial institutions. Exempt transactions are most often identified by the transaction's parties, rather than the type of security involved.
A notice filing would be most appropriate for which of the following new issues? A) Railroad equipment trust certificate B) Federal credit union shares C) Open-end investment company shares D) Intrastate offering
C) Open-end investment company shares Investment companies registered under the Investment Company Act of 1940 are exempt from registration with the states under the NSMIA. However, most states require notice filing and the payment of fees. Federal credit union shares and railroad equipment trust certificates are exempt securities and intrastate issues would have to register using qualification.
Joan 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 options on foreign currencies are not considered to be securities under the USA. B) She has engaged in a prohibited transaction because American investors are generally prohibited from trading in foreign currencies under the USA. C) She has engaged in a securities transaction because options on foreign currencies are considered to be securities under the USA. D) She has not engaged in a securities transaction because she purchased the options to hedge a business risk.
C) She has engaged in a securities transaction because options on foreign currencies are considered to be securities under the USA. 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.
If an investment adviser representative of a federal covered adviser that transacts business in a state terminates employment with that investment adviser, which of the following statements is TRUE? A) Both the representative and the investment adviser must notify the Administrator. B) The investment adviser must notify the Administrator. C) The representative must notify the Administrator. D) No notice to the Administrator is required.
C) The representative must notify the Administrator. It is the investment adviser representative's responsibility to notify the Administrator. The advisory firm is not registered with the state; only the representative is registered.
To which of the following situations does the transaction exemption apply? A) City of Chicago bond offering B) Canadian government bond offering C) The sale of an estate's holding of IBM shares by an executor D) Offering an unregistered security to a maximum of 12 individual customers in a 10-month period
C) The sale of an estate's holding of IBM shares by an executor An exempt transaction relieves the security from any state advertising or registration requirements. Transactions by executors and estate administrators are examples of exempt transactions. Municipal and government bonds are exempt securities, and whether or not they are exempt transactions depends on to whom or how they are sold (that information is not given in this question). The sale of the unregistered stock is not an exempt transaction (private placement) because the USA only permits offers to a maximum of 10 noninstitutional investors over a 12-month period.
Under the Uniform Securities Act, which of the following statements regarding private placements is TRUE? A) The offering must be made to fewer than 15 noninstitutional persons. B) Being an exempt transaction, the antifraud provisions do not apply. C) The security that is the subject of the private placement need not be registered. D) A prospectus must be provided before the offering.
C) The security that is the subject of the private placement need not be registered. Private placements are offers to no more than 10 noninstitutional persons in a 12-month period for investment purposes (not immediate resale), where no commissions are paid, directly or indirectly. Such transactions are exempt from registration requirements. The fraud provisions apply to any person involved with the purchase or sale of a security, whether registered or exempt, and the prospectus delivery requirements apply to registered securities. Please note that when it comes to institutional clients, there are no numerical limitations on offers, no required holding period, and no restrictions on payment of commissions.
Under which of the following cases could an agent offer a security for sale? A) the agent is aware of negotiations going on between an issuer and the employing broker-dealer's investment banking department. B) The prospect has received a copy of the preliminary prospectus C) a registration statement has been filed with the SEC and has become effective. D) a registration statement has been filed with the SEC but has not yet become effective
C) a registration statement has been filed with the SEC and has become effective. An offer can only be made with an effective prospectus. A red herring (preliminary prospectus) is neither an offer to sell nor an offer of a solicitation to buy; it may only be used to obtain indications of interest.
An application to register securities may be filed under the USA by any of these EXCEPT... A) broker-dealer acting on behalf of the issuer B) person on whose behalf the offering is made C) an agent of a broker-dealer D) issuer
C) an agent of a broker-dealer Agents of broker-dealers are not eligible to file a registration statement for a securities offering. Registration statements may be filed by a broker-dealer, a person on whose behalf the offering is made (e.g., an offering made by a large shareholder), or more commonly, the issuer.
When a security is being registered under coordination, all of the following are required EXCEPT... A) prompt filing with the Administrator of any amendments filed with the SEC B) a description of the proposed use of the proceeds of the underwriting C) filing with the Administrator of a statement of the maximum and minimum proposed offering price and maximum underwriting discounts or commissions concurrently with the filing of the registration statement with the SEC D) payment of the appropriate fee
C) filing with the Administrator of a statement of the maximum and minimum proposed offering price and maximum underwriting discounts or commissions concurrently with the filing of the registration statement with the SEC The statement of the maximum and minimum proposed offering prices and the maximum underwriting compensation must be filed at least 2 full business days before the effective date, not with the initial filing.
When a new issue of common stock is registered under qualification, the Uniform Securities Act states that the Administrator may require an agent to present the prospectus for the issue to the offeree... A) prior to making the offer B) after the settlement date C) prior to making the sale D) no later than the mailing of the certificates
C) prior to making the sale Under Section 305(l) of the Uniform Securities Act, the Administrator may require that a prospectus be sent or given to each person to whom an offer is made before the sale of the security, but not prior to the offer. Remember, the offer is the attempt to sell and that always precedes the sale itself.
All of the following are exempt securities under the Uniform Securities Act EXCEPT... A) securities issued by a Canadian province B) securities issued by the Canadian government C) securities issued by a bank holding company D) securities issued by a federal savings and loan association
C) securities issued by a bank holding company Securities issued by a bank are exempt. However, this answer refers to a bank holding company that is considered to be an ordinary company subject to state registration if not otherwise exempt.
As defined in the Uniform Securities Act, an issuer is any person who issues, or proposes to issue, a security for sale to the public. Based on that definition, which of the following is not an issuer? A) The AAA Manufacturing Company, which proposes to offer shares to the public but has not completed the offering B) The U.S. government announcing an offering of 20 year Treasury bonds C) The City of Chicago, which is involved in a distribution of tax-exempt highway improvement bonds D) A partner in the AAA Oil and Gas Partnership selling his interest in the investment
D) A partner in the AAA Oil and Gas Partnership selling his interest in the investment The Uniform Securities Act defines an issuer as any person who issues, or proposes to issue, a security. The resale of a partnership interest by an investor is a nonissuer sale because the investor is not the issuer. Examples of issuers are a municipality such as the city of Chicago, which issues tax-exempt highway improvement bonds; the AAA Manufacturing Company, which proposes to offer shares to the public even though it has not completed the offering; and the United States government, when it offers Treasury bonds.
As defined in the Uniform Securities Act, which of the following is NOT a security? A) Options on a federal covered security B) Common stock of ABC National Bank that is a member of the Federal Reserve System C) Interest real estate limited partnership (RELP) program D) Annuity providing a fixed monthly payout
D) Annuity providing a fixed monthly payout Variable annuities are securities, while fixed annuities are not. Options contracts, interests in merchandising marketing programs, and common stock are securities under the USA. The key to questions like this is to remember those things that are not securities.
Which of the following statements is not true? A) Transaction exemptions must be established before each transaction. B) Federal covered securities include securities listed on national exchanges. C) Federal covered securities include those registered under the Investment Company Act of 1940. D) Exempt securities must reestablish their exemptions at least annually.
D) Exempt securities must reestablish their exemptions at least annually. Exempt securities need not reestablish their exemptions annually or otherwise. Exempt securities are exempt because their issuers are exempt while the basis for an exemption for a transaction must be established before each transaction. Neither the exempt security nor the transaction exemptions are mutually exclusive and a security or transaction may qualify for 2 or more of these exemptions. The term "federal covered securities" includes registered investment companies as well as securities listed on national exchanges.
Under the Uniform Securities Act, which of the following is NOT defined as a security? A) Listed stock option B) Preorganization certificate C) Limited partnership unit D) Fixed annuity
D) Fixed annuity A fixed annuity is an insurance contract and is not considered a security under the USA. Options on stock, (listed or not), interests in limited partnerships, and preorganization certificates are all defined as securities under the USA.
With regard to the Uniform Securities Act, which of the following statements regarding the omission of a material fact by an agent is NOT true? A) It is a violation because it is a unethical or fraudulent practice. B) It is a violation even if material facts were unknowingly omitted. C) It is a violation even if the client failed to make a transaction. D) It is not a violation if the security is exempt from registration under the Uniform Securities Act.
D) It is not a violation if the security is exempt from registration under the Uniform Securities Act. Deliberate omission of material facts is a fraudulent practice under the Uniform Securities Act, whether securities are exempt or nonexempt or even if the transaction was exempt. If done unknowingly, then it is a unethical business practice (fraud requires deliberate action) and is still a violation.
The definition of a federal covered security excludes which of the following securities? A) Arctic Blue Preferred stock traded on the NYSE American LLC (formerly known as the American Stock Exchange [AMEX]) B) PMT Manufacturing common stock, traded on the Nasdaq Stock Market C) U.S. U.S. government Treasury notes sold at auction D) Jonesy Gold Stock, a common stock traded OTC, but not on the Nasdaq Stock Market
D) Jonesy Gold Stock, a common stock traded OTC, but not on the Nasdaq Stock Market A federal covered security is one that is exempt from state registration because of either one or both of the following reasons. There exists a federal exemption from registration under the Securities Act of 1933, and that exemption must flow through to the state also. The NSMIA created a second type of exemption by declaring that any company that is listed on certain exchanges, such as the NYSE, the NYSE American LLC (formerly known as the American Stock Exchange [AMEX]), and the Nasdaq Stock Market, or any company registered under the Investment Company Act of 1940 are exempt from state registration requirements.
Which of the following statements regarding the antifraud provisions of the USA is TRUE? A) Exempt securities are not subject to the antifraud provisions of the USA. B) The only securities exempt from the provisions are those that are properly registered under blue-sky laws. C) The only securities exempt from the provisions are those issued by national governments or political subdivisions of countries that maintain diplomatic relations with the United States. D) No securities are exempt from the antifraud provisions of the act
D) No securities are exempt from the antifraud provisions of the act
As a federal covered security, the KAPCO Growth Fund is required to notice file under the laws of State A. State A's Administrator can require the issuer to provide copies of... A) the schedule of compensation to the fund manager B) proxy statements C) a listing of the officers and directors of the issuer D) a report of the amount of the federal covered security sold in the state
D) a report of the amount of the federal covered security sold in the state Because those companies that are required to notice file are levied a fee based on the amount of securities sold in the state, information relating to the amount of sales in the state must be reported.
The Securities Act of 1933 covers all of the following except A) full and fair disclosure B) liabilities for misleading filings C) prospectus requirements D) blue-sky laws
D) blue-sky laws The purpose of the Securities Act of 1933 is to provide investors with full disclosure about a new securities issue. Misleading information can lead to civil and perhaps even criminal liability. The act is federal in scope, whereas blue-sky laws refer to state securities regulations.
Under the provisions of the USA, all of the following transactions are exempt EXCEPT A) transactions in preorganization certificates if no commission is paid, no subscriber makes any payment, and the number of subscribers does not exceed 10 B) transactions by executors C) a transaction pursuant to an offer directed by the issuer to no more than 10 individual investors in the state within a 12-month period, as long as no payment is made D) liquidation of a security pledged as collateral for a loan
D) liquidation of a security pledged as collateral for a loan A transaction pursuant to an offer by an issuer to no more than 10 noninstitutional persons in the state would qualify as a private placement and would be exempt. However, unlike a preorganization certificate, the subscribers do pay for their purchases. All the other transactions are exempt.
All of the following statements are consistent with the Uniform Securities Act EXCEPT... A) a security for which a registration statement is filed under the Securities Act of 1933 may simultaneously register with the state by the procedure known as registration by coordination B) state Administrators may require federal covered investment companies to file documents with the Administrator using a procedure known as notice filing C) any security may be registered with the state by the procedure known as registration by qualification D) state Administrators do not require consent to service of process to be submitted with notice filings for covered securities
D) state Administrators do not require consent to service of process to be submitted with notice filings for covered securities. The Administrator will require the filing of a consent to service of process with any securities registration. If required by the Administrator, notice filing is the procedure followed by federal covered securities. Any security may be registered by qualification, and coordination is the simultaneous registration with the SEC and the states.
An agent omits certain details about an issue during a sales presentation. This omission would be fraudulent if... A) this were a solicited transaction B) the information was not available in the prospectus C) made to an individual client, but not to an institution D) the information was material and was necessary to make other statements not misleading
D) the information was material and was necessary to make other statements not misleading All material information must be disclosed. Omission or misstatement of material information would be prohibited, regardless of whether the presentation was to an individual or institution or the sale was solicited or unsolicited. The key here is that certain details may be omitted, but those that are material may never be.
If a person offers to buy a security after reading a tombstone ad, the offer to buy would be considered... A) solicited B) illegal C) null and void D) unsolicited
D) unsolicited A client calling to buy based on reading a tombstone ad is considered an unsolicited order because, under the law, the tombstone ad is neither a solicitation to buy nor an offer to sell. If the question had stated that the agent had sent a prospectus out and the client was responding to that, it would have been a solicited order.
Which of the following statements is (are) TRUE regarding the jurisdiction of the SEC under the Securities Exchange Act of 1934? i. The SEC has jurisdiction over exchanges and SROs. ii. The SEC has jurisdiction over broker-dealers, investment advisers, and associated persons that are required to be registered under federal law. iii. The SEC has jurisdiction over banks and savings and loans regarding their securities activities.
i and ii The SEC was created by the Securities Exchange Act of 1934 and has the responsibility of administering all federal securities laws. The SEC has jurisdiction over exchanges, SROs, and all persons required to be registered under federal law. The SEC does not enforce state securities statutes, nor does it have jurisdiction over banks or savings and loans regarding their securities activities. Banking authorities, such as the Federal Reserve Board, the Federal Deposit Insurance Corporation, and others, regulate banks and savings and loans.
Which of the following transactions are exempt from registration under the Uniform Securities Act? i. A trustee of a corporation in bankruptcy liquidates securities to satisfy debt holders. ii. An offer of a securities investment is directed to 10 individuals in the state during a 12month consecutive period. iii. A sale of securities by the trustee of the Lorgan Family Children's Trust. iv. Agents for an entrepreneur offer pre-organization certificates to fewer than 10 investors in the state for a modest commission.
i and ii Transactions by fiduciaries, such as a trustee in a bankruptcy reorganization, are exempt from registration. But only a trustee in bankruptcy is afforded this exemption, not for a family trust. An offer of a securities investment to 10 or fewer individuals (called a private placement) is also exempt from registration. Offers of pre-organization certificates are not exempt when compensation is paid.
Under the Uniform Securities Act, which of the following would be considered an exempt transaction? i. An existing client calls his agent with an order to purchase 1,000 shares of a common stock that is not registered in this state ii. At the suggestion of the agent handling her account, a client purchases some U.S. Treasury bonds for inclusion in her IRA iii. Shares of a technology company's IPO are sold to an institutional client iv. Shares of an insurance company's IPO are sold to an individual client
i and iii A client calling to purchase stock is an unsolicited transaction, probably the most common of the exempt transactions. Any sale to an institutional client is an exempt transaction, whereas those to individuals, unless unsolicited, generally are not. Please note, even though the Treasury bonds are an exempt security, because the transaction was solicited by an agent to an individual client, it is not an exempt transaction.
As defined in the Uniform Securities Act, the term "security" would include... i. debentures ii. Keogh plans iii. a preorganization subscription iv. whole life insurance policies that pay dividends to their policyholders
i and iii It is always easier to remember the things that are not a security—retirement plans, nonvariable insurance policies, collectibles, commodities, condominiums, and currencies.
Which of the following securities is (are) exempt from registration under the Uniform Securities Act? i. Municipal securities ii. Government securities iii. Stock or bonds issued by an insurance company authorized to do business in this state
i, ii, and iii All government and municipal securities are exempt from registration requirements under the Uniform Securities Act, as are insurance company securities if the company is authorized to do business in this state.
Under the provisions of the Uniform Securities Act, securities exempt from registration requirements include... i. securities issued by the U.S. government ii. securities issued by a building and loan association organized under the laws of any state and authorized to do business in this state iii. bonds issued by an insurance company organized under the laws of any state and authorized to do business in this state
i, ii, and iii Securities exempt from registration requirements include securities issued by the state or U.S. government; securities issued by foreign governments with whom the U.S. maintains diplomatic relations; and any securities issued by savings and loan or building and loan associations, insurance companies, and credit unions authorized to do business in this state.
Which of the following securities are exempt from registration at the state level? i. Bonds issued by the American Red Cross ii. United States Treasury bonds iii. American Advisers Unit Investment Trust iv. Common Stock in AAA Commercial Bank, member of the FDIC
i, ii, iii, and iv Securities offered by nonprofit organizations, the United States government, or investment companies registered under the Investment Company Act of 1940, as well as securities issued by commercial banks, are exempt from registration with the states under the Uniform Securities Act and the NSMIA.
Under the Uniform Securities Act, one method of securities registration is qualification. When that method is used, which of the following statements is CORRECT? i. The registration is valid for 1 year from the effective date. ii. The registration is valid for 1 year from the effective date unless the underwriter or issuer still has some unsold shares. iii. The registration is valid until the next December 31st. iv. The registration statement may be amended to increase the number of shares in the offering as long as the public offering price and the underwriter's compensation is not changed.
ii and iv Under the USA, when a security is registered, the registration is valid for 1 year after the effective date. However, the act provides that if the issuer or underwriter still has unsold shares from the offering, the effective date may be extended, so this is a more accurate choice. The act also allows the registration statement to be amended to allow for an increase in the number of shares to be offered as long as the public offering price and the underwriter's compensation is not changed.
