Series 66- Chapter 1 Final
Under the Uniform Securities Act, what information would NOT need to be disclosed when filing a registration by qualification?
A) statement analyzing the issuer's profit margin over the last three years compared to the profit margins of its primary competitors B) The general character and location of the issuer's business and a statement of the general competitive conditions within the industry or business in which it operates C) The estimated cash proceeds to be received by the issuer from the offering D) The capitalization and long-term debt of the issuer and any significant subsidiary answer is A. An analysis of the issuer's profit margin as compared to its competitors would not be required. All other items listed would be required when filing a registration by qualification
Under the Uniform Securities Act, the sale of limited partnership interests to a bank is exempt from: I. The antifraud provisions II. The registration requirements III. The filing requirement for advertisements
answer is 2 and 3. Any sale of securities to an institution (e.g., a bank) is considered an exempt transaction under the USA. This exempts the securities from registration and any related advertising from being filed with the Administrator. However, no person, security, or transaction is exempt from the antifraud provisions of the Uniform Securities Act
Under the Uniform Securities Act, which of the following statements is/are TRUE regarding the registration of securities? I. A security is considered registered for one year from the effective date of its registration statement II. Once the registration statement is declared effective by the Administrator, the security is considered to be registered as long as the issuer files quarterly and annual financial statements III. If the registration statement for a security is declared effective by the Administrator of one state, it is also immediately effective in any state in which an identical registration statement has been filed IV. The filing of a registration statement may be done by a person other than the issuer
Answer is 1 and 4. Under the USA, a registration statement is effective for one year from its effective date and may be filed by the issuer, a registered broker-dealer, or any other person on whose behalf the offering is being made. The filing of quarterly and annual financial statements is not a requirement for registration. Also, if an Administrator of one state declares an offering effective, it does not automatically mean that the registration is effective in any other state
Which TWO of the following investments are NOT considered money-market instruments? I.A U.S. Treasury bill II. A money-market mutual fund III. A convertible debenture IV. A tax anticipation note
Answer is 2 and 3. Money-market securities are defined as debt instruments that have less than one year until maturity. U.S. Treasury bills and tax anticipation notes (TANs) are both short-term debt instruments and are considered money-market instruments. A money-market mutual fund is an instrument that issues common shares which represent an investor's ownership interest in a portfolio of money-market securities. Convertible debentures are debt instruments; however, since the maturity of the debentures is not provided in the answer, it should not be assumed to be one year or less
Which of the following is NOT defined as an IAR? A) person that manages portfolios and assets for its clients B) A person who manages IARs at an investment advisory firm C) A person who gives advice and is employed by an investment adviser D) A person who solicits new business for an investment adviser
Answer is A. A person who manages portfolios could be an individual or a business. However, if the person is a business (firm), it's considered an investment adviser, not an investment adviser representative (IAR). All of the other choices are individuals and are considered IARs.
Under the USA, which of the following choices is considered an offer of securities? A) An investor purchased bonds and received a warrant as a bonus B) An investor receives a stock dividend C)An investor receives a tender offer D) An investor receives additional shares due to a stock split
Answer is A. According to the Uniform Securities Act, any security that an investor receives as a bonus for purchasing another security is considered an offer of that security. The USA specifically states that receiving shares due to a stock dividend or other corporate action (e.g., stock split) is never considered an offer or offer to sell that security. A tender offer is an offer to buy a security from existing shareholders
A technology company's stock is listed on an exchange and is also traded over-the-counter by a small number of market makers. The stock is considered by the Administrator to be a: A) Federal covered security and not subject to registration with the Administrator B) Non-exempt security and subject to registration by coordination C) Federal covered security and subject to registration by qualification D) Federal covered security and subject to notice filing with the Administrator
Answer is A. Securities that are listed on the NYSE, Nasdaq, or other national exchanges are considered federal covered securities and exempt from registration with the Administrator. This federal covered status applies regardless of where other trades may take place. Although notice filing does apply to certain federal covered securities, it does not apply to listed securities. Investment company securities and securities that are issued under Regulation D Rule 506 are considered federal covered securities (exempt from state registration), but subject to notice filing.
The Uniform Securities Act prohibits: A) Soliciting orders for unregistered, non-exempt securities B) Maintaining discretionary accounts C) Charging extraordinary commissions on certain transactions D) Accepting unsolicited orders
Answer is A. Soliciting orders for unregistered, non-exempt securities is prohibited by the Uniform Securities Act. The Act permits broker-dealers to maintain discretionary accounts for customers, to charge fees for services performed in customer accounts, and to accept unsolicited orders.
According to the USA, which of the following securities are exempt from registration? A) Common stock of a Canadian mining company B) Bonds issued by a government-regulated common carrier C) A variable annuity issued by an insurance company D) Common stock of a financial subsidiary of an insurance company
Answer is B. Exempt securities include those that are issued by a U.S. federal, state, or local government, a railroad, a common carrier, a public utility, or a holding company that is subject to specified regulations. Debt securities issued by insurance companies are exempt but not the stock of their subsidiaries. However, variable annuities issued by insurance companies are subject to registration.
A U.S. computer manufacturer repurchased one million shares of its outstanding common stock between January 2000 and September 2001. The company will be required to take which of the following actions if it intends to distribute these shares in the form of a stock dividend? A) The distribution of shares qualifies as a private placement offering under Regulation D B) No special action is required by the company C) The shares must be registered with the SEC D) The company must register new shares of common stock, since the repurchased shares have been cancelled and are no longer valid for reissue
Answer is B. No special action is required. When a company repurchases shares in the secondary market, it is called treasury stock. SEC registration of securities does not expire, provided the company remains current on its filings. The distribution of treasury stock to existing shareholders does not require the shares to be registered again with the SEC, since the stock dividend would not constitute the issuance of new shares
A company issued $50 million of common stock in a private placement under Regulation D. In order to sell the stock initially in any state, the Administrator requires the filing of: A)Form ADV - NR B) A Notice Filing C) Registration statement D) Form 10-K
Answer is B. Notice filing. Since stock that's issued under Regulation D is federal covered, the shares do not need to be registered at the state level. However, state Administrators can require the issuer to complete a Notice Filing. Form 10-K is a financial report that corporations file with the SEC. Form ADV-NR is filed by investment advisers that have principal officers who are not residents of the United States
Under the USA, which of the following characteristics is required for a banker's acceptance to be exempt from registration? A) Issued by a blue-chip company B) Maturities of no more than nine months C) Minimum denominations of $100,000 or more D) Rated in the highest category by at least three ratings companies
Answer is B. Short-term, corporate, fixed-income securities such as commercial paper and a banker's acceptance may qualify as an exempt security. The maximum maturity is nine months. The minimum denomination is $50,000 and it must be rated in one of the three highest rating categories by a nationally recognized statistical rating organization
Which of the following choices is not considered a security? A) A variable annuity set up as a retirement plan B) A Treasury bond futures contract C) American Depositary Receipts D) Call options on a gold futures contract
Answer is B. Under the Uniform Securitiess Act, futures contracts are not securities. However, options on commodity futures contracts are considered securities. Variable products (annuities and life insurance policies) and ADRs are also defined as securities
According to the Uniform Securities Act, which of the following statements is NOT TRUE concerning a private placement offering? A) The offer may not be made to more than 10 retail investors in the state during any 12-month period. B) Commissions may not be paid if the buyers are non-institutional investors. C) The offer may not be made to more than 35 retail investors in the state during any 12-month period. D) The offer may be made to an unlimited number of institutional investors during any 12-month period
Answer is C. Under the Uniform Securities Act, a private placement offering is one that involves no more than 10 retail investors; however, there may be an unlimited number of institutional investors. The offering is considered an exempt transaction if the following conditions are met: • The seller believes that all of the retail (non-institutional) buyers are purchasing for investment purposes only and, • No commission or other remuneration is being paid for soliciting retail (non-institutional) buyers Any reference to a private placement that's limited to no more than 35 retail (non-institutional) investors is a condition for a private placement being conducted under Regulation D of the Securities Act of 1933, which is a federal regulation
If a company registers its offering with a state Administrator using coordination, it would also file a registration statement under which federal act? A) The Investment Company Act of 1940 B) The Securities Exchange Act of 1934 C) The Securities Act of 1933 D) The Investment Advisers Act of 1940
Answer is C. Under the Uniform Securities Act, registration by coordination is generally used for initial public offerings (IPOs). New issues, including IPOs, are required to register with the SEC under the Securities Act of 1933.
Which of the following transactions meets the definition of an exempt transaction under the Uniform Securities Act? A) An isolated issuer transaction B) Any sale of a security for which a registration statement has been filed with both the Administrator and the Securities and Exchange Commission C) An issuer transaction of a security filed under the Securities Exchange Act D) A nonissuer transaction of a security filed under the Investment Company Act
Answer is D. Any nonissuer transaction of a security registered under the Securities Exchange Act, Investment Company Act, or an isolated nonissuer transaction would be considered exempt transactions. Any offer, but not sale, of a security filed with both the Administrator and SEC would be considered an exempt transaction.
Under the Uniform Securities Act, in order for an issuer to be eligible to use registration by coordination, the issuer must also register with the SEC under: A) The Investment Company Act of 1940 B) The Investment Advisers Act of 1940 C) The Securities Exchange Act of 1934 D) The Securities Act of 1933
Answer is D. The Securities Act of 1933 regulates the federal registration of newly issued securities. Under the Uniform Securities Act, in order to register a security using registration by coordination, the security must also be registered with the SEC under the Securities Act of 1933.
A mutual fund is planning to issue 10 million Class B shares. Five hundred thousand shares will be offered in the state of Rhode Island. Under the Uniform Securities Act, the Administrator of Rhode Island will require the fund to: I. Register the shares in Rhode Island II. Include a prospectus with its registration III. Pay a filing fee IV. Sign a Consent to Service of Process
answer is 3 and 4. Mutual funds are federal covered securities and, therefore, a state may not require registration or regulate any offering document. Except for securities that are listed on one of the exchanges (such as the NYSE or Nasdaq), the state may charge a filing fee. The state may also require issuers to submit a filing notice and sign a Consent to Service of Process
Under the Uniform Securities Act, which of the following statements is/are TRUE of exempt securities? I. Any security that is exempt under the Uniform Securities Act is also exempt under federal regulations II. Any security that is exempt under federal regulations is also exempt under the Uniform Securities Act III. Certain federal covered securities are required to notice file with the state Administrator IV. All Canadian securities are exempt from registration
answer is 3 only. Certain federal covered securities are required to notice file with the State Administrator. The notice filing provision applies to investment company securities and securities that are distributed through a Regulation D Rule 506 offering. A security can be exempt under federal law, but not state law, and vice versa. Only securities that are issued by some form of Canadian government are exempt from registration; the exemption does not apply to offerings made by Canadian corporations
Which of the following transactions requires the registration of securities according to the Uniform Securities Act? A) An offer to sell out-of-state municipal bonds to a bank B) A purchase of securities offered for sale in an out-of-state newspaper C) An agent of a broker-dealer selling a private placement to five retail investors D) An unsolicited transaction of an exchange-traded stock where the customer normally purchases only investment-grade bonds
answer is B. Although an offer to sell securities that appears in a newspaper that's published outside a state is not considered an offer in that state, securities sold in a state are subject to registration. Although the sale of equity securities to a client who has only purchased investment grade bonds may not be suitable, the transaction was done on an unsolicited basis and is an exempt transaction. A private placement offering to a maximum of 10 retail investors within a state is also an exempt transaction
Registration by Coordination permits the simultaneous registration of securities when the SEC registration statement that is filed under the provisions of: A) The Investment Company Act of 1940 becomes effective B) The Securities Act of 1933 becomes effective C) The Securities Exchange Act of 1934 becomes effective D) The Uniform Securities Act becomes effective
answer is B. Registration by Coordination permits simultaneous state registration of securities when the SEC registration statement that is filed under the provisions of the Securities Act of 1933 becomes effective.
Under the Uniform Securities Act, an institutional investor: A)Is any financial institution or trust B) Has more than $2.1 million of net worth C) May be designated as such by rule or order of the Administrator D) Has a minimum of $1 million under management with an investment adviser
answer is C. The best answer to this question is that, by rule or order, the Administrator has the power to designate a person as an institutional investor. A client with net worth of more than $2.1 million or a client with a minimum of $1 million under management with an investment adviser is defined as a qualified client, not necessarily an institutional investor. Both financial institutions and trusts may be considered institutional investors, but there is a financial requirement that must be met
Which of the following securities or transactions are subject to the registration provisions of the Uniform Securities Act (USA)? A) Unsolicited non-issuer transactions B) Unsolicited private placement transactions C) Public offerings of securities D) Transactions with financial institutions
answer is C. Public sales (offerings) are typically subject to registration requirements. Private placements, unsolicited non-issuer transactions, and transactions with financial institutions are exempt from the registration provisions of the Uniform Securities Act. However, no transaction is ever exempt from the antifraud provisions of the Act.
Registration by coordination would most likely be used to register what type of offering? A) An intrastate offering B) A new issue of mutual fund shares C)A new issue of shares listed on Nasdaq D) An initial public offering
answer is D. Under normal circumstances, the method of registration most often used by the new issuers of securities is registration by coordination. Mutual funds are federal covered securities. All listed securities, such as Nasdaq securities, are also federal covered and, therefore, exempt from registration with the states. Intrastate offerings are commonly registered by qualification
Which of the following would most likely be registered with the state Administrator? A)An NYSE-listed company's common stock B)A municipal revenue bond C)A mutual fund D) A distribution of an interest in a mining or real estate venture
answer is d. Interests in mining or real estate ventures are examples of partnership offerings. General and limited partnerships are often registered with the Administrator in the state in which they are offered. Municipal bonds are not subject to registration requirements since they are categorized as exempt securities under the Uniform Securities Act. Also, mutual fund shares and securities listed on the NYSE are federal covered securities, since these issues are only required to be registered with the SEC.
