chapter 4 series 63
The Howey decision defined a security as
(1) an investment of money (2) in a common enterprise (3) where there is an expectation of a profit (4) through the efforts of a third party and not the investor.
The four criteria associated with the Howey test are
(1) an investment of money (2) in a common enterprise with (3) expectation of profits (4) solely from the efforts of others.
the following 6 items are not a security under the act
- an insurance or endowment policy or annuity contract under which an insurance company promises to pay a fixed sum of money either in a lump sum or periodically ( any product from a life insurance company that does not use the word variable ) - interest in a retirement plan such as IRA or 401(k) plan - collectibles - commodities such as precious metals and gains , or futures contracts for commodities - condominiums used as personal residences - currency - confirmation of a securities trade
As defined in the Uniform Securities act, the following is an issuer
A corporation that proposes to issue securities but has not done so as of yet A company whose shares trade on the New York Stock Exchange A new company that offers shares to the public in an IPO
the following securities is most likely to register by qualification under the Uniform Securities Act
A public offering of a stock to be offered exclusively in 1 state
the following are securities
A variable annuity A subscription right to purchase common stock Certificate of interest or participation in an oil, gas, or mining partnership
the following practices is considered unlawful under the Uniform Securities Act
An agent soliciting orders from retail clients for unregistered nonexempt securities
`the following securities is most likely to register by qualification in the state of Virginia
An offering of common stock by a Virginia-based corporation to Virginia residents only
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
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
Under the Uniform Securities Act, the least active review of registration documentation is performed by state Administrators before the following becomes effective?
Coordination Notice filing
Under the Howey test, a Supreme Court case that established the standards for defining an investment contract, the following is a characteristic of a security?
Entails an investment of money Carries expectation of profits Entails investor reliance on the efforts of others
the following statements regarding registration provisions is true
Every registration must specify the total amount of securities offered, the states in which offering is to be made, and any adverse order or judgment by a regulatory authority. The Administrator may, by order, permit omission of items of information or documents from a registration statement. The Administrator may, as a condition of registration by qualification or coordination, rule that the securities may only be sold on a specified form of subscription and that a signed copy be filed with the Administrator.
the following statements relating to notice filing are correct
It is available only to federal covered securities. A notice filing is effective for one year, beginning from the later of filing with the Administrator or the effective date determined by the SEC. Failure to pay required fees could lead to the issuance of a stop order.
the following are primary transactions
John's father, a founder of XYZ corporation, purchased shares of XYZ directly from the corporation subsequent to its founding without paying a commission.
An interest in which of the following is a security under the Uniform Securities Act
Merchandising marketing scheme Multilevel distributorship arrangement Oil and gas drilling program Cattle feeding program
An issuer of federal covered securities, whose registration is effective under the Securities Act of 1933, would use which of the following procedures to permit sales of its securities in a specific state
Notice filing
the following are defined as securities under the Uniform Securities Act
Real estate investment trust certificates Preorganization subscription agreements Shares of treasury stock Voting-trust certificates issued by a corporation undergoing a reorganization
If an issuer of a nonexempt security wants to register simultaneously with the state and the SEC, which method would be used
Registration by coordination
the following is an example of a nonissuer transaction
Secondary offering by an institutional seller
Joan owns and operates a jewelry store, and she has contracted to purchase 5,000 Swiss watches, paying the watch manufacturer in Swiss francs three 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 Uniform Securities Act?
She has engaged in a securities transaction because options on foreign currencies are considered to be securities under the Uniform Securities Act.
Under the registration provisions of the Uniform Securities Act, it is unlawful for an agent in the state to sell XYZ securities unless
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).
State registration by coordination is only available if
a federal registration statement has been filed under the Securities Act of 1933 in connection with the same offering.
A primary issue is
a new offering of an issuer sold to investors.
Under the Uniform Securities Act, it is unlawful to sell
a nonexempt, nonregistered security issued by a foreign corporation from a country with which the U.S. government maintains diplomatic relations.
If a broker-dealer purchases 100,000 shares of common stock from an individual investor, this is
a nonissuer transaction
The USA defines an issuer as
a person that issues or proposes to issue a security. It is not necessary that an issuer actually issue the shares it proposes to issue.
State laws do not preempt federal laws, and the NSMIA requires states to
adapt their securities laws to comply with the standards required by the NSMIA.
Under the NSMIA, the Administrator may request copies of the documents filed with the SEC but does not review them because of lack of jurisdiction. There is some review of the information filed in a registration by coordination, but because the primary responsibility falls upon the SEC, the states generally just spot check the documents. However, registration by qualification or application for professional licensing becomes effective only
after an active review of registration information and upon order of the Administrator.
Nonvariable life insurance contracts, IRAs, collectibles, and mortgages are not
among those instruments not listed as securities under the act. However, variable contracts, annuities, or life insurance are considered to be securities.
When a company's stock is issued only in one state, that is known as
an intrastate offering
In the Howey decision, the U.S. Supreme Court held that a security must represent
an investment of money in a common enterprise with the expectation of profit from the managerial efforts of others.
A registration statement may be filed by
an issuer itself, a broker-dealer, or any other person on whose behalf the offering is to be made.
Registration by coordination is done
concurrently with registration at the federal level.
Multistate public offerings of stock are generally registered by
coordination,
Notice filing is only available to securities that meet the definition of
federal covered security
Registration of an agent is not effective when the agent
is not associated with a broker-dealer registered under the act
All of the following are correct statements when referring to a nonissuer transaction
it does not benefit the issuer. it is a secondary transaction. it is between two persons on a stock exchange or over the counter.
Registration statements for securities
may be amended after their effective dates as to the amount of securities issued, provided that underwriting fees and the initial offering price have not changed.
The USA considers interests in
merchandising marketing schemes, multilevel distributorship arrangements, oil and gas drilling programs, and farm animals (whether it is a feeding or a breeding program) to be investment contracts and, therefore, securities.
One of the requirements of the Uniform Securities Act is that
nonexempt securities must be registered prior to sale in the state unless the sale is made in an exempt transaction.
Under the USA, a traditional life insurance contract is
not a security
The state Administrator may, by rule or order, require issuers of federal covered securities to file records with the state that are part of a registration statement filed with the SEC. This procedure is called
notice filing.
A closed-end investment company is registered under the Investment Company Act of 1940. Its shares trade on the Nasdaq Stock Market. To qualify their shares for sale in the state, they would probably use
notice filing. Regardless of where shares of this closed-end investment company trade, like all investment companies registered under the Investment Company Act of 1940, it is a federal covered security. The company is basically exempt from state registration and is only required to follow a procedure known as notice filing.
If required by the Administrator, a prospectus for securities registered by qualification must be given to each offeree
prior to the sale.
Under the Uniform Securities Act, the solicitation of unregistered nonexempt securities by a broker-dealer prior to registration is
prohibited
Offerings of corporate securities in a single state are most likely to be made through
qualification.
A personal residence, whether a condominium or other single-family home, is
real estate, not a security.
Under the Uniform Securities Act, before a corporation can issue a security in a state, that security must be
registered in the state or exempt from registration in the state.
The Administrator may do all of the following with respect to federal covered securities
require submission of a consent to service of process. require the payment of a filing fee to the state. initiate enforcement action in the case of fraud committed in the Administrator's state.
Options, regardless of the underlying asset, are considered
securities under the USA
Commodities such as gold, silver, wheat, and pork bellies are not
securities.
Options to purchase or sell commodity futures, options on stocks, and stocks are
securities.
Under the Uniform Securities Act, the term security includes
single-payment deferred variable annuity contract issued by an insurance company licensed to do business in this state.
Broker-dealers are prohibited from
soliciting nonexempt transactions in unregistered nonexempt securities.
All of the following statements are consistent with the Uniform Securities Act
state Administrators do not require consent to service of process to be submitted with notice filings for covered securities.
The NSMIA defines the functions and respective responsibilities of
the SEC and state Administrators.
Notice filing is
the state registration procedure followed by federal covered securities.
An agent solicits orders for a primary offering of a nonexempt security in his home state. Within days, he learns that the underwriting is not registered in that state. Relieved that no customer orders were placed, he ceases soliciting orders in this security. In this situation, the agent has acted
unlawfully because soliciting orders in nonexempt, unregistered securities is prohibited.
In a nonissuer transaction
, the proceeds of the trade do not benefit or go to the issuer
As defined in the Uniform Securities Act, the following are issuers of securities
ABC Manufacturing Corporation borrows in the capital markets by selling bonds every few months. Dot.Com Inc., in an initial public offering, sells all its securities to the public within a few minutes after the shares go public. XYZ Corp., in an initial public offering, fails to sell any shares to the public because it is not an attractive investment. YYY Corp., with 1 million shares outstanding, sells additional shares to the public in a primary offering. ABC Manufacturing Corp. is an issuer raising debt capital, whereas Dot.Com, Inc., is an issuer raising equity capital. YYY Corp. is an issuer raising equity capital by selling additional new shares in a public primary offering. XYZ Corp. is an issuer despite its failure to sell any shares. The USA defines an issuer as a person that issues or proposes to issue a security. It is not necessary that an issuer actually issue the shares it proposes to issue.
One of the effects of the NSMIA is that a state securities Administrator may not require that any financial standards be met by an issuer of federal covered securities. The Administrator, however, may initiate
enforcement action, require payment of filing fees to the state, and require submission of a consent to service of process. That is all part of notice filing.
Excluded from the definition of securities are
insurance contracts, endowments with fixed benefits, fixed annuities, Keogh or IRA plans, written confirmations of a trade, futures contracts, real estate held as a personal residence, currencies, precious metals, and other collectibles.
Notice filing is used by certain issues of federal covered securities, primarily
investment companies.
the firm, the original issuer of the securities, did not receive the proceeds of the transaction. These transactions are called
nonissuer transactions.
An open-end investment company registered under the Investment Company Act of 1940 would most likely use the process known as
notice filing.
Securities registration statements remain effective for
one year from their effective dates (or longer if the securities are still under distribution by the underwriters) and do not expire on December 31 of each year.
All of the following must be specified in a security's state registration statement
the expected use of the projected proceeds of the offering. the amount of securities to be offered in the state. a stop order from another state that affects the offering of the security within that state.
Registration by coordination becomes effective at
the same time it is released (made effective) by the SEC, provided it was filed with the Administrator (in most states) at least 10 days before the SEC effective date.
When a security registration statement filed under the Uniform Securities Act with the state Administrator becomes effective, this means
the securities that are the subject of that registration statement may be lawfully sold.
Condominiums used as a personal residence are not securities, but when a rental pool arrangement exists,
third-party management seeking profit for the investor exists, which meets the Howey definition of an investment contract.
Under the Uniform Securities Act, if no stop order is pending, a registration under coordination will become effective
when the issue is declared effective with the SEC.
a list of securities
- stock - bond -treasury stock - note - debenture - evidence of indebtedness such a promissory note - certificate of interest or participation in a profit-sharing agreement - collateralize trust certificate - preorganized certificate or subscription - transferable shares -investment contract - voting trust certificate - certificate of deposit of a security ( ADRs) - mutual fund share - certificate of interests in oil, gas or mining title or lease - options - variable annuity -puts calls, straddles, options, or privilege's on a security - any interest or instrument commonly known as a security - certificate of interest or participation in , receipts of, guarantees of, or warrants or rights to subscribe to or purchase any of the above
Lucy, an agent of XYZ Securities, works out of an office in Ohio. She calls her client Clark, an individual investor and a resident of Kansas, and recommends that Clark purchase 500 shares of Perfect Pasta, Inc. common stock. Lucy read a report that Perfect Pasta plans to introduce a low carbohydrate pasta into the marketplace. Perfect Pasta, Inc., common stock is neither exchange traded nor traded on Nasdaq. At the time Lucy makes the recommendation, the stock is not registered with the Securities Departments of Ohio or Kansas. Which of the following statements best reflects this transaction
Lucy has violated the Uniform Securities Act because she solicited an order in an unregistered nonexempt security. The agent violated the USA by engaging in the prohibited practice of soliciting transactions in an unregistered nonexempt security.
One of the effects of the NSMIA is that a state securities Administrator may not require that any financial standards be met by
an issuer of federal covered securities.
The Administrator will require the filing of a consent to service of process with
any securities registration.
It is unlawful to sell a security in a state unless the security is a
federal covered security, exempt from registration under the USA, sold in an exempt transaction, or registered under the act.
The National Securities Markets Improvement Act of 1996 (NSMIA) affects federal and state laws in that
federal securities laws preempt state laws.
Nonexempt, nonregistered securities cannot be lawfully sold in a state unless
in an exempt transaction
The Uniform Securities Act provides that, once a securities issue has become effective, an amendment may be filed to
increase the number of shares in the offering but not the offering price or any form of compensation.
Under the registration provisions of the Uniform Securities Act, a currently effective registration statement may be amended to
increase the number of shares in the offering.
Unless the transaction is exempt (generally with an institution or unsolicited from retail clients), it is unlawful under the USA for an agent to solicit orders for securities that
must be registered (nonexempt) unless those securities are registered
If Perfect Pasta, Inc., a privately held company in State I that owns four restaurants wants to issue shares to public investors who are residents of State I, the company
must register by qualification.
Federal covered securities do not register with the state Administrator; however, they may be required to file records with the state Administrator that are filed with federal registration. This procedure is called
notice filing.
Investment companies registered under the Investment Company Act of 1940 are federal covered securities and, if required by the state Administrator, are only required to engage in
notice filing.
Securities include
stocks, bonds, notes, certificates of interest in any profit-sharing agreement or participation plan (oil, gas, mining, lease, or real estate partnerships), preorganization certificates or subscription agreements, certificates of deposit for a security, evidence of indebtedness, warrants, rights, options, variable annuities, commodity options, and multi-level distributorships
In order for a security to lawfully be sold or offered under the Uniform Securities Act, it must meet at least one of the following requirements
that it is an exempt or federal covered security. that it is properly registered with the Administrator. that it is sold in an exempt transaction.
Registration statements of securities under the USA may be amended after their effective dates as to
the amount of securities issued, provided that underwriting fees and initial offering prices have not changed
Under the Uniform Securities Act, any securities registration statement must include
the amount of securities to be offered in that state. a list of the other states in which the security will be registered. a copy of the prospectus or offering circular. A registration statement must include all three items listed, plus any adverse finding by any court, any Administrator, or the SEC.
The Administrator may, as a condition of registration by qualification or coordination, require the security to be deposited in escrow and the proceeds to be impounded until the issuer receives a specified amount. It is true that every registration must specify
the amount of securities to be sold in the state, the states in which offering is to be made, and any adverse order or judgment of a regulatory authority. The Administrator may, by order, permit omission of any item of information or document from a registration statement. The Administrator may, as a condition of registration by qualification or coordination, rule that the securities may only be sold on a specified form of subscription and that a signed copy be filed with the Administrator.
The registration method known as coordination contemplates that state registration, in the absence of a stop order, becomes effective simultaneously with
the federal effective date declared by the SEC.
A primary transaction occurs when
the issuer of the securities receives the proceeds of the sale John's father, although a founder of the company, purchased shares directly from the company. This transaction is a primary transaction because the firm received the funds from the sale of the shares
Registration by qualification is
the method for local companies sold only within the state.
Multistate public offerings of stock are generally registered by coordination, which describes
the simultaneous registration of a public issue of a corporate security at both state and federal (SEC) levels.
When a company's stock is issued only in one state, that is known as an intrastate offering. As such, the issue can not register with the SEC but registers with
the state using qualification
All of the following must be specified in the state registration statement of a security
the total amount of the security that will be offered in this state. all other states where the security is currently registered or will be registered. a stop order from another state that affects the offering of the security within that state. for filing fee purposes, the amount to be sold in this state must be disclosed.
annuities with fixed payouts are not securities but variable annuities are because
they are dependent on the investment performance of securities within the annuity separate account portfolio
Under the Uniform Securities Act, registration by coordination becomes effective
when the registration with the SEC becomes effective.
ABC Securities is a two-office broker-dealer in Idaho that intends to underwrite an initial public offering of 1 million shares of stock for Circular, Inc. If the issue will be offered exclusively to residents of Idaho, registration of this offering
will most likely occur by qualification.
