S63 - Chapter 2

B) nonissuer transaction In a nonissuer transaction, the proceeds do not benefit or go to the issuer directly. In a primary transaction, the proceeds of an underwriting go to the issuing corporation directly.

A securities transaction where there is no benefit to the issuer is called a(n) A) nonprofit transaction B) nonissuer transaction C) primary transaction D) issuer transaction

C) II and IV

A security has been registered under Qualification. Which of the following statements is CORRECT? I. The registration is valid for one year from the effective date. II. The registration is valid for one 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. A) II and III B) I and IV C) II and IV D) I and III

D) Equipment trust certificate issued by a railroad that is regulated by a state's regulatory body

The Uniform Securities Act considers certain securities to be exempt from the registration requirements of the act. Under the USA, which of the following is an exempt security? A) Corporate bonds B) Commercial paper with a term of more than one year C) Preferred stock D) Equipment trust certificate issued by a railroad that is regulated by a state's regulatory body

D) as securities at the federal level only

Under the National Securities Markets Improvement Act of 1996 (NSMIA), investment companies registered under the Investment Company Act of 1940 are required to register A) as securities at the state level only B) as securities at both state and federal levels C) as exempt securities, at neither state nor federal levels D) as securities at the federal level only

A) I and III

Under the USA, the least active review of registration documentation is performed by state Administrators before which of the following becomes effective? I. Coordination II. Qualification III. Notice filing IV. Recapitulation A) I and III B) II and IV C) III and IV D) I and II

C) may be civilly liable to the purchaser if the transaction is not exempt

Under the Uniform Securities Act, an agent who offers a nonexempt, unregistered security for sale A) is not in violation of the act even if the transaction is not exempt, unless a sale is actually made B) may be subject to criminal prosecution even if the transaction is exempt C) may be civilly liable to the purchaser if the transaction is not exempt D) may do so legally in a nonexempt transaction as long as the purchaser is given all the material facts

D) I, II, and III If a transaction is exempt, it is exempt from the requirement to file advertising and sales literature with the Administrator. All unsolicited transactions fit into the category of exempt transactions. Exempt securities, whether traded in a solicited or unsolicited transaction, are always exempt from the filing requirements.

Under the Uniform Securities Act, which of the following are exempt from the requirements to file advertising and sales literature with the Administrator? I. Any unsolicited transaction involving an exempt security II. Any unsolicited transaction involving a nonexempt security III. Any solicited transaction involving an exempt security IV. Any solicited transaction involving a nonexempt security A) I and III B) II and IV C) III and IV D) I, II, and III

B) 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 by the investors A transaction pursuant to an offer by an issuer to 10 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 of the other transactions are exempt.

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) 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 by the investors C) transactions by executors D) liquidation of a security pledged as collateral for a loan

B) I, III, and IV Transactions between an issuer and an underwriter, isolated nonissuer transactions (Mr. Jones), and unsolicited nonissuer transactions (SPGH) are exempt under the Uniform Securities Act. Transactions in federal covered securities (listed on national exchanges or the Nasdaq Stock Market) are transactions in an exempt security, but, because the sales are being made to individual clients, the transactions might not be exempt.

Which of the following are exempt transactions under the Uniform Securities Act? I. XYZ Company signs an agreement to sell 1 million shares of its stock to ABC broker-dealer, who will then act as an underwriter in marketing the shares to the public. II. A non-issuer sale of securities listed on the Nasdaq Stock Market to several individual clients of the agent. III. Mr. Jones sells 100 shares of an unregistered security he owns to his next--door neighbor for $1,000. IV. A customer calls a registered agent and asks to buy 1,000 shares of SPHG, a company the agent is not familiar with, and the agent fills the order. A) II and IV B) I, III, and IV C) I and II D) I and III

D) I, II, and III

Which of the following securities are exempt from the registration provisions of the USA? I. Issue of a savings and loan association authorized to do business in this state II. General obligation municipal bond III. Bond issued by a company that has common stock listed on the New York Stock Exchange A) I only B) II and III C) II only D) I, II, and III

D) to a lawyer as an incidental part of his legal practice Unless we are told the order was unsolicited or effected in some other way to qualify for an exemption, a sale to a lawyer is treated like any other sale to a retail client. Don't confuse this with the lawyer's exclusion from the definition of an investment adviser.

A transactional exemption would be available when a sale is made in all of the following situations EXCEPT A) to a broker-dealer by a non-affiliated broker-dealer B) to a federally chartered credit union C) by a federal marshal to individual investors D) to a lawyer as an incidental part of his legal practice

D) An agent of a broker-dealer exercised discretion in deciding the time that a sale took place during the trading day without expressed written discretionary authority. Such action is not unethical because time and price are not considered true discretion. An agent may not exercise discretion over the number of shares to be sold without prior written discretionary authority. Oral discretion is only permitted for investment advisers and their representatives, (never broker-dealers or agents), during the first 10 business days after the initial discretionary transaction in the account.

According to North American Securities Administrators Association's (NASAA) Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the following practices is NOT unethical? A) Within the first ten days of a client's initial transaction, an agent accepted oral discretion and purchased securities on behalf of the client. B) To protect the client in a declining market, an agent sold all shares in the client's account when the client had only authorized the sale of 30% of the shares. C) An agent sold shares at a price less than authorized by a client. D) An agent of a broker-dealer exercised discretion in deciding the time that a sale took place during the trading day without expressed written discretionary authority.

C) an exempt transaction only if the insurance company is authorized to do business in this state When a security is sold to a financial institution, such as an insurance company, a bank, or an investment company, the USA considers that to be an exempt transaction. It has nothing to do with whether or not the security is exempt. For example, under the USA, securities issued by an insurance company are exempt from registration only if the insurance company is authorized to do business in the state. But, that has nothing to do with the status of the transaction, only the registration requirement (or lack thereof) for the securities issued by the insurance company.

According to the USA, the sale of a security to an insurance company is A) an exempt security B) always a private placement C) an exempt transaction only if the insurance company is authorized to do business in this state D) an exempt transaction

B) 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.

All of the following are exempt securities under the Uniform Securities Act EXCEPT A) securities issued by a Canadian province B) securities issued by a bank holding company C) securities issued by a federal savings and loan association D) securities issued by the Canadian government

B) II and III

Among the many exempt transactions under the Uniform Securities Act are the private placement and the preorganization certificate or subscription. While these two exemptions have several requirements in common, they have which of the following differences? I. The private placement exemption places a limit on the number of sales to retail investors while the preorganization certificate places a limit on the number of offers to all investors. II. Payment for the purchase may be made in the case of a private placement, while no money changes hands in a preorganization subscription. III. It is expected that noninstitutional buyers of the private placement are purchasing for investment only, while no such requirement exists for the investors in a preorganization certificate. IV. Commissions may be paid on the sale of a private placement to noninstitutional clients, while no remuneration is payable on the sale of a preorganization subscription. A) II and IV B) II and III C) I and III D) I and IV

D) without a hearing if the issuer is given an opportunity for a hearing after the revocation An Administrator may deny or revoke a security's exemption without a hearing if the issuer is given an opportunity for a hearing after the revocation. The issuer requesting an exemption must prove the exemption; this is not the responsibility of the Administrator. The Administrator may not revoke exemptions of federal covered securities.

An Administrator may deny or revoke a security's exemption A) by providing the burden of proof that the exemption is not deserved B) for a federal covered security if its issuer is in violation of state law C) if the Administrator determines that an exemption applicable to federal covered securities is inconsistent with state securities law D) without a hearing if the issuer is given an opportunity for a hearing after the revocation

C) nonexempt securities properly registered in a neighboring state but not registered in this state An agent cannot sell securities in a state unless they are registered or exempt from state registration.

An agent in this state would be acting illegally if he sold A) federal covered securities not registered in the state B) revenue bonds of Illinois in Florida that were not registered in Florida C) nonexempt securities properly registered in a neighboring state but not registered in this state D) securities guaranteed by a federal credit union organized under the laws of the state

A) Qualification If the Administrator determines (perhaps because of a long delay between the effectiveness of the federal registration and the filing with the state) the securities to be registered with the state are not part of the same offering, the securities would not be eligible for filing by coordination; the securities must be registered by qualification.

Securities of a new company's initial public offering have been SEC registered, and the Registration Statement is effective. The securities were not registered in State X before the effective date, and the Administrator has determined that an offering of the securities in State X is not considered to be in connection with the same offering. A broker-dealer in State X wishes to publicly offer the securities in that state. These securities must be registered with the Administrator of State X in which of the following ways? A) Qualification B) Coordination C) The securities need not be registered D) Allocation

C) do not apply An exempt security or transaction is exempt from the registration requirements and the requirements for filing of advertising and sales literature. It is not exempt from the antifraud provisions of the act.

Under the Uniform Securities Act, the requirements for filing of advertising and sales literature dealing with an exempt security with the Administrator A) apply only to advertising B) apply only to sales literature C) do not apply D) always apply

C) a nonexempt transaction Only exempt if the transaction is by a trustee in the event of bankruptcy

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

A) The offer of the security may not be advertised. There are three requirements for a preorganization subscription to qualify as an exempt transaction. A preorganization subscription may be advertised.

Under the Uniform Securities Act, which of the following is NOT a requirement for a preorganization subscription to be an exempt transaction? A) The offer of the security may not be advertised. B) No payment may be made by any subscriber. C) No commission may be paid to anyone for soliciting potential subscribers. D) There may be no more than ten subscribers.

A) II and III I and IV are exempt transactions

Which of the following are exempt securities under the Uniform Securities Act? I. Common stock, not listed on any regulated exchange, purchased by an open-end investment company II. Preferred stock issued by an insurance company authorized to do business in this state III. Municipal bonds issued by Toronto, ON IV. Private placements A) II and III B) II, III, and IV C) I and III D) I and II

All of the above. Collateral trust certificates, investment contracts, options, and option contracts, regardless of the underlying asset, are identified as securities in the Uniform Securities Act and are subject to its provisions. Currencies are not securities, but options on currencies are.

Which of the following financial instruments are considered securities under the USA? I. Collateral trust certificates II. Investment contracts, including interests in oil and gas drilling partnerships III. Options listed on the Chicago Board of Options Exchange IV. Foreign currency options contracts traded on the Philadelphia Stock Exchange A) I, II, III, and IV B) I and II C) II, III, and IV D) II and III

D) Isolated sale of a corporate bond on behalf of the bond's issuer Only isolated nonissuer transactions are exempt. In this question, the transaction is on behalf of the issuer, so this transaction is not exempt.

Which of the following is NOT an exempt transaction as defined in Section 402 of the USA? A) Corporate bond sale to an insurance company B) Sale of common stock by the county sheriff at the request of the state securities Administrator C) Sale of XYZ common stock, traded on the OTC Bulletin Board, to an individual investor by the executor of an estate D) Isolated sale of a corporate bond on behalf of the bond's issuer

A) I, II, III, and IV Securities issued by an insurance company organized under the laws of any state and authorized to do business in that state are exempt from registration. NYSE-listed issues are federal covered, and nonprofit organizations and commercial paper with a maturity of 270 days or less are also exempt.

Which of the following securities are exempt from registration requirements under the Uniform Securities Act? I. Issues of U.S.-based insurance companies authorized to conduct business in the state II. NYSE traded issues III. Issues of nonprofit religious organizations IV. Commercial paper meeting certain requirements A) I, II, III, and IV B) III only C) II, III, and IV D) I and III

C) Common stock issued by a public utility company whose rates are subject to state regulation

Which of the following securities is NOT exempt from the registration procedures of the Uniform Securities Act? A) Variable annuities issued by an insurance company authorized to do business in this state B) General obligation bonds issued by a city located in this state C) Common stock issued by a public utility company whose rates are subject to state regulation D) Bonds issued by a church operating as a nonprofit organization under IRS Code Section 501(c)(3)

B) I, II, III, and IV Any security issued by a bank that is federally regulated is exempt under the USA. State banks are exempt if regulated by that state. Municipal bonds are exempt if issued by a municipality in the United States or Canada.

Which of the following securities is(are) exempt from state registration and filing of advertising materials?I. New York City municipal revenue bonds II. Montreal bonds guaranteed by the province of Quebec III. Preferred stock of the National Bank, N.A., a member of the Federal Reserve System IV. Preferred stock of Local County Bank, organized and regulated solely by the banking laws of the state of Illinois A) IV only B) I, II, III, and IV C) I and III D) I only

D. II and IV EBP are only institutional if they have assets over 1MM

As used in the Uniform Securities Act, included in the term institutional investor would be I. accredited investors II. banks III. employee benefit plans with assets of not less than $750,000 IV. investment companies

A client wants to purchase commercial paper. The licensed agent may indicate to the client that the security need not be registered with the Administrator if each of the following conditions are met EXCEPT A) the maximum maturity is 270 days B) it must be in book entry form C) it is rated in 1 of the 3 highest rating categories by a recognized rating agency D) the minimum denomination is $50,000

B) it must be in book entry form

C) sale of a security limited in its offering to no more than 10 retail investors in any calendar year Private placements are exempt under the USA if they are offered to no more than 10 retail investors in any consecutive 12-month period, not calendar year.

Certain securities transactions are considered exempt from the registration and advertising filing requirements of the Uniform Securities Act. Included in that group would be all of the following EXCEPT A) a sale of stock to a pension trust with assets of $3 million B) a purchase of stock by an underwriter from the issuer in a firm commitment underwriting C) sale of a security limited in its offering to no more than 10 retail investors in any calendar year D) an offer of preorganization certificates made to 25 persons with 8 of them subscribing, but making no payment

A) need not be registered because it is an exempt transaction Shares issued as a result of a stock split need not be registered because transactions between issuers and existing shareholders are exempt if no consideration is involved.

If a nonexempt company has authorized a stock split that will give each shareholder 2 shares for every 1 share owned without charge, this transaction A) need not be registered because it is an exempt transaction B) must have the prior written approval of each state Administrator in which the shares trade C) must be registered because it is the issuance of new nonexempt securities D) need not be registered because the shares of the corporation have already been registered

D) registered with the SEC 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. There is no requirement that a security be registered with the SEC; that is the primary purpose of registration by qualification - registering a security on the state level that is not SEC registered.

In order for a security to lawfully be sold or offered under the USA, it must meet at least one of the following requirements EXCEPT that it is A) properly registered with the Administrator B) sold in an exempt transaction C) an exempt or federal covered security D) registered with the SEC

D) may be amended after their effective dates as to the amount of securities issued, provided that underwriting fees and the initial offering price have not changed

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

B) II, III, and IV The securities issued by national banks, state-chartered banks, and federal credit unions are exempt from registration under the USA. Federal savings and loan associations are as well. But, those savings and loan associations organized under state laws are only exempt if the S&L is authorized to do business in this state.

Securities issued by which of the following are exempt from registration? I. Any savings and loan association organized under the laws of any state II. Any bank organized and supervised under the laws of any state III. Any bank organized under the laws of the United States IV. Any federal credit union A) I, III, and IV B) II, III, and IV C) I, II, and IV D) I and II

D) the sale of municipal bonds to a retail customer

Under the USA, all of the following are exempt transactions EXCEPT A) transactions between an issuer and an underwriter B) transactions with a trust company C) private placements D) the sale of municipal bonds to a retail customer

B) I and IV

When performing their normal functions, the sale of a security by all of these would be an exempt transaction EXCEPT I. an investment adviser II. a sheriff III. a marshal IV. an agent A) I and II B) I and IV C) II and III D) I only