9.8 - Exemptions from Registration
Section 403 of the USA Act states that the Administrator may, by rule or order, require the filing of any sales and advertising literature addressed or intended for distribution to prospective investors, including clients or prospective clients of an investment adviser unless the security or transaction is exempted by Section 402 or is a federal covered security. This would include any: circulars. form letters. investment adviser's website. prospectus. A) I, II and III. B) III and IV. C) I, II, III and IV. D) I and II.
Answer: C All of these are included in the filing requirements, even the prospectus.
As used in the Uniform Securities Act, included in the term institutional investor would be: accredited investors. banks employee benefit plans with assets of no less than $1 million. investment companies. A) II and III. B) I, II, III and IV. C) II, III and IV. D) I and IV.
Answer: C Institutional investors include banks, insurance and investment companies, and employee benefit plans. Although each of these is included in the term accredited investor, that term, as used in federal law (the term is not found in the USA), also includes certain individuals, and they would never be considered institutional investors under the USA.
Securities exempt under the Uniform Securities Act are exempt from: registration requirements. antifraud provisions of state securities laws. sales and advertising literature filing. A) I and II. B) II and III. C) I, II and III. D) I and III.
Answer: D An exempt security is exempt from the registration requirements and the provisions that require the filing of advertising and sales literature. Exempt securities are never exempt from the antifraud provisions of the act.
According to the Uniform Securities Act, which of the following is NOT an exempt transaction? A) Bonds with a rating below investment grade are sold to the ABC High Yield Bond Fund. B) A broker/dealer makes an offer of private placement securities to 15 individual investors within a 30-day period. C) The executor of an individual's estate liquidates individual stocks and invests the proceeds in a money market account at a bank. D) A broker/dealer sells an entire new issue to 5 bank clients.
Answer: B The Uniform Securities Act defines a private placement as an offering made to no more than 10 noninstitutional investors in a 12-month period. If a private placement complies with this restriction, it is an exempt transaction.
Under the Uniform Securities Act, certain transactions are exempt from the sales literature and advertising filing requirements. Which of the following would be included in that category? Any isolated, nonissuer transaction. Any sale to a financial institution. Any transaction by the executor of an estate. Any transaction between an issuer and underwriters. A) I, II, III and IV. B) I, II and IV. C) I and III. D) II and III.
Answer: A All four options describe exempt transactions. Exempt transactions are not subject to the advertising and sales literature filing requirements of the Administrator.
Which of the following securities are exempt from the registration requirements of the Uniform Securities Act? An investment contract issued in connection with an employee pension plan. Securities issued by St. Paul's Catholic Church in Tempe, Arizona. Securities issued by a public utility. Securities issued by the Canadian government. A) I, II, III and IV. B) I and III. C) II and III. D) II and IV.
Answer: A All of the securities listed are exempt from registration under the USA.
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) Bonds issued by the Province of Alberta. C) 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. D) Equipment trust certificates issued by a regulated common carrier.
Answer: A 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 are considered to be exempt issuers under the Uniform Securities Act? State of Georgia. City of London, Ontario. City of London, England. Kapco Income Fund, an open-end investment company registered with the SEC. A) I and II. B) I, II and III. C) I, II and IV. D) I, II, III and IV.
Answer: A Any state or Canadian province, or political subdivision thereof, is considered an exempt issuer. Foreign governments with whom the United States has diplomatic relations, but not their political subdivisions, are considered exempt issuers. SEC-registered investment companies are non-exempt issuers under the USA. That is, the act does not include them in the list of exempt issuers. However, under the NSMIA, they are federal covered securities and, as such, do not register with the states other than filing a notice. All the more so, hedge funds that are NOT registered with the SEC would not be exempt issuers.
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 non-exempt unregistered stock. The agent should A) continue to process the order because this is an exempt transaction. B) inform the client that no orders for this stock may be accepted until it is properly registered in the state. C) continue to process the order because this is an exempt security. D) wait for firm approval before processing the order.
Answer: A 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 non-exempt, registration is not required when the transaction is exempt. Therefore, this order may be taken as placed.
Under the Uniform Securities Act, which of the following statements about federal covered securities is NOT true? A) Federal covered securities must be registered with the states. B) The issuer of a federal covered security may be required to pay fees to the states. C) Federal covered securities include securities sold under Regulation D of the Securities Act of 1933. D) A security issued by an investment company registered under the Investment Company Act of 1940 is a federal covered security.
Answer: A Federal covered securities are not required to be registered with the states, but issuers of federal covered securities may be required to pay fees to the states. Private placements (Regulation D) and investment companies both describe types of federal covered securities.
All of the following are exempt from state registration EXCEPT: A) variable annuities issued by a major insurance company. B) common stock in Mutual Savings Bank. C) fixed annuities issued by a small insurance company. D) fixed income securities issued by a bank.
Answer: A Fixed annuities are not securities so there is no registration required. Of the other choices listed, only variable annuities are required to be registered.
The USA considers certain transactions to be exempt from the requirements to register and the filing of advertising material. Included in that group are all of the following EXCEPT A) any offer or sale to a pension or profit-sharing trust as long as the plan has assets of no less than $750,000. B) an isolated nonissuer transaction effected through a broker/dealer. C) any transaction by an executor, administrator, sheriff, marshal, or guardian. D) any transaction executed by a bona fide pledgee without any purpose of evading the act.
Answer: A In general, the USA does not consider a transaction with an employee benefit plan to be exempt unless the plan has assets of at least $1 million.
Disciplinary proceedings under the Uniform Securities Act require the Administrator to provide which of the following? An opportunity for a hearing. Written findings of facts and conclusions of law. Appropriate prior notice. A) I, II and III. B) I and II. C) I and III. D) II and III.
Answer: A In the event of a disciplinary action, an Administrator must provide appropriate prior notice, an opportunity for a hearing, and written findings of facts and conclusions of law. Even if an order is issued summarily (made effective upon issue without prior notice), a registrant must be notified upon issue of the order and must be given the opportunity to request a hearing.
Under the Uniform Securities Act, all of the following are exempt from registration EXCEPT: A) common stock only sold intrastate. B) airport authority bonds. C) airplane equipment trust certificates. D) securities issued by a religious organization.
Answer: A Local companies that issue common stock sold only within the state must register their securities with the state Administrator. Airport authority bonds, airplane equipment trust certificates, and securities issued by religious organizations are exempt from registration with the state Administrator.
An exemption from registration under the USA would be granted to securities offered by: A) an issuer relying on Rule 506 of the Securities Act of 1933. B) a credit union organized and supervised under the laws of a neighboring state. C) a charitable organization to help fund their for-profit activities. D) a non-regulated public utility.
Answer: A Rule 506 of the Securities Act of 1933 is a part of the Regulation D rules dealing with private placements. These are included in the NSMIA's list of federal covered securities and, therefore, are exempt from registration under the USA. Securities issued by a credit union might be exempt, but only one that is federally chartered or organized and supervised under the laws of this state, not a neighboring one. Only nonprofit organizations qualify for exemption. The exemption for public utilities and common carriers applies only to those that are regulated by a state or federal commission.
The RAN Corporation's common stock is listed on the American Stock Exchange. To raise additional working capital, RAN's board of directors has authorized the sale of $75 million in subordinated debentures. Under the Uniform Securities Act, which of the following is NOT a true statement? A) The Administrator can require the RAN Corporation to register the debentures prior to an offering in the state. B) The Administrator can require that the issuer provide a notice filing in the state. C) The Administrator may require a filing fee be paid prior to sales taking place in the state. D) The Administrator can bring an enforcement action against the issuer if it is deemed that the issue is fraudulent.
Answer: A Since the RAN Corporation's common stock is listed on the AMEX, it, and any security equal or senior to it, is a federal covered security. As such, the state has no registration authority over the security. However, notice filing and payment of fees may be required. The Administrator always has the power to enforce anti-fraud statutes.
Which of the following statements is CORRECT regarding an unsolicited trade in an unregistered nonexempt security? A) The Administrator may, by rule, require that the customer acknowledge, upon a specified form, that the sale was unsolicited and that a signed copy of each such form be preserved by the broker/dealer for a specified period. B) The Administrator may, by order, require that the customer acknowledge, upon a specified form, that the sale was unsolicited and that a signed copy of each such form be preserved by the broker/dealer for a specified period. C) The transaction is exempt if the broker/dealer does not maintain an office in the state from which the order is received. D) It is only an exempt transaction if it is an order to buy; orders to sell an unregistered, nonexempt security would not be an exempt transaction.
Answer: A The USA specifically grants the Administrator the authority to make a rule requiring written acknowledgement of unsolicited orders be recorded on a designated form. It is important for you to understand the difference between a rule and an order. Rules apply to everyone; orders apply to a specific broker/dealer. The Administrator could not require one broker/dealer to keep these forms but not another.
Under the Uniform Securities Act, which of the following persons is responsible for proving that a securities issue is exempt from registration? A) Issuer. B) Underwriter. C) State Administrator. D) There is no need to prove eligibility for an exemption.
Answer: A The burden of proof for claiming eligibility for an exemption falls to the person claiming the exemption. In the event the registration statement was filed by someone other than the issuer, such as selling stockholders or a broker/dealer, that person must prove the claim.
Which of the following are exempt transactions as defined in the Uniform Securities Act? An agent sells a security issued by a foreign government with which the United States has diplomatic relations to an individual client. An agent fills a buy order based upon an unsolicited request from an existing client to purchase a nonexempt security. The sale of an unregistered nonexempt security in a private, nonpublicly advertised transaction to 14 noninstitutional investors over a period not exceeding 12 months. The sale of unlisted securities by a trustee in bankruptcy. A) II and IV. B) I and II. C) I and III. D) III and IV.
Answer: A Unsolicited customer orders, regardless of the type of security involved, are always exempt transactions as are sales by fiduciaries. The private placement exemption is limited to 10-noninstitutional offerees, so 14 purchasers would certainly be over the limit. While a security issued by a foreign government with which we have diplomatic relations is an exempt security, a solicited sale by an agent to an individual client is not an exempt transaction.
A state securities Administrator does NOT require the filing of: A) pamphlets and marketing letters used by broker/dealers. B) advertising and sales literature relating to the sale of exempt securities. C) advertising and sales literature relating to the sale of nonexempt securities. D) financial reports from broker/dealers and investment advisers.
Answer: B A state securities Administrator may require the filing of advertising and sales literature relating to the sale of nonexempt securities, financial reports from broker/dealers and investment advisers, and pamphlets and marketing letters used by broker/dealers in an attempt to increase their business. Exempt securities are not required to register with the state Administrator and, therefore, are exempt from the filing requirements for advertising and sales literature.
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) do not apply. C) always apply. D) apply only to sales literature.
Answer: B 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.
To which of the following situations does the transaction exemption apply? City of Chicago bond offering. Canadian government bond offering. Offering an unregistered security to a maximum of 12 individual customers in a 10-month period. The sale of an estate's holding of IBM shares by an executor A) III and IV. B) IV only. C) I and II. D) I and III.
Answer: B 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) as the USA only permits offers to a maximum of ten noninstitutional investors over a 12-month period.
Which of the following are exempt securities under the Uniform Securities Act? Common stock, not listed on any regulated exchange, purchased by an open-end investment company. Preferred stock issued by an insurance company authorized to do business in this state. Municipal bonds issued by Toronto, ON. Private placements. A) II, III and IV. B) II and III. C) I and II. D) I and III.
Answer: B Common stock not listed on any regulated exchange and purchased by an open-end investment company is an exempt transaction, but that common stock is not an exempt security. Securities issued by insurance companies, and Canadian municipal securities are exempt from registration under the USA. Any security that represents an interest in, or debt of, or is guaranteed by an insurance company organized under the laws of any state and authorized to business in this state is exempt. Private placements are exempt transactions, not exempt securities.
Under the USA, all of the following issues would be exempt from registration EXCEPT: A) stock issued by savings and loan association authorized to do business in this state. B) stock issued by an insurance company not offering policies in this state. C) bonds issued by the city of New Orleans. D) an investment contract issued in connection with an employee stock purchase plan.
Answer: B Had the insurance company been authorized to do business in this state, its securities offering would be exempt.
All of the following are exempt securities under the Uniform Securities Act EXCEPT: A) securities issued by a federal savings and loan association. B) securities issued by a bank holding company. C) securities issued by the Canadian government. D) securities issued by a Canadian province.
Answer: B 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.
Under the Uniform Securities Act, a private placement is considered an exempt transaction if: A) the security is rated in the top three grades by a recognized rating agency. B) the number of noninstitutional offers is limited to a maximum of 10 in any 12-month period. C) no payment is made with any purchase. D) the sale is unsolicited.
Answer: B The transaction exemption available to private placements requires that no more than 10 offers be made in any 12-month period to noninstitutional purchasers. Whether individual or institutional, payment is made, but commissions may be paid only on institutional sales.
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 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. D) The offer is directed to only five individuals during any 12-month period.
Answer: C 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.
As enumerated in the USA, exempt securities would include those issued by: a sovereign foreign government with which the U.S. maintains diplomatic relations. any credit union organized and supervised under the laws of this state. a corporation based in Toronto, Ontario whose common stock trades on the Toronto Stock Exchange. a promissory note, draft, bill of exchange, or bankers' acceptance that evidences an obligation to pay cash within nine months after the date of issuance, is issued in denominations of at least $50,000, and receives a rating in one of the three highest rating categories from a nationally recognized statistical rating organization. A) II and III. B) I, II, III and IV. C) I, II and IV. D) I and IV.
Answer: C Although securities issued by the Canadian government or any political subdivision are exempt, those issued by Canadian corporations would only be exempt if trading on U.S. exchanges as federal covered securities.
A transactional exemption would be offered when a sale is made by: A) a broker/dealer. B) a custodian for a minor appointed under the Uniform Transfer to Minors Act. C) a court appointed guardian for a minor. D) an investment adviser. Click for Answer and Explanation Answer: C
Answer: C Among the list of exempt transactions are sales made by fiduciaries, such as court appointed guardians. Because there is no legal paperwork required, the custodian for a minor under UTMA (or UGMA), is not considered a fiduciary for purposes of this rule.
When describing exempt transactions under the USA, which of the following are fiduciaries? Executor of an estate Administrator in intestacy Custodian for a minor in an UTMA account An agent with authority over time and price execution A) II and IV B) III and IV C) I and II D) I and III
Answer: C Both executors and administrators are fiduciaries. An agent is a fiduciary if the agent has discretionary authority over the assets in the account, but time and price authority is not considered discretion. A sale made by the custodian for a minor in an UGMA or UTMA account does not qualify as an exemption transaction under the USA, even though, as a matter of law, the custodian is functioning in a fiduciary capacity.
Under the Uniform Securities Act, which of the following circumstances would exempt a security from registration? The security is exempt from registration under the act. The transaction in which the security is sold is exempt under the act. A) II only. B) Neither I nor II. C) Both I and II. D) I only.
Answer: C It is illegal to sell securities that are not registered unless the security or the transaction itself is exempt from state registration requirements. This applies to new issues (primary distributions) and secondary market transactions.
The Uniform Securities Act provides an exemption from registration for certain securities and for certain transactions. However, the Administrator is not empowered to deny an exemption from state registration to: U.S. government securities. private placement transactions. a transaction with an insurance company. municipal bonds issued by another state. A) II and III. B) II and IV. C) I and IV. D) I and III.
Answer: C Other than in a transaction involving a federal covered security, the Uniform Securities Act gives the power to the Administrator to deny an exemption to any exempt transaction such as private placements or transactions with professional investors such as insurance companies or bank trust departments. However, when it comes to a security's exemption, the Administrator may only deny exempt security status to an issue of a nonprofit organization or an investment contract issued in connection with an employee benefit plan, never a U.S. government security or one issued by another state.
Under the Uniform Securities Act, which of the following statements are TRUE regarding private placements? They are offered to no more than 10 persons in a state in a 12-month period. They may be offered to an unlimited number of institutional investors. Institutional buyers need not be purchasing for investment. A) I and III. B) I, II and III. C) II and III. D) I and II.
Answer: C Private placements are transactions resulting from offers to no more than 10 noninstitutional persons in 12 months for investment purposes only. The offeror must be convinced that buyers are purchasing for investment. This means no immediate resale intentions are allowed on the buyer's part. No commissions may be paid, directly or indirectly, for these transactions. However, sales to institutional purchasers are exempt from the limitations regarding number of sales, resale restrictions, and commissions. They may, therefore, be offered to more than 10 persons. (Remember that the term person is defined very broadly in the act.)
Under the USA, which of the following types of transactions can be entered into legally with unregistered, nonexempt securities? A) Rights offering to existing shareholders with underwriting compensation of $.05 per share to the soliciting broker/dealers. B) Solicited transactions with individual clients located within the state. C) Private placement offered to more than 50 institutional purchasers in the state. D) Public offering of stock in a new corporation.
Answer: C Private placements involve the sale of nonexempt securities to investors without the need for registration. There is no numerical limit to the number of offers that may be made to institutional buyers. However, offers to noninstitutional buyers are limited to a maximum of 10 in any 12-month period. Rights offerings are only exempt if there is no compensation, and only unsolicited orders are exempt transactions.
Under the Uniform Securities Act, the Administrator may deny or revoke the exemption from registration for which of the following? A security issued by a nonprofit organization. Investment contracts of employee benefit plans. An exempt transaction not involving a federal covered security. A) I and III. B) II and III. C) I, II and III. D) I only.
Answer: C The Administrator may deny or revoke any transaction exemption except those involving a federal covered security. The only security exemptions where the Administrator has this power is in the case of securities issued by non-profit organizations and investment contracts of employee benefit plans. The order must pertain to a specific transaction or security.
Which of the following statements regarding private placement transactions is TRUE? A) Compliance with the Securities Act of 1933 is not required. B) Under the Uniform Securities Act, commissions may only be paid on sales to retail clients. C) The Uniform Securities Act's exemption for such transactions is narrower than the comparable federal exemption because offers may be made only to a limited number of nonqualified offerees. Under the USA, commissions are limited to sales made to institutional, not retail clients. D) The Securities Act of 1933 does not regulate such transactions.
Answer: C The federal act defines an exempt private placement as a sale to no more than 35 nonaccredited persons. The Uniform Securities Act defines an exempt private placement as an offer to no more than 10 noninstitutional persons in a particular state. Under the USA, commissions are limited to sales made to institutional, not retail clients.
Under the Uniform Securities Act, the Administrator may require the filing of advertising and sales literature in which of the following offerings? A) Sale of a U.S. Treasury bond maturing in more than 10 years. B) Sale of the bonds of AAA insurance company organized under the laws of the state. C) Sale of an IPO limited to residents of the state. D) Sale of preferred stock of a long-established company registered with the SEC whose common shares trade on the New York Stock Exchange
Answer: C The state securities Administrator may require the filing of advertising and sales literature of an IPO limited to residents of the state. The other choices are securities of exempt issuers or, in the case of the NYSE-listed issuer, federal covered securities. The Administrator may not require exempt and federal covered securities to file advertising and sales literature.
Under the Uniform Securities Act, which of the following is NOT a requirement for a preorganization subscription to be an exempt transaction? A) No commission may be paid to anyone for soliciting potential subscribers. B) No payment may be made by any subscriber. C) The offer of the security may not be advertised. D) There may be no more than ten subscribers.
Answer: C There are three requirements for a preorganization subscription to qualify as an exempt transaction. A preorganization subscription may be advertised.
Which of the following meet(s) the USA's definition of an exempt transaction? Transactions by an executor of an estate. Transactions with an investment company registered under the Investment Company Act of 1940. An unsolicited sale of an OTC Bulletin Board stock. An agent sells shares of an IPO listed on the NYSE to an individual customer. A) IV only. B) I, II, III and IV. C) I, II and III. D) I and II.
Answer: C Transactions by a fiduciary, such as the executor of an estate, are included in the definition of an exempt transaction, as are transactions with certain institutional clients like investment companies and insurance companies. The OTC Bulletin Board is an electronic medium for the trading of highly speculative, thinly capitalized issues. Because the order is unsolicited, the transaction is exempt. Sale of a new issue of stock to an individual client would not be an exempt transaction regardless of where the stock is traded. It is important to distinguish between an exempt transaction and an exempt security.
A licensed agent with a registered broker/dealer in a state would be permitted to engage in which of the following transactions in unregistered nonexempt securities? A) The sale of a preorganization certificate on which the agent receives no commission on the amount paid by the investor. B) The sale of commercial paper with a 12-month maturity. C) A private placement. D) A solicited transaction in a small Canadian mining company.
Answer: C Under the USA, it is unlawful for any person to offer or sell any security in this state unless (1) it is registered under the USA; or (2) the security or transaction is exempted under the USA; or (3) it is a federal covered security. In this case, a private placement is an exempt transaction so the agent is within the limits of the law. The sale of the preorganization certificate is not an exempt transaction because, although the agent received no commission, the investor paid for the shares and no payment is allowed.
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.
Answer: C 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.
If a person offers to buy a security after reading a tombstone ad, the offer to buy would be considered: A) solicited. B) null and void. C) illegal. D) unsolicited.
Answer: D 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 is required for a preorganization subscription to be an exempt transaction? A) There may be no more than 15 subscribers. B) Full payment has been made. C) Prior notification of intent to incorporate must be given to the Administrator. D) No commission has been paid.
Answer: D A preorganizational subscription is an exempt transaction if there are no more than 10 subscribers and no commissions are paid, either directly or indirectly. The subscribers make no payments until they purchase the underlying security.
Included in the USA's definition of an exempt transaction would be any transaction by any of the following EXCEPT A) a marshal B) a guardian C) a trustee in bankruptcy D) a trustee of an irrevocable trust
Answer: D Although the term trustee is found in the list of persons engaged in exempt transaction, the USA limits it to trustees in bankruptcy.
According to the Uniform Securities Act, which of the following would be considered exempt transactions? The sale of a unlisted corporate bond by an executor of an estate. The gift of 100 shares of a NYSE-listed stock from a father to his minor child. Preorganization certificates subscribed to by 14 institutional investors during a 12-month period for which no payment has been made. An unsolicited order from an individual client to purchase a nonexempt, unregistered security A) I and II. B) II and III. C) III and IV. D) I and IV.
Answer: D Fiduciary transactions and unsolicited orders, regardless of the security being purchased or sold, are always exempt transactions under the USA. Preorganization certificates are limited to a maximum of 10 subscribers, whether individuals or institutions. A gift of securities is not a sale, so no transaction has taken place.
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.
Answer: D Sales of securities to financial institutions are exempt transactions. Insurance companies are a typical example of a financial institution used on the exam. The only relevance of the company being authorized to do business in this state applies to whether or not securities it issues are exempt in this state.
Securities issued by which of the following are exempt from the registration and disclosure requirements of the Uniform Securities Act (USA)? The United States or any territory. A state or political subdivision of a state. A common carrier (e.g., a railroad) regulated in respect to its rates and charges by the United States or a state. Banks and savings institutions. A) I and II. B) II and III. C) II and IV. D) I, II, III and IV.
Answer: D The Uniform Securities Act exempts all of the securities listed from registration and disclosure requirements. Banks and common carriers are under the regulatory supervision of other government agencies.
A) An investment adviser purchases securities from the issuer B) A real estate partnership sells interests to the public with no commission charge C) An agent accepts an order from a client after having sent a research report dealing with that security. D) An issuer sells a new issue to a broker/dealer
Answer: D Transactions between issuers and broker/dealers (but not investment advisers) are exempt transactions. As long as the sale is to the public, regardless of commissions charged (or not charged), the transaction is nonexempt. Don't be lured into thinking that accepting an order from a client is unsolicited. That's not true in this case because it is as the result of the research report.
The Uniform Securities Act contains a number of security exemptions. The Act empowers the Administrator to revoke the exemption for which of the following? Any security listed or approved for listing upon notice of issuance on the Nasdaq Stock Market; any other security of the same issuer which is of senior or substantially equal rank; any security called for by subscription rights or warrants so listed or approved; or any warrant or right to purchase or subscribe to any of the foregoing. Any security issued by any person organized and operated not for private profit but exclusively for religious, educational, benevolent, charitable, fraternal, social, athletic, or reformatory purposes, or as a chamber of commerce or trade or professional association Any investment contract issued in connection with an employees' stock purchase, savings, pension, profit-sharing, or similar benefit plan if the Administrator is notified in writing thirty days before the inception of the plan. Any security issued by and representing an interest in or a debt of, or guaranteed by, any bank organized under the laws of the United States, or any bank, savings institution, or trust company organized and supervised under the laws of any state. A) I and II B) I and IV C) III and IV D) II and III
Answer: D Under the USA, the Administrator can revoke any transaction exemption, except those involving federal covered securities. When it comes to revoking a security's exemption, the only two where the Administrator has to power to do so are those issued by non-profit organizations and in connection with an employee benefit plan.
Which of the following transactions are exempt? XYZ Corp., a local manufacturing firm, sells its common stock to several local individual accredited investors on an infrequent or isolated basis. Joe Smith, an agent with ABC Securities, Inc., sells XYZ Corporation's 5-year fixed income securities, rated AAA by Standard & Poor's, on a regular basis to selected members of his large retail client base. Joe Smith, an agent with ABC Securities, Inc., sells XYZ Corporation's securities to a high-net worth client on an unsolicited basis. Alexander Wimpton had his sizable portfolio of stocks and bonds sold by the administrator of his estate upon his death. A) I and II. B) I and IV. C) II and III. D) III and IV.
Answer: D Unsolicited secondary market transactions and those made by an estate's executor are exempt transactions; the net worth of the client is immaterial. While the AAA bonds may be an exempt security, soliciting regular transactions (unless with institutional buyers) is not an exempt transaction. XYZ Corp., a local manufacturing firm, is an issuer of the common stock. Had it been a non-issuer transaction on an isolated basis, the transaction would have been exempt and the accredited investor status of the clients is meaningless here.