Ch. 2 - State Registration of Securities

Registration by coordination is used in conjunction with which of the following Acts? a. The Investment Company Act of 1940 b. The Securities Act of 1933 c. The Investment Advisers Act of 1940 d. The Securities Exchange Act of 1934

b. The Securities Act of 1933 Explanation: An issuer that uses registration by coordination must also register the same offering with the SEC under the Securities Act of 1933.

Registration by coordination would most likely be used to register what type of offering? a. A new issue of shares listed on Nasdaq b. An intrastate offering c. A new issue of mutual fund shares d. An initial public offering

d. An initial public offering Explanation: 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 choices does not meet the definition of a security under the Uniform Securities Act? a. Variable life insurance policies b. Participation in multilevel marketing arrangements c. Rights received due to a corporate rights offering d. Whole life insurance policies

d. Whole life insurance policies Explanation: Life insurance generally does not meet the definition of a security. This is true because traditional insurance policies such as whole life promise to pay a fixed sum of money. Since variable life insurance policies do not pay a fixed sum of money they meet the definition of a security. The other two choices listed are defined as securities under the Act.

Which of the following issuers is most likely to use registration by qualification in order to register its securities? a. A local or state government unit b. A registered investment company c. A local company whose shares will be sold within the state d. A national company with outstanding securities that are listed on the NYSE

c. A local company whose shares will be sold within the state Explanation: Registration by qualification is used for smaller issuers that are only selling securities to residents of one state (i.e., an intrastate offering). State or local governments (i.e., municipalities) are exempt from registration. Exchange-traded issuers and registered investment companies both issue federal covered securities, which are also exempt from registration at the state level.

All of the following choices are considered securities, EXCEPT: a. Options on real estate b. Options on futures c. Swaps d. Equity options

a. Options on real estate Explanation: Options and swaps are a type of derivative security. Options on equities, futures, and REITs are regulated as securities. However, an option to buy or sell real estate is not considered a security.

Registration by coordination would most likely be used by which one of the following issuers? a. Registration by coordination would most likely be used by which one of the following issuers? b. Intrastate offerings c. Nasdaq securities d. Mutual funds

a. Registration by coordination would most likely be used by which one of the following issuers? Explanation: 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.

According to the USA, which of the following securities are exempt from registration? a. Common stock of a financial subsidiary of an insurance company b. Common stock of a Canadian mining company c. Bonds issued by a government-regulated common carrier d. An offering by a UIT that invests in the stocks of banks and savings and loan associations

c. Bonds issued by a government-regulated common carrier Explanation: 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. Insurance companies may also issue securities that are exempt from registration, but their subsidiaries may not. Bank securities are also exempt; however, an offering of an investment company (e.g., a UIT) that invests in bank securities must be registered.

According to the Uniform Securities Act, all the following transactions would be considered exempt, EXCEPT: a. A transaction that is executed by a bona fide pledge that is not intended to evade the USA b. A nonissuer transaction of a security that is regularly quoted on the OTC Bulletin Board c. A transaction executed by a guardian appointed by a state court d. A nonissuer transaction of a security that is quoted on Nasdaq

b. A nonissuer transaction of a security that is regularly quoted on the OTC Bulletin Board Explanation: A nonissuer transaction of a security that is regularly quoted on the OTC Bulletin Board would not qualify as an exempt transaction. The OTCBB does not have specific listing criteria, whereas national exchanges such as the NYSE and Nasdaq have minimum standards to which issuers must adhere. All the other choices are specifically defined under the USA as exempt transactions.

Which of the following choices would NOT meet the definition of an exempt transaction? a. Transactions between an issuer and retail investors b. An unsolicited nonissuer transaction with a retail investor c. A transaction executed by a bona fide pledgee d. A transaction by a trustee involved in a bankruptcy

a. Transactions between an issuer and retail investors Explanation: Any transactions by trustees involved in a bankruptcy--sheriffs, marshals, guardians, and other fiduciaries are considered exempt transactions. Unsolicited nonissuer transactions whether with retail or institutional investors and transactions executed by a bona fide pledgee are also considered exempt transactions. However, transactions between issuers and retail investors are not exempt from registration. A transaction between an issuer and underwriter would be an exempt transaction.

Sales of viatical investments can be made only to suitable investors. Which TWO of the following investors are considered suitable? I. An accredited investor under Regulation D II. Anyone with a minimum net worth of $150,000 and gross income last year of at least $100,000, or a minimum net worth of $250,000 III. Anyone who is in the highest marginal tax bracket and is in need of liquidity IV. Anyone who has been specifically approved by the state Administrator a. III and IV b. I and II c. I and III d. II and III

b. I and II Explanation: A viatical investment involves the purchase of an interest in an insurance policy covering the life of an individual. The purchase may be for a whole or fractional interest in the policy. Since it is unknown when the insured will die and the funds invested are not readily accessible on demand, NASAA has established specific suitability requirements for viatical investments, which are stated in choices (I) and (II). Viatical investors must either be accredited investors according to Regulation D or must meet one of the following financial standards. - Minimum net worth of at least $150,000 (not including their residence) and an annual income of $100,000, or - Minimum net worth of at least $250,000 (not including their residence)

What information may an issuer change by amending its registration statement after it receives an effective date? a. What information may an issuer change by amending its registration statement after it receives an effective date? b. The number of shares c. The underwriting spread d. Nothing

b. The number of shares Explanation: Under the Uniform Securities Act, an issuer may amend its registration statement to increase the number of shares being sold after the statement has been declared effective by the Administrator. The issuer does not need to file a new registration statement for this purpose. The issuer may not amend its statement to change the public offering price of the securities, or the underwriters' compensation or commission schedule.

Under the Uniform Securities Act, which of the following sales would be considered a nonissuer transaction? a. The sale of a security executed by an agent of the issuer b. The sale of an outstanding security on the New York Stock Exchange c. A primary offering sold by a broker-dealer d. The sale of a new issue in a private placement

b. The sale of an outstanding security on the New York Stock Exchange Explanation: A nonissuer transaction is a purchase or sale of a security whereby the issuer does not benefit, directly or indirectly. A trade between two investors for IBM stock on the New York Stock Exchange (a secondary market trade) would be an example of a nonissuer transaction.

Which of the following products are defined as securities according to the Uniform Securities Act? I. ADRs II. REITs III. Endowment Policies IV. Interests in oil and gas drilling programs a. I, II, and III only b. I and II only c. I, II, and IV only d. II and III only

c. I, II, and IV only Explanation: ADRs, REITs (real estate investment trusts), and interests in oil and gas drilling programs (or other investment programs that involve the extraction of mineral resources) are all securities according to the Uniform Securities Act (USA). Endowment policies and traditional insurance policies are not defined as securities.

An agent is soliciting investors for a private placement. Under the Uniform Securities Act, this is an exempt transaction as long as the agent doesn't offer the securities to more than: a. 35 non-accredited investors during a 12-month period b. Five retail investors during a 12-month period c. 10 non-accredited investors during a 12-month period d. 10 retail investors during a 12-month period

d. 10 retail investors during a 12-month period Explanation: Under the Uniform Securities Act, private placements are exempt transactions as long as the offering is made to no more than 10 retail investors during a 12-month period. There's no limit on the number of institutional investors. Regulation D is the private placement under federal law and the term non-accredited is used in Regulation D, but not in the Uniform Securities Act. Depending on the exact provision of Regulation D that the issuer is using, the offering is typically limited to a maximum of 35 non-accredited investors and an unlimited number of accredited investors.

Securities that are registered through qualification may only be sold: a. Once the registration has been declared effective by the SEC b. The day after receiving the Administrator's approval c. After the completion of the 20-day cooling-off period d. Once the registration has been declared effective by the Administrator

d. Once the registration has been declared effective by the Administrator Explanation: Securities that are registered through qualification may be sold once the registration is declared effective by the Administrator. It's important to remember that it's inappropriate to suggest that Administrator "approval" has been obtained. Securities that are deemed effective for sale by an Administrator may not be described as having been approved by the Administrator.

An issuer is planning to sell a federal covered security in State A. The Administrator of State A may ask the issuer to do all of the following, EXCEPT: a. Pay a filing fee b. Provide copies of all documents that are filed with the SEC c. File a Consent to Service of Process d. Provide additional information that was not required by the SEC

d. Provide additional information that was not required by the SEC Explanation: The National Securities Markets Improvement Act (NSMIA) places limits on states' power to regulate federal covered securities. Generally, states may not require an issuer of a federal covered security to furnish more information than is required by the SEC. However, state Administrators may require certain issuers to Notice File, which includes filing a Consent to Service of Process as well as any documents that have been filed with the SEC. The Administrator may also require the issuers of certain federal covered securities to pay filing fees. Securities that are listed on a national exchange (e.g., the NYSE or Nasdaq) are exempt from Notice Filing. Despite this, states retain the right to investigate all issuers that sell securities within their states and reserve the right to bring enforcement actions against any violators.