Regulations - Securities Act of 1933

The maximum maturity on commercial paper is:

270 days, because a longer maturity would cause the issue to be non-exempt Commercial paper issued by corporations is an exempt security under the Securities Act of 1933, as long as its maturity does not exceed 270 days. If commercial paper were issued with a longer maturity, it would have to be registered and sold with a prospectus (a time consuming and expensive process, so this does not happen).

Which of the following are exempt securities under Securities Act of 1933? I Corporate Bonds II Municipal Bonds III U.S. Government Bonds IV Small Business Investment Companies

Municipal bonds, U.S. Gov bonds, and small business investment companies

Prior to the filing of a registration statement, which of the following activities is (are) permitted? I A member firm signing a syndicate agreement to become part of the underwriting group for the issue II A member firm distributing preliminary prospectuses for the issue to customers III A member firm taking indications of interest for the issue from customers IV A member firm selling the issue to customers

The best answer is A (I only) Prior to the filing of a registration statement, the issue cannot be promoted in any manner - so the use of a preliminary prospectus to take indications of interest is prohibited; as is selling the issue. Once the registration statement is filed, the issue enters the 20 day cooling off period. At this point, a preliminary prospectus can be used to take indications of interest, but the issue cannot be sold. Once the registration is effective, the issue can be sold with the prospectus. There is no prohibition on the underwriter joining the syndicate or selling group prior to the filing of the registration statement, since this does not involve offering the issue to the public.

Under the Securities Act of 1933, new issues are not marginable until how many days have elapsed from the effective date? A. 30 days B. 45 days C. 60 days D. 90 days

The best answer is A. Under the Securities Act of 1933, new issues are not marginable until 30 days have elapsed from the issue (effective) date.

If the SEC sends a deficiency letter to the issuer regarding an issue in registration,: A. it disapproves of registering the issue B. disclosure is not considered to be adequate C. the underwriters have failed to establish the Public Offering Price D. due diligence has not been performed by the underwriters

The best answer is B. An SEC "deficiency letter" indicates that there is not adequate disclosure in the registration documents to allow investors to make an informed decision. The deficiency must be cured before the SEC will allow the registration to be effective.

In order to sell restricted stock under the provisions of Rule 144, the stock must be held, fully paid, for: A. 3 months B. 6 months C. 1 year D. 2 years

The best answer is B. In order to sell restricted stock under Rule 144, the seller must have held the stock, fully paid for 6 months.

A customer who has his primary residence in Colorado, has a vacation home in Montana. An intrastate offering is being made in the state of Montana. Which statement is TRUE regarding the customer purchasing this securities offering? A. The customer is permitted to buy these securities B. The customer is prohibited from buying these securities C. The customer can buy the securities if he spends at least 2 weeks per year in the state of Montana D. The customer can buy the securities if he files an affidavit of domicile in the state of Montana

The best answer is B. To purchase an intrastate offering, the purchaser must be a primary resident of that state. Having a vacation home in another state does not constitute a "primary residence."

When the Securities and Exchange Commission sets the effective date for a new issue in registration, which of the following statements is (are) TRUE? I The SEC has certified that the offering documents give full and fair disclosure II The proper documents for registration have been filed with the SEC III The SEC has approved the offering for sale to the public IV The SEC has established the final offering price A. I only B. II only C. I, II, IV D. I, II, III, IV

The best answer is B. If the SEC sets the "effective date" for an issue in registration, this means that all proper documents have been filed with the SEC. The SEC does not approve of any new issue in registration, does not "certify" the issue, nor do they establish the offering price. Think of the SEC as a big filing cabinet - once the proper documents relating to a new issue offering are filed, the issue may be offered and sold to the public.

An investor that has been unaffiliated with the issuer for at least 3 months is permitted to sell restricted shares under Rule 144 without being subject to the volume restrictions, after having held the shares for: A. 3 months B. 6 months C. 9 months D. 1 year

The best answer is B. Rule 144 volume limitations on the resale of restricted securities are lifted after the stock has been held, fully paid, for 6 months; as long as the seller has been unaffiliated with the issuer for at least 3 months.

Which of the following is an exempt issue? A. Fixed annuity contract B. Variable annuity contract C. Government bond mutual fund D. Municipal bond unit investment trust

A. Fixed annuity contract Fixed annuity contracts are considered to be an insurance product, since the insurance company bears the investment risk, and are exempt from SEC registration. On the other hand, variable annuity contracts, where the investor bears the investment risk, are a non-exempt security under the 1933 Act and must be registered. Investment company issues such as mutual funds and unit trusts are also non-exempt and must be registered with the SEC. It makes no difference that the investment company is investing in exempt securities such a U.S. Governments or municipals.

All of the following issues are exempt from registration under the Securities Act of 1933 EXCEPT: A. Investment companies B. Insurance companies C. Agency issues D. Municipal issues

A. Investment companies Governments, agencies and municipals are all exempt issues. Insurance company and bank issues are exempt as well. Investment company issues are non-exempt and must be registered and sold with a prospectus under the 1933 Act.

All of the following are exempt issues under the Securities Act of 1933 EXCEPT: A. U.S. Government Bonds B. Savings and Loan Issues C. Real Estate Investment Trusts D. Municipal Revenue Bonds

C. Real Estate Investment Trusts (REITs) Real Estate Investment Trusts are regulated similarly to Investment Companies, and their securities are non-exempt and must be registered under the Securities Act of 1933. U.S. Government issues, savings and loan issues, and municipal issues are exempt.

U.S. Government agency securities: A. trades settle same day B. are guaranteed by the U.S. Government C. are exempt securities under the Securities Act of 1933 D. are sold through competitive bid at the weekly Treasury Auction

C. are exempt securities under the Securities Act of 1933

Common carrier issues are:

Exempt from Sec Act of 1933 and not required to be sold with a prospectus Common carrier issues such as railway issues are exempt under the Securities Act of 1933 because they were regulated by the Interstate Commerce Commission (I.C.C.) before the Act was written; and Congress did not want to subject them to "double" regulation.

Which of the following Securities Acts define(s) exempt issuers and exempt transactions? I The Securities Act of 1933 defines exempt issuers II The Securities Exchange Act of 1934 defines exempt issuers III The Securities Act of 1933 defines exempt transactions IV The Securities Exchange Act of 1934 defines exempt transactions

I & III The Securities Act of 1933 covers the new issue (primary market) and defines exempt issuers and exempt transactions. If an issuer is exempt or if a new non-exempt issue is sold in an exempt transaction, that new issue does not have to be registered under the Act. Otherwise, registration is required. The Act of 1934 consists of a variety of rules covering the secondary (trading) market.

Banker's Acceptances are:

Money market instruments exempt from Sec Act of 1933 Bankers Acceptances are a money market instrument used to finance imports and exports. They are an exempt security under the Securities Act of 1933 and can be sold without a prospectus.

Restricted shares subject to sale under Rule 144 are most commonly acquired through: A. private placements B. registered secondary distributions C. tender offers D. ESOPs (Employee Stock Ownership Plans)

The best answer is A. Restricted shares are normally acquired through private placements. If there is a public market for the stock at a later date, to sell the restricted shares in the market, they must either be registered or sold under a Rule 144 exemption.

Excluding the trading volume test, how much of the issuer's outstanding shares can be sold every 90 days under Rule 144? A. 1% B. 5% C. 10% D. 25%

The best answer is A. Rule 144 allows the sale of 1% of the issuer's outstanding shares or the weekly average of the preceding 4 weeks' trading volume (whichever is higher) to be sold every 90 days.

A new issue private placement offering is: I exempt under Regulation D II non-exempt under Regulation D III allowed to be sold to a maximum of 35 non-accredited investors IV allowed to be sold to a maximum of 35 accredited investors A. I and III B. I and IV C. II and III D. II and IV

The best answer is A. Regulation D allows a "private placement" exemption if an issue is sold to a maximum of 35 "non-accredited" investors. The issue can be sold to an unlimited number of "accredited" (wealthy and institutional) investors under this exemption and still be considered a private placement.

The maximum amount that can be invested by a client in a single issue under Regulation Crowdfunding is: A. $100,000 B. $500,000 C. $1,000,000 D. $5,000,000

The best answer is A. The maximum amount that can be invested in a single offering under Regulation Crowdfunding is $100,000. The maximum size of single offering under the rule is $1,000,000. (Test Note: The maximum investment amount and the maximum amount that can be raised are subject to an inflation adjustment every 5 years. In April 2017, the maximum investment amount was increased to $107,000 and the maximum amount that can be raised was adjusted to $1,070,000. For the exam, know the base amounts and the fact that they are indexed for inflation periodically.)

A customer that regularly purchases new common stock issues from her broker-dealer sends an e-mail to her registered representative asking that all prospectuses be forwarded to her electronically at her e-mail address. Which statement is TRUE? A. The registered representative can follow the customer's instructions by forwarding the request to the member firm's operations department B. The registered representative must inform the customer that all prospectuses must be sent in hard-copy form to the customer's physical mailing address C. The registered representative must advise the customer that the firm will charge an extra fee for this service D. The registered representative must forward the e-mail to the branch manager for handling

The best answer is A. Under the "access equals delivery" rule, prospectuses can be delivered electronically to customers as long as the member firm knows that the customer has internet access. Since this customer made the request by e-mail, we know that the customer has internet access and the firm can follow the customer's instructions.

Which of the following securities is NOT exempt from the Securities Act of 1933? A. Industrial Company issues B. Benevolent Association issues C. Small Business Investment Company issues D. Common Carrier issues

The best answer is A. Industrial companies are not exempt from the Securities Act of 1933. Common carriers, small business investment companies, and benevolent associations are all exempt.

An unregistered hedge fund creates a website and uses it to promote itself to investors. Potential investors are invited to enter a password-protected area where they can get details about the fund's investment strategy and performance. Which statement is TRUE? A. This is prohibited under SEC rules B. This is permitted under SEC rules as long as the potential viewer completes and signs an accredited investor questionnaire before being given the password to enter C. This is permitted under SEC rules as long as the potential viewer completes and signs an arbitration agreement before being given the password to enter D. This is permitted without restriction

The best answer is B. Private placements are typically only offered to "accredited investors." These are wealthy individuals and institutional investors. The SEC encourages the use of the internet and permits private placements under Regulation D to be offered via the web. However, the offerer must set up a password-protected website and can only allow access to accredited investors. To document that the purchasers are, indeed, accredited, an "accredited investor questionnaire" must be completed and signed by the potential purchaser. This is submitted to the offerer through the website, who then can give access to the potential investor.

Which statement is TRUE regarding Regulation A? A. Offerings are limited to a maximum of 35 non-accredited investors B. Offerings are limited to a maximum size of $50,000,000 C. A Prospectus must be delivered to purchasers D. The Offering is exempt from registration with the Securities and Exchange Commission

The best answer is B. Regulation A is intended to make it easier for smaller issuers to raise capital. There are 2 "tiers" to the rule. Tier 1 gives an "E-Z" registration process to offerings of no more than $20 million in a 12 month period. Tier 2 requires more detailed information, including audited financial statements, and can be used for offerings of up to $50 million. While no prospectus is required, each buyer must be given disclosure in an Offering Circular. Anyone can purchase a Regulation A offering - it is not limited solely to accredited (wealthy) investors. Customers in any state can buy - this is not being sold under an "intrastate exemption" (Rule 147) that limits purchasers to residents of 1 state.

A Regulation A exemption from full SEC registration is available for new issue offerings that do not exceed: I $20,000,000 within a 12 month period for Tier 1 offerings II $20,000,000 within a 12 month period for Tier 2 offerings III $50,000,000 within a 12 month period for Tier 1 offerings IV $50,000,000 within a 12 month period for Tier 2 offerings A. I and III B. I and IV C. II and III D. II and IV

The best answer is B. Regulation A is intended to make it easier for start-up companies to raise capital. It gives an "E-Z" registration method for offerings of up to $50 million within a 12 month period. The rule is split into Tier 1 and Tier 2. Tier 1 offerings, up to a maximum amount of $20 million, are given the easiest registration method and do not require audited financial statements. Tier 2 offerings allow a maximum of $50 million to be raised, but require audited financial statements. An abbreviated registration statement is filed with the SEC (Form S1-A) and the issue must go through a 20 day review period, similar to a regular registered offering. Disclosure to investors is made through an Offering Circular rather than a Prospectus.

An investor owns 20% of the outstanding shares of ABC Corporation, a publicly traded company. The investor's spouse owns 5% of that company's stock. If the spouse wishes to sell her holding, which of the following statements are TRUE? I The spouse is considered to be an affiliated person subject to Rule 144 II A Form 144 must be filed if the shares are to be sold III Solely from the standpoint of percentage of shares outstanding, a maximum of 1% of the company's shares can be sold at this time IV Up to 6 sales per year are allowed A. I and IV only B. I, II, III C. II, III, IV D. None of the above

The best answer is B. Rule 144 is applicable to officers, directors, and "affiliated" persons - meaning someone whom they "control." A spouse is considered an affiliated person. To sell, a Form 144 must be filed. The rule allows the greater of 1% of the outstanding shares or the weekly trading average of the last 4 weeks to be sold under the filing. 4 filings are allowed per year.

"Qualified Institutional Buyers" are permitted to buy and trade large blocks of unregistered securities among themselves under: A. Rule 144 B. Rule 144A C. Rule 147 D. Rule 415

The best answer is B. Rule 144A should not be confused with SEC Rule 144. Rule 144A allows qualified institutional buyers ("QIBs") to buy and trade between themselves large blocks of privately placed issues. Thus, issuers can sell private placements to these QIBs, who can then trade the private placement issues among themselves. This market is not available to individuals. Do not confuse Rule 144A with Rule 144, which covers the sale of "restricted" and "control" stock in the open market.

Under Rule 144, a customer wishing to sell must file the 144 "Notice of Sale" with the SEC: A. 10 business days prior to the placement of the sell order B. at, or prior to, the placement of the sell order C. 10 business days after the placement of the sell order D. 90 days after the placement of the sell order

The best answer is B. The Form 144 is simply a notification to the SEC that stock will be sold in compliance with the Rule - the SEC does not approve of the sale. The Form must be filed by the seller at, or prior to, with the placement of the sell order.

Under Rule 144, no filing is required if the sale amount every 90 days does not exceed: I 500 shares II 5,000 shares III $50,000 IV $500,000 A. I and III B. I and IV C. II and III D. II and IV

The best answer is C. Form 144 does not have to be filed to sell restricted or control stock if 5,000 shares or less, worth $50,000 or less, is sold during each 90 day period.

A wealthy customer has been asked by his neighbor to invest in the private placement of a "start-up" technology company as a venture capital investor. This is the first time that the customer has considered such an investment. The customer contacts his registered representative and asks: "Aside from the investment risk associated with a "start-up" company, what are the other issues that I should consider before making such an investment." The registered representative should inform the customer that: I because these securities are not registered with the SEC, such an offering would be illegal in the United States II because the securities are not registered with the SEC, they can only be resold in the public markets if the company effects a registered primary distribution and is current in its SEC filings III public resale of these securities can only occur if the customer holds the securities for 6 months "at risk" and then sells the securities in measured quantities IV these securities can only be resold by the customer to underwriters that will buy the securities into their inventory and then register them with the SEC A. I and III B. I and IV C. II and III D. II and IV

The best answer is C. Private placements under Regulation D are completely legal. These securities are not registered and hence, cannot be publicly traded. Only if the company subsequently "goes public" and begins reporting its results to the SEC can the shares trade in the public markets. However, these securities can be resold "privately" - but there is not much of a market for private resales of unregistered securities. If the company does go public, and if the customer holds these securities for 6 months fully paid, "at risk" (meaning that the customer has not purchased protective puts on the shares), then they can be sold under Rule 144. The sale via Rule 144 will register the shares.

Restricted securities can be sold under Rule 144 if: I they are sold on a dealer basis II they are sold on an agency basis III solicitation of orders to buy is restricted to customers expressing interest within the past 10 days IV the issuer is reporting currently to the SEC A. I and III only B. II and III only C. II, III, IV D. I, II, III, IV

The best answer is C. Rule 144 requires that restricted securities be sold on an agency basis only. Your firm cannot act as a market maker in "144" shares. Solicitation of orders to buy "144" shares is prohibited (to stop you from soliciting potential customers to buy 144 shares, which would tend to push up the stock price). However you are allowed to recontact individuals expressing buying interest in "144" transactions within the past 10 days. Since 144 shares are being sold in the open market, the issuer must comply with SEC issuer reporting rules to maintain the public market in the securities.

Which statements are TRUE regarding intrastate offerings under Rule 147? I Resale of the securities is permitted within that state immediately following the initial offering II Resale of the securities is permitted outside that state immediately following the initial offering III Resale of the securities is not permitted within that state for 6 months following the initial offering IV Resale of the securities is not permitted outside that state for 6 months following the initial offering A. I and II B. III and IV C. I and IV D. II and III

The best answer is C. Securities that are sold under a Rule 147 exemption (intrastate exemption) cannot be resold outside that state for 6 months following the initial offering. There is no restriction on resales within that state. Note, however, that because these securities were never registered with the SEC, they cannot be publicly traded. The only way to resell them is in a "private transaction."

Which statement is TRUE about the use of a "red herring" preliminary prospectus? The preliminary prospectus may only be sent to customers: A. once registration is effective B. who have paid for the issue C. who have expressed an indication of interest or who are likely purchasers, during the cooling off period D. who have expressed an indication of interest or who are likely purchasers, prior to the cooling off period

The best answer is C. A "red herring" preliminary prospectus may be sent to any prospective purchaser of that new issue once the issue has entered into the "20 day cooling off" period that commences upon filing of the registration statement with the SEC. Nothing may be sent to the customer prior to the start of the "20 day cooling off" period. The use of the "preliminary prospectus" does not constitute an "offer" under the 1933 Act, and the red ink statement on the cover of the preliminary prospectus states this (hence the name "red herring"). The red herring is used to obtain non-binding indications of interest in the issue, and may be sent to anyone during the cooling off period, whether or not that person has previously expressed any interest in the issue.

When a customer buys a new stock issue from a syndicate member, the customer pays: A. the public offering price as stated in the prospectus plus a commission B. the public offering price as stated in the prospectus plus a mark-up C. the public offering price as stated in the prospectus without any commission D. any price since this is a negotiated market offering

The best answer is C. New stock issues are sold under a prospectus that states the Public Offering Price which is inclusive of any compensation to the underwriter (the spread). Additional commissions or charges above the P.O.P. are not allowed. Whether or not the purchaser received a preliminary prospectus is a moot point - any purchaser must get the final prospectus at, or prior to, confirmation of sale.

Which of the following are QIBs under Rule 144A? I Individual with at least $100 million of assets to invest II Investment company with at least $100 million of assets to invest III Insurance company with at least $100 million of assets to invest IV Trust fund with at least $100 million of assets to invest A. I and II only B. III and IV only C. II, III, IV D. I, II, III, IV

The best answer is C. Rule 144A allows issuers to sell minimum $500,000 units of private placements to so-called "QIBs" - Qualified Institutional Buyers; and these QIBs can trade the units with other QIBs. Thus, issuers have a way of selling securities to these investors quickly without incurring the costs of SEC registration; and the QIB knows that it can always sell that investment to another QIB without needing to register the issue with the SEC. A Qualified Institutional Buyer must be an institutional investor (not an individual) with at least $100 million of discretionary funds available for investment. Included are investment companies, insurance companies, banks, trust funds, employee benefit plans, and employee retirement funds.

A company has filed a registration statement with the SEC that uses a method that is only available to seasoned issuers. This registration statement is good for: A. 1 year B. 2 years C. 3 years D. 4 years

The best answer is C. SEC Rule 415, the "shelf registration rule" allows "seasoned issuers" to file a blanket registration statement with the SEC, covering a period of 3 years, for any securities that the issuer may wish to sell. It is only available to "seasoned" companies that already have completed a registered IPO, that have been registered for 1 year, and that have a minimum market captialization of $75 million. If the seasoned issuer wishes to sell any securities during this 3 year period, it simply files a notification with the SEC that it is selling under that registration statement. This procedure avoids the "20 day cooling" off period, and allows seasoned issuers to enter the market quickly (such as when interest rates have dipped) to sell their securities.

Which statements are TRUE regarding purchase limitations under Regulation A? I Tier 1 offerings are subject to purchase limitations II Tier 1 offerings are not subject to purchase limitations III Tier 2 offerings are subject to purchase limitations IV Tier 2 offerings are not subject to purchase limitations A. I and III B. I and IV C. II and III D. II and IV

The best answer is C. There are no purchase limitations on Tier 1 (up to $20 million) Regulation A offerings. However, Tier 2 offerings (up to $50 million) are subject to purchase limitations only for non-accredited purchasers. (Regulation D -the private placement exemption - sets the requirements for "accredited" investors - these are wealthy individuals.) Non-accredited investors buying a Tier 2 Regulation A offering cannot invest an amount that is the greater of 10% of that person's annual income or net worth. Note that there is no similar limitation on Tier 1 purchases.

Under Regulation D, all of the following are accredited investors EXCEPT a(n): A. investment company B. trust with assets in excess of $5,000,000 whose purchase is directed by a sophisticated person C. partnership with assets in excess of $5,000,000 formed for the specific purpose of acquiring the securities offered D. savings and loan institution

The best answer is C. There is no limit on the number of accredited investors that can purchase a private placement under Regulation D. Regarding institutional investors, any investment company, insurance company, bank, or savings and loan is accredited. A non-profit organization, trust, or institutional investor is accredited if it has at least $5,000,000 of assets and was NOT formed with the intent of buying the private placement. The idea here is that people could attempt to get around the 35 non-accredited investor limit by having these non-accredited investors contribute to a trust that would buy the issue. If the trust accumulated $5,000,000 for investment, it would be accredited. But the rule disallows this if the trust is formed for the purpose of buying the private placement!

Which of the following individuals is an "accredited" investor under Regulation D? I Person with an annual income of $200,000 this year and for the preceding 2 years II Person with a Net Worth of $200,000 this year and for the preceding 2 years III An institution making the investment IV An officer of the issuer making the investment A. I and II only B. III and IV only C. I, III, IV D. I, II, III, IV

The best answer is C. To be an accredited investor under Regulation D, a person must either: earn $200,000 per year ($300,000 for a married couple); have a net worth of $1,000,000 (exclusive of residence); be an officer or director of the issuer; or be an institution buying the issue. Otherwise, the person counts towards the 35 non-accredited investor limit.

Which of the following are required to sell "144" stock? I Issuer's representation letter II Broker's representation letter III Seller's representation letter IV Buyer's representation letter A. I and II only B. II and IV only C. I, II, III D. I, II, III, IV

The best answer is C. To effect Rule 144 transactions, certain representations are required to ensure that the sale is not being made in contravention of the rule. The issuer must represent that the corporation is current with all required SEC filings because it is prohibited to use Rule 144 to sell if this is not the case. The seller must represent that the securities have been held fully paid for 6 months, otherwise Rule 144 cannot be used. Finally, the broker must represent that it did not solicit the transaction and that it acted as agent in executing the transaction. There is no representation required on the part of the buyer - when the restricted stock is sold through the rule, the buyer receives "clean" unrestricted shares from the transfer agent.

Under Regulation D, issuers must provide which of the following to investors to obtain a private placement exemption? A. Copy of the Prospectus B. Copy of the Official Notice of Sale C. Copy of the Offering Circular or Private Placement Memorandum D. Copy of the Official Statement

The best answer is C. Under Regulation D, purchasers of private placements must be given full disclosure about the issue, even though no prospectus is required (the issue is exempt). Disclosure is accomplished by providing the purchaser with a copy of an "Offering Circular," which for smaller private placements is called the "Offering Memorandum."

An officer of a company has acquired shares of that issuer in the open market. If the officer wishes to sell the shares: I a 6 month holding period must be completed II there is no holding period requirement III a Form 144 must be filed with the SEC IV there is no requirement to file a Form 144 with the SEC A. I and III B. I and IV C. II and III D. II and IV

The best answer is C. "Control stock," which is registered stock of a company bought in the open market by an officer or director of that company, is subject to all Rule 144 requirements when the officer or director wishes to sell, except for the 6 month holding period. The 6 month holding period is required for restricted stock, but not for control stock.

Which statements are TRUE? I Rule 144A issues trade on the NYSE, AMEX and NASDAQ II Rule 144A issues trade on PORTAL III The general public can trade Rule 144A issues IV Only QIBs can trade Rule 144A issues A. I and III B. I and IV C. II and III D. II and IV

The best answer is D. Rule 144A issues are private placement securities sold in minimum $500,000 blocks only to QIBs - Qualified Institutional Buyers (institutions with at least $100MM of assets available for investment). Whereas normal private placements cannot be traded, these can be traded from QIB to QIB. The market for this is PORTAL, but trading activity is thin in this market, especially as compared to the market for publicly traded securities.

Which of the following best describes a tombstone announcement? A. It is an advertisement that is used to solicit the public to buy a new registered securities offering B. It is the document that is sent to prospective investors to give them information about the new securities offering C. It is the disclosure document that gives the purchaser the most complete information about a new securities offering D. It is an announcement of a new issue offering that is being registered with the SEC

The best answer is D. The "tombstone" is an announcement of a new issue offering that is being registered with the SEC. It is not an advertisement because new issue advertising is prohibited. Rather, it is a non-promotional announcement of the offering - and the information in it is limited to the name of the issuer, the type of security, the size of the offering, the price of the issuer and the names of the underwriter(s). The disclosure document for a registered new issue offering is the prospectus.

Which statements are TRUE regarding intrastate offerings? I Intrastate offerings are subject to Federal registration II Intrastate offerings are subject to State registration III Intrastate offerings are exempt from Federal registration IV Intrastate offerings are exempt from State registration A. I and II only B. III and IV only C. I and IV only D. II and III only

The best answer is D. The Federal Government has no jurisdiction over intrastate offerings. The Federal Government only has jurisdiction over interstate offerings. Thus, intrastate offerings of securities are exempt from Federal registration, but still are subject to registration within that State under the State's Blue Sky laws.

Under SEC Rule 145, all of the following corporate distributions by an issuer are exempt from the requirement to file a registration statement EXCEPT: A. stock dividend B. fractional stock split C. whole stock split D. stock spin off

The best answer is D. Corporate distributions that result in an issuer distributing the exact same class of security to existing shareholders do not require a registration statement filing with the SEC. Thus, a corporation distributing a stock dividend or splitting its stock would not require a registration statement filing. However, if a corporation spins off a subsidiary to its shareholders, the shareholders are receiving stock in a different company, so a registration statement must be filed for those shares.

A registered representative has prepared a research report about a new issue that is "in registration." Which statement is TRUE? A. The research report may be sent to any customer expressing an "indication of interest" B. The research report may be sent to any customer if it is accompanied by a preliminary prospectus C. The research report may only be sent to customers who have bought new issues within the preceding 12 months D. The research report may not be sent

The best answer is D. Since this issue is "in registration," it is in the 20-day cooling off period. The only permitted written communications during this period are the red herring preliminary prospectus, and a tombstone announcement (which, in reality, is not published until the effective date). This research report cannot be sent, since it would be considered to be a prohibited "offer to sell" the securities.