Series 63 Chapter 2

Keely Company, Inc., has outstanding equity securities registered with the SEC. The company issues a debt security directly to financial institutions. This sale is an example of a(n)

Under the Uniform Securities Act, the sale of securities to financial institutions is an exempt transaction.

NOT SECURITIES under the USA (exempt)

interest in a retirement plan (like an IRA or a Keogh) collectibles commodities (such as precious metals and grains or FUTURE CONTRACTS for commodities condominiums USED AS PERSONAL RESIDENCES currency nonnegotiable bank CDs confirmation of securities trades

XYZ common stock is listed for trading on the NYSE. Under the USA, which of the following XYZ securities (other than common shares) are exempt from state registration? XYZ first mortgage bonds Warrants to purchase XYZ common stock XYZ preferred stock

I, II, and III Common stock listed on the New York Stock Exchange is a federal covered security and, under the NSMIA, exempt from state registration requirements. Any security equal or senior to an exempted security is exempt as well. Warrants are equal to the common stock and the preferred stock, and mortgage bonds are senior to the common stock.

A closed-end investment company is registered under the Investment Company Act of 1940. Its shares trade on the Nasdaq Stock Market. To qualify their shares for sale in the state, they would probably use

notice filing Regardless of where shares of this closed-end investment company trade, like all investment companies registered under the Investment Company Act of 1940, it is a federal covered security. The company is basically exempt from state registration and is only required to follow a procedure known as notice filing.

Included in the USA's definition of exempt transaction would be a transaction by any of the following EXCEPT one by a

trustee of an irrevocable trust Although the term "trustee" is found in the list of persons engaged in exempt transactions, the USA limits it to trustees in bankruptcy.

Which of the following is NOT a security?

A $1,000,000 whole life insurance policy NOT An interest in a real estate condominium sold with a rental pool Under the Uniform Securities Act, whole life insurance policies are not securities. Condominiums used as a personal residence are not securities, but when a rental pool arrangement exists, third-party management seeking profit for the investor exists, which meets the Howey definition of an investment contract.

Under the Uniform Securities Act, which of the following is a federal covered security?

A unit investment trust registered under the Investment Company Act of 1940 Any investment company registered under the Investment Company Act of 1940 carries the status of a federal covered security. Futures contracts, such as precious metals, collectibles, and real estate, may be used as investment vehicles but are not considered to be securities, so they could not be federal covered securities. Municipal securities are federal covered with the exception of those within the issuer's home state.

For purposes of transactional exemptions, which of the following qualify under the Uniform Securities Act? Executor of an estate Administrator of a trust Custodian for a minor in an UGMA Agent with authority over time and price of execution

I and II CUSTODIANS AREN'T INCLUDED IN TRANSACTIONAL EXEMPTIONS Both executors and administrators are fiduciaries. An agent might be considered to be acting as a fiduciary if the agent has discretionary authority over the assets in the account, but time and price authority is not considered discretion. However, in any event, the agent is not included in the list of those fiduciaries qualifying for the transactional exemption. While the custodian does have fiduciary responsibility to the minor, for purposes of the USA's exempt transaction rules, the custodian is not included in the category along with executors, trustees, and sheriffs, etc.

When performing their normal functions, the sale of a security by all of these would be an exempt transaction EXCEPT an investment adviser a sheriff a marshal an agent

I and IV When performing their normal functions, sales by certain fiduciaries are considered exempt transactions. Included are a sheriff, a marshal, an executor, and a trustee. Investment advisers, although bound by fiduciary liability, are not included in the list and agents are paid to sell securities—their transactions are not going to be exempt.

An interest in which of the following is a security under the Uniform Securities Act? Merchandising marketing scheme Multilevel distributorship arrangement Oil and gas drilling program Cattle feeding program

I, II, III, and IV The USA considers interests in merchandising marketing schemes, multilevel distributorship arrangements, oil and gas drilling programs, and farm animals, whether it is a feeding or a breeding program, to be investment contracts and, therefore, securities. The best strategy is to memorize the short list of things that are not securities rather than try to remember all of the things that are.

Securities issued by which of the following are exempt from registration? Any savings and loan association organized under the laws of any state Any bank organized and supervised under the laws of any state Any bank organized under the laws of the United States Any federal credit union

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.

The term "security" includes all of the following EXCEPT a

Keogh plan invested exclusively in mutual funds A Keogh plan, or any other retirement plan, is not defined as a security under the USA. A right or warrant, voting trust certificates, and debentures are defined as securities.

When an issue is registered by coordination, it is also registered under the provisions of the

Securities Act of 1933 Registration by coordination coordinates state registration of a security with federal registration of that security. Securities are registered at the federal level under the Securities Act of 1933.

Transactions meeting certain conditions are exempt from the Uniform Securities Act's registration and advertising filing requirements. Which of the following transactions does NOT meet those conditions to qualify as an exempt transaction?

The sale of U.S. government securities to a wealthy client's IRA by a registered broker-dealer In the sale of U.S. government securities to a wealthy client, the security is exempt, but the transaction is not. Had the sale been to an institutional client, it would have been exempt. An offer is NOT a transaction.

Under the Uniform Securities Act, which of the following statements regarding the limited offering exemption is TRUE?

The security that is the subject of the private placement need not be registered. NOT The exemption only applies if no funds are transmitted with the purchase. Private placements are offers to no more than 10 noninstitutional persons in a 12-month period for investment purposes (not immediate resale), where no commissions are paid, directly or indirectly. Such transactions are exempt from registration requirements. However, payment is made when the purchase is made—these may be exempt from registration, but they are not free of cost. There is no prospectus because a prospectus is the document provided by registered issues. Please note that when it comes to institutional clients, there are no numerical limitations on offers, no required holding period, and no restrictions on payment of commissions. SO no commission on these but payments STILL transmitted as the securities are bought and sold.

Under the Uniform Securities Act, the requirements for filing of advertising and sales literature dealing with an exempt security with the Administrator

do not apply NOT always 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 USA, it is unlawful to sell a

nonexempt, nonregistered security issued by a foreign corporation from a country with which the U.S. government maintains diplomatic relations Nonexempt, nonregistered securities cannot be lawfully sold in a state unless in an exempt transaction (and nothing in the question indicates that is the case). The fact that they are issued by a foreign corporation is irrelevant; nonexempt securities must be registered. A federal covered security need not be registered in a state. Securities issued by banks, not bank holding companies, are always exempt securities.

The Administrator may do all of the following with respect to federal covered securities EXCEPT

require that the issuer meet minimum financial standards One of the effects of the NSMIA is that a state securities Administrator may not require any financial standards be met by an issuer of federal covered securities. The Administrator, however, may initiate enforcement action, require payment of filing fees to the state, and require submission of a consent to service of process.

Under the Uniform Securities Act, a non-exempt transaction may take place in the state only if

the security is registered, exempt, or federal covered We are told that the transaction is not exempt. Therefore, unless the security is exempt (or federal covered), the only way to have a legal sale is for it to be registered.

All of the following must be specified in a security's state registration statement EXCEPT

the total amount of the security that will be offered in other states NOT the expected use of the projected proceeds of the offering The total amount of the security to be offered in other states need not be specified although identifying those states is required. The amount of the security to be offered in the state of registration is required, as it generally provides the basis on which the registration fee is calculated. A stop order from another state that affects the offering of the security within the state must be included. The registration statement will always describe the intended use of the proceeds.

The Uniform Securities Act prohibits which of the following? Agents soliciting orders for a security registered in a neighboring state, but not in this state Broker-dealers hiring agents to sell registered securities to clients of the firm Agents soliciting orders for unregistered nonexempt securities

I and III NOT II and III I think you misclicked here The USA prohibits soliciting orders for unregistered, nonexempt securities. The fact that a security is properly registered in a neighboring state does not make its offer or sale permitted in your state.

A security that is exempt from the registration requirements of the USA is also exempt from which of the following concerning the act? Civil liabilities provisions Antifraud provisions Requirements for filing advertising and sales literature

III ONLY NOT I and III An exempt security is only exempt from the registration requirements and the requirements for filing advertising and sales literature. No security is exempt from the antifraud provisions of the act and the liabilities that arise from fraudulent practices.

The United States Supreme Court ruled in the Howey decision that an instrument that represents the investment of money in a common enterprise with an expectation of profit solely through the managerial efforts of others is a security. In following the Howey decision, the USA would consider which of the following a security?

Investment in options to acquire a security The investment in options meets the definition of a security. It is an investment in a common enterprise with the expectation that the owner will profit as a result of the managerial efforts of others. The purchase of a house or jewelry is a purchase of a real asset or product that may result in a profit for the owner, but not as a result of the managerial efforts of a third party. Commodities futures contracts are specifically excluded from the definition of a security. Options on futures, however, are securities under the USA. Remember the list of items that are not securities.

Which of the following terms pertains to registration with the Administrator of a mutual fund, closed-end investment company, or unit investment trust that is registered under the Securities Act of 1933 and also registered as an investment company under the Investment Company Act of 1940?

Notice filing Federal covered securities (securities listed on national stock exchanges, Nasdaq Stock Market or investment companies registered under the Investment Company Act) are exempt from state registration. A notice filing may be required along with a payment of fees based on a schedule set forth by the Administrator.

Under the USA, the definition of "issuer" includes a(n)

person proposing to issue a security An issuer is any person who issues or proposes to issue any security for sale to the public. Stock exchange specialists, company directors, and market makers do not issue securities and therefore are not issuers. SO doesnt have to have issued the security ALREADY to be an issuer

Offers and sales of certain exempt securities such as

ANY SECURITY issued or guaranteed by THE US or ANY BANK REGULATED BY THE FEDERAL RESERVE BOARD (Federal Covered Securities)

Which of the following are federal covered securities? A security quoted on the Nasdaq Stock Market Shares of an investment company registered under the Investment Company Act of 1940 A security offered under the exemption provided by Regulation D of the Securities Act of 1933 A security that has a federally imposed exemption from state securities registration

I, II, III, IV Any Nasdaq security, shares of a registered investment company, a security offered under the private placement exempt of Regulation D of the Securities Act of 1933, a security that has a federally imposed exemption from state securities registration, and a security traded on a regulated exchange are all federal covered securities.

A security has been registered under Qualification. Which of the following statements is CORRECT? The registration is valid for one year from the effective date. The registration is valid for one year from the effective date unless the underwriter or issuer still has some unsold shares. The registration is valid until the next December 31st. 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.

II and IV A registration under Qualification is good for one year from the effective date, unless the issuer or underwriter still has unsold shares. In that case, it may be extended until those shares are sold. The offering could be enlarged as long as the share price is not changed. Another requirement, not in this question, is that the underwriting commissions could not be changed. So, why isn't choice I part of the correct answer? Because on the exam, when you are given two answers that are correct statements, you must choose the one that is the "most" correct; the one that more completely tells the story.

Which of the following is NOT an exempt transaction as defined in Section 402 of the USA?

Isolated sale of a corporate bond on behalf of the bond's issuer NOT Corporate bond sale to an insurance company First of all, don't panic when you see a Section number - just answer the question based on the specific topic; in this case, the definition of an exempt transaction. An isolated sale of a corporate bond on behalf of the bond's issuer is not exempt. Under the USA, only isolated nonissuer transactions are exempt. In this question, the transaction is on behalf of the issuer, so this transaction is not exempt. The sale of a corporate bond to an insurance company is the sale of a security to a financial institution; this is an exempt transaction. A sale of common stock by the executor of an estate, or by the county sheriff is considered a fiduciary transaction and is exempt regardless of the client or the type of security.

All of the following would be defined as exempt transactions EXCEPT

Joe Smith, an employee in the consumer lending department of Amalgamated National Bank, buys securities from ABC Securities, a broker-dealer registered in the state The purchase of securities from a broker-dealer by an employee of a bank is a nonexempt transaction because it is a sale of a security by a broker-dealer to a member of the public. Transactions between broker-dealers and issuers, transactions between banks, and between banks and insurance companies are exempt because they occur between financial institutions. Exempt transactions are most often identified by the transaction's parties, rather than the type of security involved.

Exempt Securities

Securities exempt from state registration are ALSO exempt from state filing of sales literature. Includes: US and Canadian Government and Municipal Securities foreign government securities depository institutions (banks organized under US laws, federal savings and loan associations, building and loan associations under the laws of any state) Insurance Company Securities (Fixed insurance and annuity policies are NOT securities) Public Utility Securities Securities Issued by Nonprofit Organizations (religious, educational, fraternal, charitable, social, athletic, reformatory or trade organizations) Securities issued by Cooperatives securities of employee benefit plans (any investment contract issued by an employee stock purchase, saving, pension, or profit-sharing plan) certain money market instruments: commercial paper and banker's acceptances are the two most common examples Short term debt instruments must meet the following: matures in nine months or less issued in minimum denominations of $50,000 receives on or the three highest ratings from a nationally recognized rating agency

A stock that is listed on the New York Stock Exchange is

exempt from state registration requirements Securities listed on the New York Stock Exchange (NYSE), NYSE American LLC (formerly known as the American Stock Exchange), or Nasdaq Stock Market are federal covered securities and do not need registration in any state under the Uniform Securities Act.

Securities offered by Municipal Issuers

ARE also federally covered, UNLESS the issuer is located in the state in which the securities are being issued (ex: philly securities aren't federally covered for the state of Pennsylvania) (Federal Covered Securities)

Which of the following financial instruments are considered securities under the USA? Collateral trust certificates Investment contracts, including interests in oil and gas drilling partnerships Options listed on the Chicago Board of Options Exchange Foreign currency options contracts traded on the Philadelphia Stock Exchange

I, II, III, and IV 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.

National Securities Markets Improvement Act of 1996 (NSMIA)

law effectively divided the responsibility for regulating investment advisers between the states and the SEC by bifurcating the regulation of INVESTMENT ADVISORS and creating the registrations known as a FEDERALLY COVERED ADVISER (A SECURITY EXEMPT FROM REGISTRATION ON THE STATE LEVEL) States MAY require NOTICE FILINGS (consisting of FEES and COPIES OF DOCUMENTS FILED WITH THE SEC) primarily in the case of mutual funds

According to the Uniform Securities Act, each of the following is a security EXCEPT a(n)

contract in soybean futures NOT an interest in a condominium project with a rental pool Interests in a condominium complex that has a rental pool feature, U.S. Treasury bills, and limited partnership interests in oil and gas exploration programs are securities under the USA. The USA excludes certain financial instruments from the term "security" such as term and whole insurance policies, commodity futures contracts, and collectibles.

Under the Uniform Securities Act, all of the following statements are TRUE regarding private placements EXCEPT

they are offered to no more than 10 persons in a state in a 12-month period This question hinges on you remembering the broad definition of the term, person; it is far more than just an individual. Although the limited-offering exemption (private placement) is available when there are offers to no more than 10 noninstitutional (retail) persons in 12 months, there is no limit when it comes to institutions. The offeror must be reasonably assured that retail buyers are purchasing for investment rather than resale within a short period of time. No commissions may be paid, directly or indirectly, for these retail 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.

Securities of which of the following issuers are federal covered? Bonds of an issuer whose common stock is listed on the NYSE Bonds of an issuer whose common stock is listed on the NYSE American LLC (formerly known as the American Stock Exchange) Stock listed on Nasdaq Stock Market Registered investment company securities

I, II, III, and IV All securities of an issuer whose common stock is listed on any national exchange, such as the NYSE (New York Stock Exchange) or the NYSE American LLC (formerly known as the American Stock Exchange), or the Nasdaq Stock Market are exempt from state registration, including any securities of the same issuer senior to such securities. All registered investment company securities are also exempt from state registration.

As a result of the National Securities Markets Improvement Act of 1996 (NSMIA), certain issuer offerings are no longer subject to state registration. Issues exempt from registration with the state Administrator are those listed on the New York Stock Exchange those listed on the NYSE American LLC (formerly known as the American Stock Exchange) those listed on the Nasdaq Stock Market System non-Nasdaq securities that are traded on the OTC Bulletin Board

I, II, and III The National Markets Improvement Act of 1996 (NSMIA) eliminated duplicate federal and state registration of securities. Securities registered under federal law are federal covered securities and include issuers listed on the New York Stock Exchange, on the NYSE American LLC (formerly known as the American Stock Exchange), and on the Nasdaq Stock Market System. Securities offered on the OTC Bulletin Board are NOT federal covered securities and MUST register in the states in which they are sold.

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

II and IV Institutional investors include banks, insurance and investment companies, and, as long as they have assets not less than $1 million, 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.

Private Placements

offers and sales sold through certain exempt transactions, such as securities offered to qualified purchasers under Regulation D of the Securities Act of 1933 (private placements) (Federal Covered Securities)

Lucy, an agent of XYZ Securities, works out of an office in Ohio. She calls her client Clark, an individual investor and a resident of Kansas, and recommends that Clark purchase 500 shares of Perfect Pasta, Inc. common stock. Lucy read a report that Perfect Pasta plans to introduce a low carbohydrate pasta into the marketplace. Perfect Pasta, Inc. common stock is neither exchange traded nor traded on Nasdaq. At the time Lucy makes the recommendation, the stock is not registered with the Securities Departments of Ohio or Kansas. Which of the following statements best reflects this transaction?

Lucy has violated the USA because she solicited an order in an unregistered, nonexempt security. The agent violated the USA by engaging in the prohibited practice of soliciting transactions in an unregistered, nonexempt security.

Securities Under the USA (nonexempt)

note stock treasury stock bond debenture evidence of indebtedness certificate of interest or participation in a profit sharing agreement collateral trust certificate pre-organization certificate or subscription transferable share investment contract voting trust certificate certificate of deposit for a security (ADRs, NOT a bank CD) certificate of interest or participation in an oil, gas, or mining title or lease, or in payments out of production under such a title or lease puts, calls, straddles, options, or privileges on a security any interest or instrument commonly known as a security certificate of interest or participation in, receipts or, guarantees of, or warrants or rights to subscribe to purchase any of the above

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

sale of a security limited in its offering to no more than 10 retail investors in any calendar year NOT an offer of preorganization certificates made to 25 persons with 8 of them subscribing, but making no payment 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. Transactions involving issuers and underwriters are also exempt. The sale of preorganization certificates is exempt if there is no commission for solicitation or payment by subscribers and NO MORE THAN 10 subscribers; there is no limit to the number of offers ​that may be made. Institutional investors (and pension plans with at least $1 million in assets meet that definition) are not included in the numerical limitations.

Under which of the following circumstances will a private placement fail to qualify for exemption from registration under the USA?

A modest commission is paid to the agents who sell the offering to noninstitutional clients. 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.

Under the Uniform Securities Act, bonds issued by which of the following are nonexempt securities?

ABC, Inc. of Canada, a distributor of beverages in the United States and other countries Government bonds issued by nations with which the US maintains diplomatic relations, such as Canada, are exempt securities under the USA. In addition, securities issued by Canadian political subdivisions are also exempt from registration. For example, the province of Ontario and the city of Montreal are Canadian political subdivisions and therefore exempt. No exemption from the USA is available for corporate securities issued in countries with which the US has diplomatic relations.

Which of the following statements regarding unsolicited orders is TRUE?

A client may purchase, at his own initiative, securities trading in the secondary market through an agent who otherwise is prohibited from soliciting the order. NOT The state Administrator may not prohibit the solicitation of specific securities in the state. If a client requests the purchase of a security that an agent is prohibited from soliciting, the agent can accept the order and mark the order unsolicited. This is the most common of the exempt transactions.

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

I and IV 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.

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

II and III II, III and IV 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. 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.

Notice Filing

Under the NSMIA, states are PREEMPTED FROM REQUIRING REGISTRATION FOR FEDERAL COVERED SECURITIES, STATUS AS A FEDERAL COVERED is not a PREEMPTION OF LICENSING OR ANTI-FRAUD LAWS ANY person who sells a federal covered security MUST BE REGISTERED as a broker dealer or as an agent AND must comply with the ANTI-FRAUD provisions of STATE LAWS Notice filing serves mainly as an opportunity for states to collect FILING FEES (revenue) and unlike coordination and qualification, THE ADMINISTRATOR HAS VERY LIMITED POWERS TO REVIEW ANY DOCUMENTATION FILED WITH THIS DEPARTMENT States MAY require the issuer TO FILE THE FOLLOWING: documents filed along with their REGISTRATION STATEMENTS filed with the SEC Documents filed as AMENDMENTS to the initial federal registration REPORT on the VALUE OF SECURITIES offered in the state CONSENT TO SERVICE OF PROCESS

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

it must be in book entry form This is a very rare case where the correct answer is something you haven't seen anywhere in our units (it is described in the glossary). The term "book entry" means there is no physical certificate and the record of ownership is kept on a computer. It is not necessary to know what book entry means because you can get this question correct by knowing that the other three are required. Commercial paper may qualify as an exempt security if the minimum denomination is $50,000, has a maturity of not more than 270 days, and is rated in 1 of the 3 highest rating categories by a nationally recognized rating agency.

Under the Uniform Securities Act, all of the following are included in the definition of the term exempt transaction EXCEPT a sale of

securities to an individual investor with a net worth of more than $5 million NOT nonexempt securities to a broker-dealer Unless there was something specified in the question or the answer choice to indicate that the transaction met one of several specific conditions, (isolated non-issuer, fiduciary, unsolicited, and so forth), sales to individuals, regardless of their wealth, are not exempt transactions . If the transaction is truly unsolicited (and the Administrator has the power to verify that), it is an exempt transaction. Transactions with financial institutions such as banks, savings and loans, and insurance companies are exempt. Although not specifically a financial institution, the USA also considers sales to broker-dealers to be exempt transactions.

Which of the following are issuers of securities? ABC Manufacturing Corporation borrows in the capital markets by selling bonds every few months. Dot.Com Inc., in an initial public offering, sells all its securities to the public within a few minutes after the shares go public. XYZ Corp., in an initial public offering, fails to sell any shares to the public because it is not an attractive investment. YYY Corp., with 1 million shares outstanding, sells additional shares to the public in a primary offering.

I, II, III, and IV NOT I, II and IV ABC Manufacturing Corp. is an issuer raising debt capital whereas Dot.Com Inc is an issuer raising equity capital. YYY Corp. is an issuer raising equity capital by selling additional new shares in a public primary offering. XYZ Corp. is an issuer despite its failure to sell any shares. The USA defines an issuer as a person that issues or proposes to issue a security. It is not necessary that an issuer actually issue the shares it proposes to issue.

Which of the following securities is (are) NOT subject to state registration under the Uniform Securities Act? Equipment trust certificates issued by a railroad subject to federal regulation Preferred stock of a bank holding company listed on the New York Stock Exchange Subordinated convertible debentures issued by the Dominion Electric Company of Canada, a public utility regulated by the Canadian federal government Shares of a savings and loan institution authorized to do business in the state

I, II, III, and IV Securities exempt under the USA include bank issues, savings and loan issues, and common carriers or public utilities regulated by the U.S. or Canadian federal government. Securities issued by bank holding companies that trade on SEC-regulated exchanges are federal covered securities and are not subject to state registration.

Which of the following are securities under the Uniform Securities Act? A variable annuity A subscription right to purchase common stock A condominium purchased solely as a place of residence Certificate of interest or participation in an oil, gas, or mining partnership

I, II, and IV Securities include stocks, bonds, notes, certificates of interest in any profit-sharing agreement or participation plan (oil, gas, mining, lease, or real estate partnerships), preorganization certificates or subscription agreements, certificates of deposit for a security, evidence of indebtedness, warrants, rights, or options, variable annuities, commodity options, and multi-level distributorships. Excluded from the definition are insurance contracts, endowments with fixed benefits, fixed annuities, Keogh or IRA plans, written confirmations of a trade, futures contracts, real estate held as a personal residence, currencies, precious metals, and other collectibles.

Under the Uniform Securities Act, which of the following regarding the registration of securities is TRUE?

Registration by qualification becomes effective on a date ordered by the Administrator. Registration by qualification becomes effective when the Administrator so orders. In the case of registration by qualification, the Administrator can require that the prospectus be delivered prior to or concurrent with the sale. In other cases, the prospectus must be delivered no later than with confirmation of the trade or when the security is delivered and there is nothing to prohibit it from being delivered sooner. The act prohibits any statement or implication that registration involves approval or verification of facts by the Administrator. There is no such term as "registration by exemption" and this choice is referring to coordination by an incorrect name.

Registration statements for securities

may be amended after their effective dates as to the amount of securities issued, provided that underwriting fees and the initial offering price have not changed Registration of securities under the USA may be amended after their effective dates as to the amount of securities issued, provided that underwriting fees and initial offering prices have not changed. Securities registration statements remain effective for 1 year from their effective date, and do not expire on December 31 of each year. Registrations of agents, investment advisers, and broker-dealers expire on December 31 and need to be renewed. Registration statements are effective for 1 year from their effective dates (or longer if the securities are still under distribution by the underwriters).

All of the following are exempt from the registration requirements of the USA EXCEPT

stock issued by a Canadian company that provides actuarial services to insurance companies Securities issued by Canadian governmental entities, such as the federal government or the provincial governments and their municipalities, are exempt from registration under the USA in the same fashion as US government and municipal securities. However, Canadian corporate issuers do not enjoy an exemption from registration unless qualifying under special conditions, such as being listed on the NYSE or Nasdaq, making it a federal covered security. Investment companies registered under the Investment Company Act of 1940, regardless of where they trade, are exempt from registration because they are federal covered securities.

All of the following are nonissuer transactions EXCEPT

Intel sold 10 million shares of its preferred stock in a private placement transaction to a syndicate of five pension funds NOT Joe Smith sold 100 shares of Apple Computer to his neighbor, Kevin Jones, in a private transaction When an issuer sells its own securities, it is an issuer transaction. When someone other than the issuer sells securities, it is a nonissuer transaction. (OBVIOUS)

Categories of Federal Covered Securities

securities listed on: the New York Stock Exchange, the NYSE American, LLC (or AMEX), the NASDAQ. In addition, any security EQAUL in seniority (rights or warrants) or senior to these securities (bonds and preferred stock) are also considered federal covered Investment Company Securities Registered under the Investment Act of 1940 such as: open end management companies (mutual funds) closed end management companies unit investment trusts face amount certificate companies (SEE FOLLOWING THREE NOTECARDS FOR MORE)

With regard to the registration requirements of the Uniform Securities Act, which of the following statements are TRUE? Only the issuer itself can file a registration statement with the Administrator. An application for registration must indicate the amount of securities to be issued in the state. The Administrator may require registrants to file quarterly reports.

II and III The USA requires that any application for registration include the amount of securities to be sold in that state. The Administrator has the power to request regular filings of reports, but no more frequently than quarterly. While the issuer is most commonly the registrant, application may also be made by selling stockholders and broker-dealers.

As defined in the Uniform Securities Act, the term exempt security would apply to which of the following? The sale of a municipal bond to an insurance company authorized to do business in this state Bonds issued by the local electric power company The purchase of a US Treasury bill by an investment company registered under the Investment Company Act of 1940 Equipment trust certificates issued by a railroad engaged in interstate commerce

II and IV NOT II and III Securities issued by regulated public utilities and common carriers are exempt under the Uniform Securities Act. The sale of a security to an insurance company and the purchase of a Treasury bill by an investment company are exempt transactions involving exempt securities. You must be able to differentiate between an exempt security and an exempt transaction. The key word is transaction. In order for it to be an exempt transaction, there has to be an action—either a purchase or a sale. MISREAD HERE: Exempt security vs exempt transaction

Under the National Securities Markets Improvement Act of 1996, which of the following statements describe federal covered securities? A security registered under the USA A security registered under the Investment Company Act of 1940 A security of a company regulated by the U.S. Federal Reserve Board A security issued by the U.S. government

II, III, and IV NOT II and IV A federal covered security has a federally imposed exemption from state registration so selecting a choice that includes registering under the USA cannot be correct. The list includes most securities exempt from registration under the federal Securities Act of 1933 (those issued by the U.S. government and state and local governments as well as bank securities regulated by the Federal Reserve Board). In addition, it includes a number of securities registered with the SEC, primarily those traded on the exchanges and Nasdaq as well as investment companies registered under the Investment Company Act of 1940.

Under the Uniform Securities Act, the sale of an unregistered nonexempt security is permissible if the order was unsolicited is permissible if the customer agrees not to pursue legal action is permissible if the security appreciates in value may subject the agent to civil liability

I and IV If a security or the transaction in which a security is sold is not exempt, the security must be registered with the state. The sale of a security in violation of the act, such as the sale of an unregistered nonexempt security, exposes the broker-dealer and agent to civil liability. If a nonexempt security is sold through an exempt transaction, such as an unsolicited transaction, the security effectively becomes exempt for purposes of registration and, therefore, legal. IMPORTANT

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

I and IV 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.

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

II and IV 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.

The James Henry Company (JHC), an SEC-registered securities broker-dealer with offices in Chicago and Los Angeles, limits its clientele to banks and trust companies. JHC makes a sale of US government securities to the Wall Street Bank located in New York City. Which of the following statements is (are) TRUE under the Uniform Securities Act? The security itself is exempt from registration. The transaction is exempt. The broker-dealer is not required to be registered in the state of New York.

I, II and III The sale involves a U.S. government security, which is exempt from the registration requirements under the act. The transaction itself is also exempt because it involves a sale to a financial institution. Remember, in an exempt transaction, the security subject of the transaction need not be registered with the state in which the transaction takes place. In this example, the security was already exempt, but that does not diminish the fact that the transaction is exempt. The fact that the firm limits its clientele to financial institutions, such as banks, and that the broker-dealer has no office in New York means that, under the Uniform Securities Act, the firm is not considered a broker-dealer in that state. Therefore, the broker-dealer is not required to be registered in the state of New York.

Exempt Transactions

Isolated non-issuer transactions: include SECONDARY TRANSACTIONS that occur INFREQUENTLY UNSOLICITED BROKERAGE TRANSACTIONS: transactions INITIATED BY CLIENTS, not the agent. MOST COMMON of EXEMPT TRANSACTIONS Underwriter Transactions: include TRANSACTIONS BTWEEN ISSUER AND BROKER DEALER (performing in capacity of UNDERWRITER) Bankruptcy, Guardian, or Conservator Transactions: Transactions by an EXECUTOR, ADMINISTRATOR, MARSHAL, SHERIFF, TRUSTEE IN BANKRUPTCY, OR OTHER FIDUCIARY ARE EXEMPT Institutional Investor Transactions: primarily transactions with financial institutions (banks, savings institution, trust company, insurance company, investment company under Act of 1940) Limited Offering Transactions: These include any offering called a PRIVATE PLACEMENT directed at NO MORE THAN 10 persons other than institutional investors within 12 consecutive months provided that: 1) seller believes investors buying for investment purposed ONLY 2) NO commissions or remunerations are accepted for soliciting non-institutional investors 3) NO general solicitations or advertising is used PRE-ORGANIZATION CERTIFICATES provided that: 1) no commission or renumeration paid or given for soliciting the subscriber 2) number of subscribers DOES NOT exceed 10 3) No payment is made by ANY SUBSCRIBER Transactions with EXISTING SECURITIES HOLDERS NON ISSUER TRANSACTIONS BY PLEDGES

Registration by Coordination

Most common form of registration for securities that AREN'T federally covered (typically those traded on the OTC bulletin board or the OTC link). A security may be registered by coordination if a registration statement has been filed under the Securities Act of 1933 in connection wit the same offering in coordinating a federal registration with state registration, issuers must supply the following records in addition to the consent of service program: copies of the LATEST FORM OF PROSPECTUS ARTICLES OF INCORPORATION OR BYLAWS UNDERWRITING AGREEMENT other info filed under Securities Act of 1933 EACH AMENDMENT TO THE FEDERAL PROSPECTUS PROMPTLY AFTER IT IS FILED WITH THE SEC Effective date for registration by coordination becomes effective at the same time the federal registration becomes effective provided that: no stop order filed by admin/no proceedings underway filed at least the minimum number of days required by admin (typically 10 or 20) statement of the Max and Min proposed offering price and max underwriting discounts and commissions have been on file for TWO FULL BUSINESS DAYS Registration by coordination is by the far the most frequently used form of registration and the ONLY SENSIBLE WAY TO REGISTER A MULTI-STATE OFFERING

Registration by Qualification

Any security can be registered by qualification, but almost EXCLUSIVELY USED FOR INTRASTATE OFFERINGS, which ARE NOT REGISTERED WITH THE SEC registration by qualification requires registrant to supply all info required by Admin securities NOT eligible for registration by another method MUST be registered by qualification Issuer MUST SUPPLY a CONSENT TO SERVICE FORM AND: name, address, and form of organization, description of property, and nature of business info on directors, officers, and every owner of 10% or more of the issuer's securities and the renumeration paid to owners in the last 12 months description of the owner's capitalization and long term debt estimated proceeds and the use to which the proceeds will be put type and amount of securities offered, offering price, and selling and underwriting costs stock options to be created in connection with the offering copy of any prospectus, pamphlet, circular, or sales literature to be used in the offering specimen copy of the security, along with opinion of counsel on its legality audited balance sheet current WITHIN FOUR MNTHS OF THE OFFERING with an income statement for THREE years before the balance sheet date Admin MAY require additional info by rule or order BECOMES EFFECTIVE WHENEVER THE STATE ADMIN ORDERS May be amended as long as: POP is NOT changed from original registration underwriter's commissions and discounts aren't changed

The Uniform Securities Act is designed to protect the general public and not restrict investment activities of institutional or professional investors. A transaction between a broker-dealer and any of the following would be considered exempt from the registration and advertising filing requirements of the USA EXCEPT

chief executive officers of companies listed on the NYSE Corporate chief executive officers are individual investors under the USA. Transactions in their personal investment accounts are therefore not exempt from the provisions of the act. The Act includes in its list of exempt transactions any offer or sale to a bank, savings institution, trust company, insurance company, investment company as defined in the Investment Company Act of 1940, pension or profit-sharing trust, or other financial institution or institutional buyer, or to a broker-dealer.

ABC Corporation, a newly formed company, has filed a registration statement with the SEC under the Securities Act of 1933. If they wish to use coordination to register in this state, which of the following statements is TRUE?

A statement of the maximum and minimum proposed offering prices and maximum underwriting discounts and commissions must be on file with the Administrator for two full business days prior to the date the federal registration statement becomes effective. One of the requirements of coordination is that a statement of the maximum and minimum expected offering prices and maximum underwriting compensation must be on file with the Administrator for at least two full business days prior to the effective date. The whole purpose of coordination is to coordinate federal and state registration so choosing "the federal registration makes state registration unnecessary" makes no sense. If it had said this was a federal covered security, there would be no discussion of coordination because covered securities are exempt from state registration.

Under the Uniform Securities Act, which of the following statements about federal covered securities is NOT true?

Federal covered securities must be registered with the states. 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 and file a notice which could include copies of documents submitted to the SEC. Securities sold in private placements (Regulation D) and investment companies both describe types of federal covered securities.

Under the Uniform Securities Act, which of the following persons is responsible for proving that a securities issue is exempt from registration?

The person claiming the exemption

Methods of State Registration of Securities

Notice Filing Coordination Qualfication

When registering a security under the Uniform Securities Act, the registrant must indicate all of the following EXCEPT

the effective date of the offering DO have to indicate all other states in which the security is to be registered The effective date is determined by the state Administrator or the SEC, not the person registering the security. Registrants must indicate all other states in which the security is to be registered. The amount of securities to be offered in the state, for which a specific registration is sought, must be disclosed in addition to any adverse rulings related to the offering.