Series 63: Chapter 4 - Registration of Securities

Registration by coordination becomes effective when the federal registration statement becomes effective, provided that the following conditions are met...

- No stop order has been entered by the SEC or Administrator - The registration statement has been on file with the Administrator for at least 10 days - A statement of the minimum and maximum offering prices and maximum underwriting discounts and commissions has been filed for at least 2 business days

Which securities are federal covered? (Name 5)

- Securities that are, or on completion of the offering will be, listed on NYSE, AMEX, or Nasdaq - Securities listed on any other national exchange determined by the SEC to have listing standards similar to the preceding exchanges - Securities of an issuer that are equal to or greater in seniority than a listed security - Securities issued by an investment company registered under the investment company act of 1940 - Securities offered or sold to qualified purchasers (private placements)

A security may be registered by coordination if...

...if the same offering is being registered under the securities act of 1933 (being registered with the SEC)

A security can be exempt under federal law but not state law, and vice versa. When the rules overlap...

...the most restrictive rule applies

Registration by qualification is used when...

...when the federal registration has already gone into effect OR when there is no federal registration. Intrastate offerings (those made in a single state only) would use this method of registration since they are exempt from registration with the SEC

Federal cooling-off period is 20 days, while state cooling-off period is...

10 days

A client purchasing securities as part of an offering must receive what kind of documentation on the issue / when?

A client purchasing securities as part of an offering must receive either a *final prospectus* or a *preliminary prospectus along with an additional documentation* from the B/D executing the transaction The preliminary prospectus and the additional document together must include all the information contained in the final document The B/D must furnish one of these sets of documents no later than the due date of confirmation of the transaction

Which type of registration is most likely to be used? An interstate issuance of stock by a newly formed company

Coordination A newly formed company would probably use coordination since it could not meet the financial requirements needed for registration by filing. As an interstate issues, it would probably be required to file a registration statement with the SEC

Which type of registration is most likely to be used? An issue of securities also being registered with the SEC under the Securities Act of 1933

Coordination Since we do not know if the company can meet the financial requirements for registration by filing, registration by coordination is the most appropriate choice

TRUE or FALSE: An issuer may not use registration by qualification if it has filed a registration statement with the SEC

FALSE Any issuer may be registered by qualification

Which type of registration is most likely to be used? An issuance of securities by an established company that meets certain financial conditions

Filing (AKA Notification) Registration by filing is generally used by well-established companies hat meet stringent financial requirements

Which of the following types of registration becomes effective when the Administrator so declares? I) Registration by filing II) Registration by coordination iii) Registration by qualification I only III only I and II only II and III only

III only (Registration by qualification) - Registration by qualification becomes effective when the state Administrator determines. - Registration by coordination becomes effective at the same time as the federal registration provided certain other conditions are met. - Registration by filing becomes effective depends on whether the federal registration sis already in forces. If federal registration is pending, then the state registration becomes effective at the same time as the federal registration. If the federal registration is already effective, then the state registration becomes effective whenever all the required conditions are met.

When are private placements exempt from registration in a state?

If offered to no more than 10 non-institutional investors within a 12 month period

Every registration statement must include any adverse rulings made by...?

Made by the SEC, a state securities administrator, or a court in connection with the offering

Regarding federal covered securities, may a state: Regulate any offering document prepared by or on behalf of the issuer?

No

Regarding federal covered securities, may a state: Require registration or subject the offering to state review?

No

Regarding federal covered securities, may a state: Require the issuer to file more information than the SEC requires?

No, but the state may require the issuer to file duplicates of everything it gave to the SEC.

Are advertisements of new issues allowed?

No, but tombstone ads are because they are considered a matter of record, not a solicitation

What is notice filing?

Notice filing applies to certain federal covered securities and includes: - the Consent to Service of Process - payment of a filing fee - may include copies of material filed with the SEC as part of the issuers federal registration. *Federal covered securities are exempt from state registration, but may be subject to notice filing. States cannot require notice filing of securities listed on NYSE, AMEX or Nasdaq

Which type of registration is most likely to be used? An intrastate issuance of stock by a newly formed company

Qualification Since an intrastate offering would not usually be registered federally, registration by qualification would be the only option. This would be true regardless of whether the issuer was a well established company or a newly formed one

Which type of registration is most likely to be used? An intrastate issuance of stock by a well established local corporation

Qualification Since an intrastate offering would not usually be registered federally, registration by qualification would be the only option. This would be true regardless of whether the issuer was a well established company or a newly formed one

Which type of registration is most likely to be used? The type of registration that requires specific response from the Administrator prior to issuance

Qualification This is the only type of registration that requires a specific response from the Administrator prior to the issuance of securities

When does the state registration become effective under registration by qualification?

Registration by qualification becomes effective only when determined by the Administrator

What is SEC Rule 147?

SEC Rule 147 covers securities sold within the borders of a single state. These securities are exempt from registering with the SEC but they need to be registered in the state in which they are sold unless an exemption is available. Issuers employing Rule 147 would normally use registration by qualification

The issuance of securities is governed by which federal Act?

Securities Act of 1933

Please Note:

Securities issued under Rule 505 of Reg D (such as interests in hedge funds) are NOT federal covered, but securities issued under Rule 506 are federally covered.

What are the requirements of Rule 147?

These securities are exempt from registering with the SEC but they need to be registered in the state in which they are sold, provided... 1) 80% of its assets are located within the state 2) 80% of its revenues are derived from the state 3) 80% of the proceeds of the issue will be used in the state 4) 100% of the purchasers of the offering have their principal residence in the state

Any Security issued by a bank, savings institution or trust company. This does NOT include securities issued by a bank holding company, which are not exempt.

This type of security is exempt from registration requirements of the Uniform Security Act

Any investment contract issued in connection with an employee stock purchase, savings, pension, profit-sharing, or similar benefit plan if the Administrator is notified in writing at least 30 days before the inception of the plan

This type of security is exempt from registration requirements of the Uniform Security Act

Any promissory note, draft, bill of exchange or banker's acceptance maturing in no more than nine month, issued in denominations of $50,000 or more, and rated in one of the three highest rating categories by a nationally recognized statistical rating organization

This type of security is exempt from registration requirements of the Uniform Security Act

Any security issued by a not-for-profit organization - such as religious, educational, fraternal, charitable, social or trade and professional associations

This type of security is exempt from registration requirements of the Uniform Security Act

Any security issued by a railroad, common carrier, public utility or holding company that is subject to specified regulations

This type of security is exempt from registration requirements of the Uniform Security Act

Any security issued by an insurance company

This type of security is exempt from registration requirements of the Uniform Security Act

Any security issued by by Canada or any Canadian municipality, or any security issued by a foreign national government with which the U.S. maintains diplomatic relations

This type of security is exempt from registration requirements of the Uniform Security Act

Any security issued or guaranteed by the United States, any municipality or any agency of the U.S. or any state

This type of security is exempt from registration requirements of the Uniform Security Act

Any security listed on the NYSE, the American Stock Exchange, the Chicago Stock Exchange and any other exchange approved by the Administrator - including rights and warrants to purchase the security This generally applies to any security trading on national exchanges (e.g., Nasdaq)

This type of security is exempt from registration requirements of the Uniform Security Act

Any security of a federal savings and loan association or federal credit union and any security of a similar association

This type of security is exempt from registration requirements of the Uniform Security Act

Define: Accredited Investor (under Reg D)

Under Reg D, Accredited Investors include: I) Individuals with $200,000 of annual income ($300,000 for married couples) - received this income the last two years and expected to for the foreseeable future II) An individual or couple with a net worth of over $1 million (*Cannot include home equity*) III) Senior officers are included only if they are senior officers of the issuer of the Regulation D offering. Just being a senior officer of any institution is not enough to be included in the definition. IV) Institutions - banks, insurance companies, mutual funds, certain large employee benefit plans, nonprofits and corporations with at least $5 million in assets

What is the difference between registration by filing (AKA notification) and registration by coordination?

Under coordination, the issuer might be required to provide extensive additional documentation if the Administrator so requests

In order to qualify for the exemption, a private placement under Reg D must be offered to / executed with only to accredited investors, and no more than ____ nonaccredited investors

Unlimited accredited and 35 nonaccredited

Regarding federal covered securities, may a state: Investigate and bring enforcement actions regarding fraud, deceit, or unlawful conduct by a broker-dealer in connection with the sale of securities?

Yes

Are solicitations of unregistered, exempt securities allowed?

Yes, but the solicitation of unregistered, non-exempt securities are not.

Regarding federal covered securities, may a state: Require payment of a registration fee?

Yes, except for NYSE, AMEX, or Nasdaq securities - states may require this despite the fact that the state may not require registration

Require the issuer to file a notice, sales report, and /or Consent to Service of Process?

Yes, except for NYSE, AMEX, or Nasdaq securities - states may require this despite the fact that the state may not require registration

What is a federal covered security?

a federal covered security is exempt from state registration

When a security is registered at the federal level (with the SEC), it is registered permanently. A state registration lasts for...

for one year. After the one year period, the security is no longer registered and must either be re-registered or an exemption must be used.