1.1 The Securities Act of 1933

Which of the following securities issues must be registered with the SEC under the Securities Act of 1933? Publicly traded DPPs. Variable annuities. Open-end funds. Closed-end funds. A) I, II, III and IV. B) I and II. C) II and III. D) III and IV.

A) I, II, III and IV. The Securities Act of 1933 requires the registration of all new nonexempt issues of securities sold to the public. In general, exempt issues include municipal securities, U.S. government securities, bank issues, and nonprofit organization securities. The securities in this question are all nonexempt.

Under the Securities Act of 1933, which of the following would be considered a prospectus? I. Tombstone advertisement. II. Television advertisement that makes full disclosure of all material facts. III. Offer communicated over the telephone. A) II only. B) I and II. C) I and III. D) III only.

A) II only- Television advertisement that makes full disclosure of all material facts. A prospectus is any communication that offers a security for sale, including newspaper, radio, and television offers. Tombstone announcements are excluded from the definition. Also excluded are oral offers, discussions between an agent and a customer, and individual telephone solicitations. However, written communications to a customer may be considered a prospectus, in which case full disclosure of information must be included to avoid fraud charges. Tombstone advertisements are limited to identifying the issuer, price, amount, and type of security offered and where a prospectus and the security may be obtained.

Under the Securities Act of 1933, which of the following does not meet the definition of a prospectus? A) An advertisement in a newspaper describing the benefits of a certain mutual fund B) A telephone call from ​an agent of a broker​-dealer​ to a client advising the purchase of a security C) A publicity release that describes a security D) A newsletter from a brokerage firm announcing the availability of a security

B) A telephone call from ​an agent of a broker​-dealer​ to a client advising the purchase of a security Any written communication that offers a security for sale-including a newspaper and media communications, such as radio and television offers-is considered a prospectus. This definition excludes individual offers made orally and discussions between an agent and a customer. A publicity release that describes a security, a newsletter from a brokerage firm announcing the availability of a security, and an advertisement in a newspaper describing the benefits of a certain mutual fund may be considered prospectuses. A telephone call from an agent to a client advising the purchase of a security is not considered a prospectus because it involves an individual telephone solicitation between an agent and a client.

Under the Securities Act of 1933, the definition of an issuer would include: I. a government entity issuing exempt securities. II. a corporation issuing securities in an exempt transaction. III. an antique dealer selling items from a collection of rare books. A) I, II and III. B) I and II. C) II and III. D) III only.

B) I and II. An issuer is a person who issues a security, whether or not the security is exempt. In the question, the antique dealer is issuing collectibles, not securities.

Which of the following are characteristics of the Securities Act of 1933? I. Requires registration of exchanges. II. Called the Truth in Securities Act. III. Requires full and fair disclosure of material facts. IV. Enabled the Federal Reserve Board to determine margin requirements. A) II and IV. B) II and III. C) I and II. D) I and III.

B) II and III. II. Called the Truth in Securities Act. III. Requires full and fair disclosure of material facts. The Securities Act of 1933 regulates new issues of corporate securities sold to the public. The act is also referred to as the Full Disclosure Act, the Paper Act, the Truth in Securities Act, and the Prospectus Act. The purpose of the act is to require full, written disclosure about a new issue. The Securities Exchange Act of 1934 requires registration of exchanges with the SEC and enabled the FED to set margin requirements.

Under the Securities Act of 1933, which of the following is NOT a security? A) A stock right. B) Convertible stock. C) A fixed life insurance contract. D) A stock warrant.

C) A fixed life insurance contract. A security is any note, stock, bond, certificate of interest, or participation in any profit sharing arrangement, investment contract, certificate of deposit for a security, interest in oil, gas, or mining rights, or any investment commonly considered a security. (Generally, it is an investment contract wherein the investor is passive and expects a return on the investment through the efforts of others.) The definition of a security does not include direct ownership of real estate, commodities futures contracts (e.g., corn, wheat), collectibles, precious metals, or life insurance or annuity contracts that have fixed payouts.

Which of the following are NOT exempt from the antifraud provisions of the Securities Act of 1933? U.S. government securities. Investment contracts issued by employee benefit plans. Securities issued by federal banks. A) I and III. B) II and III. C) I, II and III. D) I and II.

C) I, II and III. While the Securities Act of 1933 provides exemptions from full registration for certain securities, an exempt security is exempt from the registration and prospectus delivery requirements, but not from the antifraud provisions of the act. This is the same as the Uniform Securities Act in that certain securities may be exempt from full registration and prospectus delivery requirements, but they are not exempt from the antifraud provisions of the act.

Which of the following does NOT have a federally imposed exemption from registration with the SEC? A) Securities issued or guaranteed by a state or political subdivision of a state. B) Commercial paper with maturities of 9 months or less where the proceeds are not used for capital expenditures. C) Shares of bank holding companies traded on the New York Stock Exchange. D) Securities issued or guaranteed by the U.S. government.

C) Shares of bank holding companies traded on the New York Stock Exchange. Under the Securities Act of 1933, shares of bank holding companies listed on the NYSE are not exempt securities and they must be registered with the SEC. However, securities of commercial banks are exempt because they are regulated by the Controller of the Currency or some other banking agency. What might be confusing is that these NYSE listed shares are federal covered securities which makes them exempt from registration with the states. Securities issued or guaranteed by the U.S. government are exempt from registration under federal law. All securities issued or guaranteed by a state or political subdivision of a state qualify for a federal exemption. Commercial paper with maturities of 9 months or less where the proceeds are used for working capital purposes rather than the purchase of fixed assets also have federally imposed exemptions.

Under the Securities Act of 1933, the definition of a prospectus includes: an offer of a security made orally. a tombstone advertisement for a security. an offer of a security made in a personal letter. A) I and III. B) II and III. C) I, II and III. D) III only.

D) III only-an offer of a security made in a personal letter. A prospectus is a communication made in writing or by radio or TV that offers a security for sale. An oral offer would therefore not be a prospectus. Tombstone advertisements are specifically excluded from the definition of prospectus. If such a letter were not preceded or accompanied by an official prospectus that contained all the required information, the sender of the letter would have violated the Securities Act of 1933.

All of the following must be sold with prospectus EXCEPT: A) an open-end common stock fund. B) an open-end U.S. government bond fund. C) a primary offering of a closed-end fund. D) a closed-end fund in the secondary market.

D) a closed-end fund in the secondary market Closed-end company shares trading in the secondary market are not new securities, so they are not required to be sold with a prospectus. However, a prospectus must be used in an initial offering of closed-end company shares. All open-end company shares must be sold with a prospectus because they are considered continuous primary offerings.